The Israel Electric Corporation (IEC) is a public, government company, generating and supplying electricity to all sectors in the economy. 99.85% of its shares are government-owned. Company activities include generation, transmission and transformation, distribution, supply, and sale of electricity. In March 29, 2013, IEC celebrated its 90th birthday, while maintaining and operating 17 power stations consisting of 63 generating units: 18 steam-fueled and 45 gas turbines, of which 11 operate as combined-cycle units. By the end of 2012, IEC’s installed capacity totaled 13,248 MW. The Company supplies reliable and high-quality electricity, complies with leading service standards, maintaining economic, commercial, and environmental principles. IEC currently employs 13,000 workers and provides service to 2.56M homes.
2012 - Development Activities
Over the last decade, IEC invested more than USD 10B in developing the electricity sector in Israel. Although government-owned, the capital needed to finance these investments was raised from independent sources and capital-raising in Israel and overseas. During 2012, its generation capacity increased by 489 MW. The transmission system of 161 KV above-ground lines was expanded and several uprating projects were completed. The length of active 161KV lines totaled 4,486 km., and 115 KV lines, 114 km. The length of 400 KV ultra-high voltage lines remained unchanged – 738 km.
The transformation system includes 10 switching stations and 191 sub-stations, of which 41 are privately-owned. By the end of the year, transmission capacity in the 400/161 KV switching stations totaled 10,150 MWA. Transmission capacity from high to medium voltage in IEC substations increased by 12% and totaled 16,627 MWA. The transmission capacity in the substations owned by Independent Private Producers (IPPs) totaled 2,825 MWA. By the end of 2012, the distribution system included medium voltage lines stretching 26,328 km; 46,848 distribution transformers of total capacity 22,492 MWA, and 20,161 km. of low voltage lines. The length of medium and high voltage underground lines reached 21,603 km., 46% of the total.
IPPs - High and Extra-High Voltage
The Electricity Sector Law permitted IPPs to enter the electricity generation sector since 1996, but few have done so, and the IPPs generation capacity in 2012 totaled about 500 MW. IEC’s National Dispatch Unit promoted negotiations to consolidate technological cogeneration agreements to purchase electricity totaling 1706 MW. The Unit handled over 30 requests from entrepreneurs interested in constructing power stations, 15 by solar technologies. In 2013, new generation units belonging to OPC and Dorad totaling a capacity of 1,290 MW are expected to be integrated into the system.
Revenue, Capital Raising, and Company Rating:
In 2012, Company revenue increased by 11.6%, compared with 2011, and totaled NIS 27.8B (about USD 7,451M). Nevertheless, IEC ended the year with a NIS 679M loss, primarily due to pensioners’ salary linkage to the CPI. The Company was rated abroad (correct to April 28, 2013): 1. Moody’s: Baa3/Negative Outlook. 2. S&P: BB+/Stable Outlook. The Company was rated in Israel (correct to April 28, 2013): 1. Midroog: Bond debentures not backed by government guarantee were rated Aa3 with a Negative Outlook. Bond debentures backed by government guarantee were rated Aaa.
2. S&P Maalot: (ilAA-)/ Stable Outlook. Capital Raising: During 2012, IEC raised some NIS 11,764M for investment in the electricity sector development and to fund the cost of surplus fuels: • Approximately NIS 8,919M were government-guaranteed, of which NIS 5,419M were a negotiable bond issuance for the local public, NIS 1,500M were a private bond issuance to institutions and NIS 2,000M from local bank loans. • Approximately NIS 2,845M were not government-guaranteed, of which NIS 1,857M (USD 500M) were bonds issued in the USA, some NIS 988M were private bond issuance to institutions and some NIS 0.5M (Euro 0.1M) from loans to finance emergency projects. Debt Redemption: During 2012, IEC paid off some NIS 3,818M, of which NIS 1,852M as local negotiable bonds; NIS 957M were private bond issuance to institutions, NIS 256M were government loans; approximately NIS 70M secured loan bonds; NIS 531M loans from overseas banks; NIS 146M from local banks, and NIS 6M as suppliers’ credit.
