Limit of participation of agents in the commercialization of energy in Colombia

Tuesday, July 10, 2018

This press release from CREG was published using an automatic translation system.

In relation to the analysis that the Energy and Gas Regulation Commission (CREG) has been carrying out, on the limit of the participation of the agents in the commercialization of energy, this entity is allowed to report the following:

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Eliminating or modifying the current limit in the regulation corresponding to the maximum participation that an agent can have in the commercialization activity, which corresponds to 25%, requires the revision of the fulfillment of the mandate of Law 142 of 1994, which orders the Commission to prevent abuses of dominant position and promote competition, given the high concentration already existing in the market, as well as the vertical integration between the different activities.

The concern of abuse of market power is due to the vertical and horizontal integration of the chain. The distribution of energy is a regulated monopoly in which there are no concentration restrictions. But distributors are in turn energy marketers, and that is not a regulated monopoly, but a competitive market: this is where there is a 25% limitation of horizontal concentration to avoid market power. In that market, the other tip is the generators.

The situation gets worse when the activities are mixed, that is, when they are integrated vertically, as is the case in Colombia. When a regulated monopolist (the distributor, owner of the networks), is in turn an agent in a market (the marketer), he can use his control over the network to favor his own commercialization. In Colombia, the situation is even more acute, because the distributor is a marketer and, in some cases, also a generator (that is, it is its own counterpart in the market). The same agent can determine the prices in the chain, without pressure from the competition. The one who remains at risk is then the user, on whom the market power rests.

It is in this context that the convenience of allowing the marketer to be allowed to increase its market power (grow beyond 25% of the demand) must be evaluated, when it is in turn leveraged in a distributor and in generation. This release requires additional mechanisms to prevent abuse of that greater power and allow the supervisor (the Superintendency of Public Utilities) detect and punish any abuse.

In this regard, and bearing in mind that the primary interest of the CREG is to protect the user, the Commission considers that the re-evaluation of the participation limits should include the following 3 elements:

  1. The configuration of intact and anonymous markets where the competition operates, as proposed in Resolution CREG 068 of 2018. These markets must ensure an efficient price formation, they must be neutral, they must be transparent and they must be safe for those who participate there. While these conditions are not met, the resulting prices can not be transferred to the end users, because it would not be possible to avoid abuses of market power in their formation.
  2. Rules that even if they allow the participation of companies with high percentages of participation both in the demand and in the offer, take into account:

  • The impact on the competition.
  • The impact on the formation of prices and on the liquidity of the markets.
  • The systemic risk implied by an agent that agglomerates a significant portion of the market.

3. Regulatory empowerment for the vigilant monitoring of the supervisory and control authorities that allow detecting and punishing behavior that goes against an efficient operation of the market.