About the Electricity Authority

 

The Authority's vision

The Electricity Authority is committed to the consumers – to fair rates and to guarantee an advanced, efficient and green electricity market providing freedom of choice to all electricity sector consumers.

About the Authority

In 1996, the Israeli Electricity Market Regulatory Authority was was established. Its purpose is, among others, to balance between maintenance of a fair rate framework to be imposed upon electricity consumers, and support of private entrepreneurs in the field and the promotion of electricity production in a competitive and equitable manner.
To this end, the Authority has been granted the power to set the electricity rates for all segments of the market, to conduct cost control measures, to set rate arrangements and to issue operation licenses to entrepreneurs in the field. In addition to these tasks, the Authority is also charged with determining standards for the quality of service to which electricity consumers are entitled and it monitors the quality of service provided to various electricity consumers.

The purpose of the Authority according to the Electricity Market Law:

​“The object of this law is to regulate the activity in the electricity market for the good of the public, guaranteeing reliability, availability, quality, efficiency, while concurrently creating conditions for competition and minimizing costs.

A Public Utilities - Electricity Authority is hereby established, to act in accordance with the aims of this law and pursuant to government policy, to the policy of the Minister or the policies of the ministers subject to their powers under all laws in the field of the electricity market, and also to oversee the execution of the orders under this law and under the licenses and fulfill the tasks set for it in this law and delegated to it by any other law.” (The Electricity Market Law, 5756-1996)

"The mission of the Authority is to regulate and oversee the provision of public utilities in a vital sector – electricity. The oversight operations must be carried out at a high professional level while maintaining a balance of interests between consumers, the Electric Corporation, electricity producers and the State. The Public Utility Authority's tasks are defined by law, and include four main areas of activity: Setting rates; setting standards and criteria for quality of service; Handling the complaints of electricity consumers; issuing licenses."

"The Electricity Authority is the main factor acting to ensure fair rates, to minimize costs to consumers, prevent cross-subsidization in the electricity market and ensure a regular and fair supply of power to the market."

(Electricity Authority's report, 2011).

The Electricity Authority is, by the powers vested in it

The professional regulator in the field of electricity

The Authority sets all rates and payments in the field of the electricity market

The idea: An objective agency to oversee both the government-owned Electric Corporation and private actors for the benefit of the consumers – without conflict of interest.

A regulator of professional knowledge to create a fundable market.

The Authority issues licenses for activity in the electricity market subject to the Minister's approval and oversees all licensees.

A prevalent model around the world according to European directives

The core values of the Electricity Authority

Professionalism – The Electricity Authority acts out of overall professional considerations, and will not allow foreign considerations to affect its decisions, this while continually striving to expand and improve professional knowledge.

Reliability – The Electricity Authority is obligated to provide reliable and well-founded information.

Progress and excellence – The Electricity Authority strives to position the Israeli electricity market at the top of the list of advanced and sophisticated electricity markets in the world through the use of sophisticated regulation skills and excellent professional work.

Long-term overall view – The Electricity Authority acts out of an overall understanding of the needs of the energy market and in order to prepare a supportive infrastructure for the advanced future electricity market.

Service Orientation – The Electricity Authority acts for the benefit of the consumers while coordinating and cooperating with producers and the government, in order to guarantee a high-quality, reliable, and fairly-priced power supply.

Competition and Streamlining – The Electricity Authority acts to increase the market's efficiency while promoting a competitive market and streamlining the monopoly.

 

The Vardi Commission report which served as the basis for creating the Authority in the Electricity Market Law states that:

"There is no doubt that the conflict of interest, which exists today for the government as the owner of the Electric Corporation on the one hand and as the overseer of electricity rates on the other, creates a difficulty and a complication in these fields; and therefore the commission believes that the oversight of electricity rates and the protection of the consumer must be separated from the governmental oversight array and instead be placed in the hands of an independent public utilities authority, which will specialize in these areas and be vested with the power to set electricity rates while balancing the interests of all parties – electricity consumers, the Electric Corporation, its shareholders (the government), other electricity producers (competitors) and government authorities (the Ministries of Energy and Infrastructures, Treasury, Interior and Environmental Protection)."

  • Accordingly, Section 1 of the Electricity Market Law states that:
    "The object of this law is to regulate the activity in the electricity market for the good of the public, guaranteeing reliability, availability, quality, efficiency, while concurrently creating conditions for competition and minimizing costs."
    The role of the Authority is to represent the consumers and serve as an equitable regulator.
    The Vardi Report and the Czamanski Report recommended, among their other recommendations, to remove the setting of rates from the political rank and to place it in the hands of a professional and independent authority.
    The Electricity Market Law accepted this line of thought and in the explanatory remarks it reads:
    "The recommendation to establish the Authority is based on the concept that it is best for rates to be set in a professional and objective manner, on the basis of the cost of services and without any attendant considerations whatsoever." (pp. 450)
    "The Authority shall set the electricity rates and the service level of a vital utility provider licensee in an independent and objective manner." (pp. 458)
  • The law regulates the division of power between the Ministry of National Infrastructures and the Electricity Authority. The rate policy is derived according to all laws, as well as based upon the following main sections of the Electricity Market Law:
  • The object of the law – "to regulate the activity in the electricity market for the good of the public, guaranteeing reliability, availability, quality, efficiency, while concurrently creating conditions for competition and minimizing costs. (Section 1)
  • To approve development plans – the Minister, in consultation wth the Authority, may require a vital utility provider licensee to submit to his approval a development plan, in the manner and time required, in part or in whole, for the purpose of his activities under the terms of the license." (Section 19a)

The tasks of the Authority:

  • Setting rates and the means to update them
  • Setting standards for the level, the quality and the nature provided by a vital utility provider licensee (hereinafter standards) and oversight of his discharge of his duties according to the standards
  • Issuing licenses and oversight of the fulfillment of conditions set therein

Setting rates:

  • The Authority will set the rates based on the principle of cost while taking into consideration, among other factors, the type and level of services; Each price shall reflect the cost of the service in question, without reducing the price of one at the cost of raising the price of another. (section 31a)
  • For the purpose of setting rates, the Authority shall monitor the costs of vital utility provider licensees; the Authority may disregard, for the purpose of setting rates, expenses, in part or in whole, which it believes not to be necessary for the discharge of the vital utility licensee's duties (section 31b)

Principles of setting electricity rates:

  • The rate shall reflect the recognized costs after oversight
  • Minimization of costs as required by the Electricity Market Law achieved over time.
  • Basing upon normative costs inasmuch as possible.
  • Incentivizing the company to streamline.
  • Reducing cross-subsidization between various consumers.
  • Preparing infrastructures for structural changes pursuant to law and the promotion of competition.
  • Internalizing external impacts (such as the cost of pollution prevention).
  • A public hearing process and balance in making decisions.
  • Transparency in the Authority's work in the course of decision-making.
  • Acting according to law, including the Electricity Market Law which regulates the activities of the Authority.
  • Professionalism and independence in the decision-making process.
     
    Regulation has become a prominent term in the public discourse. As such, regulation is required to be dynamic; however, the tradition of regulation in the world is not long and is not established as an exact science. It requires study and and learning through trial and error, while receiving and internalizing data from internal and external systems, in a process of mutual inspiration, and the Authority indeed encourages the submission of opinions and comments from the public.
    The vast majority of the Authority's decisions are subject to an  open public hearing and are published to the public at large in request for comment. The philosophy guiding the regulator's work is simple in essence: The regulator makes decisions and passes them on in a transparent, clarified manner to the public at large, this in order to elicit a response which may inspire the decision-making process.