(1)	Capital risk management, continued

Details of the Company’s capital management accounts as of December 31, 2021 and 2022 are as follows:


		2021			2022

		In millions of won
Total borrowings and debt securities	￦		80,529,513			120,605,365
Cash and cash equivalents			2,635,238			3,234,780

Net borrowings and debt securities			77,894,275			117,370,585

Total equity			65,326,706			42,000,256

Debt to equity ratio			119.24	%		279.45	%

(2)	Financial risk management

The Company is exposed to various risks related to its financial instruments, such as, market risk (currency risk, interest rate risk, price risk), credit risk. The Company monitors and manages the financial risks relating to the operations of the Company through internal risk reports which analyze exposures by degree and magnitude of risks. The Company uses derivative financial instruments to hedge certain risk exposures. The Company’s overall financial risk management strategy remains consistent with the prior year.

(i)

Credit risk

Credit risk is the risk of finance loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises primarily from the sales activities, securities and derivatives. In addition, credit risk exposure may exist within financial guarantees and unused line of credits. As these financial institutions the Company makes transactions with are reputable financial institutions, the credit risk from them are considered limited. The Company decides credit transaction limits based on evaluation of client’s credit, through information obtained from the credit bureau and disclosed financial position at committing contracts.

①

Credit risk management

Electricity sales, the main operations of the Company are the necessity for daily life and industrial activities of Korean nationals and have importance as one of the national key industries. The Company dominates the domestic market supplying electricity to customers. The Company is not exposed to significant credit risk as customers of the Company are diverse and are from various industries and areas. The Company uses publicly available information and its own internal data related to trade receivables, to rate its major customers and to measure the credit risk that a counter party will default on a contractual obligation. For the incurred but not recognized loss, it is measured considering overdue period.

②

Impairment and allowance account

In accordance with the Company policies, individual material financial assets are assessed on a regular basis, trade receivables that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. Value of the acquired collateral (including the confirmation of feasibility) and estimated collectable amounts are included in this assessment.

Allowance for bad debts assessed on a collective basis are recognized for (i) the group of assets which individually are not material and (ii) incurred but not recognized losses that are assessed using statistical methods, judgment and past experience.

Book values of the financial assets represent the maximum exposed amounts of the credit risk. Details of the Company’s level of maximum exposure to credit risk as of December 31, 2021 and 2022 are as follows:


		2021		2022

		In millions of won
Cash and cash equivalents	￦		2,635,238		3,234,780
Financial assets at fair value through profit or loss(*1)			932,736		3,610,408
Derivative assets (trading)			443,027		693,072
Financial assets at fair value through other comprehensive income (debt securities)			491		529
Financial assets at amortized cost			25,273		26,998
Loans			909,071		1,013,371
Long-term/short-term financial instruments			1,728,508		1,353,080
Derivative assets (applying hedge accounting)			204,756		324,952
Trade and other receivables			10,029,276		12,614,902
Financial guarantee contracts(*2)			3,718,015		3,776,060

(*1)

Equity investments held by the Company are excluded.

(*2)

Maximum exposure associated with the financial guarantee contracts is the maximum amounts of the obligation.

As of the reporting date, there are no financial assets and

non-financial

assets that were acquired through the exercise of the right of collateralized assets and reinforcement of credit arrangement.

(ii)

Market risk

Market risk is the risk that the Company’s fair values of the financial instruments or future cash flows are affected by the changes in the market. Market risk consists of interest rate risk, foreign currency risk and other price risk.

