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Analysis of regulatory framework of electric

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essential changes

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Discussion

Analysis of regulatory framework of electric power market in Honduras:

Promising and essential changes
Wilfredo C. Flores*
Ente Operador Regional, EOR, Diagonal Universitaria, San Salvador, El Salvador

a r t i c l e i n f o a b s t r a c t

Article history: The Honduran legislation allows the creation and operation of an electric market that recognizes private
Received 9 September 2011 participation in generation, distribution and free access to the transmission grid. However, such legis-
Received in revised form lation has not been implemented to its fullest causing that the electric market in Honduras to be poorly
22 November 2011
developed, with the investments needed for its suitable operation delayed.
Accepted 23 November 2011
The following paper presents a summary of the Legislation and structure of Hondurass electric market
and the weakness in the current regulatory framework.
Keywords:
Additionally, suggestions for possible regulatory changes, which are needed to improve the electric
Energy policy
Honduras
market, are established. These changes must be consistent with the standards found in any process of
Regulatory framework buying and selling a commodity, especially one so essential and strategic for the development of any
Regulation Nation, as is electricity.
2011 Elsevier Ltd. All rights reserved.

1. Introduction Company (ENEE). So, even though free competition in generation is

Honduras is located in the middle of Central America, with
a current population of 8.2 million inhabitants and a 2% annual
population growth rate. The country is considered to be the third
poorest in Latin America (CEPR, 2009). Its electrical grid has 1,133 Km
of lines of 230 kV, 919 Km of 138 kV, with its respective distribution
lines of 13.8 kV and 35.5 kV voltage levels, with two international
interconnections of 230 kV with El Salvador and Nicaragua.
The country has a net energy consumption of 6722 GWh
(by 2010) and a constant rise of energy demand of 4e5 percent
annually. Despite its economic situation, Honduras has enough
natural resources suitable for energy self-sufciency, either by the
use of hydroelectric resources, whose theoretical potential is esti-
mated at 5000 MW or the use of its solar energy potential, which is
feasible up to 51 MW (ECLAC and SICA, 2007), among other sources
of renewable energy.
Regarding the electricity market, the Honduran legal framework
(mainly Act No. 158-94) (ENEE, 2010) allows private investments in
the electric power industry (EPI), which theoretically may partici-
pate in generation and distribution levels. Additionally, private
investors free access to the transmission grid is allowed by the Act.
In spite of such legal framework, the EPI is currently based on
a vertical integration feature mainly lead by the Public Electricity
* Tel.: 503 2208 2364; fax: 503 2208 2368.
E-mail address: wilfredo.ores@daad-alumni.de.
allowed, the distribution and transmission segments are exclu-
sively lead by the government.
One of the main problems of such institutional framework is
that the organizational structure of this government utility is
obsolete and urges a change to allow a more exible administra-
tion, more oriented to technical activities. A study of Energy Sector
Management Assistance Program (ESMAP, 2010), established that
ENEE lacks of a strategy of management, an organization and
oriented e corporative approach to integral client attention and
commercial management. In this scenario, ENEE is vulnerable to
direct political intervention, without considering technical and
economic criteria in the decision-making process.
Throughout the last 17 years, the Honduran State has made
several long-term thermal generation agreements, which were
based on weak criteria of energy emergency conditions (Decree
PCM-12-2007) (PCM-12, 2007). Through these agreements the
buying of energy has been directly approved without an appro-
priate bidding process that could have allowed better contractual
conditions in the electricity purchase agreements and technical
issues (TSC-07 2009). This situation has forced the energy sector to
have a power generation system mainly based on two third parts
of thermal generators, which operate with fossil fuels, under
long-term Power Purchase Agreements (PPAs).
