Israel Electricity Authority Denies Cost Recovery for Power Plant Delays

Israel's Electricity Authority has refused to recognize 230 million shekels ($62 million) in costs incurred by the Israel Electric Corporation (IEC) due to delays in constructing new power units at the Orot Rabin complex in Hadera. These delays, which spanned over two years, have caused billions of shekels in damages to the economy. While the authority acknowledged that some delays were justified by the COVID-19 pandemic and the recent war, it attributed other delays to internal issues within the IEC, including problems with suppliers and project management.

Under normal circumstances, the IEC passes on all its costs to consumers through electricity prices. However, in this instance, the IEC will have to absorb the 230 million shekels itself, without it impacting consumer electricity bills. The remaining damages will still be passed on to the public.

The two new production units, Hazam 70 and Hazam 80, were part of a 2018 reform to increase competition in electricity generation. Their construction was completed two and a half years and two years and ten months behind schedule, respectively. The economic damage from these delays is estimated at approximately 4.6 billion shekels, including over a billion shekels for using older, less efficient power plants, 2.8 billion for environmental costs, and additional sums for project cost overruns and interest payments.

The State Comptroller's report partially accepted the IEC's claims regarding external factors like the pandemic and the war, but noted that the company only reported significant delays due to COVID-19 about six months before the scheduled completion of Unit 70. The Electricity Authority also acknowledged external factors but will not recognize costs related to internal company management and supplier issues.

The IEC, a state-owned company, is currently engaged in a political struggle over its future role as an electricity producer. These construction delays hinder its ability to compete. The authority stated that the IEC receives a "fair return on equity reflecting risk-taking" of about 4.5%, compared to 3% for risk-free projects, implying the company must bear costs when risks materialize due to its own fault.

Of the total construction cost of approximately 5.3 billion shekels for the new units, the Electricity Authority has agreed to recognize about 5.1 billion shekels to be passed on to consumers. The decision will now undergo a public hearing.