(iii)

Sensitivity analysis

Significant assets and liabilities with uncertainties in underlying assumptions

①

Defined benefit obligation

A sensitivity analysis of defined benefit obligation assuming a 1% increase and decrease movements in the actuarial valuation assumptions as of December 31, 2021 and 2022 are as follows:


			2021						2022
Type	Accounts		1% Increase			1% Decrease			1% Increase			1% Decrease

			In millions of won
Future salary increases	Increase (decrease) in defined benefit obligation	￦		466,832			(407,554	)		321,930			(283,658	)
Discount rate	Increase (decrease) in defined benefit obligation			(422,290	)		499,571			(289,229	)		337,033

Changes of employee benefits assuming a 1% increase and decrease movements in discount rate on plan asset for the years ended December 31, 2021 and 2022 are ￦25,649 million and ￦27,495 million, respectively.

②

Provisions

Changes in provisions due to movements in underlying assumptions as of December 31, 2021 and 2022 are as follows:


Type	Accounts	2021			2022
PCBs	Inflation rate		1.37	%		1.98	%
	Discount rate		1.88	%		1.92	%
Nuclear plants	Inflation rate		1.41	%		2.25	%
	Discount rate		2.20	%		2.48	%
Spent fuel	Inflation rate		2.93	%		2.93	%
	Discount rate		4.49	%		4.49	%
Radioactive waste	Inflation rate		1.00	%		3.06	%
	Discount rate		1.87	%		2.62	%

A sensitivity analysis of provisions assuming a 0.1% increase and decrease movements in the underlying assumptions as of December 31, 2021 and 2022 are as follows:


			2021						2022
Type	Accounts		0.1% Increase			0.1% Decrease			0.1% Increase			0.1% Decrease

			In millions of won
Discount rate	PCBs	￦		(222	)		223			(169	)		169
	Nuclear plants			(369,540	)		381,026			(474,432	)		491,360
	Spent fuel			(51,430	)		53,438			(54,330	)		56,453
	Radioactive waste			(11,201	)		11,306			(15,089	)		15,260
Inflation rate	PCBs			224			(224	)		169			(169	)
	Nuclear plants			403,420			(391,754	)		515,262			(498,258	)
	Spent fuel			54,210			(52,245	)		57,269			(55,191	)
	Radioactive waste			10,366			(10,288	)		14,190			14,056

Management judgment effected by uncertainties in underlying assumptions

①

Foreign currency risk

The Company undertakes transactions denominated in foreign currencies; consequently, exposures to exchange rate fluctuations arise. The carrying amounts of the Company’s foreign currency denominated monetary assets and monetary liabilities as of December 31, 2021 and 2022 are as follows:


	Assets				Liabilities
Type	2021		2022		2021		2022

	In thousands of foreign currencies
AED		6,481		5,610		31,637		25,597
AUD		3,733		4,448		926,960		299,663
BDT		50,145		7,514		577		—
BWP		939		824		—		—
EGP		—		—		595		1,162
CAD		582		89		2,266		595
CHF		—		—		500,230		500,158
CZK		—		—		386		153
EUR		1,809		1,976		42,981		41,073
GBP		—		—		—		31
HKD		—		—		1,651,665		4,014,446
IDR		768,731		598,697		995,510		1,323,840
INR		1,715,900		1,592,380		342,833		312,978
JOD		1,852		1,146		118		14
JPY		697,747		568,263		153,383		1,719,846
KZT		1,510		1,510		—		—
MGA		4,262,857		2,856,045		475,807		347,403
MMK		210,335		199,518		—		—
MYR		1,964		38,177		—		—
PHP		164,167		68,592		104,245		7,493
PKR		200,844		533,816		74,423		219,341
RUB		—		—		—		2,881
SAR		2,615		1,713		—		9,710
SEK		—		—		449,167		449,211
THB		—		—		—		389
USD		1,381,441		1,484,614		12,023,085		13,599,643
UYU		90,930		128,674		3,097		3,106
VND		952,135		1,184,670		262,372		4,495
ZAR		31,971		43,461		—		—

A sensitivity analysis on the Company’s income for the period assuming a 10% increase and decrease in currency exchange rates as of December 31, 2021 and 2022 are as follows:


		2021					2022
Type		10% Increase			10% Decrease		10% Increase			10% Decrease
		In millions of won

Increase (decrease) of profit before income tax	￦		(1,439,185	)		1,439,185		(1,703,053	)		1,703,053
Increase (decrease) of equity(*)			(1,439,185	)		1,439,185		(1,703,053	)		1,703,053

(*)

The effect on the shareholders’ equity excluding the impact of income taxes.

