As the price of liquefied natural gas (LNG) used by power generators as fuel has surged due to the United States–Iran war, the government is reviewing a plan to change the settlement method for wholesale LNG prices to curb electricity rate hikes. In response, Korea Gas Corporation (KOGAS), which imports LNG and sells it to power generators, is worried that its accounts receivable of more than 13 trillion won could grow even further.
According to the power generation industry on the 9th, Minister Kim Seong-hwan of the Ministry of Climate, Energy and Environment said at a press briefing on the 4th, "We are preparing measures so that a gas price spike, like during the Russia–Ukraine war, does not lead to a heavier electricity bill burden or a larger deficit at Korea Electric Power Corporation."
Related to this, the ministry is said to be reviewing measures to manage the wholesale LNG prices that the gas corporation supplies to power generators. The introduction of a cap on wholesale LNG prices is also being discussed as one of the government's options.
In the domestic power market, the system marginal price (SMP) is determined by the LNG price. If a cap is introduced on wholesale LNG prices, the SMP will also have a ceiling, curbing the magnitude of electricity rate increases.
Managing wholesale LNG prices is also a way to reduce side effects seen when the SMP cap was implemented in the past. When international LNG prices surged during the Russia–Ukraine war in 2022, the government implemented an SMP cap to ease the burden of electricity rate hikes. However, some argued that solar power operators with virtually no generation cost and certain private power producers reaped excessive revenue.
The problem is that if a ceiling is placed on wholesale LNG prices, the size of the gas corporation's accounts receivable could expand further. Even if the gas corporation imports natural gas from overseas at high prices, its financial burden will inevitably grow if it cannot reflect the increase in the domestic supply price. If the government controls LNG prices, there is also a possibility it will have to sell domestically at a price lower than the import cost.
The gas corporation books unpaid gas bills as an asset—namely, accounts receivable—that can be recovered later by raising rates. Although it is not immediately recorded as a loss on the books, in reality it is tantamount to piling up a loss with every gas sale. As of the end of March this year, the "civil-use accounts receivable" that arose as the gas corporation supplied LNG below cost amounted to 13.3717 trillion won.
For the gas corporation to reduce its accounts receivable, it must charge gas rates above cost when international LNG prices fall in the future. However, even with the fuel cost adjustment system that immediately reflects energy price fluctuations in rates, it applies only to commercial use and city gas for power generation, not to civil use. This is because the government has been postponing rate normalization, as energy rates are directly tied to inflation.
At the Korea Gas Corporation Incheon terminal on the 4th, Korea Gas Corporation (KOGAS) President Choi Yeon-hye also argued that rate normalization based on the fuel cost adjustment system is necessary. Choi said, "Accounts receivable are ultimately an expense that users must shoulder later," adding, "To reduce the public's burden, the principle of fuel cost pass-through must be maintained."
Some interpret the situation as the ministry trying to shift the burden onto the gas corporation in order to reduce the deficit of KEPCO, an agency under its umbrella. The gas corporation is under the Ministry of Trade, Industry and Resources.
An official at the ministry said, "We are reviewing various options to change the settlement method in a way that does not affect the gas corporation's accounts receivable," adding, "We are also working closely with the Ministry of Trade and Industry (MOTI)."