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Risk Management

12 Months Ended

Dec. 31, 2023

45.	Risk Management

(1)	Capital risk management

The Company manages its capital to ensure that entities in the Company will be able to continue while maximizing the return to shareholder through the optimization of the debt and equity balance. The capital structure of the Company consists of net debt (offset by cash and cash equivalents) and equity. The Company’s overall capital risk management strategy remains consistent with the prior year.

Details of the Company’s capital management accounts as of December 31, 2022 and 2023 are as follows:


		2022			2023
		In millions of won
Total borrowings and debt securities	￦		120,605,365			133,631,830
Cash and cash equivalents			3,234,780			4,342,887

Net borrowings and debt securities			117,370,585			129,288,943

Total equity			42,000,256			37,264,750

Debt to equity ratio			279.45	%		346.95	%

(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 Company 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, 2022 and 2023 are as follows:


		2022		2023

		In millions of won
Cash and cash equivalents	￦		3,234,780		4,342,887
Financial assets at fair value through profit or loss(*1)			3,610,408		2,590,228
Derivative assets (trading)			693,072		730,948
Financial assets at fair value through other comprehensive income (debt securities)			529		4,627
Financial assets at amortized cost			26,998		38,843
Loans			1,013,371		988,331
Long-term/short-term financial instruments			1,353,080		1,412,315
Derivative assets (applying hedge accounting)			324,952		269,446
Trade and other receivables			12,614,902		14,179,322
Financial guarantee contracts(*2)			3,776,060		4,399,189

(*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.

For the year ended December 31, 2023, 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, 2022 and 2023 are as follows:


			2022						2023
Type	Accounts		1% Increase			1% Decrease			1% Increase			1% Decrease

			In millions of won
Future salary increases	Increase (decrease) in defined benefit obligation	￦		321,930			(283,658	)		392,392			(361,359	)
Discount rate	Increase (decrease) in defined benefit obligation			(289,229	)		337,033			(371,103	)		415,361

Changes of employee benefits assuming a 1% increase and decrease movements in discount rate on plan asset for the years ended December 31, 2022 and 2023 are ￦27,495 million and ￦29,993 million, respectively.

②

Provisions

Changes in provisions due to movements in underlying assumptions as of December 31, 2022 and 2023 are as follows:


Type	Accounts	2022			2023
PCBs	Inflation rate		1.98	%		2.40	%
	Discount rate		1.92	%		2.12	%
Nuclear plants	Inflation rate		2.25	%		1.91	%
	Discount rate		2.48	%		2.76	%
Spent fuel	Inflation rate		2.93	%		1.91	%
	Discount rate		4.49	%		2.49	%
Radioactive waste	Inflation rate		3.06	%		3.89	%
	Discount rate		2.62	%		3.65	%

A sensitivity analysis of provisions assuming a 0.1% increase and decrease movements in the underlying assumptions as of December 31, 2022 and 2023 are as follows:


			2022						2023
Type	Accounts		0.1%p Increase			0.1%p Decrease			0.1%p Increase			0.1%p Decrease

			In millions of won
Discount rate	PCBs	￦		(169	)		169			(123	)		123
	Nuclear plants			(474,432	)		491,360			(418,570	)		432,847
	Spent fuel			(54,330	)		56,453			(130,065	)		130,761
	Radioactive waste			(15,089	)		15,260			(13,538	)		13,683
Inflation rate	PCBs			169			(169	)		123			(123	)
	Nuclear plants			515,262			(498,258	)		458,047			(443,531	)
	Spent fuel			57,269			(55,191	)		133,931			(128,607	)
	Radioactive waste			14,190			(14,056	)		13,291			(13,174	)

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, 2022 and 2023 are as follows:


