decision of the electricity authority of 27/12/2020
TRANSCRIPT
Decision of the Electricity Authority of 27/12/2020
Decision No. 59609 - 2021 annual update to the electricity rate for consumers of
the Israel Electric Corporation
By the power vested in it by the Electricity Sector Law, 5756-1996, and all its other
legal powers, the Electricity Authority (hereinafter: "the Authority") hereby publishes
a decision regarding the recognized costs for the Israel Electric Corporation
(hereinafter: "the Company" or "IEC") and the rates for the Company's consumers in
the 2021 annual update, as follows:
1. The total recognized cost for the Company shall decrease by 3.8% compared to the
recognized cost for 2020 and shall amount to 22,359 million NIS, as follows:
a. Recognized cost forecast by segment for 2021:
Fuel costs Clarification Million NIS
Fuel basket cost 3 4,684
Fuel working capital 67
Customer working capital 14
Total fuels 4,765
System administrator deduction -512
Cost with system administrator deduction 4,253
Cost of production without fuel
Yield on assets 4 859
Depreciation 4 1,900
Operational costs 5 2,612
Compensation for update delay (for the entire
production component)
10 -491
Customer working capital 15
Total customer working capital 4,698
System administrator deduction 7 -681
Cost with system administrator deduction 4,251
IPP acquisitions
Cost without system administrator deduction 6 7,244
System administrator deduction 7 -2,395
Cost with system administrator deduction 4,849
System administration costs 7 3,236
Transmission
Yield on assets 8 449
Depreciation 8 845
Operational costs 8 444
Working capital 17
Pension allowance 5 21
2
Compensation for arrears 10 -99
Total transmission 1,677
Distribution
Yield on assets 8 667
Depreciation 8 1,165
Operational costs 8 1,136
Working capital 26
Pension allowance 5 116
Innovation 8 20
Compensation for arrears 10 104
Total distribution 3,235
Consumer costs 9 895
Total recognized cost 22,319
b. Transferred energy forecast for each segment for 2021 (GWh):
Season DHC
Production
component net
production
Network
incoming Transmission Transformation
High
voltage
lines
Substation
Low
voltage
lines
Winter Low 9,059 10,937 10,839 9,622 8,795 5,173 5,050
High 1,287 1,666 1,651 1,508 1,425 899 878
Peak 3,007 3,755 3,721 3,496 3,225 2,143 2,096
Transition Low 11,534 14,031 13,906 12,043 11,204 6,532 6,366
High 5,451 7,024 6,961 6,285 5,963 3,643 3,555
Peak 11,185 14,841 14,708 13,152 12,413 7,064 6,894
Summer Low 6,455 7,502 7,435 6,598 6,162 3,860 3,768
High 2,408 2,993 2,966 2,740 2,600 1,570 1,534
Peak 2,695 3,336 3,306 3,080 2,911 1,787 1,746
Total 53,081 66,086 65,493 58,524 54,698 32,670 31,888
c. Electricity consumption forecast by IEC provider rate group for 2021:
The updated rate tables derived from the recognized costs are presented as
Supplement A to this decision and are an integral part thereof.
Season DHC LTR
EHV
Bulk
EHV
LTR HV
collective
sale
LTR
HV
Bulk
high
voltage
LTR LV
collective
sale
Bulk
low
voltage
LTR
LV Lighting General Domestic Total
Winter Low 501 35 593 1,938 616 21 22 1,467 16 430 3,092 8,730
High 43 5 53 172 83 4 3 178 2 52 640 1,234
Peak 35 12 209 325 207 8 7 435 7 141 1,497 2,884
Transition Low 910 51 516 2,449 826 26 30 2,024 35 430 3,822 11,119
High 254 23 201 820 381 14 14 955 9 271 2,295 5,236
Peak 674 50 512 1,820 811 25 29 2,561 6 892 3,378 10,758
Summer Low 463 29 267 1,264 415 15 14 1,085 13 260 2,390 6,215
High 85 10 82 450 149 6 5 522 1 168 834 2,313
Peak 79 11 111 477 161 6 6 654 0 241 842 2,588
Total 3,043 226 2,544 9,714 3,650 124 131 9,881 88 2,887 18,790 51,077
3
2. Regarding the beginning of operations by the System Administration Company
Ltd. (Hereinafter: "SAC"):
In accordance with Authority Decision No. 59204 of 25/11/2020 regarding "a
conditional authorization to begin partial operations by the System Administration
Company Ltd." and with approval of the Minister of Energy in this matter. Since
the Technological Operations and Development Unit (hereinafter: "TOD") began
to operate as part of SAC on December 2020, and as long as the System
Administration Unit (hereinafter: "SAU") begins to operate as part of SAC in
September 2021:
a. 146 million NIS shall be recognized for IEC for the projected operation cost
of SAC for 2021 and the actual costs for 2019-2020. The Company shall
transfer 9 million NIS to SAC each month until the transition of SAU to
SAC, and 18.5 million NIS for the months after the transition of SAU to
SAC. These sums are calculated for SAC as projections only and shall be
conditioned on cost control and compliance with an internal cost mix for all
SAC activity, including organizational structure, contracts and new tenders,
and any other matter that the Authority shall examine and request report on.
Cost control shall be conducted during and at the end of the year, and the
sums shall be updated accordingly.
b. In addition, 10 million NIS shall be recognized for IEC for projected SAC
yield; the Company shall transfer 10 million NIS to SAC for annual yield,
subject to Decision No. 59304 of 2/12/2020 regarding recognized yield for
the System Administration Company, and in accordance with the equity
available to SAC throughout the year, if any equity is available to it.
c. The Company shall also transfer to SAC the full cost related to "pre-projects
for planning" and recognized for the Company through the network base.
This amount shall be subject to cost control by the Authority.
d. IEC shall transfer 6 million NIS to the System Administration Company for
December 2020 to cover the operational costs for this month (Clarification
7).
4
3. Reduction of recognized cost due to the sale of Ramat Hovav station – grossing
up of recognized cost reduction due to excess income from the sale of the Ramat
Hovav power station site. Return on investment to electricity consumers in the
amount of 2,432 million NIS. Half of this amount shall be reduced in 2021 and
half in the following years; the distribution of the reduction was calculated based
on an equal fund. The reduction of the recognized cost due to income attributed to
2021 shall amount to 639 million NIS in the production segment and 639 million
NIS in the system administration segment (Clarification 12).
4. The Authority also decided on the following additional changes for 2021:
a) A one-time standardization for rate components that are linked to the
average wage in the economy, due to the Corona pandemic (Clarification
5).
b) Grossing up of compensation to IEC for price differences caused by the
acquisition of IPP energy from IEC at EXPOST prices, creating gaps with
IEC production component cost (Clarification 10).
c) Innovation component allowance for IEC recognized costs subject to a
specific IEC model, and provided that such innovation is related to core
activity areas and investment in the IEC network (Clarification 8).
5. Commencement: the rates specified in this decision shall enter into force on
1/1/2021.
5
Clarifications
Clarification 1 - main data and changes compared to 2020 annual update
1. The recognized cost in this update amounts to 22,329 million NIS compared
to 23,251 million NIS in the 2020 annual update, divided into the following
segments:
Segment 2020 2021 Difference
Production 14,303 13,317 -968
System 3,252 3,236 -16
Network 4,857 4,912 55
Supply 840 895 55
Total 23,251 22,359 -892
2. The application of the rate determined by connection size that began in the
2019 annual update creates a variety of specific rates for each consumer,
differentiated by consumers' connection size and annual consumption.
Therefore, for example, the monthly cost for a representative average
consumer with a connection size of 3 X 25 consuming 8,000 kWh per year
will amount to 314 NIS compared to 322 NIS in the previous annual update,
as specified below:
*The increase in component is the result of the gradual application specified in
Clarification 2b below.
2020 2021 Difference
Energy rate for domestic consumer (agorot
per kWh) 44.64 03.43 -3.4%
Payment for energy for a representative
domestic consumer consuming 8,000 kWh
per year (NIS per month)
396.93 86.636
Fixed rate capacity for a domestic consumer
3 X 25 (NIS per month)* 3.63 84.4
Fixed rate supply for a domestic consumer
3 X 25 (NIS per month) 19.96 31.03
Total payment (energy and fixed) for a
domestic consumer consuming 8,000 kWh
per year (NIS per month)
233 253 %2.3-
6
Clarification 2 - General
a. The Electricity Authority updates the recognized costs for IEC in accordance
with the following decisions:
1) Decision No. 1 in Session 289 of 1/2/2010: "Rate base for the production
segment for 2010-2014" (hereinafter: "Production Rate Base").
