Industrial Power Rates May Fall as KEPCO's Bond Ceiling Shrinks

Contents

AT A GLANCE

In January 2028, KEPCO's statutory bond ceiling reverts from 5× to 2× paid-in capital plus reserves. Projected bonds outstanding would exceed the new limit by KRW 19.2 trillion (NABO).
Lower industrial tariffs and a tighter bond ceiling are separate policy decisions. They converge on one issue: how KEPCO finances its operations and investment.
Even accumulating profits will not be enough to meet the limit. Although reserves are projected to grow 58.7% between 2025 and 2029, the bond-to-capital-and-reserves ratio would still stand at 2.1× in 2029—above the 2× ceiling.
There are three routes: amend the law, strengthen the capital base, or reduce bonds outstanding. Each shifts the burden to a different group.
Extending the deadline buys time; it does not reduce debt. Watch the National Assembly, the final regional tariff design, and the pace of earnings recovery.

Hover over dotted-underlined terms for definitions, or tap on a phone. Red dotted underlines mark the report's key concepts.

Introduction

At a November 4 roundtable during an electricity industry exhibition in Gwangju, KEPCO President and CEO Kim Dong-cheol said a modest adjustment toward cost-reflective electricity tariffs needed to be discussed with the government. He also stressed that raising industrial tariffs should be a last resort, and that exchanges with the government had so far been at the working level.¹ At a National Assembly audit in October, he likewise said the utility needed to discuss at least a minimal tariff increase with the government.²

KEPCO buys electricity from generators and resells it to businesses and households. If the government's August proposal lowers industrial tariffs in selected regions, the utility could lose roughly KRW 2.8 trillion in annual sales revenue.³ Lower wholesale purchase costs could offset part of that loss, but the size of the offset remains undetermined.

KEPCO has another, separate problem. The temporary increase in its statutory bond issuance ceiling, introduced amid heavy losses in 2022, expires at the end of 2027. Unless the law changes, the original 2× limit returns in 2028.⁴

The proposed tariff cuts do not directly cause the bond limit to fall. The policies are progressing independently, but collide in KEPCO's funding position: incoming cash could shrink while the legal capacity to finance itself through bonds contracts. The National Assembly Budget Office (NABO) estimates that projected bonds outstanding would exceed the new limit by about KRW 19.2 trillion.⁵

This does not mean KEPCO must repay KRW 19.2 trillion overnight, or that an immediate default follows. It means that, absent a legal change, KEPCO would have to reduce outstanding bonds or increase its qualifying capital base by enough to comply.

01THE CEILING

January 2028:
the statutory ceiling drops from 5× to 2×

Without an amendment, the projected end-2027 bond balance would exceed the new limit by KRW 19.2 trillion.

THE BOND-CEILING CALCULATIONEnd-2027 forecast · KRW trillion

Paid-in capital and reserves combined: 28.4
× 2 · Statutory multiple from 2028: 56.8
Projected bonds outstanding: 76.0
Amount over ceiling: 19.2

For comparison: if the temporary 5× limit were extended, the ceiling for the same year would be KRW 142.1 trillion.

Source: National Assembly Budget Office, Public Institutions: Status and Issues 2026, Vol. II; Korea Electric Power Corporation Act^{4, 5}

NABO classifies this shortfall as an amount requiring repayment.⁵ Without a legislative amendment or stronger capital base, KEPCO would need to repay or otherwise reduce bonds outstanding; both new issuance and refinancing maturing bonds could face constraints. The law does not, however, automatically accelerate the maturity of existing bonds.

WHAT THE LAW SAYS · ARTICLE 16 OF THE KEPCO ACT

General ruleThe bond limit is twice the sum of paid-in capital and reserves.
Temporary ruleA 5× ceiling applies through December 31, 2027.
Emergency exceptionA 6× ceiling may be authorized by the relevant minister. This proviso also expires on December 31, 2027, under the Act's supplementary provisions.