These PPAs have forced ENEE to postpone necessary invest-
ments in control, such as a new and modern SCADA, and invest-
ments in transmission and distribution infrastructure, mainly due

0957-1787/$ e see front matter 2011 Elsevier Ltd. All rights reserved.
doi:10.1016/j.jup.2011.11.006
 W.C. Flores / Utilities Policy 20 (2012) 46e51
to the high costs of buying energy and low prices to sale it. Thus,
this lack of investment makes it impossible to improve the grid. In
this scenario, it is required to add the critical condition of high
technical and non-technical losses essentially focused at distribu-
tion network (26% by 2011).
This is why the reliability of the distribution and transmission
grid has been reducing year by year, with power transformers
working over operative limits, high levels of congestion in distri-
bution and transmission lines, and persistent power outages
around the country. Therefore, the current poor reliability and
power quality is a direct consequence of the lack of investments in
the grid. However, this scenario is a perfect breeding ground to
create a more liberalized environment in the Hondurass EPI.
Another factor to consider is the regulator of the EPI, the
National Energy Commission (CNE), which lacks of policy and
budgetary independence because the three commissioners that
lead this institution are appointed by the President of Nation and its
small budget depend on National budget, with which the CNE has
no ability to effectively impose technical standards. Also, Pollitt and
Stern (2011) have recently shown that professional staff numbers
working at electricity regulatory body is a key problem in Hon-
duras, because from a survey of total staff numbers in 21 National
Latin American and Caribbean Electricity Regulators by 2006, the
regulatory body of Honduras was ranked under 25, with which
from the point of view of human resources the weakness of the
Honduran electricity regulator is revealed.
Thus, in spite of having a perfect breeding ground to create
a more liberalized environment in the EPI, without an effective
regulation and a strong regulator is not possible the success of any
privatization process (Pollitt, 1997).
Currently, other main problem for the nances and efcient
performance of ENEE is the contract for reading, billing and
collections signed since 1999 with the company Service for
Electrical Measurement of Honduras (SEMEH), with which these
services were leased. The contract establishes several improve-
ments that SEMEH shall make, but until date no one of these has
been done. In spite of last, the contract remains in effect mainly
due to political reasons.
This paper shows the weaknesses in the regulation of the EPI in
Honduras, ones that the author has observed during his career of
more than 15 years in the energy sector of Honduras and recently
within the Central American electricity market. Several solutions
are proposed, in line with the reality of the country, considering
criteria to improve the electric market in Honduras, either those
that have been proposed by other authors (ESMAP, 2010) or are the
result of the authors experience (Flores et al., 2010, 2011).
This paper is not intended as a guide to follow for future
investments in the electricity sector in Honduras, but as an analysis
pause in the analysis of the regulation of a market with high
potential and opportunities for local and regional investments. Also,
is not intended as destructive criticism. It is a constructive review to
clarify the way forward to achieve an efcient electric market,
allowing competition from various national and regional stake-
holders, to improve power quality and to produce prots and not
losses to the country.
The paper is divided as follows: Section 2 presents an overview of
the electric power market in Honduras, with emphasis on current
legislation framework and sector structure, highlighting the
inherent weaknesses. It also shows a summary of regional regula-
tion and Regional Electricity Market (MER), given that the country is
also under the rules of this market by the Regional Electricity Market
Regulation (RMER) (RMER, 2011). Section 3 proposes solutions to
weaknesses shown in the document, considering the authors
experience and solutions proposed in other works. Finally, Section 4
shows the conclusions.
47
2. Electric power market in Honduras: current legislation
framework and structure
2.1. Highlights on the electricity act and its regulations
With the idea of creating a reform that would promote private
participation in generation and distribution, and due to the
continued energy rationing experienced on 1993e1994 period, in
1994 the Government of Honduras adopted the Electricity Act
(LMSE), Decree No. 158-94 (ENEE, 2010), whose regulation (RLMSE)
was adopted 3 years later (Agreement No. 934-97) (RLMSE, 1997).
This Act introduced changes in the sectorial management, creating
the Energy Cabinet, formed by four Ministers and chaired by the
President of the Republic, responsible of electricity market policy-
making. Also, the Act established the National Energy Commis-
sion (CNE) as a regulator of the EPI; it denes the general rules of
electric power system operation and sets the tariff regime.
