Decision of the Electricity Authority of 27/12/2020 ...

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


IPP acquisitions

Cost without system administrator deduction 6 7,244

System administrator deduction 7 -2,395


System administration costs 7 3,236

Transmission


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


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:


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


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 - - - -




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%).


6.81% (instead of 7.34%).


be 4.22% (instead of 4.59%).


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%.


6.26%.


be 3.93%.


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


Acquisition obligation renewable energy IPP

acquisitions 1,643 2.56 11045

Wind radar 38 0.06 33

Acquisition obligation cogeneration IPP


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


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


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


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


low voltage bulk) with a single-phase

meter installed



low voltage bulk) with a connection size

smaller than 3*100 ampere and a three-

phase meter installed



low voltage bulk) with a prepayment single

phase meter installed



low voltage bulk) with a connection size

smaller than 3*100 ampere and a

prepayment three-phase meter installed


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


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


Beit She'an industrial zone compromise 1

41

Total high voltage 12

Low voltage

Regular -58


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


difference in the rate base 6 10 28

Total 28 40 65

Distribution Retirement 80 65 105



Total 89 129 163

Consumer Retirement 35 35 44



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.

Decision of the Electricity Authority of 27/12/2020 ...

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