RECO Finances Explained
Bay Islands Approved for New Tariffs and 150 KwH Subsidy

July 1st, 2010
by Jennifer Mathews Photograph by Benjamin Roberts

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Inside the RECO compound on May 21.

Inside the RECO compound on May 21.

Due to many recent questions raised in the Roatan community about raised RECO rates, the Bay Islands Voice held meetings with RECO president Richard Warren, finance director Luis Rodriguez, and general manager Matthew Harper to review RECO’s financial reports from 1996 to the present. Below are the findings from those meetings.

History of RECO and National Energy

Roatan Electric Company, RECO, is a privately held public utility. RECO began as a co-op; originally, the islanders were required to purchase a Lps. 100 share in RECO in order to have service connected. In April of 2008, Kelcy Warren, became 52% majority shareholder in RECO. The remaining 48% share is still held by more than 2000 islanders, many of whom may be unaware of their interest in the utility.

On a national level, The Electricity Law of 1994 assigned policy making to an Energy Cabinet chaired by the President of the Republic with the Ministry of Natural Resources and Environment (Secretaria de Recursos Naturales y Ambiente, SERNA) as its Secretary and Coordinator. A regulatory agency, the Comisión Nacional de Energía (CNE), was created to approve standards, monitor and enforce laws, and approve tariffs, among other duties. Additioanlly, a national utility Empresa Nacional de Energia Electrica (ENEE) provides expertise to the government for policy making and regulation.

How are the billing rates set and how are they changed?

The rules under which RECO must comply are set by CNE. By law, a tariff proposal must be submitted by the utility to the Energy Commission every five years. The review of the proposal and confirmation of expenses, capital contributions, operational efficiencies and practices is the responsibility of the CNE, whose main role is to ensure that rates are fair and reasonable. This process has not been completed for RECO since 1996.

Regulators have a responsibility to see that the energy provider covers its costs in order to ensure that the second function of the regulators is upheld – to ensure that the public has available reliable energy.

Tariffs are set for five years, however, the generation portion of the tariff, which amounts to about half of the total cost per KwH, is reviewed and appropriate adjustments made on an annual basis. The tariff process implies that RECO presents to CNE what it expects to consume, what the growth might be, how much additional generation will need to be added, where the growth will come from, etc., over the five year period. Investments must be made in advance in order to have the capacity available when it is needed. RECO needs to be able to generate sufficient revenues in order to have resources available for capital expenditures for additional generation, distribution upgrades and extensions, and in order to have the capacity available when the demand is needed.

Within the next year RECO must purchase and install additional generation capacity that will cost an estimated $6 million. That investment must be made in order to provide sufficient energy for the expected increase in demand due to growth in the island.

While the tariff rates have remained unchanged, fuel adjustment charges have been added to cover fluctuations in fuel cost without which RECO would not be able to provide energy to the consumers on the island. During 2009, RECO lost Lps. 34 million, according to audited financial statements. Since commencing operations in 1993, RECO has made a profit during three years; in 1997 (Lps. 1,706,764); 2003 (Lps. 547,746); and 2004 (Lps. 847,542). Over that same period it has lost a total of US $30,353,962.

In 1996, RECO’s direct operating expenses were $0.027 USD per KwH billed; In 2004, they were $.067 and in 2009, they were $0.084, all not including fuel cost, which today equals about US$0.20 per KwH. This is due to the increased expenses for labor, insurance, generation, and distribution.

In order to provide alternative energy solutions, RECO is making a $6 million dollar investment in renewable/ green energy. RECO has recently purchased 26 wind turbines which should be operational in about one year, according to Warren .

“We do not claim perfection, which eludes us all – but this company is an open book and you can bore yourself to death by coming in and looking at all our records”,” said Warren .

“I’ve been involved with RECO since 1992,” said Harper, “and it’s the entity on the island that people love to hate. It’s an escape valve.”

Comparitive Analysis

Compared to either Utila and Guanaja, RECO’s current residential rates are significantly lower, with 7.75 lps/KwH on Utila and 8 lps/KwH on Guanaja, as compared to RECO’s 5.25 lps/KwH.

It is also necessary to consider the historical value of the Lempira, particularly because the diesel which is purchased as fuel for the generators is purchased abroad and its value fluctuates with the changes in the global market. In 1996, one Lempira was worth more than $0.08; today, since then the Lempira has lost more than one-third of its value and is valued at just over $0.05 USD.

How does that affect the billing rate? Based on a standard average residential rate of 3.21 Lps/KwH, and converting that amount to USD based on the historical exchange rate in 1996, the inflation adjusted rate in USD in 1996 was approximately $0.26 per KwH. Today, including the fuel adjustment, the average residential rate per KwH in USD is $0.27. If you look at the numbers in dollars, RECO’s rate are extremely close to what they were way back in 1996; however the services being provided are greatly improved.

Coxen Hole teacher Caroline Larson remembers how only two years ago the power was out regularly from 1pm – 5pm. “There were many days we had to close school because it was just too hot. Now, we have power regularly.”

To put this into perspective, consider the following:

The amount of bananas that one could buy in 1996 with $1 would cost $2.10 today; $1 worth of Rice in 1996 would cost $ 2.33 today; $1 worth of Oranges in 1996 would cost $2.32 today; $1 worth of Peanuts in 1996 would cost $1.99 today; $1 worth of Electricity from RECO in 1996 would cost $1.42 today.

Government Subsidy

According to TV Channel 5, the central government approved the 150 KwH subsidy on June 2, 2010, in which the bills of Bay Islands residents who use less than 150 KwH per month will be subsidized with government money. According to Romeo Silvestri, this benefit stands to directly benefit up to 45% of RECO clients. On July 7, Richard Warren is expected to travel to Tegucigalpa to receive a formal resolution of the RECO tariff proposal from the CNE, and to learn about details of the subsidy, how it will be managed, and how this will be integrated into RECO’s changing financial structure.

According to Roatan mayor Julio Galindo, “The law is clear about the 150 subsidy. Honduran citizens have been eligible for this subsidy for many years. Regarding this law, now we in the Bay Islands are finally being treated as citizens.” [/private]

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