The reform under the LMSE was partially implemented, making
the model in a single buyer (ENEE), with ENEE controlling the
operation, distribution, transmission and part of generation and
with one authorized regulator by law to issue faint regulations and
limited autonomy. Since that time, ENEE has obtained all the
capacity additions through contracts with private generators (PPA),
mainly of thermal nature, with internal combustion engines based
on fossil fuels. However, PPAs that were hired during the beginning
of the reform were expensive and with clauses that made them
very inexible.
Regarding the tariff regime, the Act establishes that nal
consumer tariffs should reect the marginal cost of supply, plus the
total transmission cost and distribution value added. Tariffs appli-
cable to sales to a distributor are based on the concept of busbar
tariff, determined as the average marginal cost of a ve year period.
The procedure for calculating busbar tariff must be set by CNE,
which must make it of knowledge for all stakeholders within the
electricity market. Tariffs are valid for ve years, but can be auto-
matically adjusted each year to compensate either for changes in
fuel prices or ofcial exchange rate that cause changes of 5% or
more in rate to the consumer. The current tariff regime only
distinguishes by consumption sector (household, industrial, etc.),
by voltage level (low and high) and by monthly demand for
household users. Tariffs are single-control,1 except for industrial
service that has separate charges for power and energy. Therefore,
the current tariff structure is applied equally throughout the
national territory and users in rural areas are billed according to the
rate that corresponds to the tariff regime.
One of the weaknesses of this tariff regime is that it does not
promote mechanisms of Demand-Side Management (DSM) and does
not apply an hourly rate system that allows other ways to manipulate
demand peaks, with which the power system stress could be
reduced during peak demand and encourage rational use of energy.
It is worth mentioning that nowadays it is necessary to imple-
ment a geo-referenced information system for management of
ENEEs users and assets, i.e. quantity of poles, transformers, etc.,
and a smart metering system for large and main users. The tech-
nology of smart meters could lead to a wide range of products and
intensify competition (Wissner, 2011).
Tariffs should reect the real cost of energy, so that the
production and distribution of this energy may be carried out in an
efcient way. Thus, it is essential to review the current tariff regime
in order to make it more dynamic and allow an economic signal
1
The fee consists of a single charge which includes xed costs (related to power
system capacity) and variable costs (related to the power system use) for the
service of a particular rate group.
48 W.C. Flores / Utilities Policy 20 (2012) 46e51
that supports the necessary investments in transmission and
distribution, and promotion of rational and efcient use of energy.
On the other hand, Article No.6 of LMSE and Articles No.3 to No.6
of RLMSE establish the procedure and characteristics that must be
met for the establishment of the EPIs regulator, CNE, among which
is the formation of triples for the selection of the professionals that
could be part of CNE. These professionals must have experience in
the Hondurass electric industry and no relationship or interest
with companies involved in the electric power market. However, in
1998 Article No.6 of LMSE was amended by Decree No. 131-98 (DE-
131-98, 1998), which provides, among other things, that CNE will be
leaded by three members and two alternates, appointed by the
President of Honduras on the recommendation of the Minister of
Natural Resources and Environment (SERNA).
In the long-term this reform came to weaken, from the technical
point of view, the functions of CNE as any natural person may be
appointed such as Commissioner, without having the necessary
knowledge and background on the EPI. Similarly, the reform
promotes a possible conict of interest in the Commissioners gure,
because that does not disable the person to have links of business or
economic nature in the Honduran electric power market. The
reform also created an unfavorable political dependence for
a regulator whose main aim should be to regulate the contracts of
purchase and sale of energy, establishment of tariffs regime, safety,
power quality and reliability in the electric power market, with
sufcient independence to implement a regulatory framework
based on fair rules, clear and long-term, which encourage local and
regional private investments in a market that seeks the social
welfare for all stakeholders.
Given this unfortunate reform on the Act, it becomes indis-
pensable to amend its regulation because the aim of Act was
changed by that and other reforms made to it.
It is worth mentioning that there are regulatory standards of key
importance and relevance that have not been approved to date.