Electricity Demand and Peak Load
In 2012, peak demand occurred on July 19, 2012 and reached 11,920 MW – 7.7% more than 2011. Some 93%, 11,120MW, was supplied by the IEC. The generation capacity of company units totaled 61,074M KWh, an increase of 6.9% compared with 2011. Of the total generation capacity, 63.4% was generated by coal; 14.3% by natural gas (NG), 15.2% by diesel oil, and 7.1%, by fuel oil. Electricity demand in 2012 reached 57B KWh, an increase of 7.6% compared with 2011.The constant increase in electricity demand and the NG crisis aggravated the problem of low generation reserves, and forced the Company to confront a difficult challenge, due to the fear of inability to supply the electricity demand and to reach a situation of shortage. IEC is making unprecedented preparations not unlike a military operation and is converting power stations from NG to liquid fuels, requesting that the public delay operating energy-intensive appliances during peak hours. Summer 2012 passed without mishap, thanks to the cooperation between the Company and its customers, and due to early and precise planning.
Natural Gas (NG) in the Electricity Sector
2012 will be remembered as “The Year” in Israel’s electricity sector. According to plan, most of the electricity in the Company’s generation units was to have been generated by coal or NG, and only a marginal quantity consumed in peak demand hours by diesel or fuel oil. Due to the change of the Egyptian Government, as a result of the events of the “Arab Spring”, and the frequent damage to the NG pipeline in Egypt, the gas flow ceased completely and severely affected the Israeli electricity sector. IEC was forced to find alternative solutions for raw materials required to generate electricity, and returned to purchase more costly fuels than NG. Actually, although installed capacity of the NG power stations was almost half of the system, only about 1/6 of the annual energy was generated by NG.
Company expenses for purchasing fuels in 2012 increased by 52% and totaled approximately NIS 19.5B (compared with NIS 12.8B in 2011) due to the increased use of 747,000 tons of diesel oil, 1,305,000T of fuel oil, and 1,401,000T of coal; and a decreased use of 1,529,000T of NG.
The erection of a liquid NG installation and discoveries of new NG fields off the shores of Israel improved the Company’s fuel mix, especially with the flow of NG from the Tamar field at the beginning of 2013. The new fields are a reliable supply reservoir and will lead Israel into a promising future of energetic self-sufficiency.
Promoting Intelligent Use of Electricity and Energy Efficiency
In 2012, the IEC continued to promote the national plan for saving electricity, to prevent situations requiring demand-side management, to minimize the immediacy of adding generation units, and to instill sensible electricity-use habits. As part of the demand-side management policies, the Public Utilities Authority – Electricity established a periodic demand-reduction arrangement and optimization for summer 2012 for residential and general tariff electricity customers. The client circle that joined the demand-side management arrangement expanded, and by the end of 2012, totaled 1,049MW. IEC continued its activities to direct customers to energy efficiency and set up focused activities with the Local Government Center, the Israeli Energy Forum, the Kibbutz Movement, the Industrialists Association, and the Ministry of Education to instill the subject into the younger generation.
In 2012, 243 new automation units were installed in the Distribution Management System (DMS) (in total 3,650 automated units were integrated); from feasibility checks to real-time monitored grids; development of end-units to connect IPPs to the system was completed and the first producers were connected. During 2012, the Company prepared to implement the Smart Grid in the Benyamina-Givat Ada area to test its various technologies and to construct a center to demonstrate advanced technologies and an electric house. IEC was awarded first place for quality of service in a public institution for the 15th consecutive year, in 2012, according to the “Test of the Nation” survey by the Geocartography Company.
Structural Change, Organizational Change, and Efficiency Plan
The structural change in the electricity sector is a complex issue and has been on the agenda for over a decade. In May 2009, the IEC Management and the Workers’ Union agreed to begin negotiations with the authorized government authorities. In September 2010, the Company, government representatives, Workers’ Histadrut, and the IEC Worker’s Union reached a draft understanding. It was agreed that all the agreements and draft understandings (structural change, organizational change, efficiency, financial strength, and workers’ rights) be subject to agreement. To date, the parties have not reached a consensus and the changes have not been implemented. Since then, the IEC has continued negotiating with all the relevant authorities to reach an acceptable agreement.
The Business Development Unit operates under the direct management of the IEC Deputy CEO. Its objective is to expand the Company’s areas of business and exploit its professional expertise, skilled professionals, by-products, infrastructures, and other resources. The IEC regards the Unit’s activity as a future source of income, to contribute to its financial strength and profitability, and as an alternative source of income that will be lost with the introduction of competition to the generation section in Israel, limiting the Company’s future development. The Unit’s activity has a target of 20% of IEC’s annual sales (about NIS 5B), within five years. Most of the Business Development Unit’s activities are currently overseas, the FSU, Eastern Europe, Africa, India and South America. Furthermore, the Company sells professional services locally and to the Palestinian Authority (PA). The Unit’s activities are diverse, and include: construction and operation of power stations and other electricity installations overseas as a service provider; the sale of expertise, consultancy services, and engineering service in Israel and abroad (projects in 2012 in Angola, South Africa, India, Spain, and Greece); commercialization of by-products from electricity generation, such as coal ash, steam, different gases, etc.; intelligent use and rent of IEC infrastructure and other services, such as construction of electricity installations for the PA.