		Assets				Liabilities
Type	2022		2023		2022		2023
	In thousands of foreign currencies
AED		5,610		24,441		25,597		18,143
AUD		4,448		4,310		299,663		299,795
BDT		7,514		2,260		—		—
BWP		824		777		—		—
EGP		—		1,665		1,162		1,941
CAD		89		—		595		—
CHF		—		—		500,158		499,930
CZK		—		—		153		—
EUR		1,976		12,259		41,073		81,744
GBP		—		75		31		—
HKD		—		—		4,014,446		5,079,189
IDR		598,697		25,567,281		1,323,840		2,118,580
INR		1,592,380		1,663,705		312,978		387,947
JOD		1,146		569		14		68,448
JPY		568,263		921,120		1,719,846		8,692,604
KZT		1,510		1,510		—		—
MGA		2,856,045		3,545,076		347,403		495,288
MMK		199,518		199,518		—		—
MYR		38,177		2,805		—		—
PHP		68,592		98,154		7,493		6,750
PKR		533,816		75,206,354		219,341		55,531
RUB		—		—		2,881		—
SAR		1,713		937		9,710		—
SEK		—		—		449,211		452,309
SGD		—		279		—		2,191
THB		—		—		389		—
USD		1,484,614		1,701,494		13,599,643		14,458,985
UYU		128,674		120,768		3,106		2,028
VND		1,184,670		848,242		4,495		—
ZAR		43,461		87,780		—		—

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, 2022 and 2023 are as follows:



		2022					2023
Type		10% Increase			10% Decrease		10% Increase			10% Decrease
		In millions of won

Increase (decrease) of profit before income tax	￦		(1,703,053	)		1,703,053		(1,828,308	)		1,828,308
Increase (decrease) of equity(*)			(1,703,053	)		1,703,053		(1,828,308	)		1,828,308

(*)

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, 2022 and 2023.

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, 202

, 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, 2022 and 2023 are as follows:


Type		2022		2023

		In millions of won
Short-term borrowings	￦		3,154,972		4,435,420
Long-term borrowings			5,388,073		7,766,588
Debt securities			269,101		305,602

	￦		8,812,146		12,507,610

A sensitivity analysis on the Company’s long-term borrowings and debt securities assuming a 1% increase and decrease in interest for the years ended December 31, 2022 and 2023 are as follows:


		2022					2023
Type		1%p Increase			1%p Decrease		1%p Increase			1%p Decrease

		In millions of won
Increase (decrease) of profit before income tax	￦		(88,121	)		88,121		(125,076	)		125,076
Increase (decrease) of shareholder’s equity(*)			(88,121	)		88,121		(125,076	)		125,076

(*)

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, 2022 and 2023 is as follows:


		2022					2023
Type		1% Increase		1% Decrease			1% Increase		1% Decrease

		In millions of won
Increase (decrease) of profit before income tax	￦		661,990		(661,990	)		829,548		(829,548	)
Increase (decrease) of shareholder’s equity(*)			661,990		(661,990	)		829,548		(829,548	)

(*)

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, 2022 and 2023 in detail are as follows:


		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(*1)			11,369,512		347,563		1,008,133		734,112		13,459,320
Financial guarantee contracts(*2)			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


		2023
Type		Less than 1 year		1~2 Years		2~5 Years		More than 5 years		Total

		In millions of won
Borrowings and debt securities	￦		50,878,929		29,046,036		42,420,850		32,778,830		155,124,645
Lease liabilities			641,525		588,850		1,309,996		1,694,729		4,235,100
Trade and other payables(*1)			8,477,209		364,443		833,394		589,004		10,264,050
Financial guarantee contracts(*2)			121,415		2,546,689		1,645,488		85,597		4,399,189

	￦		60,119,078		32,546,018		46,209,728		35,148,160		174,022,984

(*1)

Excludes lease liabilities.

(*2)

This represents the total guarantee amounts associated with the financial guarantee contracts. Financial guarantee liabilities which are recognized as of December 31, 2022 and 2023 are

67,240 and ￦49,992 million, respectively.

As the Company manages liquidity based on net assets and net liabilities, information about non-derivative financial assets should be included in the disclosure for better understanding of liquidity risk management.

The expected maturities for

non-derivative

financial assets as of December 31, 2022 and 2023 in detail are as follows:


		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


		2023
Type		Less than 1 year		1~5 Years		More than 5 years		Other (*)		Total

		In millions of won
Cash and cash equivalents	￦		4,342,887		—		—		—		4,342,887
Financial assets at fair value through other comprehensive income			—		—		—		502,443		502,443
Financial assets at amortized cost			28,905		9,938		—		—		38,843
Loans			139,168		465,666		411,100		8,872		1,024,806
Long-term/short-term financial instruments			578,578		22		23		833,692		1,412,315
Financial assets at fair value through profit or loss			2,054,021		1,381		6,523		649,360		2,711,285
Trade and other receivables			11,990,515		911,822		1,292,539		1,280		14,196,156