From 2028, even the emergency exception disappears. Without another amendment, only the original 2× rule remains.⁴

POINTS TO NOTE

The problem is the falling ceiling, not a worsening bond ratio. bond-to-capital-and-reserves ratio was 4.5× in 2023⁶ and fell to 3.0× in 2025; it is forecast to decline further to 2.7× in 2027. Yet the projected ratio remains 2.3× in 2028 and 2.1× in 2029—still above the 2× ceiling.⁵
Bonds outstanding totaled KRW 73.7 trillion as of October 2. That comprised KRW 59.9 trillion in domestic KEPCO bonds, KRW 7.2 trillion in electronic short-term bonds, and KRW 6.6 trillion in offshore bonds. Other liabilities, including bank loans, do not enter this calculation.⁶
The same constraint emerged in 2022. Large losses threatened to deplete reserves when recognized in the year-end accounts and shut KEPCO out of additional bond issuance the following year. The temporary 5× limit was enacted in December 2022.⁷ The cover chart's 3.4× ratio for 2022 reflects the position after those losses were recorded.⁶

NABO's estimates are based on KEPCO's 2026–2030 medium-term financial management plan. If actual profits undershoot the plan, reserves will grow more slowly and the excess over the ceiling will rise; stronger profits would have the opposite effect.

02EARNINGS AND THE LIMIT

Every KRW 1 trillion increase in qualifying reserves
raises the bond ceiling by KRW 2 trillion

The formula uses KEPCO's own paid-in capital and reserves, not consolidated operating profit. Operating income does not automatically become reserves.

STARTING POINTOperating profitAfter interest, tax, dividends and loss adjustments

DENOMINATOR+KRW 1tnQualifying reserves

BOND CEILING+KRW 2tnFrom 2028: × 2

If the company is already on a trajectory above its ceiling, the additional headroom first reduces the excess. It does not mean KEPCO can immediately borrow another KRW 2 trillion.

Why aren't profits enough?

Interest and taxes reduce earnings and slow the build-up of reserves. KEPCO's consolidated liabilities stood at KRW 210.7 trillion at end-June, while first-half interest expense averaged about KRW 11.5 billion per day.⁸ Consolidated liabilities cover the group, including generation subsidiaries; the KRW 73.7 trillion bond balance used for the legal ceiling is measured at KEPCO itself.
Grid investment absorbs cash well before the related expense hits the income statement. Capital spending is recorded as an asset and then expensed over time through depreciation. KEPCO can therefore be profitable yet still need to issue bonds to finance investment. Planned transmission and distribution spending over 2026–2030 totals KRW 55.3 trillion.⁹

What a tariff cut would actually cost KEPCO

ILLUSTRATIVE EXAMPLE
Hypothetical figures for explanation only—not actual KEPCO data
	Before	After tariff cut
What KEPCO collects from customers	KRW 100	KRW 90
What KEPCO pays generators	KRW 70	KRW 70 or KRW 60
Amount retained by KEPCO	KRW 30	KRW 20 or KRW 30

If KEPCO's purchase costs fall by as much as its revenues, the amount it retains may remain unchanged. That is why the full KRW 2.8 trillion should not be treated as a direct hit to its profit.

Lost tariff revenueAround KRW 2.8tn a year under the draft plan−Actual reduction in power procurement costsLMP Impact of LMP reform: not yet determined−Fiscal compensation recognized in earningsNot yet determined=Net financial impact on KEPCO

Locational marginal pricing (LMP) is a wholesale market reform that reflects supply and grid constraints by location. It was not devised solely to fund lower industrial tariffs. But if the reform reduces KEPCO's wholesale electricity costs, that saving could offset some of the revenue loss. When the government unveiled the August proposal, it cited lower purchase costs and budget support as offsets; it has yet to specify the savings and fiscal support earmarked for the regional tariff.^{3, 10} A change in the final geographical coverage could also alter the KRW 2.8 trillion estimate.