Total income from these activities in 2012 totaled NIS 155.7M. The IEC also promotes business development within the Technological Incubator (KARAT) for the Optic-Fiber Venture.
The IEC combines environmental concerns in all its activities, from the planning to the operational stage of installations and adopts advances in technologies to ensure continuous reduction of environmental effects on the electricity chain, taking the principles of sustainability into consideration. In 2012, the Company invested some NIS 790M on environmental-protection activities in its generation sites and running costs of an additional NIS 90M to comply with environmental-impact demands. In the Orot Rabin site in Hadera, the chimney construction was completed as part of the emission-reduction project in coal-fueled power stations, in which the Company invested NIS 8B (to reduce emission values of NOx and Sox under 200mg./m3). In 2012, IEC continued to reduce the magnetic fields in electricity facilities according to the “Precautionary Principle” and the “Non-Ionizing Radiation in Israel Act”. As per the request of the Knesset Internal and Environmental committees, in 2010, a guide for electricity facility designers to minimize magnetic fields in educational institutions was prepared. A guide for electricians to design an electricity connection infrastructure to minimize magnetic fields is in progress. In the Gezer Power Station, a pilot for the implementation of a green standard of construction in administrative building is currently underway. Technologies for recycling of construction waste are being implemented in this pilot: economy-saving lighting with maximum exposure to natural light and an economic air-conditioning system were installed; water-saving was achieved; and thermal and acoustic treatments were carried out in building shells, etc. The IEC also promotes a number of activities that contribute to preserving the environment: intelligent water-use in company sites; Total Waste Management; recycling of by-products from electricity generation – coal ash and plaster; implementing “green computerization”; encouraging workers and raising awareness to environmental issues involved in company activities; holding an annual internal competition on environmental-saving issues under the auspices of the CEO, and so forth. Among the activities to integrate installations based on renewable energies in the electricity grid, 8,500 small/ wind-turbines, small PV installations and five medium PV producers, with a capacity of 230MW, were connected by the end of 2012.
The IEC maintains a developed network of community work, believing it is its obligation and responsibility to the community. In 2012, the Company’s community activity focused on promoting energy efficiency, emphasizing the customer’s responsibility as an active partner, alongside the Company’s responsibility as an essential utility provider. Among the prominent activities in 2012: the “Green Business” plan in Beer Sheva; a program was especially developed by Eshkolot Pais; the unique cooperation with Ort Schools in a program integrating volunteering values in the community by disseminating the learnt material, with the professional expertise in energy efficiency; the program to integrate students into industry in collaboration with the Ministry of Education and the High School educational system; introducing the concept of energy efficiency at the Monart Museum in the new family wing; cooperation with the army to create a behavioral change in electricity use by soldiers’ integration in the Maale Leadership Group, as the first government member to join the forum. 1,550 schools in 170 local councils participated in the Nativ Haor Program that promotes safety and sensible use of electricity via fun-educational activities. Two thousand kindergarten children joined the program. This year, 280 company workers, 15 pensioners, and parents of the students from 25 towns also volunteered in this activity.
Risk Management and Continued Business Activity
Risks are an integral part of the business environment, work processes and business management in the Company and are affected by external and internal factors. In the second half of 2012, the IEC began implementing Stage 3 of the Risk Management Plan, established according to Government Companies’ Authority directives, which include defining and characterizing risk appetite for the Company; developing risk indexes; checking auditing processes to mitigate risks; risk management at the unit level and integrating a risk factor data system. Additionally, it began performing risk surveys to become the basis for mapping central processes and grade the risks to prepare a multi-year work plan for the internal audit. Along with and part of its preparation for crises, the IEC held a nation-wide emergency exercise to prepare for war emergency and participated in a national exercise “Turning Point 6” – together with government ministries, the National Emergency Management Authority (NEMA), the Home Front Command, The Ministry of Energy and Water, Fire and Rescue Services, and Magen David Adom.