	￦		19,134,074		1,388,829		1,710,185		1,995,647		24,228,735

(*)

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, 2022 and 2023 are as follows:


		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	)


		2023
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			(22,571	)		(11,566	)		(201,590	)		(130,119	)		(365,846	)
— Hedging			—			(4,680	)		(13,243	)		(5,641	)		(23,564	)

	￦		(22,571	)		(16,246	)		(214,833	)		(135,760	)		(389,410	)

Derivative assets classified by maturity periods which from reporting date to maturity dates as per the contracts as of December 31, 2022 and 2023 are as follows:


		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


		2023
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			257,073		123,132		169,004			145,728		694,937
— Hedging			78,769		61,031		131,687			—		271,487

	￦		335,842		184,163		300,691			145,728		966,424

(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, 2022 and 2023 are as follows:


		2022				2023
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	￦		502,829		502,829		502,443		502,443
Derivative assets (trading)			693,072		693,072		730,948		730,948
Derivative assets (hedge designated)			324,952		324,952		269,446		269,446
Financial assets at fair value through profit or loss			3,709,508		3,709,508		2,711,285		2,711,285

	￦		5,230,361		5,230,361		4,214,122		4,214,122

Assets carried at amortized cost
Financial assets at amortized cost	￦		26,998		26,998		38,843		38,843
Loans and receivables			1,013,371		1,013,371		988,331		988,331
Trade and other receivables			12,614,902		12,614,902		14,179,322		14,179,322
Long-term financial instruments			686,322		686,322		833,737		833,737
Short-term financial instruments			666,758		666,758		578,578		578,578
Cash and cash equivalents			3,234,780		3,234,780		4,342,887		4,342,887

	￦		18,243,131		18,243,131		20,961,698		20,961,698

Liabilities recognized at fair value
Derivative liabilities (trading)	￦		407,246		407,246		428,670		428,670
Derivative liabilities (hedge designated)			25,505		25,505		23,564		23,564

	￦		432,751		432,751		452,234		452,234

Liabilities carried at amortized cost
Secured borrowings	￦		102,368		102,368		773,646		773,646
Unsecured bond			105,185,189		96,846,056		113,792,178		111,218,771
Lease liabilities			4,163,143		4,163,143		3,807,880		3,807,880
Unsecured borrowings			15,282,193		15,280,693		19,062,162		19,061,348
Trade and other payables(*)			13,459,320		13,459,320		10,264,050		10,264,050
Bank overdraft			35,615		35,615		3,844		3,844

	￦		138,227,828		129,887,195		147,703,760		145,129,539

(*)

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, 2022 and 2023 are as follows:


Type	2022		2023
Derivatives		0.60% ~ 7.93%		0.93%~10.36%
Borrowings and debt securities		0.75% ~ 5.84%		0.96%~5.84%
Finance lease		0.00% ~ 17.08%		0.00%~17.03%

(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, 2022 and 2023 are as follows:


		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

		2023
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	￦		285,054		—		217,389		502,443
Derivative assets			—		1,000,394		—		1,000,394
Financial assets at fair value through profit or loss			—		2,704,550		6,735		2,711,285

	￦		285,054		3,704,944		224,124		4,214,122

Financial liabilities at fair value
Derivative liabilities	￦		—		452,234		—		452,234

The fair value of financial assets traded in the market (including those measured at FVTPL and FVOCI) is measured at the closing bid price quoted at the end of the reporting period. Meanwhile, the fair value of unmarketable financial assets (including those measured at FVTPL and FVOCI) is calculated using the fair value measurement performed by external pricing service agents. In addition, the Company considered the major economic indicators and economic environment of the derivatives to be evaluated, and measured the fair value of the derivatives using a discounted cash flow model that reflects the Company’s credit risk.

Changes of financial assets and liabilities which are classified as level 3 for the years ended December 31, 2022 and 2023 are as follows:


		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

		2023
		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	￦		6,329		—		270		136		—		—			6,735
Financial assets at fair value through other comprehensive income
Unlisted securities			202,243		9,550		—		5,445		(5,332)		856			212,762
Debt securities			529		4,080		—		18		—		—			4,627