Article No.7 of Electricity Act, LMSE, states that CNE must approve
various regulatory standards regarding power quality, safety,
reliability, equipment for suitable operation of power system
and distribution planning. Because of this situation, there is no
specic regulation to create a reliable and efcient environment in
the countrys power generation and distribution network. One
example, is the lack of regulation to solve or avoid problems related
to power quality, e.g. ickers, harmonics, etc., as well as mecha-
nisms to force private generators to participate in ancillary services,
e.g. frequency control, reactive power, etc.
Finally, a key issue related to the implementation of existing
legislation, is such mentioned in Article No.20 of Constitutive Act of
ENEE (Decree No.48) (Act of ENEE, 1957), which species that the
appointment of ENEEs general manager shall lie in someone with
strong administrative and technical background, experience and
academic qualications in the eld, requisites that only have been
met once since the creation of ENEE in 1957.
2.2. Act of promotion to electric power generation based on
renewable resources e Incentives act
In 1998, an Act concerning with incentives to power generation
from renewable resources was approved (Decree No. 85-98 and
Decree No. 267-98) (Act 85-98, 1998; Act 267-98, 1998), with the
aim of changing the local energy mix, which is mainly fossil origin.
However, the Act did not succeed because private stakeholders did
not perceive then the incentives that Act enacted. Therefore, by
2007 the Act of Promotion to Electric Power Generation from
Renewable Resources was published (Decree No.70-2007) (Act 70,
2007), known as Incentives Act, which was promulgated because
the need to reactivate the investments to change energy mix, with
the aim to produce more electricity through the broad amount of
indigenous renewable resources. The Act promotes incentives
related with taxes exemption for equipment, materials and
services, which are intended or directly related to power genera-
tion development based on renewable resources. At same time, it is
mandatory for ENEE to buy energy to such projects and offer to pay
a plus up to10% above the marginal cost approved by CNE, during 15
years for projects below 40 MW and 20 years to larger projects.
Supply contracts have duration up to 20 years for projects up to
50 MW and 30 years for those exceeding such capacity or are part of
ood control. Similarly, by amendment of this Act by mean the
Decree No.194-2009 (Amendment to Act 70, 2007), the State of
Honduras, through ENEE, became in signer of projects that qualify
for the Incentives Act, with which these projects have assured their
investment and possible funding. On the other hand, Incentives Act
allows such renewable projects to sell their production to buyers
outside the country, at regional electricity market.
It is worth mentioning that the above and almost all amend-
ments made to laws related to electricity power market in Honduras
are made without the participation of a large part of stakeholders.
Hence, these amendments mainly arise due to political issues. So, in
many cases CNE and SERNA have marginal participation in the
laws enactments process because this is done mainly either by
the Congress, by the President of the Republic or by Ministers
Agreements.
Incentives Act and its reform have made local private enterprise
increase their interest in investments on power generation based on
renewable resources, so much that recently there was tender and
award PPAs by nearly 800 MW of hydro, biomass and geothermal
nature, to be added to power system in medium and long-term.
The aim of the Incentives Act is to encourage the use of renewable
energy of any primary renewable resource. However, the Law is
mainly biased to water resources; it is very ambiguous and restrictive
to incentives for the development of other technologies, e.g. wind,
solar, tidal, etc. It also creates a legal ambiguity regarding to devel-
opment projects that use geothermal resource as primary source,
which should have its own legislation, given the uncertainty
inherent in such projects and the management of the primary
resource, which requires a special legislation. Similarly, the Act does
not consider encouraging the development of other technologies,
e.g. sea wave. Therefore, it is necessary to review the Incentives Act,
since Honduras has signicant potential for several renewable
energy sources that are not included in the Act or are included but in
an ambiguous way. Reference Pampagrass (2009) is very useful for
more scrutiny of the renewable energy potential of Honduras.