2) Decision No. 4 in Session 471 of 6/8/2015: "Establishing rates for
administration services for the electricity network" (hereinafter: "System
Rate Base 2015") for establishing costs for 2019.
3) Decision No. 6 in Session 572 of 23/12/2020, "System Rate Base for
2020-2024" (hereinafter: "System Rate Base 2020") for establishing
costs for 2020-2021.
4) Decision No. 3 in Session 534 of 8/1/2018: "Network rate base for
recognized costs for the transmission, distribution and customer service
segments and their pricing for 2018-2022" (hereinafter: "Network Rate
Base"), in accordance with the recognized costs specified in this decision
(hereinafter: "the Recognized Costs").
b. According to the Network Rate Base and Decision No. 6 in Session 533 of
24/12/2018, the fixed component for connection size for 2021 (capacity
payment) for extra-high voltage and high voltage shall be 30% of the
recognized cost for the segment instead of 20% as specified in the 2020
annual update. For low voltage consumers, the fixed component for 2021
shall be 10% instead of 6.66% as specified in the 2020 annual update. These
rates were established in the Network Rate Base and their gradual application
established in Session 533 ended in 2021.
c. The 2021 annual update includes the settlement of gaps between projections
and execution for 2019 and between projection and estimate for 2020.
1) For 2019 - the Authority determines the final recognized cost
according to actual data.
2) For 2020 - the recognized cost is calculated as an estimate based on
actual data for January to June 2020 and a projection for the second
half of the year. These data shall be updated in the 2022 annual update,
at which time differences shall be settled using the "compensation for
arrears" mechanism, in accordance with Chapter 7 of the Production
Rate Base (Clarification 10)
7
3) For 2021 - the recognized cost for 2021 is a projection of the Authority
based on data received from IEC, data received from the System
Administrator and market consumption projections made by
statisticians in the Company. The Authority conducted adjustments
and calculations based on information received and the rate bases
specified above; this cost shall be updated in the 2022 annual update
and shall become final in the 2023 annual update. Differences shall be
settled using the "compensation for arrears" mechanism.
8
Clarification 3 - fuel basket
1. The recognized cost for the 2019 fuel basket is 7,959 million NIS and is based on
the following quantities:
2. The recognized cost for the 2020 fuel basket is 5,433 million NIS and is based on
the following quantities:
Fuel consumption for 2020 (estimate in thousand tons)
Rutenberg
coal
Orot
Rabin
coal
Total
coal
Tamar
and
Leviathan
gas
LNG Total
natural
gas
Diesel
fuel
Fuel
oil
January
(actual) 337 455 793 310 8 318 4 1.2
February
(actual) 299 394 693 261 12 273 2 0.2
March
(actual) 261 405 666 173 56 230 2 1.4
April
(actual) 223 217 441 177 14 191 1 0.4
May (actual) 214 308 522 232 37 268 5 3.0
June (actual) 205 328 533 221 60 281 2 0.6
July
(projection) 264 426 690 348 74 421 3 -
Actual fuel consumption for 2019 (final in thousand tons)
Rutenberg
coal
Orot
Rabin
coal
Total
coal
Tamar
gas LNG
Total
natural
gas
Diesel
fuel
Fuel
oil
January 345 465 810 284 35 359 11 1
February 209 376 586 255 33 268 4 2
March 111 454 565 279 23 303 5 1
April 195 366 561 153 48 599 4 3
May 210 404 614 263 31 293 17 3
June 353 463 816 286 36 313 13 1
July 417 474 892 271 81 353 27 2
August 396 494 890 262 113 371 9 3
September 352 399 750 260 66 338 16 2
October 323 280 603 262 23 283 2 1
November 254 302 555 217 16 231 1 0
December 316 298 614 237 39 268 3 1
Total annual
quantity 3,481 4,775 8,256 3,030 536 3,566 110 20
Total annual
recognized cost
(million NIS)
31853 23113 888 21
9
August
(projection) 269 432 701 328 93 421 4 -
September
(projection) 262 303 564 263 68 330 4 -
October
(projection) 202 189 390 229 5 234 - -
November
(projection) 265 224 489 140 6 146 - -
December
(projection) 326 354 680 167 6 173 - -
Total annual
quantity 3,127 4,034 7,161 2,848 438 3,286 27 7
Total annual
recognized
cost (million
NIS)
89815 3,383 581 6
3. The recognized cost for the 2021 fuel basket is 4,684 million NIS and is based on
the following assumptions:
a. The recognized fuel basket is calculated based on market electricity demand
according to the projected demand curve for 2021, the forecast of the System
Administrator from June 2020 and the list of IEC units as specified in Chapter
1 of the Production Rate Base, independent production units, bilateral
transaction electricity production, cogeneration and self-production and
renewable energy according to existing arrangements.
b. Activation dates for the various production units expected to operate this year
for the purpose of determining the energy mix for 2021:
Independent
production unit Facility type
Nominal
load
Activation date
according to
projected data
IPM Be'er Tuvia Combined
cycle 451 01/01/2021
High voltage gas
facilities Cogeneration 100 01/10/2021
Timna Photovoltaic 80 0120323031
Enlight Renewable
Energy
Photovoltaic 80 0120923031
Emek Ha'Bacha Wind 98 0120923031
High voltage and low
voltage Photovoltaic
facilities
Photovoltaic Around
1,650
Throughout the
entire year
01
c. Gas consumption discounts in the energy mix 2021:
1) Leviathan gas field - on 12/6/2019 IEC signed a short-term natural gas
purchase agreement with the Leviathan Partnership. This gas agreement refers
to gas quantities beyond the quantities purchased through the existing gas
agreement with the Tamar Partnership. The agreement shall enter into force
with the start of gas flow from Leviathan and last until June 2021 or the
beginning of gas production from Karish, the early of the two. The available
capacity to the electricity market from this field shall be up to 600,000
MMBTU per day.
2) Gas purchase price – the Authority recognized the price of purchasing gas from
the Leviathan field, reached through a competitive procedure (vs. Tamar), at a
price equal to the purchase price specified in the supply contract between the
Company and the gas supplier.
3) The entire saving from the reduced gas price compared to the existing IEC
contract shall be passed on to electricity consumers.
4) Market level gas production limit – the market gas production limit that was
up to 75% from the total market production shall be canceled (Tamar +
Leviathan + LNG) since another gas source exists.
5) Hourly limit in the Tamar gas pipe – as of 2021, there is a market hourly limit
of 45,000 MMBTU per hour, and over time there is a decrease of 500 MMBTU
per hour every six months, so that in the second half of the year the capacity
limit shall be 44,500 MMBTU per hour. Of the capacity of the aforementioned
pipe, an hourly output of 7,500 MMBTU is allocated to the industry, so that
the electricity market is allocated an hourly capacity of 37,500 MMBTU per
hour in the first half of the year and 37,000 MMBTU per hour in the second
half of the year.
6) Tamar gas purchase price opening – in the first half of 2021 the price shall be
in accordance with the base transaction, and in the second half of the year, with
the opening of the Tamar contract, a reduction of 25% in the price compared
to the base transaction is assumed.
00
7) IEC gas consumption policy for Tamar field - IEC is required to consume a
minimum quantity of 1.75 BCM per year from Tamar, utilizing the Carry
Forward TOP commitment, since the Leviathan prices are lower than the
Tamar prices before the opening of the gas purchase price. It is assumed that
required consumption quantity from Tamar shall be fulfilled in the second half,
following the opening of the purchase price.
8) Incentive for reducing gas acquisition costs from the agreement between
Tamar and IEC - according to Authority decision of 14/6/2012, the Authority
shall recognize an incentive of 30% of the reduction in the current base
transaction price beyond 15%. For example, if the base transaction price is
reduced by 25%, the Company shall be entitled to an incentive of (25% - 15%)
* 30% = 3% of the base price. The total recognized cost for this incentive
amounts to 41 million NIS.
9) LNG - maintaining an LNG ship as backup throughout the year and refreshing
the inventory on the last month of every half-year (using the ship's load in May
and November).
d. Production using coal:
1) Coal units were loaded in accordance with the emission permit of 1/10/2016
issued by the Ministry of Environmental Protection (hereinafter: "the Emission
Permit"), so that their operation is minimal, followed by operation by gas in any
possible quantity in according with the requirements specified above, followed
by loading with coal before the use of diesel fuel.
2) Application of Amendment No. 4 to the Emission Permit in accordance with
the Clean Air Law at the Orot Rabin site from June 2020 – the amendment
requires the shutdown of one or more units at the Orot Rabin site for a period
of 327 days in 2021.
