Israel's Energy Regulator Shields Consumers From Power Company's Construction Losses

Israel's Electricity Authority has decided not to pass on the multi-million shekel losses incurred by the state-owned Electric Company due to mismanagement in constructing new power generation units to consumers. The regulator has taken a firm stance, protecting citizens' wallets from covering the company's financial missteps.

The core of the dispute involves the costs associated with building two combined-cycle power units, PGU-70 and PGU-80, at the "Orot Rabin" complex in Hadera. The project's total cost reached 5.3 billion shekels. Traditionally, such expenses were automatically factored into consumer tariffs. However, the Electricity Authority has ruled that only 5.1 billion shekels will be included in the tariff structure, leaving the remaining 230 million shekels to be covered by the Electric Company's internal reserves.

This decision shields the public from directly paying for management errors through their electricity bills, even though the Electric Company is state-owned. The completion of these crucial energy facilities was delayed by over two and a half years, causing an estimated economic damage of 4.6 billion shekels. This loss stemmed from the continued operation of older, less efficient power plants (approximately 1 billion shekels) and significant environmental costs (around 2.8 billion shekels), along with increased project costs and financing interest.

An analysis by the regulator found that while some delays were attributable to the COVID-19 pandemic and military operations, internal issues within the corporation, including organizational failures, poor supplier coordination, and planning errors, were also major contributing factors.

The construction of these units was initially approved as part of the 2018 electricity market liberalization reforms. Under these reforms, the Electric Company was expected to sell off older assets and cease building new generation facilities, with these two units being its last major independent construction projects. Experts suggest these units will likely be the final large-scale generation facilities built by the Electric Company, with the private sector now taking the lead in developing new capacity.