The Public Utilities Authority (Electricity) plenum today approved the largest ever one-time reduction in electricity tariffs, despite the objections of the Israel Electric Corporation (IEC) (TASE: ELEC.B22), Minister of National Infrastructures Uzi Landau, and a coalition of environmental organizations. Tariffs will fall by 10-16%, depending on sector and peak/off-peak rates.
Sources at the Public Utilities Authority made it clear that it was required to make the tariff cuts, because of the drop in electricity production costs, and that the regulator would be exposed to lawsuits if it did not cut the tariffs. The Israel Consumer Council yesterday notified the Public Utilities Authority that not cutting electricity tariffs was tantamount to levying a tax on the public without any legal basis.
Electricity tariffs will be cut because the cost of fuels used by IEC to produce electricity has plummeted thanks to the switch from diesel and crude oil to cheaper natural gas. IEC's fuel procurement budget in 2009 was NIS 2.2 billion less than in 2008. IEC began using natural gas at its power plants after the last tariff baseline update in 2000, and gas currently accounts for 40% of the utility's electricity production.
IEC objects to the tariff reduction, arguing that this would further undermine its financial stability. The company's leverage (based on its debt-to-equity ratio) is already one of the highest in the Western world.
Published by Globes [online], Israel business news - www.globes-online.com - on February 1, 2010
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