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    ELECTRICITY INDUSTRY Law in LIMBO; 4T reforms have Private Sector in Uncertainty

    September 6, 2022 - Editor_Pxp


      The Electricity Industry Law (LIE), published in 2015 to vertically disintegrate the Federal Electricity Commission (CFE) and implement an energy market in which the only activity reserved for the State was the transmission of energy (although third parties could be contracted for the construction of infrastructure), was modified in 2021 to strengthen the state-owned electricity company over the private sector.

      • The changes, which went through unconstitutionality claims dismissed by the Supreme Court, are now suspended by a court injunction, awaiting the review and sentence of the Collegiate. In the meantime, everyone loses, particularly the legal certainty of the country, stated specialists.

      The changes to the LIE that President Andrés Manuel López Obrador sent in February 2021 as a preferential initiative that was approved by both chambers in a few weeks, included the modification to eight articles and four transitory articles, which in content highlight the modification to the order of dispatch to which the National Energy Control Center (Cenace) would be obliged, which as manager of the grid would now not weight the use of the cheapest energy per node, Instead, the CFE's hydroelectric power plants would come first, followed by the energy generated in other state-owned plants, wind power (from private companies for exchange among themselves or sale to the CFE) and finally the CFE's combined cycle plants, leaving other renewable energy sources, such as solar power, from private companies, at the last place.

      • As for the granting of generation permits, which today are issued by the Energy Regulatory Commission (CRE) as an obligation (like a driver's license, which everyone in Mexico has the right to obtain if they apply for it), they will now be subject to grid planning criteria and may be denied.

      The regulator will also be obliged to revoke permits "obtained through acts constituting fraud against the law", and the government will be obliged to review the profitability and continuity of the contracts of independent power producers (IPPs) that sell to the CFE.

      The injunctions

      Then, more than 250 companies filed an injunction and the entry into force of the new LIE was suspended. Then, the Federal Economic Competition Commission, on the one hand, filed a constitutional controversy before the Court for considering that its attributions were violated; the opposition to the Morena majority and its allies at that time among the deputies, in addition to state governments, also sent unconstitutionality actions considering that the changes stopped the country's development.

      • The unconstitutionality obtained the vote of five ministers, and although the majority, six, defended it, they were not the qualified number required for this change so this appeal was dismissed. But a few weeks ago, again the district court specialized in economic competition granted a suspension of the act, this time of a general nature, which applies not only to those who appealed, but to all those involved, until the ruling.

      According to Miriam Grunstein, an expert in energy law, it seems that the battle has been won by the companies, but without the collegiate vote nothing is definitive.

      "What wins is the legal insecurity in the country", said the specialist, "it will be the times of the judiciary that will define the route, but to repeal the changes, another reform to the articles reformed in Congress would be needed, the president would make a fool of himself and although it would be good for investors, it would be a reiteration that institutionally we are in pieces, which speaks very badly of governance and the rules of the country".

      • Meanwhile, for Víctor Ramírez Cabrera, from the Mexico Climate and Energy Platform, in fact the reform is not serving the government for anything because it is not being applied, but it is generating a regulatory impasse.

      "Who it benefits is the least efficient, which is the CFE that continues to operate with plants that by economic merit should stop operating," he said, although he acknowledged that many companies that were still in the legacy regime of self-supply (with alleged partners who are actually customers that provoke accusations of illegality by the government), have migrated to the wholesale market.

      There is the possibility of an easy way out that would be convenient for the Executive: the changes to this Law can be repealed and thus reach the negotiation on the consultations on the violations to the T-MEC with the first point for which the US government accuses the Mexican government of obstructing the operations of its companies in the country, which would facilitate the negotiations before reaching an international panel. But nothing is certain yet, said Ramírez Cabrera.

      Cenace without a system to implement the LIE

      The brain of the National Electric System (SEN), the National Energy Control Center (Cenace), acknowledged that it does not have the technological capabilities to implement the modifications to the Electric Industry Law (LIE) decreed by President Andrés Manuel López Obrador in 2021.

      • In an analysis dated August 5 last, titled "Acquisition of a new technological platform for the operation of the electric dispatch and the wholesale electric market", it explains that "currently there is no capacity to implement the modifications to the Electric Industry Law in the processes of electric dispatch and short-term energy market, which leads to a problem of regulatory and legal non-compliance, and the impossibility of achieving the objectives set forth in the reform to the law".

      In view of this problem, the tax authorities were asked to approve 938 million pesos in the 2023 Economic Package to acquire the new technological platform.

      • The LTF, declared constitutional last April by the Supreme Court of Justice of the Nation, privileges the electric dispatch of Federal Electricity Commission (CFE) plants and relegates the participation of private companies' plants. The electric dispatch is the mechanism that decides the order in which each power plant injects its energy to the grid in a given period, while the short-term energy market is where electricity is offered and purchased for the following day and in real time.
      • The analysis proposes acquiring a set of mathematical models, information systems and hardware infrastructure that will allow "in three years Cenace to have the capacity to operate the electricity dispatch and short-term energy market of the wholesale electricity market, meeting the new operational, legal and regulatory requirements that have resulted from changes in operating practices made to ensure the reliability of the SEN in the face of greater integration of renewable energy sources, energy storage systems and distributed generation.

      "In this context, it is important to ensure a sufficient and reliable electricity supply that allows carrying out the productive activities of the different sectors of the economy - telecommunications, transportation, industry, agriculture, commerce, services, offices and homes - in order to boost the country's growth and economic development," Cenace highlights.

      • The agency pointed out that only with this technological change is it possible to guarantee "to the different users of electricity supply in the country (residential, commercial, government, industrial and agricultural users), an electricity supply under conditions of quality, reliability, continuity and economic efficiency and with electricity rates that correspond to the minimum possible values of electricity production costs".

      In the document, he explained that the electricity supply in the country is carried out through the SEN, which is a system that provides service to more than 128 million people and is composed of power plants that produce electricity, transmission lines that transport energy from the production centers to the distribution centers, electrical substations that transform the voltage and distribution lines that distribute the energy to end users.


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