Korea Electric Power Corp.'s third-quarter operating profit fell 70.9% from a year earlier to 1.6441 trillion won, the state utility said in a regulatory filing on Thursday, as higher fuel and power purchase costs ate into earnings while household and industrial electricity rates stayed frozen.

The result fell well short of expectations. Operating profit came in 31.9% below the average analyst forecast compiled by FnGuide, Energy Economic News reported. For investors across Asia, the quarter shows how quickly the Middle East conflict that began in late February has moved from oil and LNG prices into the accounts of regulated utilities that cannot pass costs on to customers.

KEPCO results: revenue, profit and the parent-company loss

Consolidated revenue fell 2.6% to 26.8518 trillion won in the July to September quarter, and net profit dropped 77.9% to 835.9 billion won, according to the filing as reported by Energy Economic News and the Busan daily Kookje Shinmun.

On a separate basis, which strips out the generating subsidiaries, KEPCO posted an operating loss of 99 billion won, JKN reported. It was the parent company's first quarterly operating deficit since the third quarter of 2024.

For the first nine months, revenue slipped 0.8% to 73.1691 trillion won and operating profit fell 43.2% to 6.5569 trillion won, down from 11.5414 trillion won a year earlier. Nine-month net profit halved to 3.6324 trillion won from 7.3281 trillion won. The group has now reported 13 straight profitable quarters, KEPCO said.

The company said the jump in fuel prices that followed the Middle East war in late February began to show up fully in its results from the third quarter. It said it had activated a crisis management system early and pushed through cost cuts, which allowed it to keep its nine-month operating profit in the black.

Coal, LNG and renewable certificates drive costs higher

The cost increase came from two places. Fuel costs at KEPCO's power generating subsidiaries rose 2.2007 trillion won in the first nine months, or 14.8%, to 17.0267 trillion won, as coal-fired generation increased and the price of bituminous coal climbed, according to Energy Economic News and Kookje Shinmun.

Power bought from private generators cost 903.4 billion won more even though KEPCO purchased less electricity. Higher LNG prices pushed up the system marginal price, the wholesale benchmark set by the most expensive plant on the grid. The share of power that generators must supply from renewables also rose to 15% from 14%, lifting the cost of buying renewable energy certificates.

Combined, the two cost lines rose 3.1041 trillion won. Revenue offered no cushion. KEPCO sold 415.3 terawatt-hours in the first nine months, down 1.1%, and its average selling price slipped 0.4% to 169.7 won per kilowatt-hour.

Shares slide after the earnings miss

KEPCO shares fell more than 9% in early trading in Seoul on Friday. The stock opened 7.34% lower at 28,400 won, JKN reported, and by 9:22 a.m. it was trading at 27,650 won, down 9.79% or 3,000 won, according to Energy Economic News, which cited Korea Exchange data. Several brokerages cut their price targets after the results, JKN reported.

The weaker earnings land on a heavy balance sheet. KEPCO had 209.6 trillion won of debt and 132.8 trillion won of borrowings at the end of September, JKN reported, and its annual interest bill tops 3 trillion won. The company said the debt, which it rounded to 210 trillion won, is largely a legacy of the fuel cost surge after Russia's invasion of Ukraine. KEPCO also faces about 55 trillion won of grid investment over the next five years, according to JKN, and KEPCO said it would build the national transmission network on time for industries such as AI data centers, Kookje Shinmun reported.

The results have revived talk of a rate increase. Chief Executive Kim Dong-cheol said at a press conference in Naju on Nov. 4 that the utility needs to work out at least a minimal normalization of electricity rates in talks with the government, according to JKN. In its statement, KEPCO did not call for a rate rise. It said it would keep an emergency management system focused on cost savings and profitability, and would cooperate with government steps to stabilize the power market, including higher utilization of baseload plants and lower taxes on generation fuel.

KEPCO's struggle with fuel costs echoes problems at other Asian utilities exposed to imported gas, from Japan, where nuclear restarts are cutting LNG demand, to state-run peers across Southeast Asia. The next marker for KEPCO is the government's next quarterly review of electricity rates, which will show whether Seoul is willing to let the utility pass on more of its higher costs.