TARIFF AND FISCAL DECISIONS: IMPLICATIONS FOR THE BOND LIMIT
Decision	Amount or terms	How it affects the ceiling
Regional industrial electricity tariff August draft; targeted for rollout by year-end	Industrial customers' bills down about KRW 2.8tn annually³	Any net financial burden borne by KEPCO under the formula above would weigh on retained earnings and reserves.
Q4 fuel-cost adjustment rate	A rise of KRW 7.3/kWh was indicated by the formula, but the KRW 5/kWh ceiling applied.¹¹	The cap prevents full recovery of higher fuel costs. The rate remains at the same +KRW 5/kWh as in Q3—a freeze, not a reduction.
Government cash equity contribution New item in the proposed 2027 budget	KRW 500bn, intended to ease roughly half of the interest burden associated with accumulated losses. This is an equity contribution, not direct reimbursement of interest.¹²	An increase in capital: if the full contribution qualifies, it would raise the 2× bond ceiling by roughly KRW 1tn.
Budget funding for welfare and special-rate discounts Proposed 2027 budget	KRW 350bn, shifting to the national budget the discount costs KEPCO previously bore for vulnerable customers and schools.¹²	Lower expenses would support profit. The government says the measure is not necessarily tied to reductions in industrial tariffs.¹²
Cost-causation principle Phase 1 grid for the Honam semiconductor cluster	If power users cover at least 80% of the project cost, their contribution would be roughly KRW 1.1tn (DS Investment & Securities; contingent on government support).¹³	Could reduce KEPCO's need for new borrowing. But it is unclear whether NABO's forecast already incorporates this measure; the KRW 19.2tn excess should not simply be reduced by that amount.

Hana Securities argues that, on a consolidated basis, a KRW 2.8tn offset would ultimately have to come from lower revenues at privately owned power generators. Cost savings on purchases from KEPCO's own generation subsidiaries would be offset by lower subsidiary revenues within the group. Hana estimates an annual revenue impact of around KRW 650bn across 17 major privately operated non-capital-region plants.¹⁴

Same year, operating-profit forecasts differ by more than twofold

2025 actual13.5

Consensus 2027 · as reported by Hana Securities10.3

Hana Securities 2027 · Nov 64.6

DS Investment & Securities 2027 · Nov 104.1

KEPCO consolidated operating profit · KRW trillion · Hana's forecast does not incorporate the proposed regional industrial tariff · Consensus figure as reported in Hana Securities' November 6 note^{13, 14}

Higher fuel costs are the main pressure on earnings. Between July and October, monthly average Brent prices rose 29% and Asian LNG prices 50%,¹⁴ yet the fuel-cost adjustment rate has been held at its +KRW 5/kWh ceiling for 18 consecutive quarters.¹¹
Third-quarter results are due on November 12. DS and Hana forecast Q3 operating profit of about KRW 2.95tn (−47.9% year on year) and KRW 3.08tn (−45.5%), respectively. Both expect a Q4 operating loss: roughly KRW 1.15tn at DS and KRW 550bn at Hana.^{13, 14, 15}
The recovery case hinges on nuclear generation. DS projects 2028 operating profit of KRW 9.1tn, assuming four reactors return to service from Q2 2027 and Saeul Units 3 and 4 come online.¹³

These are pre-earnings-release estimates from securities firms. Consolidated operating profit is not the same as the reserves of the KEPCO legal entity used in the bond-ceiling calculation.

03THREE OPTIONS

Three possible solutions,
three different mechanisms

Profit accumulation alone will not be enough. KEPCO must either raise the legal ceiling, increase qualifying paid-in capital and reserves, or reduce bonds outstanding.

THE PARADOX · EVEN MORE RESERVES WOULD NOT MEET THE CEILING

Reserves21.1 → 33.5trillion won2025 → 2029, +58.7%

Bond ratio2.1×2029 projection, above the statutory 2× ceiling

Outstanding public-utility bonds and related debt80.2trillion won2030 projection

Even if KEPCO builds profits according to its financial plan, it will not satisfy the 2× ceiling. NABO calls it a structural problem that cannot be resolved by a one-off repayment when the special provision expires.⁵

① Raise the statutory multiple2.7×Approximate multiple needed for projected end-2027 bonds; 3× would provide some buffer

② Increase paid-in capital and reserves9.6trillion wonAdditional qualifying capital needed if bonds outstanding do not change