On the other hand, Incentives Act allows that energy efciency
projects that do not use renewable resource as primary energy
been benet from the incentives that Act promotes, i.e. projects
that use waste heat from internal combustion engines based on
fossil fuels. From the latter, arise the need to create an Act to
promote Energy Efciency, which will cover that and other related
projects, thus avoiding the current ambiguities that allow unnec-
essary abuses.
Finally, in the matter of tax exemption and all the benets
promoted by the Act and the conict that this creates in a country
with a pronounced social inequality, it is the subject of further
analysis not covered by this work. However, due to the institutional
weakness in the country, it could be needed those benets
promoted by the Act. Nevertheless, at least a trade-off analysis of
this issue has to be running at short.
2.3. Structure of the Honduran electricity market
The structure of the electric power industry is closely related to
its laws.
 W.C. Flores / Utilities Policy 20 (2012) 46e51
As seen in previous sections, the Government electricity utility,
ENEE, is subject to regulation by the National Energy Commission,
CNE. However, in the regulation there is some overlap in the
regulatory functions with other entities. The signing of contracts
and environmental licenses of power generation projects is
a responsibility of Ministry of Natural Resources and Environment,
SERNA, and the National Congress approve such contracts. The
latter causes unnecessary inuence movements in the signing of
contracts, which delays the implementation of projects in a timely
manner. Furthermore, SERNA chairs the Board of ENEE and has
responsibility in the formulation and establishment of National
energy policy; also, it is considered the governing body of the
energy sector, being the highest authority the Energy Cabinet.
However, because the Energy Cabinet is of very high level (Minis-
ters), it has no technical capability to track the decisions made and
until recently has been reactivated, as in previous governments had
met only once since its creation in 1994.
Additionally, SERNA and its technical arm on energy issues, the
National Directorate of Energy, do not have the necessary human
and budgetary resources for sector planning and have conict of
interest to be in charge of environmental issues too.
As it can be inferred, because of institutional weaknesses
(political, technical and budgetary) of both CNE and SERNA, ENEE
appears as the main actor in the Hondurass electric power market,
by covering the operating, generation schedule (with big private
equity cases), transmission and distribution, under a vertically
integrated company, it is also responsible for planning the elec-
tricity power sector and even in the decision-making in energy
policy and in its own regulation too. Likewise, it is through ENEE
with which is signed the power purchase contracts.
While all electrical power energy is handled exclusively by
ENEE, there are long-term contracts with private rms for the
purchase of power generation, operation and maintenance of
Fig. 1. Countries of MER and SIEPAC line.
49
ENEEs plants and units for lease. Similarly, there are several sugar
mills which have surplus cogeneration systems that sell energy to
ENEE. Also, large consumers have the opportunity to buy their
electricity directly from private generation. Besides, the contracts
for exporting and importing electricity are exclusive for ENEE.
Given the importance of ENEE in the EPIs structure and
considering its internal institutional weakness, since 1998 several
changes to the current model have been discussed. The newest
seeks to restructure ENEE to a vertical separation of business units
in order to separate responsibilities and accountability at all stages
of production and distribution of energy, thus facilitating the
incorporation of improvements in the EPI (ESMAP, 2010). Addi-
tionally, it becomes needed to strengthen the technical competence
of the regulator as was mentioned before.
2.4. Regional regulation e regional electricity market
The six Republics of Central America: Costa Rica, El Salvador,
Guatemala, Honduras, Nicaragua and Panama, as part of the
Central American Integration System (SICA) (SICA, 2011), initiated
a gradual process of developing a competitive electrical regional
market, MER, by interconnecting their national networks through
transmission links and promoting regional generation projects in
order to develop the electricity industry for the benet of the
inhabitants of the six countries (see Fig. 1). Additionally, the
presidents of these nations gave priority to encourage SIEPAC
Project (Electric Interconnection System for Central American
Countries) and signed in Guatemala City on December 30, 1996,
the Framework Treaty from the Regional Electricity Market of
Central America (Treaty, 2011). The Framework Agreement was
ratied by the national legislatures of member countries and for
these countries constitutes a legally binding international treaty
since 1999.