The sensitivity analysis above is conducted for monetary assets and liabilities denominated in foreign currencies other than functional currency, without consideration of hedge effect of related derivatives, as of December 31, 2021 and 2022.

To manage its foreign currency risk related to foreign currency denominated receivables and payables, the Company has a policy to enter into currency forward agreements. In addition, to manage its foreign currency risk related to foreign currency denominated expected sales transactions and purchase transactions, the Company enters into currency forward agreements.

There is an economic relationship between the hedged item and the hedging instrument as the terms of cross-currency swap agreement is consistent with the terms of expected transaction (repayment of foreign debt securities and others). The hedging ratio is 1:1 as the risk of cross-currency swap agreement matches the hedged instrument. As of December 31, 2022, the hedging instrument (cross-currency swap) hedges the risk of the hedged item(repayment of foreign debt securities and others).

②

Interest rate risk

The Company is exposed to interest rate risk due to its borrowing with floating interest rates. A 1% increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates.

The Company’s borrowings and debt securities with floating interest rates as of December 31, 2021 and 2022 are as follows:


Type		2021		2022

		In millions of won
Short-term borrowings	￦		391,897		3,154,972
Long-term borrowings			2,405,244		5,388,073
Debt securities			257,667		269,101

	￦		3,054,808		8,812,146

A sensitivity analysis on the Company’s long-term borrowings and debt securities assuming a 1% increase and decrease in interest rates, without consideration of hedge effect of related derivatives for the years ended December 31, 2021 and 2022 are as follows:


		2021					2022
Type		1% Increase			1% Decrease		1% Increase			1% Decrease

		In millions of won
Increase (decrease) of profit before income tax	￦		(30,548	)		30,548		(88,121	)		88,121
Increase (decrease) of shareholder’s equity(*)			(30,548	)		30,548		(88,121	)		88,121

(*)

The effect on the shareholders’ equity excluding the impact of income taxes.

The Company manages its interest rate risk by having a balanced portfolio of fixed and variable rate loans and borrowings. To manage this, the Company enters into interest rate swaps, in which it agrees to exchange, at specified intervals, the difference between fixed and variable rate interest amounts calculated by reference to an agreed-upon notional principal amount. The above analysis measures the interest rate risk before reflecting the hedge effect by related derivatives.

③

Electricity rates risk

The Company is exposed to electricity rates risk due to changes in government regulations and policies on national power supply schemes and electricity billing rates, in consideration of the national economy.

A sensitivity analysis on the Company’s income for the period assuming a 1% increase and decrease in price of electricity for the years ended December 31, 2021 and 2022 is as follows:


		2021					2022
Type		1% Increase		1% Decrease			1% Increase		1% Decrease

		In millions of won
Increase (decrease) of profit before income tax	￦		573,086		(573,086	)		661,990		(661,990	)
Increase (decrease) of shareholder’s equity(*)			573,086		(573,086	)		661,990		(661,990	)

(*)

The effect on the equity excluding the impact of income taxes.

(iv)

Liquidity risk

The Company has established an appropriate liquidity risk management framework for the management of the Company’s short, medium and long-term funding and liquidity management requirements. The Company manages liquidity risk by continuously monitoring forecasted and actual cash flows, and by matching the maturity profiles of financial assets and liabilities.

In addition, the Company has established credit lines on its trade financing and bank overdrafts, and through payment guarantees it has received, it maintains an adequate credit (borrowing) line. In addition, the Company has the ability to utilize excess cash or long-term borrowings for major construction investments.

