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What is fuel cost adjustment system?

Fuel cost adjustment system encourages customers’ fair electricity consumption and energy savings by reflecting power generation fuel cost variance based on changes in international price in electric rate on a timely manner and forecast rate variance in the next month.
  1. Hard to control

    Fuel cost changes

  2. Provides price signal

    Electric rate changes on a timely manner

  3. Encourages fair energy consumption

    Encourages flexible consumption(customers)

    Mitigates financial risk (KEPCO)

  • Fuel cost adjustment system ties electric rate to international fuel cost. Accordingly, electric rate varies with change in international fuel cost.

Fuel cost adjustment system in Korea and overseas

  • Fuel cost adjustment system is already in place in major developed countries like the US and Japan with a proven track record.
  • Fuel cost adjustment system is also in place in domestic gas, thermal and airline industries.
  • Fuel cost adjustment system is already adopted and implemented by other energy industries in Korea.
  1. Oil(‘94)Liberalized in ‘97
  2. Gas (‘98)
  3. Thermal (‘98)
  4. Airline (‘03)

Benefits

  • Fuel cost adjustment system can drive low carbon, green growth by compressing inefficient energy use, minimizing national energy loss and encourage fair energy consumption.
  • Fuel cost adjustment system can cushion steep change in electric rate and enables flexible energy consumption.
Fuel cost adjustment system is the engine driving low carbon, green growth by making energy savings part of daily lives.
Fuel price > Electric rate > Saves consumption, reduces energy import
  • NationImproves energy efficiency
  • ResidentialEncourages flexible consumption of electricity
  • IndustriesEnhances forecasting of cost change
  • KEPCOMitigates financial risk

Application

  • Basic structure
    • basic Rate + Base Rate : Unit Base rate x monthly consumption + Adjusted Fuel Rate : Unit adjusted fuel rate * monthly consumption
      • Unit adjustment rate = Actual fuel price – base fuel price/Variance in average import price/unit fuel * Conversion coefficient/Fuel consumed for every unit of electricity sold
  • Calculation period
    • Feb.~Apr. : Calculate base fuel rate > Two months later
      • Fix until fuel rate varies.
    • Feb.~Apr. : Calculate actual fuel rate
      • Fix until fuel rate varies. : Apply
    • Mar.~May : Calculate actual fuel rate
      • Fix until fuel rate varies. : Apply
    • Apr.~Jun : Calculate actual fuel rate
      • Fix until fuel rate varies. : Apply
    • Adjusted unit fuel rate, which is multiplies fuel price variance, which is the deduction of base fuel rate (average fuel rate of the 5th month to 3rd month prior to the month in which revised fuel rate is enforced) from actual fuel rate (average fuel rate of the 5th month to 3rd month prior to the month in which adjusted unit fuel rate is applied) with conversion coefficient, is applied to the electric rate two months after preliminary notification.
  • Adjustment limit and non-adjustment scope
    • Adjustment limit (448.08KRW)+ adjustment50%
    • 307.68KRWBase fuel (298.72KRW)289.76KRWNon-adjustment scope(±3%)+3%
    • Lower adjustment limit(zero)- Adjustment -3%
    • If fuel cost variance exceeds 50% of base fuel rate adjusted, unit fuel rate is calculated based on the 50% increase as the limit in order to protect customers in case of a sudden spike in fuel cost. There is no lower limit on the contrary case to maximize benefits to customers.
    • There is no adjustment in fuel rate when fuel cost variance (aggregate basis) is within ±3% of base fuel rate in consideration of reducing too frequent rate change and its initial stage.