3) Increase in excise tax rates for coal from 45.6 NIS per ton to 102 NIS per ton,
from 1/1/2021. The total addition to the recognized cost in accordance with the
projected use of coal following the increase in excise tax rates amounts to 351
million NIS for 2021.
4) Spinning reserve: 600 MW per hour at the market level.
02
5) Shutdown of Rutenberg Unit 3 for the purpose of installing scrubbers
between 27/2/2021 and 25/2/2022, in accordance with the schedule
specified in the Emission Permit.
6) Remaining premises are as specified in the Production Rate Base, Chapter
5 – energy mix.
e. The projected recognized energy mix of IEC for 2021 is as follows:
f. Nothing in the above shall amend Decision No. 13 (1169) in Session 518 of
12/6/2017 regarding the recognition of cost of the gas agreement between IEC
and the Tamar Partnership, including costs related to the minimum gas
purchase commitment.
g. The demand forecast for 2021 in accordance with the system administrator's
projected demand curve from June 2020 forecast shall be updated next year
in accordance with the actual demand curve and based on a total energy of
72,386 GWh.
h. Excess costs of LNG consumption for the purpose of refreshing inventory are
included in the system management costs. These costs are the result of the
need for redundancy in the electricity system. Quantities in the energy mix
for electricity production do not include LNG losses on the regasification
vessel.
2021 forecast
Fuel type BTU / kWh
Orot Rabin coal (midway distance) 31511
Rutenberg coal 11693
Total coal 312,2
Eshkol gas 966
Reading gas 34
Haifa gas 638
Tzafit gas 305
Hagit gas 660
Gezer gas 658
Total gas 21186
Total fuel oil -
Total diesel fuel 11
Total 81692
03
i. Based on these assumptions, below is the distribution of electricity production
for 2021 and the recognized fuel quantities:
GWh Production percentage of
the total market production
Production by IEC 36,168 50%
Production by independent producers,
renewable and self-production 36,218 50%
Total market production 72,386 %100
j. Fuel costs were determined using the calculation method established for the
Company's recognized fuel prices for November in accordance with Chapter
5 of the Production Rate Base. These fuel costs use Bank Leumi's exchange
rate for conversion of 3.42 NIS to the Dollar (November 2020 prices).
2021 forecast
Fuel type Thousand
tons
Orot Rabin coal (midway distance) 31615
Rutenberg coal 31633
Total coal 81128
Eshkol gas 649
Reading gas 19
Haifa gas 584
Tzafit gas 334
Hagit gas 596
Gezer gas 569
Total gas 31832
Total fuel oil -
Total diesel fuel 5,
04
Clarification 4 - Yield and depreciation for assets in the production segment
The recognized yield for production assets for 2021 amounts to 868 million NIS, and
the recognized costs for depreciation amount to 1,905 million NIS.
1. Below is a summary of the assets in the production segment for which the depreciation
costs and yield are recognized for the Company:
Site Facility Type
Capacity
(MW)
Final year for
rate recognition
Orot Rabin Orot Rabin 5-6 Coal 1,150 2026
Orot Rabin Emission reduction
facilities 2042
Total Orot Rabin site 1,150
Rutenberg Rutenberg 1-4 Coal 2,250 2026
Rutenberg Emission reduction
facilities 2046
Total Rutenberg site 2,250
Haifa Haifa C 3-4 Steam converted to gas 282 2017
Haifa Haifa 30 Combined cycle F 374 2035
Haifa Haifa 40 Combined cycle F 374 2037
Total Haifa site 1,030
Eshkol Eshkol C-D 6-9 Steam converted to gas 912 2026
Eshkol Eshkol 12 Combined cycle F 377 2028
Eshkol Eshkol 34 Combined cycle F 394 2035
Total Eshkol site 1,683
Reading Reading D 3-4 Steam converted to gas 428 2021
Total Reading site 428
Hagit Hagit 347 + 568 Combined cycle E 660 2020
Hagit Hagit 20 Combined cycle F 359 2032
Hagit Hagit 19 Combined cycle F 375 2035
Total Hagit site 1,394
Ramat Hovav Ramat Hovav 1-2 +
3-5
Combined cycle +
combined cycle E 535 2017
Ramat Hovav Ramat Hovav 6 Combined cycle E 118 Sold in 2020
Ramat Hovav Ramat Hovav 7 Combined cycle E 118 Sold in 2020
Ramat Hovav Ramat Hovav 98 Combined cycle F 366 Sold in 2020
Total Ramat Hovav site 1,137
Gezer Gezer 11-12-21-22 Combined cycle E 592 2025
Gezer Gezer 30 Combined cycle F 372 2030
Gezer Gezer 40 Combined cycle F 372 2031
Total Gezer site 1,336
Tzafit Tzafit 12 Combined cycle E 220 2015
Tzafit Tzafit 34 Combined cycle F 360 2031
Total Tzafit site 580
Alon Tavor Alon Tavor 1-2 Combined cycle E 220 2016
Alon Tavor Alon Tavor 34 Combined cycle F 363 Sold in 2019
05
Total Alon Tavor site 583
Jet gas turbines Jet turbines 504 2022
2. Average reduced cost in million NIS, current prices:
Site Facility 2017 2018 2019 2020 2021
Orot Rabin Orot Rabin 5-6 2,283 2,030 1,770 1,510 1,249
Orot Rabin Emission reduction facilities 2,080 3,430 3,286 3,142 2,998
Total Orot Rabin site 4,446 4,362 5,460 5,056 4,651
Rutenberg Rutenberg 1-4 4,740 4,195 3,638 3,081 2,524
Rutenberg Emission reduction facilities - 206 2,344 3,398 3,864
Total Rutenberg site 4,740 4,740 4,401 5,983 6,479
Haifa Haifa C 3-4 22 - - - -
Haifa Haifa 30 1,218 1,156 1,094 1,032 970
Haifa Haifa 40 1,161 1,095 1,029 964 898
Total Haifa site 2,401 2,401 2,251 2,124 1,996
Eshkol Eshkol C-D 6-9 422 373 325 322 274
Eshkol Eshkol 12 687 625 563 501 439
Eshkol Eshkol 34 1,492 1,409 1,326 1,244 1,161
Total Eshkol site 2,601 2,601 2,407 2,214 2,067
Reading Reading D 3-4 104 91 63 21 4
Total Reading site 104 104 91 63 21
Hagit Hagit 347 + 568 370 224 78 3 -
Hagit Hagit 20 887 826 764 703 641
Hagit Hagit 19 1,495 1,412 1,329 1,247 1,164
Total Hagit site 2,752 2,752 2,462 2,172 1,952
Ramat Hovav Ramat Hovav 1-2 + 3-5 26 - - - -
Ramat Hovav Ramat Hovav 6 253 238 223 193 -
Ramat Hovav Ramat Hovav 254 239 225 194 -
Ramat Hovav Ramat Hovav 98 1,530 1,447 1,364 1,185 -
Total Ramat Hovav site 2,063 2,063 1,924 1,811 1,572
Gezer Gezer 11-12-21-22 705 620 535 451 366
Gezer Gezer 30 904 835 767 698 629
Gezer Gezer 40 948 878 808 739 669
Total Gezer site 2,556 2,556 2,333 2,110 1,887
Tzafit Tzafit 12 - - - - -
Tzafit Tzafit 34 1,148 1,068 987 907 826
Total Tzafit site 1,148 1,148 1,068 987 907
Alon Tavor Alon Tavor 1-2 - - - - -
Alon Tavor Alon Tavor 34 938 859 723 - -
Total Alon Tavor site 938 938 859 723 -
Jet gas turbines 108 108 87 66 45
Total 23,773 23,343 23,308 21,578 18,701
Depreciation for emergency plan financing (2,006) (1,891) (1,777) (1,662) (1,547)
Total after depreciation for emergency plan
financing 21,767 21,452 21,532 19,916 17,153
06
3. Summary of recognized depreciation in million NIS, current prices:
Site Facility 2017 2018 2019 2020 2021
Orot Rabin Orot Rabin 5-6 259 260 260 260 260
Orot Rabin
Emission reduction
facilities 85 144 144 144 144
Total Orot Rabin site 344 404 404 404 404
Rutenberg Rutenberg 1-4 554 557 557 557 557
Rutenberg
Emission reduction
facilities - 8 96 142 163
Total Rutenberg site 554 565 653 699 720
Haifa Haifa C 3-4 47 - - - -
Haifa Haifa 30 62 62 62 62 62
Haifa Haifa 40 66 66 66 66 66
Total Haifa site 175 128 128 128 821
Eshkol Eshkol C-D 6-9 49 49 49 49 141
Eshkol Eshkol 12 62 62 62 62 62
Eshkol Eshkol 34 83 83 83 83 83
Total Eshkol site 194 193 193 193 286
Reading Reading D 3-4 27 27 56 27 8
Total Reading site 27 27 56 27 8
Hagit Hagit 347 + 568 146 146 146 5 -
Hagit Hagit 20 61 61 61 61 61
Hagit Hagit 19 83 83 83 83 83
Total Hagit site 290 290 290 149 144
Ramat Hovav Ramat Hovav 1-2 + 3-5 52 - - - -
Ramat Hovav Ramat Hovav 6 15 15 15 14 -
Ramat Hovav Ramat Hovav 7 15 15 15 14 -
Ramat Hovav Ramat Hovav 98 83 83 83 77 -
Total Ramat Hovav site 165 113 113 104 -
Gezer Gezer 11-12-21-22 85 85 85 85 85
Gezer Gezer 30 69 69 69 69 69
Gezer Gezer 40 70 70 70 70 70
Total Gezer site 223 223 223 223 223
Tzafit Tzafit 12 - - - - -
Tzafit Tzafit 34 81 81 81 81 81
Total Tzafit site 81 81 81 81 81
Alon Tavor Alon Tavor 1-2 - - - - -
Alon Tavor Alon Tavor 34 79 79 73 - -
Total Alon Tavor site 79 79 73 - -
Jet gas turbines 21 21 21 21 21
Total 2,152 2,125 2,234 2,030 2,051
Depreciation for emergency plan financing (115) (115) (115) (115) (115)
Total after depreciation for emergency
plan financing 2,037 2,010 2,120 1,915 1,9,,
07
4. Changes in asset balance (excluding depreciation) in million NIS, current prices:
5. The data in the tables in Sections 2-4 refers to current prices (linked to the index for
September 2020); costs at the rate base were established in accordance with
December 2006 prices.
