In an interim report, the Yogev Committee said IEC, Israel's electricity monopoly, should sell plants that generate more than 2,000 megawatts of electricity.
Such a sale would drop its production share to less than 60 percent. Ori Yogev, a Finance Ministry official who heads the panel, said the reform would create competition and lower prices for customers while making IEC more efficient and profitable.
Such reforms have been tried numerous times but ultimately failed due to stiff resistance from IEC's powerful labour union. Yogev said IEC must survive without having to constantly raise electricity tariffs.
IEC, which for decades has been responsible for nearly every aspect of electricity in Israel, has accrued about 71 billion Israeli shekels ($20.4 billion) in debt and has been kept afloat by repeated bond offerings, many with government backing.
Over the past two years IEC's fuel costs soared after a halt to natural-gas supplies from Egypt. That led to IEC using more expensive fuels, prompting steep electricity price hikes to customers.
IEC fuel costs fell in 2013 due to the start of natural gas production at the large Tamar well off Israel's Mediterranean coast but the company remains in poor financial condition.
Under the proposed reform, IEC would also sell real estate assets and 15 percent of its own shares on the Tel Aviv Stock Exchange. The Yogev Committee believes the Israeli electricity market could be fully restructured by 2025.