③ Reduce outstanding bonds19.2trillion wonAmount that would need to be repaid or removed from issuance

COMPARING THE THREE ROUTES
Broker views reflect their own assessments; this is not a trading recommendation
Route	How it works	Obstacle	Broker / company view
① Extend the temporary ceiling or revise the multiple Amend the KEPCO Act	Raise the ceiling so the excess disappears; neither bonds outstanding nor total liabilities would change.	Requires National Assembly approval.	Hana: An extension or similar measure will likely be considered.¹⁴ · Shinhan Securities: Deferral is a practical solution (as reported).² · DS: Delay in amending the law could trigger a downgrade of its equity investment recommendation.¹³
② Strengthen capital through tariffs Accumulate more earnings as reserves	Higher tariff revenue supports profit and, eventually, reserves.	Residential rates have been frozen for 14 consecutive quarters.¹¹ KEPCO's CEO also says raising industrial tariffs should be a last resort.¹	KEPCO's CEO: A limited move toward cost-reflective tariffs should be discussed with the government; the timing and extent require consultation.¹
② Strengthen capital through equity injections / new shares Increase paid-in capital	The ceiling rises to the extent that newly contributed capital qualifies under the statutory formula.	Requires a large amount of funding and can dilute existing shareholders.	DS: The costliest, last-resort option.¹³
③ Reduce outstanding bonds Repayment, slower capex or alternative borrowing	Pay down bonds or issue fewer of them.	Could conflict with KRW 55.3tn of planned transmission and distribution investment.⁹ Switching to bank loans might cut outstanding bonds without reducing total debt. KEPCO's proposed five-year advance payment of electricity bills worth KRW 25tn by Samsung Electronics and SK hynix was rejected in September.¹³	DS: private-sector build–transfer (BT) shifts debt until after project completion rather than making it disappear.¹³

DS EQUITY-RAISING SCENARIO · HYPOTHETICAL, NOT AN ANNOUNCED CAPITAL INCREASE

No share issuance has been decided. DS Investment & Securities calculated a scenario using assumed issuance terms.
KEPCO's market capitalization was roughly KRW 19.2tn at the November 9 share price of KRW 29,900—about the same as the projected excess above the bond ceiling. If KEPCO issued new shares at that price, KRW 9.6tn would equal about 50% of its market value, while BPS would fall by about 22%.¹³
If the government and Korea Development Bank subscribed in proportion to their combined 51.1% stake, the public-sector contribution would total roughly KRW 4.9tn.¹³
The actual cash required would depend on how proceeds above the KRW 5,000 par value count toward the ceiling, and whether the proceeds are used to repay bonds. A drop in book value per share does not automatically translate into the same share-price decline or a realized investor loss.

POINTS TO NOTE

Option ① can raise the ceiling without an immediate, large equity injection. But an extension merely pushes the statutory shortfall into the future; it does not cut outstanding bonds or interest expense. Even on the current plan, the ratio is projected at 2.1× in 2029.⁵
KEPCO cannot resolve these questions on its own. Tariff decisions rest with the government; statutory borrowing capacity rests with the National Assembly. DS notes that KEPCO is responsible for owning and operating the grid, while key decisions are spread across the government, legislature and other authorities.¹³

04FOR INVESTORS

Until a solution is chosen,
who pays remains an open question

Each route has different implications for shareholders, electricity users, public finances, generators and the bond market.