To convert amounts to December 2006 prices, multiply the amounts specified in
the tables by a coefficient of 82.86%.
6. Below are the Company's recognized yield rates:
Update for 2019 (final):
a. The weighted marginal interest rate WMIL shall be 1.86% (instead of
2.06%).
b. The average interest rate WAIL shall be 3.65% (instead of 3.93%).
c. The rate of yield to equity GRE for assets in the network segment shall be
7.34% (instead of 7.41%).
Facility 2017 2018 2019 2020 2021 Explanation
Orot Rabin 5-6 13 - - - - Project Raincoat - 2017
Emission reduction
facilities 2,764 - - - -
Emission reduction
facilities - 2017
Total Orot Rabin site 2,777 - - - -
Rutenberg 1-4 22 - - - - Project Raincoat - 2017
Emission reduction
facilities - 1,777 1,772 - 548
Emission reduction
facilities - 2018-2021
Total Rutenberg site 22 1,777 1,772 - 548
Haifa C 3-4 4 - - - - Investment in asbestos
removal - 2017
Total Haifa site 4 - - - -
Eshkol C-D 6-9 - - - 93 - Investment in asbestos
removal - 2020
Total Eshkol site - - - 93 -
Reading D 3-4 - 28 - - - Investment in asbestos
removal - 2018
Total Reading site - 28 - - -
Ramat Hovav 6 - - - (202) - Unit sale - 2020
Ramat Hovav 7 - - - (203) - Unit sale - 2020
Ramat Hovav 98 - - - (1,245) - Unit sale - 2020
Total Ramat Hovav site - - - (1,651) -
Alon Tavor 34 - - (746) - - Unit sale – 2019
Total Alon Tavor site - - (746) - -
Total 2,803 1,805 1,026 (1,558) 536
08
d. The weighted rate of yield GWACC for assets in the network segment shall
be 4.57% (instead of 4.80%).
e. The weighted rate of yield GWACC for assets in the production segment
shall be 5.90% (instead of 6.09%).
Update for 2020 (estimate):
a. The weighted marginal interest rate WMIL shall be 1.52% (instead of
1.48%).
b. The average interest rate WAIL shall be 3.36% (instead of 3.68%).
c. The rate of yield to equity GRE for assets in the network segment shall be
6.81% (instead of 7.34%).
d. The weighted rate of yield GWACC for assets in the network segment shall
be 4.22% (instead of 4.59%).
e. The weighted rate of yield GWACC for assets in the production segment
shall be 5.71% (instead of 5.92%).
Update for 2021
a. The weighted marginal interest rate WMIL shall be 1.86%.
b. The average interest rate WAIL shall be 3.16%.
c. The rate of yield to equity GRE for assets in the network segment shall be
6.26%.
d. The weighted rate of yield GWACC for assets in the network segment shall
be 3.93%.
e. The weighted rate of yield GWACC for assets in the production segment
shall be 5.57%.
The recognized yield rates for 2021 and 2020 are calculated based on projections
in accordance with the data available in September 2020.
7. Asbestos removal
In accordance with the Prevention of Hazards from Asbestos and Harmful Dust
Law, 5771-2011, the Company is required to remove and bury any friable asbestos
installed in its facilities for the purpose of thermal insulation by 2021. To meet the
requirements of the law by 2021, the Company performs asbestos removal and
burial projects in its sites.
09
As of the date of this decision, the Company completed five projects out of ten
planned projects. As part of the annual updates of 2018-2019, costs were recognized
for projects at three fuel sites in Haifa, Reading and Eshkol, as well as in the
Reading B unit.
During 2020, an additional project was completed at production units Eshkol A and
Eshkol B which have been inactive for many years. A review by the Authority
indicated that in the current project the Company operated in accordance with the
requirements of the Ministry of Environmental Protection with over 90% of the cost
paid to authorized external providers for the removal work.
Following a cost control procedure by the professional team at the Authority, a cost
of 93 million NIS is recognized for the Company for this project, including 6.7
million NIS for interest payments during construction. Expenses in the amount of 3
million NIS were not recognized for the Company since the Company failed to
present evidence for such expenses to providers between 2014 and 2017.
8. Costs of emission reduction facilities in coal units
In accordance with Authority Decision No. 58103 of 1/6/2020, the Authority
updates the costs of installing emission reduction facilities in Orot Rabin 5 and 6
and Rutenberg 1-2, operated between 2016 and 2019, and recognizes the costs of a
new facility at Rutenberg 3, expected to begin operation in January 2021, as
specified below:
Production unit Project Recognized cost
(million NIS,
current prices)
Normative
recognition date
Orot Rabin 5 SCR 563.6 31.6.3018
FGD 984.8 31.3.3016
PM 386.4 39.3.3018
Total 516,8.8
Orot Rabin 6 SCR 560.6 31.6.3016
FGD 983.0 30.9.3016
PM 388.6 30.8.3016
Total 51899.1
Rutenberg 1 SCR 555.9 30.10.3016
FGD 986.8 31.13.3016
PM 353.5 30.6.3016
21
Total 51888.5
Rutenberg 2 SCR 554.6 15.6.3019
FGD 985.9 30.9.3019
PM 351.6 3.5.3019
Total 51883.3
Rutenberg 3 SCR 136.2 15.1.3031
These costs include interest payments during construction and are recognized in a
spread of 25 years, starting from the normative recognition date of each project.
20
Clarification 5 - Operational expenses in the production segment
The recognized operational expenses in the production segment for 2021 amount to
2,612 million NIS.
1 . In light of the Corona crisis, leading to a decrease in employment, particularly
among low-income earners, and due to the artificial increase in the average wage
which does not reflect an increase in the Company's wage, the Authority determines
that the effective wage index for the purpose of operational cost adjustment for the
production segment for 2020-2021 shall amount to the average wage for a senior
position in 2019, as published by the Central Bureau of Statistics. It should be noted
that a similar government bill regarding the freezing of the average wage in
accordance with the National Insurance Law has passed a second and third reading
in the Finance Committee on 27 December 2020.
2. Authority decision of 21/1/2015 regarding the annual update for 2014 specifies in
Section 1n regarding operational costs that fixed operational costs shall be calculated
each year based on the cost per kW established in the same decision, multiplied by
the connected MW of the facility for the same year. Due to the sale of Ramat Hovav
(as specified in Clarification 12), the basic fixed operational cost shall be reduced by
3.8% of the cost established in the Base Production Rate.
3. In accordance with Plenum Decision No. 5 in Authority Session 536 of 29/1/2018:
"Rate recognition for the costs of retirement of IEC employees", in 2021 20% of the
recognized cost, in an amount of 242 million NIS, is recognized for the Company,
with added interest and linkage, for a total of 272 million NIS.
