Profitability and productivity changes in the Korean electricity industry

The Korean electricity industry saw significant changes following the reform in April 2001. Until the last decade, the industry was monopolized by the Korea Electric Power Corporation (KEPCO), a state‐owned, vertically integrated company. The 2001 reform divided KEPCO's power generation division into six power generation companies (GENCOs), with the aim of improving efficiency and introducing competition in the electricity industry. In this study, we used capital total factor productivity (KTFP) to analyze profit changes from fixed input capital, and an index number profit decomposition (INPD) to examine the sources of the profit changes. We investigate the industry thoroughly from three points of view: the overall industry over time; the power generation sector by company; and the transmission and distribution sectors of the Korea Electric Power Corporation (KEPCO). Next, we measured how the profits from productivity growth were distributed to consumers, fuel suppliers, employees, and company owners. The results suggest that a more reasonable price system for both wholesale and consumer prices needs to be implemented prior to the privatization and deregulation of the Korean electricity industry.