The 2013 energy reform opened up the electric industry by allowing private companies to undertake power generation and trading activities. However, transmission and distribution and basic supply activities are still reserved for the state through the Federal Electricity Commission (CFE).
Accordingly, the Electric Industry Law sets out a general unbundling principle which is applicable to all industry players. Under this principle, power generation, transmission and distribution and the trading and supply of primary consumables (eg, natural gas) must be performed through different legal entities, which have been restricted with regard to the sharing of specific information (ie, strict legal separation).
The reform ordered the legal separation of CFE in order to guarantee equal competition for all industry players. Accordingly, on 11 January 2016 the Ministry of Energy (SENER) issued the CFE separation rules to foster open access, efficient operation and competition within the industry.
The implementation of the CFE separation rules resulted in several inefficiencies within CFE generation companies, such as increased costs and complex administrative processes. In order to overcome these issues, SENER recently published the following amendments, which have relaxed the rules in order to maximise CFE resources and reduce power prices for end users.
The key amendments to the rules are as follows:
- CFE generation companies can now share operation, planning, maintenance and commercial strategy information with:
- other CFE generation or trading companies; and
- private entities that perform such activities.
- The CFE can now create subsidiaries and affiliates and respective business units therefor where they are needed to undertake generation activities (previously, the CFE was required to create at least four generation companies).
- The amendments have removed the provisions which enabled the CFE to execute contracts or partner with other state production companies and private companies for the financing, installation, maintenance, administration, operation and extension of Mexico's power transmission infrastructure. However, such provisions are still included in the CFE Law and the Electric Industry Law.
- CFE distribution companies can now perform trading (ie, basic supply) activities where this will improve operative efficiency and reduce costs (through the use of scale economies).
- CFE companies that perform electric industry activities can coordinate in order to benefit from scale economies and create efficiencies, as long as such coordination will not negatively affect open access, operation efficiency or competition.
- The CFE will guarantee the strict legal separation by prioritising electric sector efficiency, which will translate as lower costs for end users. As a consequence, the CFE must:
- abstain from installing or operating electric plants that will negatively affect the wholesale electricity market (by increasing marginal costs); and
- evaluate and approve investments by considering the benefit for the CFE as a whole and how an investment will contribute to lower prices for end users.
- CFE companies can now share employees in exceptional cases (ie, where CFE distribution companies are permitted to undertake generation, transmission or primary consumable supply activities).
The above changes will allow the CFE to:
- better provide services to end users;
- reduce costs; and
- participate efficiently in the electric market.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.