In accordance with the decision, the total recognized costs shall be spread over a
period of 5 years. In the 2020 annual update, 20% of the cost was refunded, and in
the current update 20% of the cost is refunded. The total accrued refund amounts to
80% of the cost.
Allocation of pension costs among segments is as follows:
The production segment: these costs shall be collected through the system
administration rates – accompanying arrangements in the electricity market: 129.1
million NIS;
The system segment - administrative costs of 4.4 million NIS;
The transmission segment – 21 million NIS;
The distribution segment – 117.3 million NIS.
22
Clarification 6 - Acquisition from Independent Power Producers (hereinafter:
"IPPs")
1. In accordance with Section 13 of the Authority's decision regarding the rate base in
Session 110 of 1/7/2002, IEC costs resulting from the acquisition of electricity from
IPPs are updated.
2. The Authority recognizes IEC costs of purchasing electricity from IPPs as specified
below:
2019 - actual
Million
NIS GWh
Agorot per
kWh
Conventional 1,910 6,896 0.28
Pumped storage 3.9 12 0.31
Other 5 22
Total without renewable 1,919 6,931 0.28
Photovoltaic 1,790 2,605 0.68
Wind 21 42 0.50
Biogas 59.3 153 0.39
Thermo-solar 298.5 418 0.71
Total renewable 2,166 3,218 0.67
Total acquisitions 4,088 10,149 0.40
3. The increase in acquisitions from IPPs is mainly due to the increase in the
production in photovoltaic facilities in response to government goals, as well as to
increase in the production in conventional facilities following the sale of production
stations by IEC to independent producers under IEC reform agreement approved in
Government Decision No. 3859 of 3 June 2018.
2021 - forecast 2020 -
estimate
Million
NIS GWH
Agorot per
kWh Million NIS
Conventional 3,510 12,653 0.28 2,345
Pumped storage 324.4 841 0.39 236
Other 10 23 7
Total without renewable 3,844 13,517 0.28 2,587
Photovoltaic 2,660 5,507 0.48 2,085
Wind 35 85 0.41 20
Biogas 113.4 266 0.43 72
Thermo-solar 591.9 684 0.87 482
Total renewable 3,400 6,541 0.52 2,659
Total acquisitions 7,244 20,059 0.36 5,246
23
Clarification 7 - System administration costs
As specified in Clarification 2 above, the costs for 2019 were calculated in accordance
with the System Base Rate for 2015, and for 2020-2021 recognized costs were calculated
in accordance with the methodology established in the System Base Rate for 2020.
The recognized costs for system service shall be as specified in the table below:
Component Segment
reduction
2021 (forecast) 2020
(estimate)
million NIS
Million
NIS
Agorot
per kWh
Administrative costs 321 0.47 380
Compensation for arrears according to projection (excluding
excess income from the sale of Ramat Hovav) -640 -0.94 -849
Administrative costs + compensation for arrears -33, -0.47 -389
Fuel cost spinning reserve 600 Fuels 134 0.18 135
Capital and operating cost spinning reserve 600
Production +
IPP
acquisitions
319 0.47 301
Pumped storage IPP
acquisitions 36 0.05 33
Consumer arrangement for frequency shedding (Standard 42) 2 0.00 2
Total system balancing services 363 0.71 472
Generation backup Production 531 0.78 698
Consumer arrangements for electricity shortage management
(Standards 43, 46, 47, 47a) 50 0.07 50
Total backup services 651 0.85 836
Arrangement cost 241 IPP
acquisitions 266 0.39 306
Acquisition obligation renewable energy IPP
acquisitions 1,643 2.56 11045
Wind radar 38 0.06 33
Acquisition obligation cogeneration IPP
acquisitions 161 0.27 91
Emergency diesel fuel inventory 84 0.12 64
Refund for coal excise for 2019-2020 367
Refund Egyptian gas settlement -170 -0.25 -384
Fixed LNG costs 194 0.28 315
Excess cost resulting from gas limitations (optimal run) Fuels 54 0.08 98-
Change in loading order for coal units due to environmental
requirements Fuels 394 0.43 466
Excess income from the sale of IEC stations -639 -0.94 630-
Examination of secondary fuel production capability Fuels 39 0.06 59
Acceptance tests for new units IPP
acquisitions 0 0 3
Past debt - production segment pension 129 0.19 138
Social rate 280 0.44 360
Total system services 2,493 3.70 51861
Total rate 3,231 4.79 31823
24
Total projected electricity consumption for 2021 for the purpose of calculating the
system administration rates shall be as specified below:
Self-production 1,057
Market consumption without self-production 66,886
Consumption for social rate excluding the Palestinian Authority 63,571
Consumption for system administration rates 67,943
1. Administrative costs and SAC costs:
a. The projected cost for 2021 will amount to 321 million NIS, including the following
components:
317 million NIS - system operation costs.
Of this, an amount of 146 million NIS was recognized for SAC activity in 2021,
and additional 10 million were recognized as yield conditioned on the equity
presented by SAC.
This amount includes the operating cost of SAC, as well as the operating cost of
the Company prior to its commencement of activity for the years 2019-2020.
This amount is based on the assumption that SAU will operate under SAC as of
1/9/2021. This assumption is based on the statement of the chairman and CEO of
the Company to the Authority that it will be ready to receive the operation of SAU
on this date.
Therefore, IEC shall transfer 9.3 million NIS to SAC each month between January
and August and 20.4 million NIS between September and December.
If SAU begins to operate under SAC at a different date, the amounts transferred by
IEC to SAC will be in accordance with the date of commencement of activity.
To clarify, the amount of 9 million NIS per month for January to August includes
the wage costs and operating costs of TOD, other operating costs, including the
costs of the Company's structure and regular maintenance, and return on capital, as
well as the operating cost of the Company in previous years amounting to 17 million
NIS (2019, around 5 million NIS; 2020, around 12 million NIS) in accordance with
the Company's statements. The amount of 18.5 million NIS per month for
September to December includes the aforementioned costs plus the wage costs of
SAU.
10 million NIS per year of the yield transferred by the Company to SAC is
recognized, subject to the actual equity presented by SAC. The Company will
transfer 300 thousand NIS to SAC for January to August and 1.9 million NIS for
25
September to December. These amounts shall be subject to cost control, as
aforementioned.
Furthermore, the Company shall transfer to SAC the full cost related to "pre-
projects for planning" and recognized for the Company through the network base.
The monthly transfer for pre-project planning costs shall amount to 2.4 million NIS
per month, considered as an advance. This amount shall be subject to cost control
by the Authority and updated through a compensation for arrears mechanism in the
following year.
The amounts transferred by the Company to SAC shall be subject to cost control
by the Authority, in both the mix and the needs and organizational structure
recognized by the Authority. If the payments component does not pass the
Authority's cost control, these amounts shall be offset in the following year with
interest and linkage, even if SAC spends these amounts in obligations towards
suppliers and in recruitment. This is in accordance with the current methodology of
"compensation for arrears" used by the Authority in its dealings with IEC.
4 million NIS - pension cost debt pay-off (Clarification 5).
b. The estimated cost for 2020 will amount to 380 million NIS, including the
following components:
226 million NIS - system operation costs. Of which, IEC shall transfer 6 million
NIS to the System Administration Company for December 2020 to cover the
operational costs for this month.
4 million NIS - pension cost debt pay-off.
150 million NIS - in accordance with Authority Decision No. 4 in Session 572 of
21/12/2019 regarding the "2020 annual update of the electricity rate for IEC
consumers", after obtaining the license and after the date of commencement of
activity by the System Administration Company, and no later than 7 days from the
date of commencement of activity, IEC shall transfer 150 million NIS to SAC to
finance the costs of construction, subject to cost control. This amount was collected
from electricity consumers in 2020 and accumulated at IEC.
According to this decision, and in accordance with Authority Decision No. 58307,
"Advancing payments to the System Administration Company" of 29/6/2020,
payment shall be actually transferred to the System Administration Company after
it commenced its activity, in according with the law and subject to cost control. In
26
December 2020, after the transfer of TOD operations to SAC, IEC transferred an
amount of 50 million NIS for construction costs to TOD.
The remaining amount should be transferred in 2021, with the transfer of the
System Administration Unit from IEC to SAC.
c. The final cost for 2019 will amount to 218 million NIS, of which 2 million NIS for
pension cost debt pay-off.
