South Korean court rules government's wholesale electricity price cap system is legal... System introduced in response to sharp rise in fuel prices due to Russia-Ukraine war

Following the outbreak of the Russia-Ukraine war in February 2022 and a surge in international fuel prices, a court ruled that the wholesale electricity price cap system introduced by the South Korean government was legal.
Private power companies argued that the rates were unfair because they did not properly reflect the price of crude oil, but the court did not accept this.
According to a Korean legal professional on the 15th, the Seoul Administrative Court Administrative Division 12
In July of this year, the Ministry of Industry, Trade and Energy (MIET) ruled against the plaintiffs in a lawsuit brought by about 800 private power generation companies seeking to cancel the reduction of their electricity settlement fees.
The lawsuit was filed against the Ministry of Trade, Industry and Energy (MOTIE) in November 2022, which introduced a new wholesale electricity tariff system (SMP) that allows electricity to be purchased at a lower price than the current system.
The SMP cap system, which sets a cap on the wholesale marginal price (SMP), is a system that sets a cap on the wholesale price that the Korea Electric Power Corporation (KEPCO) pays when purchasing electricity from power generation companies.
This means that KEPCO will be able to reduce the price it pays for electricity, but the power generation companies will have to bear losses.
The system will be introduced in February 2022, when fuel prices will skyrocket and the country will face a tough economic situation.
The SMP, which averaged 94.34 won per year in 2021, exceeded 200 won in April 2022 and rose to 267.63 won in December.
The South Korean government teased the introduction of the SMP cap system in May 2022, and implemented the cap system through public notices in November of the same year, January and March of 2023.
This was possible if the monthly SMP was in the top 10% or higher of the monthly average SMP for the past 10 years, and the upper limit of the SMP was set at 1.5 times the monthly average SMP for the past 10 years.
The law allowed private power generation companies to cover their losses if their fuel costs exceeded the upper limit.
Private power generation companies have filed a lawsuit alleging that the SMP cap system is unfair. The provision in the Electricity Business Act that allows the SMP cap system to be introduced through public notice may be unconstitutional.
The court ruled in favor of the Ministry of Industry and Energy. Given the public good nature of electricity, it is necessary to impose some restrictions on the "electricity trading price."
The court of first instance ruled that "electricity is an essential resource for the daily lives of the people. If electricity prices rise, it is expected to cause a burden on the national economy, such as an increase in prices.
"In order to ensure that electricity users can use electricity at a 'fair' price anytime and anywhere, it is necessary to regulate not only electricity tariffs but also the electricity sales business," he said.
"In addition, the price of electricity traded between power generation companies and electricity retailers will also be subject to legal restrictions," he said.
The court of first instance also found no problem with the introduction and decision of the price regulation. The court of first instance ruled that "price regulation requires specialized and technical skills as well as policy considerations, and therefore should be left to administrative legislation, which is more flexible than legislation.
"Especially for energy sources that are entirely dependent on imports, such as LNG, prices can fluctuate and spike depending on international circumstances. The specific content of the emergency price adjustment ceiling system should be specified in detail in the law.
"It is very difficult to achieve this goal," he said. In determining whether the SMP cap system violates fundamental rights, the court placed emphasis on the public interest that the system achieves.
"After going through the reform committee and other processes, we have limited the scope and period of application to minimize losses, and made it clear that the law will expire in November 2023," and "we have established compensation for cases where fuel costs for generators exceed the upper limit price.
"Considering the fact that the public interest is greater than the private interests of the power generation companies that are being infringed upon, the private power generation companies have appealed the first-instance ruling," he explained.