WHO BEARS THE COST?
Stakeholder	Transmission channel	What to watch
KEPCO shareholders	A new equity issue could dilute shareholders; an extension would buy time. Other costs being equal, higher tariffs would support earnings.	DS (Neutral; target price KRW 33,000) says it would consider an upgrade if cost-causation funding for grid expansion, independent regulation and a durable solution to the bond ceiling are institutionalized. Hana (Buy; KRW 40,000 target) sees lower energy prices as a potential turnaround catalyst.^{13, 14}
Public finances	Equity contributions and budget support	The proposed 2027 budget allocates KRW 500bn for equity and KRW 350bn for discount support.¹² These compete with other fiscal priorities. An equity contribution buys the government an ownership interest and should not be treated as an immediate, full loss.
Households and other users	Possible tariff increases	Residential rates frozen for 14 quarters; fuel-cost adjustment held at its cap for 18 quarters.¹¹
Industrial users outside the Seoul metropolitan area	Lower regionally differentiated tariffs	Up to KRW 18/kWh (around 10%) lower in the southern region; KRW 0–1/kWh lower in the southern part of the capital region (draft plan).³
Private generators outside the capital region	Lower wholesale prices under LMP	An estimated KRW 650bn in lower annual revenues across 17 plants (Hana Securities).¹⁴ Solar power sellers in the spot market have also organized opposition and called for a three-year deferral.¹⁶
Bond market	New supply of KEPCO bonds	SK Securities estimates that public-enterprise bonds as a whole—not KEPCO bonds alone—will see KRW 115tn of issuance in 2026, up KRW 24tn year on year. It also judges that the proposed KRW 500bn equity contribution will be insufficient to address normalization of the ceiling in 2028.¹⁷
Power-equipment manufacturers	Pace of domestic grid spending	Domestic projects depend on KEPCO's funding capacity. Earnings momentum is more heavily tied to North American exports: North America accounted for 68% of Hyosung Heavy Industries' new orders in its heavy-industry division in Q3 2026.¹³

05TIMELINE

Just over a year remains:
the milestones to watch

KEY DATES
Confirmed = statute or company filing; Scheduled = company guidance or reported event; Target = government plan; Expected = media or broker forecast
Date (KST)	Event	What matters
Nov 12 Scheduled	KEPCO Q3 results release and 5:00 p.m. earnings call	Compare operating profit with DS/Hana estimates of KRW 2.95–3.08tn; watch Q4 guidance.¹⁵
Late November Expected	LMP proposal goes before the market-rule revision committee (reported by Hana Securities).	Whether existing power stations receive grandfathering, a delay or compensation.¹⁸
Dec 2 Confirmed	Statutory deadline for National Assembly action on the proposed 2027 budget	Whether KRW 500bn in KEPCO equity support and KRW 350bn in discount support remain in the budget.¹²
Dec 11–13 Scheduled	Public deliberation on nuclear capacity, followed by the 12th Basic Plan for Electricity Supply and Demand (expected by year-end).	Scale of new capacity and grid investment.¹⁴
Late December Expected	Decision on Q1 2027 electricity tariffs (usual timing)	Whether the fuel-cost adjustment cap stays in place.
By year-end Target	Introduction of regionally differentiated industrial electricity tariffs	Final tariff reductions and quantified savings in power procurement and fiscal support.³
Dec 31, 2027 Confirmed	Temporary bond-ceiling provision expires	Whether the KEPCO Act is amended before then.⁴

THREE VARIABLES THAT COULD CHANGE THE OUTCOME OR ITS TIMING

1Energy prices

If expectations for an end to the Iran war bring oil prices down, earnings could recover and reserves could provide more support for the bond ceiling. Higher winter LNG costs would do the opposite. But the EIA has actually raised its 2027 average oil-price forecast. KEPCO's purchase costs also depend on LNG and coal, exchange rates and delays in passing costs through to tariffs; crude alone is not enough to judge the outcome.

2Speed of legislative change

An early extension would push the 2028 constraint further out. The precedent is not entirely reassuring: an amendment in 2022 was rejected once at the National Assembly plenary session on December 8 and was passed only later that month.^{4, 7}

3Funding the regional tariff reform

KEPCO's exposure will depend on how much of the KRW 2.8tn is offset by procurement savings and government funding. Generators are demanding a three-year delay in LMP.¹⁶

EIA BRENT CRUDE FORECAST
USD per barrel · November Short-Term Energy Outlook (released Nov 10; prepared Nov 5)
	November forecast	October forecast
2026 annual average	97	96
2027 annual average	86	84
Q4 2027 average	77	⁠·

Although the EIA expects prices to decline over time, it raised its 2027 annual forecast from the prior month.^{19, 20} Its estimates do not reflect the November 9 oil-price plunge on hopes for U.S.–Iran talks aimed at ending the conflict. In Hana’s weekly comparison of market moves immediately after the November 3 U.S. midterms, WTI fell 12.0% in the week through November 4, while KEPCO shares rose 10.8% in the week through November 5.¹⁸

These variables may change the size of the funding gap, but the central question—who pays to close it—remains.

