Mexican Congress Passes Electricity Reform

The Mexican Congress passed the bill to reform and amend the Electric Industry Law (Ley de la Industria Eléctrica or LIE) that was submitted by the Office of the President on Feb. 1, 2021. Congress made no relevant changes to the bill proposed by the federal government, except for a provision that now obligates (as opposed to simply allowing) the Regulatory Energy Commission (Comisión Reguladora de Energía or CRE) to revoke existing self-supply permits under the grandfathered regime (legados).

See Holland & Knight's previous alert, "Mexico's Congress to Vote on Electricity Reform Bill," which analyzes key aspects of the reform and its consequences. The highlights of the approved bill are the following:

• The bill changes dispatch and operational rules of the national grid to the federal government's new energy policies¹ to openly benefit power plants of the Federal Electricity Commission (Comisión Federal de Electricidad or CFE) and displace privately owned plants. The new order of priority for dispatch will be: 1) hydro-electric power plants; 2) power plants owned by CFE or its subsidiaries; 3) solar and wind power plants and 4) privately owned combined-cycle power plants.
• It qualifies and limits free competition and open access principles (currently contemplated under the LIE) under "security" and "feasibility" standards.
• The bill eliminates the obligation of CFE and the National Center for Energy Control (Centro Nacional de Control de Energía or CENACE), the grid operator, to hold long-term power auctions (subastas de largo plazo) for basic electricity supply, a policy that has been de facto enforced by regulatory authorities since the beginning of this administration.
• It also orders CRE to review and revoke existing self-supply generation permits (permisos de autoabastecimiento) under the grandfathered regime (legados), should they be found to be "fraudulent."²
• The bill orders that the power purchase and capacity agreements executed between CFE and independent power producers be reviewed according to the amended law.
• Clean energy certificates will be granted to power plants regardless of their ownership and commercial operation date, benefitting CFE's older plants.
• The bill gives regulators and sector authorities a six-month period to amend, restate or issue all existing rules, regulations and administrative orders in compliance with the reformed LIE.

Given the final voting (68 in favor; 58 against), it is expected that a minority group (representing more than 33 percent) of the Senate brings a constitutional challenge (acción de inconsitucionalidad) against the new law before the Mexican Supreme Court of Justice (Suprema Corte de Justicia de la Nación).

Notes

¹ The current energy policies of the federal government introduced safety and reliability to justify preferential treatment for CFE. These policies and related regulations have been challenged in federal courts and declared unconstitutional by Mexico's Supreme Court. See section II.

² The bill's preface claims that grandfathered permits were granted against the principles of the former Public Electricity Service Law and that, in that sense, such permits may have been fraudulent.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.