KEPCO to Make Distribution
Independent Management Entity

Accelerates its management innovations

Korea Electric Power Corp. (KEPCO) has carried out massive management innovations, including reorganization calling for the separation of its distribution business to an independent business entity.
KEPCO Chairman and CEO Han Joon-ho has been recognized in Korea and abroad for conducting remarkable management innovations since he took the helm in March of 2004.
KEPCO's innovative steps have paid off: KEPCO has recently won the international prestigious Edison Award for outstanding managerial achievement, and KEPCO became the first non-American company to grab the 2005 Demand Response Annual Award (Outstanding Achievement in Demand Response) from the Peak Load Management Alliance. Domestically, the Korean utility giant won the Customer Satisfaction Award for its seventh year in a row and KEPCO was selected as the most innovative public organization and various other acknowledgments were garnered.
However, the Korean utility company refuses to rest on its laurels. KEPCO is striving to adopt powerful management innovation plans internally with an eye to getting a step closer to becoming a global integrated energy group while solidifying their competitive edge on the power generation industry.
The reorganization calls for the introduction of an independent management entity system in KEPCO's power distribution business, among others.
Competition has been in place in the power generation sector since April 2001 when six power generation subsidiaries were split from KEPCO under the government scheme to restructure the domestic electricity power industry. But in accordance with a policy recommendation by the Korea Tripartite Commission, made in June 2004, a plan to spin off the power distribution sector from the Korean utility company has been suspended due to possible electricity charge hikes arising from oligopoly and such uncertainties as an unstable power supply, and instead, the projected independent management entity system has been considered as a viable option.
The independent management entity system will be expanded in stages to buffer the effects of the power generation industry caused by the full-pledged implementation of the system and adopt an optimal system, based on assessments. The new system will initially be in place in nine branches with a competitive size of more than 1 million households. The remaining seven branches will be placed under the current management system, and expanding the new system or other management efficiency steps will be considered after two years of management assessments.
Each branch subject to the independent management entity system will be given more autonomous rights like operational rights and responsibility. On top of independent accounting, each branch will be operated as a separate, decentralized entity whose business performances are reinforced, as each branch chief is obliged to directly conclude a management performance contract with the KEPCO CEO.
Outside experts had been commissioned during the period between January 2005 and June 2006 to study the introduction of the independent management entity system in a bid to spur inside competition and ensure management innovations. The head office of KEPCO and business departments have been overhauled to maximize customer satisfaction and management innovations by building up customer-oriented IT facilities. Transfers to each job classification will be expanded and KEPCO officials with the rank of first grade or higher will have their assets registered on a voluntary basis as part of its efforts to beef up ethical management.
The head office will be restructured in the way field business departments and manpower can be augmented to raise competitiveness.
The business sector will have horizontal system of teams instead of the current vertical system comprising of divisions and departments to delegate more leeway and enhance organizational efficiency.
HEATED COMPETITION. Each business unit will be encouraged to save costs by strategically managing the costs of purchasing electricity, which accounts for 74 percent of its total expenditures.
In an effort to stoke up competition in saving costs, KEPCO will expand from the current 50,000 kW to 30,000 kW the scope of electricity the sector can buy without turning to KEPCO.
The government is studying such long-term strategies as the one designed to allow the private sector to enter the power distribution and transaction market. A proposal to ask regional electricity suppliers to purchase a shortage of electricity only via the Korea Electricity Exchange is also under consideration.
As to the benefits the reorganization and innovative steps will bring about, KEPCO said an independent accounting system for each business unit will yield objective management performances, and more assessment weight on cost savings will lead to managerial innovation of each business unit and competition in cost savings.
KEPCO Chairman Han said in an interview with a vernacular daily competition among business branches would lead to cheaper electricity charges and a reduction in power stoppages.
"Competition between the public and private sectors will be more efficient than the privatization of the electricity market in a nation like Korea where its territory is narrow and is insulated somewhat to the outside."He was apparently referring to the suspension of a plan to spin off the power distribution sector from KEPCO according to the outcome of a commissioned study that the privatization of the sector could be susceptible to great risks. The hardships residents in Queens, the United States, recently experienced under a sultry weather for six days were attributable to the effects caused by the privatization of the electricity market.
KEPCO Chairman Han is scheduled to participate in a training program for Korean entrepreneurs, to be offered by the GE Crotonville campus together with Korea University President Euh Yoon-dae, Samsung and LG group executives. Han said he hopes KEPCO Training Institute will benchmark the GE Crotonville campus on how it fosters top-notch global entrepreneurs. nw

KEPCO Chairman and CEO Han Joon-ho