Electricity Authority: Phoenix is not a competitive problem at the Dorad power plant

The energy market is dealing with a significant concentration problem, which has now been exposed again with the acquisition of Shikun & Binui Energy by the Generation fund and the prohibition on expanding the Dorad power plant due to the shares held in it by the large energy company Adeltec. Now, the Electricity Authority is giving a first hint regarding its attitude toward institutional entities, which hold a variety of production means in the electricity grid: Phoenix will not be a problem for the expansion of the Dorad power plant. Currently, this is a theoretical decision, as Adeltec is blocking the expansion anyway, but institutional entities are expected to receive more lenient treatment from the regulator compared to the energy companies that actually operate the power plants. This is despite the fact that Phoenix is considered a significant financial entity as defined in the Concentration Law.

According to estimates, in order to approve the acquisition of Shikun & Binui Energy, a number of structural changes and a "separation of forces" in PowerGen's holdings will be required: they signed a swap deal with Rapac, so that Rapac will receive shares of the Alon Tavor power plant in exchange for shares of Reindeer. The goal, from the regulator's perspective, is to prevent control by the same companies over too many power plants, which could create an incentive for "strategic" production planning in order to bring about a higher price level from which other power plants owned by the same companies would benefit. In addition, PowerGen signed a conditional deal with Nofar Energy, the new minority shareholder in Reindeer, under which Reindeer will be able to gain control of the Reindeer station alternately every 5 years at a valuation of 1.8 billion, thereby removing another asset from PowerGen's hands as they expand in the electricity market.

Blocking Adeltec

However, those who were actually blocked are Adeltec, controlled by businessman Uri Adelsburg, who hold 18.75% of the Dorad station. Despite the relatively low ownership rate, the regulators (the Competition Authority and the Electricity Authority) were concerned that Adeltec holds a stake in a huge number of power plants. These would allow it, apparently, to coordinate a reduction in production at the power plants, thereby raising the price in the market that the Electricity Authority pays to producers. According to the Competition Authority, a concentrated player has the ability to raise the price of electricity unilaterally, "through a strategic choice of the amount of energy that will be produced at the stations under its control." In this framework, Adeltec reveals itself as a player with potentially problematic potential.

Now, the Electricity Authority is publishing a decision approving the Competition Authority's recommendation not to expand Dorad. But within that same decision, a hint of what is to come is hidden: "After no concerns of economy-wide concentration arose that would prevent the participation of the concentrated entity in the construction of the station, the Authority determines that there is no impediment to approving the allocation of rights to the Phoenix group based on considerations of economy-wide concentration," write the Electricity Authority. And this is despite other holdings of Phoenix in the electricity sector: "The Phoenix group holds Reindeer Partners Limited Partnership, which holds the company Reindeer Energy, and also holds Reindeer directly," say the Electricity Authority (however, recently Phoenix sold this holding in exchange for a broader holding in all of PowerGen, which holds Reindeer, ed.) and add: "Likewise, the Phoenix group also holds storage facilities and facilities combined with storage in high voltage and extra-high voltage."

In the Electricity Authority, they do not detail the reason for the more lenient attitude toward Phoenix, and only say that "a response was received from the Concentration Committee according to which, after the committee's examination, it was decided that the committee would not advise on this matter regarding considerations of economy-wide concentration," meaning the Concentration Committee does not see a special reason to limit Phoenix here. It is possible that one of the reasons for this is practical: institutional entities almost never intervene in the direct management of the power plant, and do not tend to sit in their control rooms. This significantly lowers the competitive concern of the Competition Authority and the Electricity Authority. And in addition to this, the construction of power plants is necessarily a huge and capital-intensive project. Hence, a financing entity is required that can come from a partnership between several energy companies (which could create problems of conflicts of interest) or through financing by institutional entities. In the Electricity Authority, apparently, they prefer the second option.