Israel Electric Company Executives Facing Person Fines

Avi Bar-Eli
Send in e-mailSend in e-mail
Send in e-mailSend in e-mail
Smokestacks at an Israel Electric Corp power station are seen from the Mediterranean, some 10 kilometers from Hadera. January 22, 2014. Credit: Reuters
Avi Bar-Eli

The state-owned Israel Electric Corporation exploited its monopoly status to curb competition from the country’s smaller private electricity suppliers, the Antitrust Commission ruled on Monday in a case that required more than a year to adjudicate. Of the 13 million shekels ($3.5 million) in fines that the commission imposed, it took the unusual step of including individual fines against three senior IEC executives, which they will have to pay out of their own pockets.

Former Israel Electric Corp. deputy CEO Yaakov Hain is being fined 165,000 shekels while current deputy CEO Itzhak Balmas is being required to pay out 110,000 shekels personally. The former CEO of the state-owned electric utility, Eli Glickman, was sent a letter informing him that he will have to pay an even higher fine, 185,000 shekels, subject to a hearing in which he can challenge the penalty.

In its ruling, the Antitrust Commission issued a finding that the IEC had exploited its monopoly to the detriment of the service provided to major business customers who had opted to purchase power from smaller private electricity providers instead. Even after switching to other providers, the companies were still dependent on the IEC for the transmission and distribution infrastructure that it maintains and which it is obligated to provide to all customers.

The IEC issued a statement calling the Antitrust Commission’s decision “mistaken” and adding that the utility would appeal it to the courts, where it would “present the range of the facts that run counter the position of the Antitrust Commission.”

The case had its origins in complaints filed with the commission three years ago, alleging that after the businesses began purchasing electricity from IEC’s competitors, the state-owned utility began scaling back the customer service that it provided the companies, particularly when it came to service problems.

The antitrust ruling focuses on the practices of the executives responsible for services to particular major customers relating to the IEC’s electricity transmission network. The company has a commitment to ensure electricity supplies to the major customers, including shopping malls, industrial plants, offices, hospitals, banks and hotels, where a steady and reliable supply of electricity is essential to their daily operations.

One example of the job performed by IEC managers who are assigned individual major business customers relates to how power outages that do occur, either planned or unplanned, are handled. A manager assigned to a particular business is responsible for coordinating with the customer over planned outages and providing support for outages that are not anticipated. The service is available only through the IEC, since it has exclusive control over the country’s electricity transmission grid. For the same reason, the coordinating must be done through the IEC, even for customers who get their power from private suppliers.

The Antitrust Commission found that under such circumstances, customers who purchased their power from the IEC received full service support but the service was withheld as soon as they switched to private electrical utilities. The withholding of the support services caused substantial harm to the businesses in the event of a power outage and also signaled to other major businesses that they would do well to stick with the IEC.

In a statement on the case, the Antitrust Commission said the support services to major business customers who stopped buying power from the state utility was halted in the middle of 2013. Apparently the affected businesses had begun getting their electricity from Dorad Energy’s private power station, which supplies electricity to the Tnuva, Osem and Strauss food manufacturers as well as to the Africa Israel real estate group and to the Fattal and Isrotel hotel chains.

The IEC’s customer service was only restored to the defecting customers at the beginning of 2015 and even then it was temporary and limited. In June of that year, the IEC created a special service center to deal with outages suffered by business customers who had switched to private electrical utilities, but even then the service that it provided was limited and in some instances, the businesses were told to call the IEC’s general customer service line. It was only at the end of 2015 that the state utility restored full support services to the major business, after the Antitrust Commission issued a warning.

In a statement issued on Monday, the Antitrust Commission noted that this was the first time that fines of such a scope were imposed on individuals, in this case due to what the commission described as “the involvement of senior executives in the company" and added that the ruling in the IEC case was consistent with prior rulings supporting personal fines in cases in which antitrust violations are found to result in real harm to competition.

This wasn’t the first time that the IEC has been accused of exploiting its monopoly control of the transmission grid. Over the past several years, IEC employees have disrupted the connection to the electricity grid of three major private power suppliers — OPC, Dorad and Dalia Power Energies — prompting an Antitrust Commission warning that claimed that the failure to maintain the connection to the power plants constituted exploitation of IEC’s monopoly, whether it was the result of a management decision or employee labor sanctions.

Monday’s ruling was a shock to IEC employees with some saying the time had come for a public debate over whom the Antitrust Commission is serving.