So I was in Mexico last week, conveniently enough while Mike was posting our blackout report commentaries, speaking at a conference sponsored by the Mexican Congress on electricity industry reform. Mexico’s industry is state-owned, and is a substantial drag on the coffers of the Treaasury, which has amassed a large debt with the electric company’s name on it.
Several of the speakers talked about deregulation and market experiences in other countries. My job was twofold: debunk the California myth (i.e., that the CA electricity crisis was caused by deregulation), and talk about the experimental research on active retail choice and demand response and how consumer empowerment can create value and discipline supplier market power.
One of the attendees asked me afterward a simple question that did not occur to me. He said that many in Mexico were concerned that private generation companies from other countries would come in and would collude to keep wholesale prices high. My response was, well, isn’t that illegal collusion? He said that Mexico does not have laws prohibiting collusion.
Now, I’ve got major, major beefs with US antitrust policy (even though “some of my best friends are antitrust economists”), but even I think that clear, transparent legal institutions that outlaw outright collusive actions are pretty important for enabling healthy, thriving markets. If Mexico does not even have those legal institutions, then David Victor, one of the other speakers, is absolutely right: other complementary reforms, such as financial and legal reforms, are crucial to the success of electricity reforms.