SOUTH KOREA Law and Practice Contributed by: Michael Chang, Sang-Hyun Lee, Su-Yong Jung and Jae-Wook Ryu, Shin & Kim
To prevent monopoly pricing and ensure stable sup- ply of electricity, the Electric Utility Act requires the transmission business to: • obtain the prior approval of the Minister of MCEE regarding the charges for use of transmission facili- ties; and • ensure that electricity businesses may use the transmission facilities without discrimination. 4.6 Transmission Charges and Terms of Service As noted in 4.5 Monopoly Rights to Provide Trans- mission Services , the Electric Utility Act provides for certain requirements to prevent monopoly pricing and ensure the stable supply of electricity. It also regu- lates the charges for use of transmission and distribu- tion facilities. The transmission business must obtain the approval of the Minister of MCEE regarding the charges for use and other terms and conditions, and, before the approval of the Minister, deliberation of the ERC is required. In accordance with the above requirements, KEPCO provides for the regulations on the use of transmission and distribution facilities, which have been approved by the Minister of MCEE. Under the Enforcement Decree of the Electric Utility Act, the following must be included in such use regulations: • use charges; • method of calculating volume traded and use charges; • liabilities between the transmission business and distribution business and liabilities between the transmission and distribution businesses and users of the transmission and distribution facilities; • method and procedure for application for use of the transmission and distribution facilities; • standards and payment method of costs to be borne by transmission and distribution facilities users; • access point and standards for access between the transmission and distribution businesses and transmission and distribution facilities users; and • any other matters regarding the protection of the transmission and distribution facilities users’ inter- ests.
The approval criteria for the usage charges for the use of transmission and distribution facilities and other usage conditions, as well as the criteria for the approval for change, are as follows: • the usage fee should be an amount equal to a rea- sonable cost plus a reasonable profit; • the use of electric facilities is free from discrimina- tion; and • the relationship of rights and obligations with respect to the use of electric facilities shall be clearly specified. According to MCEE’s “Standard for Calculation of Transmitted Electricity Usage Charges”, the trans- mission charge should cover the total cost of trans- mission, which is the sum of the appropriate cost for transmission business plus investment compensation incurred under good faith and efficient management. • The appropriate cost is calculated by deducting the non-operating income and expenses as well as asset depreciation from the cost of sales related to the transmission business, general administrative expenses and appropriate corporate income tax. • The appropriate amount of investment compensa- tion is the appropriate compensation for the actual invested assets directly utilised in connection with the transmission business. This amount is calcu- lated by multiplying the “appropriate investment compensation ratio” determined at a level that can harmonise the corporate performance and the public interest (considering factors such as capital cost of transmission business, risk, interest rate, inflation rate, reinvestment and expansion plan of the fiscal year, repayment plan of principal, and price prospects), with the “base fee” derived from the sum of the average net operating facility assets at the start and end of the fiscal year, the working capital for a certain period, and the assets under construction by self-financing for the fiscal year under review. • The transmission charge system is composed of basic charge and usage fee, and it should be structured so that the burden on the users of the electricity transmission facility is fairly maintained and the resources are distributed reasonably based on the cost of transmission business.
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