Israel's Electricity Authority Offers Tiny Rate Cut Despite Plunging Energy Prices

The government unit recommends a 0.77% reduction, saying the Israel Electric Corporation’s other costs have risen.

Moti Milrod

The day before Yom Kippur, with few people paying attention to the news, the Israel Electricity Authority quietly announced an unexpectedly small reduction of electricity rates, even though the Israel Electric Corporation’s cost of generating power has declined sharply in recent months.

Although the final rate change is subject to hearings, the authority is proposing that rates be reduced by just 0.77%. It has been a year since the tariff was last adjusted and the timing for this change is three months past deadline.

“The rate reduction reflects a significant decline in generation costs for the system and an increase in services to the public, among other reasons because more renewable energy is being used and the need for more backup,” said Assaf Eilat, the authority’s chairman.

According to the official formula, rates are supposed to be adjusted automatically every six months if the IEC’s basket in cost inputs moves up or down by more than 3.5%.

Two months ago, in the IEC’s financial report, the state-owned utility said its energy costs, which account for a third of the total, had fallen 14% since the start of the year, mainly due to a sharp decline in the price of coal, the increased use of natural gas and a doubling of cheap imported gas.

The authority doesn’t take issue with that, citing a 15% decline in coal prices as well as increased power generation by private providers whose costs are lower than IEC’s. All told, that added up to an 8.4% decline. But it said other costs, mainly for transmission, had risen steeply enough to offset the other factors.

Factors it cited included the increased use of renewable energy to about 300 megawatts and relatively moderate weather last summer, which meant Israelis used their air conditioners less – though this summer was unusually hot.

Against all these factors a powerful lobby has emerged in recent months, comprising both IEC executives and government officials, to help the utility with its shaky finances. At the beginning of the year, the Energy Ministry even urged a tariff rise.

The IEC made a net profit of 576 million shekels ($151.5 million) in the first half of the year, turning around from a 786-million-shekel loss the same time in 2015. But it had some 43.5 billion shekels of debt as of June 30, nearly 80% of its balance sheet.