KNOWN ESTABLISHED FACTS

Both the temporary 5× ceiling and the emergency 6× exception expire on Dec 31, 2027.
Proposed 2027 budget: KRW 500bn in new equity support; KRW 350bn to take over existing welfare-discount costs.
Q4 tariff freeze; regional industrial tariff proposal implies a KRW 2.8tn annual bill reduction.

ESTIMATE FORECASTS AND ESTIMATES

End-2027 bonds outstanding of KRW 76.0tn and a KRW 19.2tn excess (NABO).
Reserves up 58.7% through 2029, but bond ratio still 2.1× (NABO).
2027 operating profit of KRW 4.1–4.6tn versus consensus of KRW 10.3tn.

UNKNOWN STILL UNKNOWN

Whether and when the KEPCO Act will be amended.
How much of the KRW 2.8tn tariff-revenue impact KEPCO will ultimately bear.
How much electricity tariffs will change in 2027.

CONCLUSION

An extension would buy time, but not answer who pays for electricity supply and grid expansion. Even with the planned accumulation of earnings, KEPCO would not meet the 2× ceiling. Current tariff decisions do little to expand its funding headroom, while equity injections raise questions of scale and dilution. Investors therefore need to ask not only how quickly profit recovers—and becomes reserves and cash flow—but also how securely the chosen bond-ceiling solution finances future grid investment.

THE NATIONAL ASSEMBLYDoes a bill extending the special limit or revising the multiple emerge and clear the relevant standing committee?
ELECTRICITY TARIFFSHow much of the regional tariff reduction does KEPCO absorb? What changes in the Q1 2027 tariff decision?
PROFITS AND RESERVESQ3/Q4 results, energy prices and how quickly earnings accumulate as reserves.

This report is not a recommendation to buy or sell any specific security. The data cut-off, methodology and sources are provided below.

Industrial power
tariffs may fall.
KEPCO's bond cap
is set to shrink.

AT A GLANCE

Introduction

January 2028:
the statutory ceiling drops from 5× to 2×

POINTS TO NOTE

Every KRW 1 trillion increase in qualifying reserves
raises the bond ceiling by KRW 2 trillion

Why aren't profits enough?

What a tariff cut would actually cost KEPCO

Same year, operating-profit forecasts differ by more than twofold

Three possible solutions,
three different mechanisms

POINTS TO NOTE

Until a solution is chosen,
who pays remains an open question

Just over a year remains:
the milestones to watch

THREE VARIABLES THAT COULD CHANGE THE OUTCOME OR ITS TIMING

KNOWN ESTABLISHED FACTS

ESTIMATE FORECASTS AND ESTIMATES

UNKNOWN STILL UNKNOWN

CONCLUSION

FURTHER READING

AT A GLANCE

Introduction

January 2028:the statutory ceiling drops from 5× to 2×

POINTS TO NOTE

Every KRW 1 trillion increase in qualifying reservesraises the bond ceiling by KRW 2 trillion

Why aren't profits enough?

What a tariff cut would actually cost KEPCO

Same year, operating-profit forecasts differ by more than twofold

Three possible solutions,three different mechanisms

POINTS TO NOTE

Until a solution is chosen,who pays remains an open question

Just over a year remains:the milestones to watch

THREE VARIABLES THAT COULD CHANGE THE OUTCOME OR ITS TIMING

KNOWN ESTABLISHED FACTS

ESTIMATE FORECASTS AND ESTIMATES

UNKNOWN STILL UNKNOWN

CONCLUSION

FURTHER READING

January 2028:
the statutory ceiling drops from 5× to 2×

Every KRW 1 trillion increase in qualifying reserves
raises the bond ceiling by KRW 2 trillion

Three possible solutions,
three different mechanisms

Until a solution is chosen,
who pays remains an open question

Just over a year remains:
the milestones to watch