Israel - Electricity rate to rise 6.3%

The Public Utilities Authority (Electricity) plenum yesterday approved a 5.5% hike in the electricity tariff, which will come into effect on Thursday, May 16.

The hike is less than the 6.5% hike expected, because the strengthening of the shekel against the dollar made a last-minute reduction in the rate hike possible.

However, the electricity tariff for households will rise by 6.3% to NIS 0.5403 per kilowatt/hour, and to NIS 0.6321 per kilowatt/hour, including VAT. The tariff will rise by a further NIS 0.005 in June, when the VAT hike from 17% to 18% will come into effect.

Electricity tariffs peaked at NIS 0.6388 per kilowatt/hour in 2009.

The latest rate hike brings to a peak the wave of hikes which began with the cut-off of Egyptian natural gas in early 2011, which forced Israel Electric Corporation (IEC) (TASE: ELEC.B22) to use more expensive diesel and industrial oil to generate electricity. Since May 2011, the electricity tariff has been raised by over 30%. The extra cost of electricity which has been rolled over on to consumers is estimated at NIS 8 billion, and will only be full covered by 2014. For this reason, despite the start of gas flow from the Tamar field, it will not be possible to begin cutting the electricity tariff before 2015.

There has been no formal investigation into Israel's preparations in the event of a cut-off of Egyptian gas, nor have any lessons been drawn by the government from the crisis.

The Public Utilities Authority says that there will only be a new review of electricity rates this year if there is a major change in the shekel-dollar exchange rate or in the cost of fuels for the generation of electricity. It defines a "major change" as a 3.5% change in the electricity tariff. In the absence of such a major change, the next update in the electricity tariff will be in April 2014.


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