This paper presents a market design for Colombia’s forward energy market, which is scheduled to began in 2008. The forward energy market is an organized market to procure energy for electricity customers on a forward basis. It includes both the regulated market (residential and other small customers) and the nonregulated market (large customers). Currently, regulated customers represent 68% of the total electricity demand and nonregulated customers represent the remaining 32%. The proposed design is novel in that it integrates both the regulated and nonregulated customers into a single organized market. Although the regulated and nonregulated energy products remain distinct, their integration into a single market facilitates arbitrage between the products, improves liquidity, and reduces transaction costs. Both regulated and nonregulated customers benefit from this unified approach. This paper presents all elements of the market design: the product design (see also Cramton 2007), the auction design, and the transition to the new market.