2. System balancing services
Frequency shedding agreements - frequency shedding agreements are intended
to protect the national electricity network from collapse due to a sudden failure of
production units. In such a case, consumers in the arrangement are automatically
shed from the electricity network for short periods of time in order to stabilize the
frequency of the national electricity network.
In Decision No. 5 in Session 418 of 23/1/2014, the Authority established a standard
for frequency shedding, according to which consumers under a frequency shedding
arrangement receive a frequency shedding rate of 20 NIS per shed kWh.
As of 2018, there are 34 facilities registered under the arrangement and the total
capacity available for shedding amounts to 395 MW. The arrangement has been
used 16 times in this year due to a frequency drop in the system.
3. Backup services
The calculation of backup in this decision for 2019 was made in accordance with the
updated peak hour calculation established in Session 553 of 24/12/2018, in Decision
No. 5 (1315) regarding the amendment of Decision 4 of Session 471.
For 2020 and 2021, backup was calculated in accordance with the methodology
established in the 2020 System Rate Base.
As a rule, the backup should be determined based on the competitive price of
facilities used for backup. For example, the price paid to privately owned facilities
used for backup should reflect an incentive to continue the operation of the facility.
However, the Authority established lower costs for backup units, among other
reasons, because of the current transition of the Israeli energy market from
concentrated production to competitive production, other technological changes, and
the introduction of renewable energy requiring higher reserves.
27
The projected cost of backup and generation services for 2021 is 531 million NIS.
This backup cost was calculated based on the updated projected peak demand data
received from the system administrator based on the December 2020 forecast.
Below is a summary of the recognition in the arrangements:
Arrangement name
Recognized
cost (million
NIS)
Voluntary shedding through the operation of
independent generators 6.4
Voluntary shedding 41.3
Total 39.8
1) Voluntary shedding using independent generators - Authority
Decision No. 1 in Session 145 of 13/7/2004 establishes an arrangement
for voluntary shedding using independent generators. This arrangement
is intended to provide for situations where electricity demand is higher
than the supply so that the demand cannot be satisfied. A response is
provided by consumers under the arrangement consuming electricity
from their own generators, or, alternatively, providing energy to the
network from their own generators. As a result, the consumer under the
arrangement reduces the demand for electricity from the national
electricity system and the probability of a supply failure.
In 2019, 267 generators participated in this arrangement with a total
capacity of 260 MW. In 2019, the arrangement was activated for 29 hours.
The suggested rate of participation for the arrangement is 32%,
generating, on average, 38% of the capacity. Because of the commitment
to pay a minimum of 50 hours, consumers in the arrangement were
reimbursed for 21 hours.
Costs incurred as a result of the voluntary shedding arrangement shall be
reflected in the system administration costs – overall system costs, as
these arrangements provide a high degree of reliability to all electricity
consumers.
28
2) Reimbursement of costs for voluntary shedding arrangement -
Authority Decision No. 1 in Session 379 of 16/7/12 establishes for the
first time an arrangement for voluntary shedding of large consumers. The
voluntary shedding arrangement is a tool provided to the system
administrator to manage high demand hours when there is risk of supply
failure or expensive supply. At such risk hours, consumers under the
arrangement are called upon to shed consumption. Consumers who shed
consumption at such risk hours are paid a shedding rate for each shed
kWh. The shedding rate changes in accordance with the notification time
given to the consumer, so that the shorter the notification time, the higher
the rate. In order to provide consumers with an incentive to participate in
the arrangement, they are guaranteed a minimum of operation hours at
the beginning of the arrangement.
In 2018, the voluntary shedding arrangement was applied to 132
customers. The arrangement was activated seven times in 2019 for a total
of 29 hours. Costs incurred as a result of the voluntary shedding
arrangement shall be reflected in the system administration costs – overall
system costs, as these arrangements provide a high degree of reliability to
all electricity consumers.
4. System services
a. The cost of market diesel fuel inventory in accordance with Authority Decision
No. 4 of 14/11/2016 shall be as follows:
1) Projected cost for 2021 – 84.3 million NIS.
2) Projected cost for 2020 – 83.7 million NIS.
3) Final cost for 2019 – 65.8 million NIS.
b. Additional cost resulting from changes in the loading order of coal units due
to environmental limitations – excess cost of fuels according to the calculated
difference between fuel cost without any changes to the loading order and the
fuel costs with changes to the loading order.
c. Obligation to purchase renewable energy:
1) The cost for 2021 includes 38 million NIS for radar financing costs for wind
turbine electricity production – in accordance with Authority decision of
19/5/2020 regarding "Rate for a wind farm with a capacity greater than 50
29
kW connected to the distribution and transmission networks and division of
the costs of the required technological solution for the adjustment of radar
systems of the Ministry of Defense due to the establishment of a wind farm".
2) Payment of premium for the prevention of pollution for producers of
renewable energy in the electricity market in the amount of 7.4 million NIS.
d. Fuel cost addition due to limitations imposed on the electricity market: the fixed
LNG costs include the cost of operation, leasing and loss that are not dependent
on the consumed quantity.
e. Refund for postponement of coal excise for 2019-2020: cost reduction for 2019
was specified in the 2019 Annual Update, concurrently with the postponement
of the increase in excise tax scheduled for March 2019 to January 2021. In 2019,
the recognized costs for IEC were reduced by a sum of 715 million NIS through
the system rate; in 2020, half of this sum was refunded with interest and linkage
in the amount of 367 million NIS, and the other half in the production segment
under the compensation for arrears segment.
f. Egyptian gas compromise agreement – in December 2019, the Company signed
a compromise agreement with Egyptian gas companies regarding a
compensation for the damages caused to the Company by the flow of gas from
Egypt in 2010, including half-year payments, with payments by December 2020
amounting to 125 million Dollars, or 384 million NIS, minus legal costs of 49
million NIS. In 2021, the payments amounted to 50 million Dollar or 170
million NIS.
g. Excess income from the sale of IEC stations – excess from the sale of Ramat
Hovav beyond the cost attributed to production (Clarification 12).
h. Examination of secondary fuel production capability – was established
according to normative cost and the rule that a diesel fuel capable unit should
be operated at least once every two months by diesel fuel in order to preserve
its secondary fuel production capability.
i. Social cost – the recognized cost for 2021 amounts to 280 million NIS due to
2019 costs resulting from the discount provided in the Electricity Sector Law
to electricity consumers as specified in the law and regulations.
1) The cost refund to IEC East Jerusalem (hereinafter: "EJE") for the discount
provided to needy electricity consumers in the distribution of this company
for 2019-2020, resulting from differences between projection and actual
31
consumption as well as from the estimate for 2020, shall be provided
through a reduction of 1.14 agorot per kWh for the first 300 GWh from the
"high voltage collective sale" rate (Table 5.2-1 in the book of rates tables)
that EJE is charged by IEC. This reduction shall be updated at the beginning
of each month in accordance with the last known index for that month.
2) The refund to EJE of 1.14 agorot per kWh for the first 300 GWh includes:
1) For 2019: 3.4 million NIS;
2) For 2020: no change in the forecast, therefore no refund cost;
3) For 2021: a forecast of 3 million NIS.
3) In accordance with Authority decision of 29/3/2020, costs in the amount of
27 million NIS shall be recognized for the Company in the annual update
due to offsetting of the social rate collected between 13/9/3016 and the end
of 2019 from EJE's debt to IEC. The deductions for 2020 shall be
recognized in the annual update of next year as part of the compensation
for arrears mechanism.
4) According to Authority Decision No. 11 of 12/6/2017, the social rate cost
shall not apply to consumption rates for the Palestinian Authority.
j. Pay-off of past debt for pension costs related to the production segment shall be
collected through the system administration rates, as this debt was created
between 1996 and 2016, before the introduction of most independent production
into the electricity market.
30
Clarification 8 - the electricity network - transmission and distribution
1. Below are the recognized costs for network segments without pension costs
(Clarification 5) and without compensation for arrears (Clarification 10):
Transmission
2019 2020 2021
Depreciation 841 832 845
Yield 466 446 449
Operation 408 417 444
Working capital 20 19 17
Total 1,747 1,715 1,756
Distribution
2019 2020 2021
Depreciation 51106 35111 85111
Yield 416 968 868
Operation 11061 1,114 1,136
Working capital 30 36 38
Total 26319 81319 31995
2. Operating costs
Operating costs were normatively determined in the Network Rate Base as
dependent on the length of lines and the scope of transformation for the entire year.
In addition, the costs of the difference between the operating costs for the normative
year and the Company's actual operating costs, as reported in the Company's
financial statements for this year in 2016, were recognized for IEC. The difference
cost amounts to 187 million NIS.
