Israel's High Court lets price-hike suit proceed against natural gas companies

For the plaintiffs, a group of private Israeli citizens, the issue at hand is whether Israeli consumers, via the public Israel Electric Corporation, are paying too much.

September 29, 2017 01:10
3 minute read.
natural gas

Israeli natural gas field in the Mediterranean. (photo credit: MARC ISRAEL SELLEM/THE JERUSALEM POST)


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Israel’s High Court of Justice ruled Thursday that a lawsuit alleging price gouging against the group of companies pumping natural gas off Israel’s coast can proceed on antitrust grounds, and returned the case to the District Court.

The consortium of gas companies – Noble Energy, Delek Drilling, Avner Oil Exploration, Isramco Negev 2 and Dor Gas Search – had filed an appeal of a 2016 District Court decision against them, arguing that the District Court was wrong to allow lawsuits on the price of gas to proceed because the government had approved the natural gas plan. Given the antitrust scrutiny, contracts had been approved by a host of regulators, and a prior High Court of Justice ruling had determined that the natural gas plan was legal.

Justice Anat Baron rejected the appeal, however, saying the issue at hand was whether the case, which pertains to whether the natural gas price set by Israel Electric Corporation is too high and whether the consortium is abusing its monopoly, could be argued in court. The High Court declined to rule on those questions, instead permitting a class-action suit against the companies to be addressed in a lower court.

In essence, the High Court ruled against the gas companies when it comes to hearing the case but, in terms of substantive questions, little to nothing will change regarding the natural gas operations and it is likely certain that the contract with the natural gas consortium will stand, an executive from one of the companies told The Jerusalem Post.

The legal wrangling could continue for more years, however.

“Opening up the question five years later and trying to discuss whether the regulator was right or wrong, is hard,” said Miki Korner, an energy consultant who previously worked as public regulator for the Natural Gas Authority.

“So, why the hell do they spend the public’s time discussing something irrelevant and reviewing the many decisions approved by the government? It’s irrelevant,” he said, urging that the lawsuit should be dropped.

By returning the case to lower court to be argued again, the High Court decision is reaffirming that the natural gas consortium got requisite regulatory approval, the gas-company executive claimed.

“Everyone in charge of reviewing the contract said it was fair. So the High Court is saying to the judge in the lower court, ‘You made a mistake.’ There is no gap between the approval [regulatory process] and the contract [signing], he said.

“The motion wasn’t accepted to dismiss the lawsuit, but the court said we don’t want to make the decision… hear the case again and remember the facts.”

For the plaintiffs, a group of private Israeli citizens, the issue at hand is whether Israeli consumers, via the public Israel Electric Corporation, are paying too much for what is being produced from country’s only natural gas field, Tamar, which is operated by Noble Energy.

About 25% of power plants in Israel are private; if they purchase gas directly from a supplier such as Noble Energy, they pay around $4.70 per MMBTU (million British thermal units – the unit by which natural gas is measured). IEC, which serves most Israelis, however, is paying the consortium around $5.50 per MMBTU.

According to Korner, the regulator may have erred when approving the contract in 2012 in not allowing the IEC to get a cheaper price, saying the regulator may have thought the lower price would give IEC an uncompetitive advantage over private-sector power suppliers.

Some 65% of Israel’s electricity comes from natural gas, and fluctuations in gas prices affect most how much Israelis pay per kilowatt hour in their electric bills.

The final version of the contract between the IEC and the natural gas suppliers provided that the natural gas price would not be linked to the price of crude oil but rather to the US consumer price index, a decision criticized by some energy consultants. Had the natural gas price been indexed to oil as originally proposed, consumers would have saved much more since crude hovers under $53 a barrel today as opposed to closer to $100 in 2012 when the contract was signed.

Many foreign banks financed development of Tamar based on the $5.50 per MMBTU price and, according to the 15-year-contract with the IEC, the price of natural gas cannot be renegotiated until 2021.

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