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| This is an informative document and does not replace the regulation issued by the CREG. |
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| Wholesale Electricity Market Structure |
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The Colombian Commission for the Regulation of Energy and Gas (CREG) presents the New Regulatory Scheme to Guarantee the Reliability in the Long Term Supply of Electric Energy in Colombia. This new regulation was approved on October 3, 2006 and started to be implemented on December 1, 2006. The purpose of this presentation is to allow existing participants in the Wholesale Electricity Market (Mercado de Energía Mayorista, or MEM, its acronym in Spanish) and potential investors to know the advantages of this new scheme and the commitments it requires from the different parties involved.
After ten years of utilizing an income stabilization instrument known as Capacity Charge, the CREG considered it beneficial to replace it with a market scheme, which conveys a long term signal that promotes new investments in generation resources in Colombia, to guarantee the availability of electric energy at efficient prices in periods of scarcity.
Through Law 142 of 1994, also known as the Law of Public Utilities, and based on the mandates of the 1991 Constitution, the competitive market model for the provision of public utilities in Colombia was introduced. The provision of these services is under the regulation, control and surveillance of the Government. For the electricity sector in particular, Law 143 of 1994 established the scheme that governs the different activities of generation, transmission, distribution and commercialization of electricity as well as the key elements and guidelines creating the MEM, which came into operation on July 20, 1995.
For more information on the applicable normativity to this regulatory scheme:
CREG Resolution 071 of 2006
Institucional Structure
The participation of the Government in this competitive market model is done through an institutional structure that has not been modified since 1994, and takes place in three instances, as follows: definition of the energy policy; regulation; and surveillance and control.
The definition of the energy policy is under the jurisdiction of the Ministry of Mines and Energy. A major part of the energy policy is developed through the Planning Unit of the Mines and Energy (Unidad de Planeación Minero-Energética, or UPME), which is a special administrative unit attached to the Ministry of Mines and Energy. This unit has many functions, among others; it is mandated to determine the energy requirements of the country and to elaborate, in concordance with the country’s National Development Plan, the National Energetic Plan and the Expansion Plan of the Electricity Sector, which are both of indicative nature.
The regulatory function is exercised by the CREG, which is comprised of eight members:
The task of surveillance and control over the provision of public utility services is carried out by the Superintendency of Public Utility Services. The Superintendent is likewise appointed by the President of the Republic.
In addition to these governmental institutions, the MEM also relies for its effective operation on a central agency called Administrator of the Commercial Interchange System (Administrador del Sistema de Intercambios Comerciales, or ASIC), which is in-charge of the registration of contracts, the settlement and billing of all the transactions that take place in this market.
The planning, supervision and control of the integrated operation of resources for generation, interconnection and transmission of the National Interconnected System (Sistema Interconectado Nacional, or SIN) are exercised by the National Dispatch Center (Centro Nacional de Despacho or CND), which together with ASIC, are dependencies of XM, a public utility corporation regulated by the CREG.
Table 1. Institutional Structure of the MEM
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