The electricity rate will be cut by 3% in January 2018, according to the new revision in the rates. Electricity costs per household will fall NIS 120 annually.
The Public Utilities Authority (electricity) is promising that in addition to the cut in prices, the revised rate structure is designed to solve fundamental problems in the electricity sector, particularly the neglect of power lines that can cause a large number of power outages, and avoiding the diversion of Israel Electric Corporation (IEC) (TASE: ELEC.B22) budget allocations from upgrading and maintaining its power lines to other purposes of less importance to the public, such as salary terms for IEC employees.
After years of discussions, the IEC is publishing today for a public hearing the basis for the electricity rate paid by consumers for segments of the power grid and supply. The revision of the base rate for the grid rate and supply will lead to a 15% reduction in the rate at the beginning of 2018, with the rate falling by a cumulative 20% by 2020. The effect on home consumers, however, is expected to be much smaller - 3%. The reason is that on the average, the new revised rate accounts for only 20% of the overall electricity rate for the home consumer. Electricity production costs account for the other 80% of the electricity bill received by the home consumers.
In 1996, as a preliminary step towards structural change in the electricity sector and the elimination of IEC's monopoly, it was decided to split the electricity sector into segments, with each segment having a different rate. The largest segment is production of electricity, followed by the system of high-tension wires for conducting electricity and the distribution segment (medium and low-tension wires reaching homes).
Another segment is the supply or sale to consumers. The division into segments had little practical effect as long as IEC had absolute control of all of the segments. Today, however, 30% of electricity production is in private hands. The private producers are not obligated to sell electricity directly to customers. Some of them prefer to sell it to the grid, in other words to IEC, so that only 15% of the electricity supply segment is privately owned.
The distribution and conducting segments, on the other hand, have remained under full control by IEC, and this situation is not due to change even if the government's plans for transferring all electricity production in Israel to private ownership are carried out.
Revision of the base tariff (conducting and distribution) and the supply of electricity is several years behind schedule, and comes after IEC frequently complained that it was being forced to operating according to an unrevised rate. Work on the methodology of the new rate was led by the Public Utilities Authority (electricity), the regulator for the electricity sector, but was coordinated with IEC.
The main change in the new rate is that it is based on normative costs. Up until now, IEC had a budget designed to enable it to implement the work plan that it prepared according to the development program approved by the Minister of National Infrastructure, Energy, and Water Resources – a situation that enabled the company to carry out part of its plan, and transfer surpluses to other purposes.
As soon as the new rate is approved, the company will get the money only after the plan has been implemented, and according to the price set by the Public Utilities Authority (electricity). This method gives IEC an incentive for becoming more efficient, because if it carries out the work at a lower cost than that set by the Public Utilities Authority (electricity), IEC will retain the surplus. The rates are determined on the basis of specifications received from IEC, the pricing of jobs the company performed as a contractor for external parties making orders, and international comparisons.
Public Utilities Authority (electricity) sources said that IEC would no longer be able to move money from one place to another. The only options available to it will be to appeal the rate set by the Public Utilities Authority (electricity) and to refuse to perform the work, at the risk of having the work given to private parties. Another change in the rate is taking into account the relationship of the size of the connection and the quantity consumed. For example, owners of luxury housing that is unoccupied for most of the year will now pay a constant element for the costs of being connected to the grid.
Published by Globes [online], Israel Business News - www.globes-online.com - on August 20, 2017
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