The expected maturities for

non-derivative

financial liabilities as of December 31, 2021 and 2022 in detail are as follows:


		2021
Type		Less than 1 year		1~2 Years		2~5 Years		More than 5 years		Total

		In millions of won
Borrowings and debt securities	￦		15,833,589		11,229,657		28,663,693		36,223,543		91,950,482
Lease liabilities			620,121		636,724		1,521,421		2,150,722		4,928,988
Trade and other payables			7,569,869		777,017		725,231		667,304		9,739,421
Financial guarantee contracts(*)			435,729		—		3,105,599		176,687		3,718,015

	￦		24,459,308		12,643,398		34,015,944		39,218,256		110,336,906


		2022
Type		Less than 1 year		1~2 Years		2~5 Years		More than 5 years		Total

		In millions of won
Borrowings and debt securities	￦		26,157,747		27,367,577		47,361,676		37,115,832		138,002,832
Lease liabilities			639,756		657,210		1,390,374		1,925,012		4,612,352
Trade and other payables			11,369,512		347,563		1,008,133		734,112		13,459,320
Financial guarantee contracts(*)			105,091		54,310		3,495,437		121,222		3,776,060

	￦		38,272,106		28,426,660		53,255,620		39,896,178		159,850,564

(*)

This represents the total guarantee amounts associated with the financial guarantee contracts. Financial guarantee liabilities which are recognized as of December 31, 2021 and 2022 are ￦80,841 million and ￦67,240 million, respectively.

The following table shows the details of maturities of

non-derivative

financial liabilities as of December 31, 2021 and 2022. This table, based on the undiscounted cash flows of the

non-derivative

financial liabilities including estimated interests, has been prepared based on the respective liabilities’ earliest maturity date.

The expected maturities for

non-derivative

financial assets as of December 31, 2021 and 2022 in detail are as follows:


		2021
Type		Less than 1 year		1~5 Years		More than 5 years		Other(*)		Total

		In millions of won
Cash and cash equivalents	￦		2,635,238		—		—		—		2,635,238
Financial assets at fair value through other comprehensive income			—		—		—		435,107		435,107
Financial assets at amortized cost			15,422		9,840		11		—		25,273
Loans			88,396		443,146		407,584		—		939,126
Long-term/short-term financial instruments			1,278,014		171,636		286		278,572		1,728,508
Financial assets at fair value through profit or loss			360,833		346		3,130		668,555		1,032,864
Trade and other receivables			8,123,455		1,233,703		679,048		—		10,036,206

	￦		12,501,358		1,858,671		1,090,059		1,382,234		16,832,322


		2022
Type		Less than 1 year		1~5 Years		More than 5 years		Other(*)		Total

		In millions of won
Cash and cash equivalents	￦		3,234,780		—		—		—		3,234,780
Financial assets at fair value through other comprehensive income					—		—		502,829		502,829
Financial assets at amortized cost			16,762		10,231		5		—		26,998
Loans			132,877		411,594		502,050		—		1,046,521
Long-term/short-term financial instruments			666,758		—		25		686,297		1,353,080
Financial assets at fair value through profit or loss			3,181,791		645		3,535		523,537		3,709,508
Trade and other receivables			10,464,191		1,083,593		1,080,831		—		12,628,615

	￦		17,697,159		1,506,063		1,586,446		1,712,663		22,502,331

(*)

The maturities cannot be presently determined.

