Mexico - President Fox’s Decree to Open Mexican Electricity Sector

07/05/2001

On May 25, 2001, the Energy Ministry published a Presidential Decree to amend the Regulations to the Electricity Public Service Law. This is the first step of President Vincente Fox’s plan to allow private parties to participate in an industry which traditionally has been in the hands of the State.
 
1.  Current Status

Currently, the industry is integrated into a State-owned company called the Comision Federal de Electricidad (CFE). Participation by private companies in the electricity sector has been limited to the generation of electric power for:

  • self-supply (generation of electric power to satisfy a permit- holders own needs);
     
  • co-generation (generation of electric power (i) from thermal energy not used in an industrial process, (ii) from fuels produced in an industrial process, or (iii) along with steam or other type of secondary thermal energy);
     
  • independent power production or “IPP” (generation of electric power at plants with a capacity of more than 30 megawatts (MW) for sale to CFE by means of long term agreements awarded through a bidding process);
     
  • small scale production (generation of electric power by plants with a capacity not exceeding 30 MW for sale to CFE or for export, or by plants with a capacity not exceeding 1 MW for self-supplying rural communities or isolated areas lacking electricity); and
     
  • generation of electric power for export from plants permitted under the preceding paragraphs, above, or import for self- supply.

All of these activities require a generation permit granted by the Comision Regulardora de Energia (CRE). None of these schemes allow the permit holder to sell the electricity to third parties as a public service.

2.  Proposed Amendments

Under the amendments to the Regulations, holders of self-supply or co-generation permits will be able to sell their electric power surpluses to the CFE without being required to go through a bidding process, according to the following rules:

  • Self-supply permit holders may sell to CFE (i) up to 20 MW, if their total installed capacity is not more than 40 MW, or (ii) up to 50% of their capacity, if this exceeds 40 MW. Depending upon the needs of the national electric system, the Ministry of Energy may modify this percentage.
     
  • Co-generation permit holders may sell their entire surpluses to CFE. 

The amendments obligate the CFE to purchase the described surpluses from the permit holders, if the terms and conditions under which the surpluses are offered provide the lowest long term cost, and optimum stability, quality and reliability to the electric utility service, and if CFE needs such surpluses. The CFE is not allowed to discriminate between permit holders in the application of the standards for the terms and conditions of the supply agreements.

3.  Outlook

As a logical next step, it is expected that the Energy Ministry, through the CRE, will issue a new methodology for determining the minimum price under which the CFE will be obligated to purchase the surplus from the self-supply or co-generation permit holders.
 
The amendments are a salutary, and necessary, step towards the opening of the Mexican electric sector to private participation. A number of issues will have to be resolved before these amendments have a positive impact on the electric sector.
 
Perhaps the biggest hurdle for the success of these amendments is the constitutional challenge filed in the Supreme Court on July 4, 2001, by a group of Congressmen. They allege that President Fox has unconstitutionally arrogated a legislative function in that the proposed amendments to the regulations are in fact amendments to the law, a function reserved exclusively to the Congress. This challenge is a first of its type in Mexico. A clear message is also sent to the administration that business is no longer as usual. Passage of proposed structural reform to the electricity sector will be, at best, difficult without legislative assent.

Haynes and Boone, S.C.

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