Reed Smith Client Alerts

On March 9, 2021, the Decree amending the Electric Industry Law (Ley de la Industria Eléctrica, or EIL) was published in the Official Gazette, entering into effect on March 10, 2021, (the Electricity Bill). After a short discussion the Senate voted 68-58 in favor of amending the EIL.

On March 10, 2021, the Second Administrative District Court provisionally suspended the Electricity Bill from moving forward. Although limited parties only sought the relief, the ruling serves as a blanket suspension until a final determination is rendered.

If the injunction is ultimately dissolved, the Electricity Bill would result in preference to the dispatch of electricity generated by CFE, changing the rules on access to the electricity grid on the basis of the least expensive electricity first.

Authors: Nicolas Borda Francisco Rivero Ben Love

Energy companies that have been impacted by the Electricity Bill and a group of senators are expected to continue to file legal challenges, on constitutional grounds, before federal courts, and the Mexican Supreme Court. Mexico’s federal Antitrust Commission (COFECE) and the Mexican Supreme Court of Justice (SCJN) have already indicated that the new energy policy of the Ministry of Energy (Sener) would have a negative impact on the energy market, the economy and the environment.

In addition to COFECE and the SCJN, many chambers of commerce, legal associations, the International Chamber of Commerce (ICC), the Mexican Bar Association, academics, business associations, and others have voiced their concerns regarding the Electricity Bill.

The Business Coordinating Council (Consejo Coordinador Empresarial, CCE) estimates that the private sector has invested some $44 billion to generate electricity that is 26 percent cheaper than CFE prices for electricity – equivalent to $3 billion per year, which will now have to come from tariff increases or government subsidies.

Background

During April and May 2020, and the COVID-19 pandemic, CENACE (the independent system operator (ISO) of the Mexican power grid), Sener, and the Energy Regulatory Commission (CRE) issued several regulatory actions to benefit CFE to the detriment of private energy projects (the Regulatory Actions).

In February 2021, the SCJN invalidated several provisions of the Policy of Reliability, Security, Continuity and Quality of the National Electric System that essentially followed the same direction as the Electricity Bill.

In February 2021, COFECE filed an opinion before the Mexican Congress, recommending that it reject the Electricity Bill on the terms submitted by the Mexican president in January 2021.

The decree amending the Electric Industry Law

The Electricity Bill would eliminate free competition requirements for generation and marketing activities, which conflicts with article 28 of the Mexican Constitution. The ISO accepts the supply of electricity by order of cost; however, generation plants trying to produce more energy efficiently will no longer benefit from such incentives. Now, the new rules change the order of energy dispatch based on cost, with hydropower being dispatched first (96 percent of hydropower plants are owned by CFE), then energy produced by other CFE-owned power plants (mostly fuel oil and coal), and then wind and solar energy produced primarily by private investors and finally combined cycle power plants that use natural gas and steam to generate electricity.