Derivative liabilities classified by maturity periods which from reporting date to maturity dates as per the contracts as of December 31, 2021 and 2022 are as follows:


		2021
Type		Less than 1 year			1~2 Years			2~5 Years			More than 5 years			Total

		In millions of won
Net settlement
—Trading	￦		—			—			—			—			—
Gross settlement
—Trading and others			(6,628	)		(4,954	)		(33,635	)		(2,291	)		(47,508	)
—Hedging			(2,555	)		(638	)		(1,914	)		(23,704	)		(28,811	)

	￦		(9,183	)		(5,592	)		(35,549	)		(25,995	)		(76,319	)


		2022
Type		Less than 1 year			1~2 Years			2~5 Years			More than 5 years			Total

		In millions of won
Net settlement
—Trading	￦		—			—			—			—			—
Gross settlement
—Trading and others			(42,663	)		(15,225	)		(171,130	)		(84,924	)		(313,942	)
—Hedging			—			(10,064	)		(5,176	)		(10,265	)		(25,505	)

	￦		(42,663	)		(25,289	)		(176,306	)		(95,189	)		(339,447	)

Derivative assets classified by maturity periods which from reporting date to maturity dates as per the contracts as of December 31, 2021 and 2022 are as follows:


		2021
Type		Less than 1 year		1~2 Years		2~5 Years			More than 5 years		Total

		In millions of won
Net settlement
—Trading	￦		—		—		—			—		—
Gross settlement
—Trading			93,554		54,617		202,663			105,856		456,690
—Hedging			33,564		65,198		102,760			3,235		204,757

	￦		127,118		119,815		305,423			109,091		661,447


		2022
Type		Less than 1 year		1~2 Years		2~5 Years			More than 5 years		Total

		In millions of won
Net settlement
—Trading	￦		—		—		—			—		—
Gross settlement
—Trading			861,621		160,938		(352,657	)		65,661		735,563
—Hedging			134,390		47,502		131,258			—		313,150

	￦		996,011		208,440		(221,399	)		65,661		1,048,713

(3)	Fair value risk

The fair value of the Company’s actively-traded financial instruments (i.e., FVTPL, FVOCI, etc.) is based on the traded market-price as of the reporting period end. The fair value of the Company’s financial assets is the amount which the asset could be exchanged for or the amount a liability could be settled for.

The fair values of financial instruments where no active market exists or where quoted prices are not otherwise available are determined by using valuation techniques. Valuation techniques include using recent arm’s length market transactions between knowledgeable, willing parties, if available, reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis and option pricing models. If there is a valuation technique commonly used by market participants to price the instrument and that technique has been demonstrated to provide reliable estimates of prices obtained in actual market transactions, the Company uses that technique.

For trade receivables and payables, the Company considers the carrying value net of impairment as fair value. While for disclosure purposes, the fair value of financial liabilities is estimated by discounting the future contractual cash flows based on current market interest rates applied to similar financial instruments.

(i)

Fair value and book value of financial assets and liabilities as of December 31, 2021 and 2022 are as follows:


		2021				2022
Type		Book value		Fair value		Book value		Fair value

		In millions of won
Assets recognized at fair value
Financial assets at fair value through other comprehensive income	￦		435,107		435,107		502,829		502,829
Derivative assets (trading)			443,027		443,027		693,072		693,072
Derivative assets (hedge designated)			204,756		204,756		324,952		324,952
Financial assets at fair value through profit or loss			1,032,864		1,032,864		3,709,508		3,709,508

	￦		2,115,754		2,115,754		5,230,361		5,230,361

Assets carried at amortized cost
Financial assets at amortized cost	￦		25,273		25,273		26,998		26,998
Loans and receivables			909,071		909,071		1,013,371		1,013,371
Trade and other receivables			10,029,276		10,029,276		12,614,902		12,614,902
Long-term financial instruments			450,494		450,494		686,322		686,322
Short-term financial instruments			1,278,014		1,278,014		666,758		666,758
Cash and cash equivalents			2,635,238		2,635,238		3,234,780		3,234,780

	￦		15,327,366		15,327,366		18,243,131		18,243,131

Liabilities recognized at fair value
Derivative liabilities (trading)	￦		56,256		56,256		407,246		407,246
Derivative liabilities (hedge designated)			21,775		21,775		25,505		25,505

	￦		78,031		78,031		432,751		432,751

Liabilities carried at amortized cost
Secured borrowings	￦		176,358		176,358		102,368		102,368
Unsecured bond			73,881,671		69,803,043		105,185,189		96,846,056
Lease liabilities			4,410,503		4,410,503		4,163,143		4,163,143
Unsecured borrowings			6,471,484		5,938,613		15,282,193		15,280,693
Trade and other payables(*)			9,739,421		9,739,421		13,459,320		13,459,320
Bank overdraft			—		—		35,615		35,615

	￦		94,679,437		90,067,938		138,227,828		129,887,195

(*)

Excludes lease liabilities.