Below is the calculation of operating costs:
Transmission: Coefficient 2019 2020 2021
Fixed 6.19
Network length 0.7829 5,661 5,732 6,214
Transformation scope 0.3951 35,205 35,794 36,551
Efficient cost 335,828 341,352 366,646
Efficiency outline 53,029 53,029 53,029
Total recognized cost
per year 388,858 394,382 419,675
Linkage 4.82% 5.82% 5.82%
Cost after linkage 407,609 417,350 444,117
32
Distribution: Coefficient 2019 2020 2021
Fixed 9.53
Network length 0.2976 47,537 49,118 50,762
Number of meters 0.55 2,926,381 3,000,681 3,067,981
Efficient cost 897,921 919,389 939,920
Efficiency outline 133,341 133,341 133,341
Total recognized cost
per year 1,031,262 1,052,730 1,073,261
Linkage 4.82% 5.82% 5.82%
Cost after linkage 1,080,991 1,114,040 1,135,767
3. Capital costs
The recognized capital costs shall be updated in accordance with the actual
quantities for 2018 and the 2019 forecast; based on normative prices, the yield
calculation for transmission and distribution assets was calculated as follows:
2019 2020 2021
Substations 4,869 4,601 4,781
Switching stations and 400 lines 2,808 2,530 3,146
Extra-high voltage lines 4,186 4,566 5,513
Special depreciation assets 34 33 30
End-of-year asset cost 11,706 11,719 13,461
Average asset cost 11,540 11,680 12,590
Minus postponed tax 1,081 1,094 1,180
Transmission asset base 10,459 10,586 11,410
Weighted yield 4.6% 4.2% 3.9%
Debt capital share 2.74% 2.52% 2.37%
Equity share 1.83% 1.70% 1.57%
Return on assets 478 447 449
Return on debt capital 286 267 270
Return on equity 192 180 179
Working capital 553 553 553
Recognized interest 3.7% 3.4% 3.2%
Interest on working capital 20.19 18.59 17.47
Total return on transmission capital 496 488 488
Distribution networks
Assets 18,096 18,490 18,928
Average asset cost 17,890 18,243 18,709
Minus postponed tax 1,676 1,709 1,753
Distribution asset base 16,213 16,533 16,956
33
Debt capital share 2.74% 2.52% 2.37%
Equity share 1.83% 1.70% 1.57%
Yield 4.6% 4.2% 3.9%
Return on assets 741 698 667
Return on debt capital 444 417 402
Return on equity 297 281 265
Working capital 834 834 834
Recognized interest 3.7% 3.4% 3.2%
Interest on working capital 30.46 28.05 26.35
Total return on distribution capital 772 726 693
Depreciation for assets established up to 2016 was calculated based on IEC books.
Depreciation for 2017 and onwards was calculated based the recognized investments
and for a period of 35 years.
4. Incentives in the development of the transmission network
According to Authority decision in Session 558 of 13/5/2019, any deviation or
advancement of the schedules for completion of selected projects in the
development plan approved by the ministers on 22/2/2019 shall result in a decrease
or increase of the recognized cost relative to the period of deviation or advancement.
The decision applies to network components whose operation can only be delayed
by the minister (Section 3a of the plan) or the Authority Assembly (Section 3b of
the plan).
The Authority created a reduction/increase mechanism in the recognized cost to
provide the Company with an incentive to meet schedules.
In 2020, the decision applied to 5 projects, all of which were included in Section 3a
of the plan, whose operation can only be delayed by the Authority Assembly (as
specified in Table 1 below). There were no projects under the authority of the
minister in this year.
Below is a list of projects for the application of the fine-prize mechanism for
2020:
34
No. ID Name Description Project type Authority District
Line
length
(km/
MVA)
Completion
date
according to
development
plan
Actual
completion
date
Delay/
advancement
in months
1
WBO-011 Intersection for Harish
Intersection for Harish -
replacing wires
4391 Harish
Replacement Authority
Assembly South 4 30/05/2020 28/11/2018 -18
2
WBO-011 Intersection
for Harish
Intersection for
Harish - from
Jezreel-Caesarea line
Overhead
construction Authority
Assembly South 6 30/05/2020 09/09/2020 3.4
3
WBC-069 Harish -
internal
Harish - internal Construction of
transforming
station
Authority Assembly
South 011 30/05/2020 23/08/2020 2.8
4
WBO-427 Ramat
Hovav-
Be'er Sheva West line
Ramat Hovav-
Be'er Sheva
West line - reconstruction
Reconstruction
Authority
Assembly North 01 31/12/2020
31/12/2001
(forecast) -
Application of the decrease/increase mechanism to the above projects:
ID code Project Project
cost Credit Delay
Advancement/
postponement (days)
Increase/
decrease
WBO-011 Intersection for Harish - replacing wires 4391 Harish 5 0.01 - -549 0.03
WBO-011 Intersection for Harish - from Jezreel-Caesarea line 14 0.04 - 102 -0.07
WBC-069 Harish - internal 105 0.27 - 85 -0.45
WBO-427 Ramat Hovav-Be'er Sheva West line - reconstruction 72 0.18 - 0 0.00
Total 195 0.50 0.50 -0.49
Annual credit 0.50
Net credit 0.01
Change in recognized cost 0.00
As the above table shows, the calculation of incentives for meeting schedules does not
affect the recognized cost for 2020.
5. Innovation
Recognition in investment in innovation for efficient development of the network.
The Authority recognized an amount of 20 million NIS for IEC for the purpose of
investment in innovation to improve the transmission and distribution networks.
The cost shall be calculated at the end of the year subject to cost control and in
accordance with the investment model approved by the Authority Assembly in
2021.
It should be noted that this recognition shall be provided sparsely and in accordance
with the limitations specified in the Electricity Sector Law. The Authority shall
recognize innovation costs only in projects of special importance for the Israeli
electricity market or when the result is very likely to be appropriately beneficial to
35
Israeli electricity consumers, i.e. provides a used and useful service for the
consumers who finance these projects.
36
Clarification 9 - supply and consumption
The recognized cost for 2021 will amount to 897 million NIS based on the following
consumption rates:
Customer type Bill
frequency
Distribution
consumer
services
Supply
consumer
services
LTR and bulk extra-high voltage
consumers Monthly 1,001.19 145.81
LTR and bulk high voltage consumers Monthly 382.24 121.33
Low voltage consumers, with daily meter
reading (consumers with an independent
supplier using IEC infrastructure)
Monthly 265.71 121.33
LTR low voltage consumers, with monthly
meter reading (connection size of 3*100
ampere and more from IEC supplier)
Monthly 122.44 89.16
LTR low voltage consumers, with
bimonthly meter reading (connection size
smaller than 3*100 ampere from IEC
supplier)
Bimonthly 26.58 11.44
Unified rate (domestic, general, lighting,
low voltage bulk) with a connection size of
3*100 ampere and above
Monthly 130.24 89.16
Unified rate (domestic, general, lighting,
low voltage bulk) with a single-phase
meter installed
Bimonthly 8.26 11.51
Unified rate (domestic, general, lighting,
low voltage bulk) with a connection size
smaller than 3*100 ampere and a three-
phase meter installed
Bimonthly 9.57 11.46
Unified rate (domestic, general, lighting,
low voltage bulk) with a prepayment single
phase meter installed
Bimonthly 8.26 11.51
Unified rate (domestic, general, lighting,
low voltage bulk) with a connection size
smaller than 3*100 ampere and a
prepayment three-phase meter installed
Bimonthly 9.57 11.46
Addition to the fixed payment for
consumers with photovoltaic facilities 9.57 6.77
37
Clarification 10 - compensation for arrears and one-time arrangements
1. The cost of compensation for the different segments for failure to update the
electricity rates continuously in 2020 shall be as follows:
Segment Cost in million
NIS
Production* -491
System administrator* -1,279
Transmission -99
High voltage distribution 66
Low voltage distribution 17
*Including excess income for the sale of Ramat Hovav.
2. The recognized cost is calculated twice per month: on the 1st of the month,
following the changes in fuel prices, and on the 16th of the month, following
changes in the consumer price index and the average monthly wage for a salaried
Israeli employee. The consumer rate is updated in accordance with the annual
recognized cost once per year or at the earliest of one of the events specified in
Authority Decision No. 2 in Session 890 of 21/1/2014.