50 W.C. Flores / Utilities Policy 20 (2012) 46e51
The objectives of the Treaty were dened in Article 2 of it:
 Set up the rights and obligations of the Parties.
 Establish conditions for the growth of the regional electricity
market, which provides in a timely and sustainable way the
electricity required for the economic and social development.
 Encourage greater private share and competitiveness in the
electricity sector.
 Encourage necessary networking infrastructure for the devel-
opment of regional electricity market.
 Create the conditions needed to encourage acceptable stan-
dards of quality, reliability and security of electricity supply in
the region.
 Establish objective rules, transparent and non-discriminatory
to regulate the operation of regional electricity market and
the relationships between the stakeholders involved, as well as
the creation of appropriate regional bodies to achieve aims.
 Ensure that the benets of regional electricity market to reach
all the population of the regions countries.
In order to fulll the objectives of the Treaty and manage the
interrelations between market stakeholders two regional agencies
were created, as following: the Regional Commission of Electric
Interconnection (CRIE) (CRIE, 2011) and the Regional Operating
Entity (EOR) (EOR, 2011), the rst one as the regional regulatory
agency and the second one as the market operator. EOR manages
and coordinates the Regional Market with technical and economic
criteria in accordance with regulations adopted by CRIE. Hence, the
Central American market was the rst electricity market in the
world to implement a regional regulator (Tinoco, 2009).
Additionally, it was agreed to create the Company Owns of Grid
(EPR) (EPR, 2011), in order to develop, design, nance, build and
maintain the rst regional transmission system, whose aim is to
strengthen electricity interconnection of the six countriess power
systems.
During 2001e2004 period, the Regional Electricity Market
Regulation (RMER) was prepared, with which the principles of the
Framework Treaty and the guidelines of the electricity market
design are implemented in detail.
By December 2005, the regulations of the electric market
(RMER) were adopted by CRIE and currently RMER is being
implemented. The RMER establishes the technical and commercial
regulation of regional electric market, in a way that cross-border
transactions are conducted in a coordinated and efcient manner.
The regional market is a wholesale electric market at regional level,
in which energy transactions take place either in a Regional Bilat-
eral Contract Market or Regional Opportunity Spot Market.
During 2010, the interconnected power system of Central
American countries as a whole had an installed capacity to generate
11,212 MW with a regional demand peak of 6959 MW. Net gener-
ation in 2010 was 40,386 GWh of which 52% was hydropower, 35%
thermal (fossil fuel), 7.7% geothermal, 3.9% by cogeneration and 1.3%
wind. In 2010, intraregional electricity trade in Central America had
a major rebound, reaching a total of 1062 GWh of transactions
(imports plus exports), 284 GWh more than 2009 (ECLAC, 2010).
The electric power system of Honduras is linked with the
Regional Electricity Market through two 230 kV links and currently
the electric market of Honduras is actively involved in energy
transactions within the regional market, under the rules of RMER.
So, it is essential that both, the national legislation and the technical
reliability of the network in Honduras, be in harmony with the
requirements and responsibilities of be involved in a regional
market of energy. That is why work is currently being done on the
creation of regulatory interfaces that establish a coordinated and
consistent link between the different regulations of the Central
American countries and RMER. However, improves in the Hon-
duran network reliability are needed yet.
3. Some solutions proposed to the weaknesses observed in
the Honduran electric power market regulation
There is a challenge in adapting the sectorial model in such
a way that takes into account the reality of a small electric market,
regulatory ambiguities and institutional weaknesses, limited
capacity of regulator and a weak institutional framework for
formulation of sectorial policies, making it difcult to attract
private investments in the sector and ensure a sustainable supply.
Given the above, it is necessary to review and update the Elec-
tricity Act, LMSE, and its regulations, to avoid ambiguities and to
strengthen the regulatory and policy-making bodies by nally
creating a regulatory framework that allows the active participa-
tion of private investment under a regulation that will not be
permissive to possible abuses or market power and search the
social welfare. The primary purpose of a well-designed regulatory
system must be to protect consumers from monopoly abuse, while
providing investors with protection from arbitrary political action
and incentives to promote efcient operation and investment
(Laffont and Tirole, 1993).