(ii)

Interest rates used for determining fair value

The interest rates used to discount estimated cash flows, when applicable, are based on the government yield curve at the reporting date plus an adequate credit spread.

The discount rates used for calculating fair value as of December 31, 2021 and 2022 are as follows:


Type	2021		2022
Derivatives		(-) 0.63% ~ 3.88%		0.60% ~ 7.93%
Borrowings and debt securities		(-) 0.30% ~ 4.38%		0.75% ~ 5.84%
Finance lease		0.00% ~ 16.83%		0.00% ~ 17.08%

(iii)

Fair value hierarchy

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, classified as Level 1, 2 or 3, based on the degree to which the fair value is observable.

Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities;

Level 2: Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and

Level 3: Inputs that are not based on observable market data.

Fair values of financial instruments by hierarchy level as of December 31, 2021 and 2022 are as follows:


		2021
Type		Level 1		Level 2		Level 3		Total

		In millions of won
Financial assets at fair value
Financial assets at fair value through other comprehensive income	￦		273,826		—		161,281		435,107
Derivative assets			—		647,783		—		647,783
Financial assets at fair value through profit or loss			—		1,027,067		5,797		1,032,864

	￦		273,826		1,674,850		167,078		2,115,754

Financial liabilities at fair value
Derivative liabilities	￦		—		78,031		—		78,031


		2022
Type		Level 1		Level 2		Level 3		Total

		In millions of won
Financial assets at fair value
Financial assets at fair value through other comprehensive income	￦		300,057		—		202,772		502,829
Derivative assets			—		1,018,024		—		1,018,024
Financial assets at fair value through profit or loss			—		3,703,179		6,329		3,709,508

	￦		300,057		4,721,203		209,101		5,230,361

Financial liabilities at fair value
Derivative liabilities	￦		—		432,751		—		432,751

The fair value of financial assets (FVTPL and FVOCI) publicly traded is measured at the closing bid price quoted at the end of the reporting period. Meanwhile, the fair value of unquoted financial assets (FVTPL and FVOCI) is calculated using the valuation results from an external pricing service in which weighted average borrowing rates of interest of evaluated companies are used as a discount rate. The fair value of derivatives is measured using valuation model which is determined at the present value of estimated future cash flows discounted at current market interest rate.

Changes of financial assets and liabilities which are classified as level 3 for the years ended December 31, 2021 and 2022 are as follows:


		2021
		Beginning balance		Acquisitions		Reclassified category		Valuation			Disposal			Foreign currency translation and others			Ending balance
		In millions of won
Financial assets at fair value
Financial assets at fair value through profit or loss Cooperative	￦		5,692		—		—		105			—			—			5,797
Financial assets at fair value through other comprehensive income
Unlisted securities			163,889		8,929		—		(12,335	)		(13	)		320			160,790
Debt securities			—		500		—		—			—			(9	)		491

		2022
		Beginning balance		Acquisitions		Reclassified category		Valuation			Disposal			Foreign currency translation and others			Ending balance
		In millions of won
Financial assets at fair value
Financial assets at fair value through profit or loss Cooperative	￦		5,797		400		—		132			—			—			6,329
Financial assets at fair value through other comprehensive income
Unlisted securities			160,790		9,451		—		33,237			—			(1,235	)		202,243
Debt securities			491		—		—		38			—			—			529