What the Electric Company Doesn't Want You to Know

If major improvements are not made to the country's energy economy, its only a matter of time until its collapse.

Three years from now, Israel will face planned power outages. That's if you believe statements made last week by National Infrastructure Ministry officials on behalf of the Israel Electric Corporation, to give the mantle of ministerial credibility to the corporate cock-and-bull story.

The grave predictions ignore the second phase of the emergency plan the IEC was ordered to carry out two years ago, as well as private energy providers' entry into the market and the decline in electricity use that can be realized through relatively easy demand-management methods. Even so, the jeremiad cannot be dismissed. If major improvements are not made to the country's energy economy, its only a matter of time until its collapse.

On to our questions and answers.

Why isn't the imminent electricity crisis in the news all the time?

Just as Iran's nuclear program hits the news every time the defense budget is under consideration, media interest in the electricity crisis rises when the IEC's financial woes get exposure. Talk of blackouts and emergencies serve the company by diverting public attention from its mismanagement and frightening the cabinet into declaring a plan to build this-many generating plants within this-many years. All the while ignoring the unjustifiably high rates charged by the company, forgetting the private energy providers and perpetuating the IEC's monopoly.

Just last week a plan by National Infrastructure Minister Uzi Landau to approve, in an accelerated process, the construction of two new IEC power plants by 2013 was foiled. Meanwhile, the utility company still hasn't carried out the previous emergency plan. In a May 2009 report, the State Comptroller's Office estimated the direct and indirect damage caused by failure to meet deadlines on eight IEC projects at NIS 13.8 billion, just in the 2004-2008 period.

It's not entirely the fault of the IEC; various ministries and government agencies deserve part of the blame. So does the environmental lobby, which is better at shooting down construction plans than at promoting alternatives. As for the IEC, it's indifferent to the delays as long as their workers have been promised a new plant and the costs of delays are passed down to their customers and covered by the rates it charges them.

In its investigation, the State Comptroller's Office focused on generating plants because it's easy to compare the construction schedule against the situation on the ground. Like the utility regulators, the comptroller finds it difficult to estimate the costs associated with delays in installing or maintaining infrastructure (such as power lines and transformer stations ). For example, the rush to put up solar power plants in the Negev seems superfluous when it turns out there are no power lines to carry the sun-generated juice where it needs to go.

The secrets of IEC infrastructure investment are known to only a few - presumably employees of the company, to a person. As a result, the scope of the failures and their implications will only be made public in the future.

Two years ago electricity rates were increased 4.2% to fund the emergency plan. Wasn't that enough?

We all know that a plan's approval is no guarantee it will be carried out on schedule, or at all. The emergency electricity plan was to have increased the IEC's generating capacity by around 16% (1,750 megawatts ) by 2013 and to meet demand through 2014, at least. With the entry of private producers and even the partial realization of the energy efficiency plan, it could provide for Israel's energy needs for an additional 10 years.

Two weeks ago, however, the IEC board decided on its own to delay the implementation of the second phase of the plan (750 mW generating capacity, or 43% of the total increase ) until the company gets more money from either the government or from the public, in a rate hike.

The board thinks its obligation to the company's financial health takes precedence over the IEC's responsibilities as a provider of essential services. While some cabinet members see the board's move as a scandalous bid to extort money while holding a metaphoric knife to the economy's throat, not one has the courage to force the company - the government company, let's not forget - to meet its obligations.

Where are those private producers?

Eight years ago the cabinet set a goal whereby 20% of the country's electricity production would be in private hands. As of the end of 2009, just 3% of Israel's power was generated from non-IEC sources. The history of events since that cabinet resolution reads like a comedy of errors, starting with tenders issued and withdrawn or fallen to long-running arguments between the accountant general and the Ofer family of tycoons; then switching to a license system with a single person in charge and no financial model in place; and continuing with arrangements changed around every few months and seemed designed to confuse the authorities and wear down would-be entrepreneurs.

My head hurts. Spare me the explanations and the descriptions of the ill-fated internal IEC reforms: Bottom-line, will my electric bill be going up sometime soon?

You bet. There's not enough electricity to go around and the electric company won't see to it that it can make more until it gets another government handout - or until someone forces the IEC to change its ways. As none of the cabinet members have the guts to stand up to the mighty power company, and the Accountant General isn't about to pony up state guarantees for future IEC loans and the treasury's budget division refuses to increase the amount of owners capital flowing into the IEC, everyone involved will look for the easiest solution: jacking up electricity rates.

But the IEC is going to have a very tough sell this time around. It's cried wolf too many times, it's tried to pawn off too many "emergency plans" on the public. A genuine reform plan is just a matter of time.