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2021 – 1 Constitutional Administrative Litigation

Electric Industry Bill

On January 29, 2021, the President of Mexico filed before the Mexican Congress a "preferential bill" procedure with a "Decree to reform the Electric Industry Law".

Being a "preferential bill" means that such proposal must be discussed and voted by the Chamber of Deputies within thirty days after it was filed; once approved, it would be submitted to Senate, which must discuss and vote on it within a similar 30-days term.

The main proposed changes are described below:

Priority of dispatch of power plants

The dispatch order for power plants operated by the National Energy Control Center will be modified (previously there was no criteria) to determine the following order: 1) Hydroelectric plants; 2) Other plants of the Federal Electricity Commission State-Owned (CFE); 3) Privately-owned Wind and Solar plants; 4) Privately-owned Combined Cycle plants.

With these changes, priority would be given to the generation plants of the CFE in detriment of those privately owned plants of generation. This is contrary to what is currently provided by the Electric Industry Law which states a balanced dispatch under conditions of efficiency, quality, reliability, continuity, safety and sustainability of the National Electric System.

Also, according to this bill, the National Energy Control Center could offer the Legacy Power Plants and the Legacy External Power Plants with physical delivery commitment a preferential treatment regarding the use of the National Transmission Network and the General Distribution Networks, which could cause the ousting of independent and private generators from the market, consolidating the position of CFE and its power plants.

Revoking self-supply permits

In relation to the self-supply permits granted under the formerly Public Electric Service Law, the bill is aimed to enable the Energy Regulatory Commission to revoke such permits through an administrative procedure, when they detect that such permits were obtained through fraud against the law.

National Electric System planning criteria

The bill seeks to establish that the permits granted by the Energy Regulatory Commission under the Electricity Industry Law be subject to the planning criteria of the National Electric System issued by the Ministry of Energy, in order to be in line with the planning-criteria of the national electric system.

This could lead to the ousting of private electricity generating companies, as well as the creation of new arbitrary restrictions.

Clean Energy Certificates (CEL´s)

The bill intends to grant Clean Energy Certificates to all generators that produce energy from renewable energy sources, removing the restriction that only clean generators that had entered into commercial operation as of August 14, 2014 could access said Certificates.

Granting Certificates to all clean generators would lead to destroy the expectation of the Certificates value, since an oversupply of those Certificates would be generated.

Elimination of Mandatory Auctions

The proposal aims to eliminate the limitation to which CFE, Basic Services Supplier, was subject to enter into electricity coverage contracts exclusively through auctions, this is, it provides the opportunity to acquire energy through different mechanisms.

This could imply the ousting of independent and private generators from the market, consolidating the position of CFE and its power plants.

Review of the contracts entered into with Independent Power Producers

The proposal seeks to carry out a review of the contracts for the commitment of electric energy generation capacity and the purchase and sale of energy subscribed with the Independent Energy Producers, which must comply with the requirement of profitability for the Federal Government, otherwise they must be renegotiated or terminated in advance. This could imply the establishment of arbitrary restrictions to individuals for the benefit of certain market players.

Despite the fact that this bill is subject to the approval of the Mexican Congress, we recommend to keep in mind the issues mentioned before, since, in case of success, international controversies may be triggered in energy matters under the United States-Mexico-Canada Agreement.

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Mexico City

   January 2021

This News Flash contains information of a general nature, and thus it does not address any particular case or facts. The information contained herein is accurate as of the date of issuance; however, we make no representation as to the fact that such information be accurate in the future. Accordingly, we recommend that specific advice addressing your particular circumstances be requested.

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