'Competitive Electricity Market'

Making the power distribution sector an independent business entity

The Korea Electricity Commission (KOREC) was established on April 27, 2001 to ensure a smooth transition to have a competitive electricity market and develop a functioning market.
Currently, competition in the power generation sector has been active. The opening of the electricity market in April 2001 has led to efficiency improvement ― higher standards of transparency and less power generation cost. Sixty-five companies, including KEPCO and six power generation subsidiaries, are participating in the electricity market, accounting for 90 percent of the nation's combined power generation capacity.
"Following the government decision to suspend the spin-off of the power distribution sector, the current market regime is forecast to be maintained for the time being. The government plans to work out steps to overhaul the electricity market in the first half of the year after soliciting opinions from interest parties and experts,"Kim Shin-jong, secretary-general of the Korea Electricity Commission, said in a written interview with NewsWorld. He said major policies are being reviewed including making two-tier markets a unified structure and differentiating power generation prices according to regions. The excerpts of the interview follow:
Question: Accepting a policy recommendation by the Korea Tripartite Commission, KOREC has suspended a plan to spin off the power distribution sector from Korea Electric Power Corp. (KEPCO) and has been considering making the sector an independent management entity. Will you tell our readers about the current process and future direction?
Answer: A plan to spin off the power distribution sector from KEPCO has been suspended and making the sector an independent management entity has been studied in accordance with a policy recommendation, submitted by the Korea Tripartite Commission in June 2004. A consortium of Accenture and Ernst & Young HanYoung has been commissioned to conduct a study on the introduction of the proposed independent management entity system during the period between January 2005 and March 2006. Major parts of the study are about the composition of an independent management entity, independent accounting, responsible management, and performance-based assessment systems.
The independent management is one of the conventional organization system many large corporations have adopted. It is not for restructuring the electricity industry but for enhancing the internal competition and the management efficiency of KEPCO. But it is a far cry from restructuring that has the labor union worried. As a result, KEPCO has taken the initiative in introducing the projected independent department system with the government offering indirect support for it. It is the key to the success to promote the acceptance of the independent management entity system by coordinating the concerned parties'positions in finalizing the system. The government is striving to see to it that the system can be implemented after pooling enough opinions from concerned parties, including the labor union.
The planned independent department system, slated to be introduced in the second half of the year, is expected to bring benefits to both KEPCO and people. Competition among independent departments could lead to KEPCO's better management performances - improved productivity and reduction of costs, thus bringing about cheaper electricity costs that are good for consumers.
Q: Like regional electricity suppliers, the private sector's concern about the development of the electricity industry has been mounting. What's the direction of government policy on that issue?
A: The private sector has been allowed to enter the electricity market in accordance with the basic plan on restructuring the electricity industry, established in January 1999. Regional power suppliers were introduced to facilitate the diversification of power sources and the private sector's investments. Regional power suppliers are referred to private companies which supply power to consumers within an especially designated area without putting their own generated power on the electricity market.
The government is seeking to revise relevant laws and regulations after gathering complaints to spur the development of private power suppliers. It plans to amend the act on city gas business, a move designed to introduce a system of jointly utilizing city gas facilities in connection with direct import of liquefied natural gas used for generating power, with its implementation slated for 2007. Under a plan to overhaul the Cost Based Pool (CBP), the government is seeking to make efforts to ensure fair competition among power suppliers lest private power suppliers are given disadvantages.
A study on how to facilitate regional power supplies will be conducted during the period between November 2005 and April 2006. The government plans to arrange steps to overhaul the system after reviewing the results of the study.
Q: Following a delayed wholesale competition, the electricity market has been operated in an unstable manner. What steps do you plan to take to improve the situation?
A: Currently, competition has been taking place in the power generation sector, the sole part of the electricity industry. However, the opening of the electricity market in April 2001 has led to efficiency improvement ― higher standards of transparency and less power generation cost. Sixty-five companies, including KEPCO and its six power generation subsidiaries, are participating in the electricity market, accounting for 90 percent of the nation's combined power generation capacity.
Cost Based Pool was scheduled to be operated temporary until the power distribution sector is spun off, so competitive factors and reflection of market prices had been limited.
Following the government decision to suspend the spin-off of the power distribution sector, the current market regime is forecast to be maintained for the time being. The government plans to work out steps to overhaul the electricity market in the first half of the year after pooling opinions by interest parties and experts, based on the results of the ongoing study being commissioned by Korea Development Institute. Major policies are being reviewed, including making two-tier markets a unified structure and differentiating power generation prices according to regions.
Q: Concern and support for the underprivileged are expected to rise in the wake of legislation of the Energy Basic Act. Will you speak about such steps as electricity charge reductions/exemptions and future plans?
A: Amid the mounting public concern over elimination of economically and socially bipolarization and support for the underprivileged, a stable power supply for low-income earners has become an important policy focus.
The government has introduced a system of exempting power suspension for supporting the livelihood of low-income people during summer and winter seasons since January 2004. Homes subject to power suspension due to electricity charge delinquencies are supplied with electricity as usual without power stoppage during the sultry period between July and September and the cold spell between December and February. Such houses have been installed with a device restricting electricity use to 110 watts, equivalent to a 150-liter refrigerator plus a 20-watt device.
The government has implemented an electricity charge discount system since March 2004 in an effort to ease the economic burden on the underprivileged and eliminating the bipolarization among social strata. Households using less than 100kWh are given discounts ranging from 15 percent to 35 percent. Handicapped persons and meritoriously injured (first through third class) have their electricity charges discounted by 20 percent. Effective on December 28, 2005, those in the extremely poor bracket and descendants of national independence fighters have been added to the list of discount beneficiaries, as they are given a 15 percent and a 20 percent discount, respectively.
The need for supplying energy free of charge in the wake of legislation of the Energy Basic Act has been discussed, but it is more desirable to take into account the issue in connection with such factors as social welfare policies as well as government policy efficiency and prevention of redundancy. In the form of the government support for the extremely poor, the Ministry of Health and Welfare dispenses about 1.17 million won for a four-member family plus 68,000 won for light and heat expenses. nw

Kim Shin-jong, secretary-general of the Korea Electricity Commission