“In 2014, we received three gas contracts for approval in the Electricity Authority. Until then, the whole subject of the [natural] gas monopoly was, relatively speaking, below the radar. And I believe that had we refused to accept responsibility as the Electricity Authority and said it was too big for us – we’re only the regulator of the electricity rates and we’ll approve these agreements – it’s possible the developments and preoccupation with the subject wouldn't have been what they are now.”
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These words were spoken recently by Orit Farkash-Hacohen at the Capital Market and Women conference sponsored by TheMarker and KSM indexes. Farkash-Hacohen was until recently chair of the power utility.
“We saw unfeasible agreements; $6 basic prices with a development that has nothing to do with what is happening in the world gas markets," she told the audience. "We turned to an international consultant who prepared an opinion for us, and I decided to speak to the prime minister on the subject. We told him there’s a problem here with a gas monopoly that the government must address. Before that letter was sent people told me, ‘This isn't a good time to send such a letter, it’s a bombshell.’
"But there really isn’t a good time to send such a letter that says we have a problem," she added. "The courage to decide and not to avoid making decisions is something I’m proud of. Whatever the result of the plan, the fact that the regulator forced the government to deal with what is happening is a point in our favor.
“I think there’s a large interface between the energy economy and the capital market. I don’t understand anything about hunting, gathering and antelopes, but I do know about a whale, a crocodile and a shark [referring to Leviathan, Tanin and Karish, the Hebrew names of three of Israel's offshore natural gas fields]. I’ll try to describe my personal journey in the past four years when I was director of the Electricity Authority – a powerful, toughening, difficult and empowering journey as a regulator, during a stormy period in the power sector. I had the privilege of being the first woman in this position, and I worked in a fairly masculine field,” she said.
Farkash-Hacohen served as chair of the authority for four years before being dismissed last August. “The authority supervises powerful entities such as the Israel Electric Corporation – a strong monopoly – and the IEC workers’ committee, which is a dominant body in Israel. It confronted the [natural] gas monopoly, operates with financing groups, with all the major banks, with institutional entities and, of course, with producers of private electricity. This is a field that is exceptional in its concentration of powerful forces – political and economic forces, and special interests, which in most instances are stronger than the regulator.
Complex and difficult decisions
“For anyone unfamiliar with the energy market, this is an economy with major financing – almost 80 percent of the capital entering this market is from financiers," she noted. "The power sector has a turnover of over 23 billion shekels ($5.9 billion). A typical private power plant needs 1 billion shekels in order to operate. The green energy industry we've created will have a turnover of 1.5 billion shekels from electricity prices: 1% in the rate of electricity, in either direction, means taking 230 million shekels from the public. And the authority’s main tool is to control the price of electricity and keep it free of special interests. Those are the sums and those are the powerful pressures.
“In the capital market, you raise money and deal in returns – the bottom line," she continued. "The decisions of the Electricity Authority are also financial: how much money should we tell the IEC to pay its competitors – the private electricity producers – in order for the financing bodies to agree to finance them? How much money should be reflected in the price of electricity, taking into account the financial problems of the IEC? The difference is that this entire IEC budget comes from the public purse – and here's where the conflict of interests begins. My journey was how to fulfill a role whose main compass was the public interest, in a world where we have to maintain an economic arena, a dialogue with financing, and a continued development of this industry.”
Farkash-Hacohen recounted how, before becoming its director, she worked as the authority's legal adviser. "It’s not the same experience, heading a system when all the pressures and decisions devolve on you. My first message – and this realization became increasingly strong as my term progressed – is that one mustn’t postpone decisions. A regulator who doesn’t make decisions and doesn’t react in real time to a changing situation, to problems and mishaps, reinforces them. Often, the pressures on the regulator come in the form of ‘Why now?’ and ‘There’s still time.’ These are things that were repeated whenever I stood at a crossroad of complex and difficult decisions.
“One such crossroad was dealing with the process of producing clean electricity from solar panels on rooftops. An amazing thing happened there. The prices of the panels began at 2 shekels per kilowatt. We brought them into the market in a manner that was common worldwide – as part of the price of electricity. It’s a rate that should reflect costs, capital, equipment, operation and a handsome return for 20 years.
“But what does the regulator do when this market is only beginning to develop and suddenly he discovers that the costs are declining by 30 to 40%?" Farkash-Hacohen asks. "How do you maintain the balance between the business sector, which wants certainty, and the public interest? We began a series of price reductions. That was my first plenary meeting; I was a temporary chair. I was tense and felt responsible, but I think that’s one of the courageous things the Electricity Authority did.
“When we presented the plan for introducing a private clean energy industry to the government, we said the public would pay 15 percent for that in electricity prices," she outlined. "But the reductions we introduced now make the cost to the public only 8 percent – that’s 1.4 billion shekels a year.”
The second message presented by Farkash-Hacohen was “not to be deterred from making complex and difficult decisions, even if they aren’t perfect.”
She offered an example: “I don’t know whether you read about diverting the thermo-solar quotas to P.V. (solar energy). The drastic drop in the prices of solar panels worldwide created a situation in which a government project that promoted thermo-solar production became outdated and expensive. But the entrepreneurs were holding permits with promises to start the projects with thermo-solar technology.
“I remember them coming into my office and telling me there was a problem. I asked how much it was worth to the public. And they told me almost 3 billion shekels. It took us two years to convince people in the government that we had to talk to the entrepreneurs to get them to switch to cheaper technologies. In the end, we reached an agreement, together with those entrepreneurs, to divert their projects to solar panels. I don’t know of any similar government step that ended in an agreement.
“This saved the public a huge sum of 2.4 billion shekels. But in order to reach an agreement, we gave them [the entrepreneurs] 200 million shekels. There was criticism of this agreement, but I’m satisfied with it. It’s a balanced solution that saved money for the public instead of banging our heads against the wall. Today, when dealing with prices is not under the sole control of the authority, these entrepreneurs would have gone to the High Court of Justice; I think the public was spared greater damage.”
Farkash-Hacohen claims "the revolution" that took place on her watch "led to increasing tension with the IEC and its workers’ committee, who saw how the company was going to lose 40% of the share of electricity production in the country. Things came to a head when the workers’ committee turned to the labor court. They accused me of contempt for the labor rights of IEC employees, claiming I was undermining their right to benefit from an environment without competition, and that I was responsible for contempt of labor court orders. During that period, many people who were responsible for activity in the electricity sector fell silent, and things went into a lower gear.”
She also addressed the absence of women in key positions in the energy industry. “When I was head of the authority, I saw lots of talented women – but none who were leading major companies or important players in the electricity sector,” she said, noting that the rest of the world is also aware of the challenge, which is reflected in organizations working to convince women to enter the field.
Farkash-Hacohen mentions the women’s forum in the Institute of Energy and Environment, which was established in order to increase technological and economic knowledge about oil and energy in Israel. The forum includes some 70 women in the field and operates as a framework for the exchange of ideas and the creation of cooperative projects. “It’s a fascinating field. It’s related to our health, the economy, financing, and deals with issues of competition and our prospects for the future,” she concluded.