Differences between the recognized cost and the cost in the consumer rate for the
previous year are accumulated and refunded to the Company or to consumers at the
time of the annual update (hereinafter: "the Regular Compensation"); beyond this
cost, one-time settlements will also be included through this mechanism as
specified below:
Production Million
NIS
Regular 82
Excessive capacity and INGL fines 14
Updating the calculation of debt capital interest of the foreign
currency financing basket for 2018 -2
Cost refund for the Company (Section 3 below) 43
Scrubber capital costs for 2016-2018 11
Excess income from the sale of Ramat Hovav related to this
segment -639
Total production -491
System administrator
Regular -695
System rate update 2018 25
Past debt for social rate 27
Renewable premium update 2018 4
38
Excess income from the sale of Ramat Hovav related to this
segment -639
Total system administrator -1,279
Transmission
Regular 107
Siemens bribe compromise -13
GIS compromise agreement - payment 2 out of 2 -234
Structural change costs following the 2018 reform 41
Total transmission -99
High voltage
Regular 44
Compensation spread 2018: refund 3 out of 3 44
Total high voltage 87
Low voltage
Regular 5
Compensation spread 2018: refund 3 out of 3 14
Interest update for 2018 -2
Total low voltage 17
Total compensation -1,764
3. Cost refund for the Company – the recognized cost includes an addition to the cost
refund for the company not fully included in the production component - due to
price differences created following the acquisition of IPP energy from IEC at
EXPOST prices in case of deviations beyond 10% against the production
component that also includes fixed costs of electricity production in addition to
variable costs recognized for the Company for 2019-2020.
It should be noted, that in Session 573 of 27 January 2020, a decision was made
regarding deviations from a consumption plan entering into force on 1 September
2020 and expected to significantly reduce such differences.
The refund of these costs is attributed to the production segment.
This update does not recognize expenses for fixed capital costs for 2020 due to the
introduction of pumped storage purchasing energy from the Company at SMP
prices; these costs shall be reviewed as part of the next annual update following cost
control.
39
4. The final compensation for 2019 includes:
Segment Cost in million
NIS
Production* 404
System administrator* -649
Transmission 72
High voltage distribution 53
Low voltage distribution -43
*In 2019, the production segment included the excess income from the sale of Alon
Tavor; excess income attributed to the system administrator segment was presented
separately.
5. Components for 2019:
Production
Million
NIS
Regular -394
Non-depreciated cost refund for coal tugboats minus income from
their sale 16
Refund of loan to consumers for cancellation of the excise tax 367
Excess income from the sale of Alon Tavor related to this segment -165
Costs of preservation of Haifa C between 1/4/2018 and 31/12/2019 8
Costs of station D 111
Refund 2 out of 2: update for cancellation of past debt pay-off in the
system administrator rates for 2016 68
Refund 2 out of 2: refund for tax change in tax provision for 2010-
2016 112
Refund for tax change in tax provision for 2017-2018 and interest for
2017-2018 for the previous amount 73
Scrubbers 31
Cost refund for the Company (Section 3 above) 78
System administrator 3,3
System administrator
Regular -649
Total system administrator -649
Transmission
Regular 82
Siemens bribe compromise -26
Structural change costs following the 2018 reform 16
Total transmission 72
High voltage
Regular 10
Compensation spread 2019: refund 2 out of 2 42
Beit She'an industrial zone compromise 1
41
Total high voltage 12
Low voltage
Regular -58
Compensation spread 2019: refund 2 out of 2 13
Total low voltage -42
Total compensation -182
40
Clarification 11 - transferred energy and consumption distribution
In the production rate base, the Authority decided to update the consumption
distribution of all consumer groups once per year at the date of the annual update. The
need to update the distribution of consumption on an annual basis arises from the
expected changes in consumption patterns over time depending on economic variables,
prices relations between various DHCs and various voltages.
The distribution presented in the decision is based on the forecast for electricity
consumption distribution for 2021 calculated by the Company's statistical department
and projected infrastructure transactions of the system administrator.
42
Clarification 12 - the sale of IEC production units
As part of the IEC reform agreement approved in Government Decision 3859 of 3 June
2018, the Company was required to sell five production units.
On 3/12/2019, the possession of the Alon Tavor power plant site was transferred from
IEC to MRC Alon Tavor Power Ltd. for the price of 1,872 million NIS.
On 10/6/2020, the winner in the acquisition of the Ramat Hovav power station was
declared, Ramat Hovav Plant Limited Partnership, for a price of 4,257 million NIS; on
25/6/2020 the sale agreement between the parties was signed, and on 3/12/2020 the
Company received full payment and transferred possession of the site.
a. The income of IEC from the sale of the site in the amount of 4,257 million NIS will
be allocated as follows:
Section Million NIS in
current prices
The proceeds for the Company (against losing the site
and accompanying sale expenses) – this amount will
remain in the Company's possession and will not be part
of the recognized cost for rate purposes
11635
Excess income from sale of the station 43313
Total income for the Company at the date of the sale
(3/12/2020) 31318
1. The proceeds to the Company - against the sale of the site and the reduction of
production units on the Company's operating assets, the amount of 1,825 million
NIS from the proceeds of the sale will remain in the possession of the Company.
This amount is made up of the following components established after cost control
by the Authority:
Section Million NIS in current
prices
Non-depreciated capital balance in the books as
of the date of the sale 11853
Site land value (according to Authority decision
of 27/12/2020) 30
Estimated inventory components for delivery to
the buyer 103
Accompanying costs to the sale 41
Total costs recognized for the Company in
the production segment (against losing the
site and additional costs of the sale)
51631
43
2. Spread of excess income from sale of the station over two years
Beyond the costs recognized for the Company against the removal of the site from
the list of its operating assets and the additional costs of the sale, the Authority
reduces the recognized costs of the Company by 2,432 million NIS.
Due to the amount of the income from sale of the station, and in order to internalize
the benefit of the reform in addition to the cost of its implementation in upcoming
years, the Authority decided to spread the excess income over two years using the
equal fund method and deduct 1,278 million NIS this year (including interest
costs).
3. Distribution of the excess income from sale of the station between the different
segments
The excess income from the sale results from the expected profits of the site's buyer
from availability payments and the sale of energy attributed mainly to the
production segment. However, the sale of the site is part of a reform process that is
expected to benefit the entire electricity market, on all of its segments.
In order to achieve a balance, the Authority decided to deduct half of the amount
from the costs of the system segment and the other half from the costs of the
production segment.
b. The fixed recognized costs in the production segment will be reduced in accordance
with the decrease in the seller's capacity and updated in accordance with the reduced
sold capacity of 1,159 MW and will amount to 11,636 MW. Authority decision of
21/1/2015 regarding the annual update for 2014 specifies in Section 1n regarding
operational costs that fixed operational costs shall be calculated each year based on the
cost per kW established in the same decision, multiplied by the connected MW of the
facility for the same year.
The recognized capacity for the base year amounted to 12,090 MW. The decrease in
the operating costs in relation to the base year shall amount to 3.8%, compared with
an increase of 5% in 2020 and an increase of 10.7% in 2018 prior to the sale of the
stations.
Below are the capacities used to calculate the operating costs (in MW):
44
2010
capacity
(base year)
2018 capacity
(prior to sale of
stations)
2019
(weighted)
2020
(weighted)
2021
Alon Tavor 593 593 546 - -
Ramat Hovav 810 1,159 1,159 1,070 -
Remaining IEC
units
10,687 11,636 11,636 11,636 11,636
Total 12,090 13,388 13,341 12,706 11,636
Change compared
to base year
10.7% 10.3% 5.1% -3.8%
45
Clarification 13 - attribution of reform costs
The Authority determines that the accumulation of the reform costs by IEC included in
the recognized costs shall be as follows:
2018 2019 2020
Attributed segment
Production Retirement 92 131 161
Non-reception and cost
difference in the rate base - - -
Total 92 131 161
Transmission Retirement 33 31 36
Non-reception and cost
difference in the rate base 6 10 28
Total 28 40 65
Distribution Retirement 80 65 105
Non-reception and cost
difference in the rate base 29 44 59
Total 89 129 163
Consumer Retirement 35 35 44
Non-reception and cost
difference in the rate base 30 44 56
Total -108 -108 -108
Base difference -53 -29 8
Total operating 156 272 383
Construction
Production 38 36 48
Transmission 43 80 64
Distribution 84 90 111
Total construction 523 566 323
Total costs
attributed to the
reform
288 459 614
The decision regarding the reform of the electricity market specified that its savings
will finance the cost of its implementation in the next 8 years. This cost amounts to 6.5
billion NIS. Wage cost components shall remain fixed during this period and shall not
change. For this purpose, the Authority shall establish the accumulated cost of the
46
reform each year up to the aforementioned amount. Once the full amount is
accumulated, the Company's wage cost level will decrease, in accordance with the
provisions of the reform.