Reed Smith Client Alerts

On September 30, 2021, Mexican President Andrés Manuel López Obrador (AMLO) submitted a bill to Congress to amend the Constitution to increase the control of the state and of the state-owned electric utility, the Comisión Federal de Electricidad (CFE), over the energy sector and, in theory, reduce electricity prices. 

Authors: Benjamin Antillon Fernandez

It seems unlikely to be approved under the terms submitted to Congress because it would require the vote of two thirds of both houses of Congress and the majority of the State Legislatures.  Nevertheless, if approved, these are the most significant proposed changes:

  1. Eliminating more than 200 self-supply contracts granted to almost 80,000 off-takers including some added to independent power producers (IPPs) permits.
  2. Eliminating clean energy certificates (CELs) for each MWh delivered to the electric grid, granted by the CRE to power generators excluding CFE. The CELs represented another important source of revenue to clean energy producers and were important in the project finance of new renewable energy power plants.
  3. Consolidating all subsidiaries of CFE with few exceptions including CFEnergia, CFE Internacional and CFE Capital. 
  4. Eliminating the following energy regulatory agencies: (i) the Energy Regulatory Commission (CRE), (ii) the National Hydrocarbons Commission (CNH), and (iii) the Independent System Operator (CENACE). CFE would be in charge of certain activities, such as electricity dispatch which is currently done by the CENACE and CFE would also also set electricity prices instead of the CRE.
  5. CNH and CRE would merge into the Ministry of Energy.
  6. Prohibiting new mining concessions for the exploration and production of lithium, which would only be developed by the state. The current concessions for the exploration of lithium would be grandfathered. Mexico has the largest lithium open-pit mine in the world, known as the Sonora Lithium project (La Ventana concession).
  7. Introducing the concept of national security in the generation of electricity and considering the electricity sector as a strategic activity reserved to the state.
  8. Giving preference to granting oil and gas leases to government entities rather than to productive state enterprises.
  9. Requiring that CFE generates at least 54 percent of electricity in Mexico and the private sector participation is limited to 46 percent. The introduction to the reform bill indicates that currently, CFE participates with 38 percent and private generation with 62 percent due to the dispatch and wheeling rules of the 2013 energy reform.
  10. Proposing to add a new paragraph to article 27 of the Constitution, in accordance with which the state would aim to produce energy in a sustainable way to reduce greenhouse gas emissions. Hopefully, this could open the door for green and blue hydrogen projects through the joint participation of CFE and the private sector.

Even if this ambitious Constitutional energy reform is not approved, the efforts to reduce the participation of the private sector in the energy sector is expected to continue. However, international investment treaties protect foreign investors from arbitrary or discriminatory acts and the Paris Accord establishes important commitments to reduce climate change.