The Bottom Line / New sparks, please
The IEC plans its investment without any regard for economic feasibility. It operates on the assumption that it will always be able to borrow, forever, to finance new power stations.
On February 8, winter was at its peak. A powerful snowstorm raged in the Golan, Galilee peaks were covered with snow and heavy rains accompanied by thunder and lightning fell throughout the country.
The Israel Electric Corporation was quick to report to the media that demand for power had reached a peak of 8,840 megawatts - only 4.6 percent less than the system's maximum output that day of 9,250 megawatts. The IEC's maximum potential capacity, when all of its units are online, is about 10,000 megawatts. The media reported on "record demand," and on the danger that we'd be be thrust into darkness at any moment.
The obvious conclusion was to build, as fast as possible, new power stations - a conclusion that had been drawn by the IEC years earlier. But, like similar legends at other companies, the "legend of peak demand" is an exercise in deception.
The IEC plans its investment without any regard for economic feasibility. It operates on the assumption that it will always be able to borrow, forever, to finance new power stations. This attitude is a function of its main goals: continual improvement of its employees' conditions and supplying more and more jobs in building and operating power stations - preferably coal-powered stations requiring lots of manpower. Everything else takes second place.
The result is that the IEC sells just 60 percent of its potential output. In a competitive market, a manufacturer that sells just 60 percent of its potential production would have long since gone bankrupt.
But CEO Jacob Razon and most members of the IEC management want to take on more loans to expand production facilities, to a point were reserve capacity would exceed peak demand by 30 percent. They don't care that the company would then sell only 45 percent of its potential production - a surefire recipe for a severe financial crisis, since the IEC wouldn't be able to pay the huge debt that would be created, which is already large and threatening.
The real solution is on the demand side, to flatten the peaks. This could be done by offering serious discounts to any client - consumer or business - who uses electricity during nonpeak hours. Thus, it would be possible to set reserve capacity at 12 percent, and not to aim at 30 percent. This would put the brakes on the IEC's grandiose investment program and save it from financial disaster.
These changes need to be led by a new CEO, coming from outside, who will not follow in the footsteps of his predecessors, who will change the IEC's direction and support the reforms in the electricity market that are needed to create efficiency and lower prices for the public.
The fight to choose a replacement for Razon is going on now.
Aryeh Mizrahi, Benjamin Ben-Eliezer's candidate, is not suited to the task. He left behind an ailing Israel Military Industries that needs to fire 500 of its 3,200 employees and to cut the salaries of the rest. IMI is once more begging for hundreds of millions of shekels from the treasury to finance its nth recovery program, after having already received NIS 9 billion from the taxpayers.
Mizrahi is not suitable because he'd be the mouthpiece for Ben-Eliezer, his old buddy. He would have to obey his master's desire to destroy the reforms, make political appointments and to allow the union to continue to run the IEC - up until the Labor Party primaries, and afterward, as well.
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