A strong and independent regulator is needed to apply the
regulatory framework. ENEE should be restructured and corporat-
ized, to operate as a commercial company that is not involved in
policy-making or regulation. The purpose being that the company
focuses on provides the service efciently and protably, with
a view to participation in a competitive regional market.
It is necessary that CNE in conjunction with ENEE and SERNA,
propose the creation of regulations to avoid problems related to power
quality at distribution network. Also, in view of the current opening
given to private investment in power generation, regulation is
necessary to enable the development of a market for ancillary services
or in the rst instance, the compel private generators to participate in
providing ancillary services, such as frequency control or provision of
power reactive (among others), without which it is not possible the
good performance of the electricity market. In the same way and
under the entrance to the Honduras electrical system of 102 MW wind
power generation, it is necessary to create or modify the regulatory
framework with the aim that and other technologies shares in an
efcient and safe manner within the Honduran and regional elec-
tricity market. This is why it is necessary to review the Incentives Act, to
stimulate the participation of other technologies from renewable
resources and prevent possible abuses and ambiguities.
In order to promote rational and efcient use of electricity, the
Act for such purpose must be approved, to create a culture of ef-
cient energy use and to create the conditions for the development
of a market for ESCOS or similar projects, with which the invest-
ment to encourage the rational use of energy would be achieved.
The contract with the company Service for Electrical Measure-
ment of Honduras (SEMEH) for reading, billing, and collections is not
an appropriate management contract to reduce losses, because it is
limited in scope and creates weak incentives for performance.
Several options are suggested, such as soliciting international
competitive bids for a new management contract, renegotiating the
existing SEMEH contract, or contracting private operators with full
responsibility for reducing losses in clusters of distribution feeders
with high losses (ESMAP, 2010).
Finally, with regard to the structure of energy sector, by 2009 an
analysis for the creation of a Ministry of Energy was prepared, as
part of a project to development of an Energy Policy for Honduras
with the horizon year 2030 (Flores et al., 2011). This analysis
concludes that because of the large dispersion in the decision-
making process and in the management of projects and future
 W.C. Flores / Utilities Policy 20 (2012) 46e51
investment, it becomes necessary to create such Ministry, with
which all decisions will be taken in a consistent manner, avoiding
duplication of efforts and unnecessary waste in resources. That is
why the following question is proposed: Should be only the polit-
ical entities whose nally takes this and other decisions, which will
denitely change the national energy sector?
4. Conclusions
Honduras is a country with an established legal framework, but
it is necessary that the laws been properly implemented and in
other cases been reformed, with the aim to create an environment
of legal certainty and clear rules, which allows to local and foreign
investments its development in the country. The electricity power
market in Honduras is not an exception to this reality, which is
supported by a widespread legal framework, but creates ambigui-
ties in some ways and allows the creation of negative externalities
for the development of this sector.
This document is a summary of current legislation and structure
of electricity power market in Honduras. It shows the weaknesses
of such legislation as well as possible changes to be implemented to
overcome these weaknesses and in such way to allow development
of the electricity power industry to look for the social welfare for
whole stakeholders in a market in which different regulations
converge under a regional regulatory framework, which promises
protability and efciency in an environment in which transactions
of energy are made between countries, taking advantage of
different energy realities.
In the authors opinion, it is relevant and indispensable to show
in a transparent way a summarized reality of the Honduran elec-
tric power market, from an approach concerning regulation,
because there are no documents to guide policy-makers, donor
agencies and possible new stakeholders, inside the probably
confusing, but surely protable business of electric power
industry in Honduras.
Finally, the statements made throughout the document only and
exclusively represent the authors opinion and not those of the
Regional Operating Entity.
Acknowledgments
The author thanks Mr. Werther Roldan for his unselsh collab-
oration in the elaboration of the document. The contributions of the
anonymous reviewers and Editor-in-Chief, Don Smith, are also
highly appreciated.
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