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Changes in Mexico’s electricity industry discourage investments: Cofece

Recent changes in the electricity industry regulations and their implementation discourage the installation and operation of new, more efficient generation projects, said the Federal Economic Competition Commission (Cofece).

In general, Cofece directs its efforts to the investigation and, where appropriate, sanction of monopolistic practices; the promotion of competition, and the prevention and correction of anti-competitive market structures.

The following and until the end are his arguments:

As of 2019, the regulation issued for the electricity industry and its implementation show a drastic change that moves away from the competition model in the generation and supply of electricity, which could delay and demotivate the installation of electricity generation projects. more efficient, especially those based on clean sources.

This paradigm shift culminated in the publication of the Reform to the LIE in the DOF on March 9, 2021, which is under review by the PJF.

In March 2019, the CRE modified the CFE’s TESL, opening the possibility for said company to restructure its generation companies, which could prevent them from being more efficient and productive, and compromising their vertical separation, which could allow, among others , the application of cross-subsidies between CFE companies.

Later, on October 28, 2019, the Ministry of Energy (SENER) modified the criteria to grant CEL, allowing power plants that were already accounted for in the electricity generation base through clean sources to obtain them.

This implies that the CEL requirements would be met without necessarily installing more clean generation capacity in the country; In other words, the effectiveness of the CEL mechanism would be disarticulated.

Cofece

At the moment, this modification has been without effect until the final resolution of various amparo lawsuits. However, the Reform to the LIE contemplates a modification in this same sense. Subsequently, in June 2020, the CFE – based on a resolution of the CRE – updated the charges for the electric power transmission service incurred by the self-supply and cogeneration permit holders.

In addition, in October 2020, the CRE eliminated the possibility of modifying these permits to register new load centers as partners. Although, as indicated, these permit holders could have certain advantages compared to the generators that are under the protection of the LIE, it is essential to establish an even floor among all market participants without the rights previously granted being affected.

In this regard, the Reform to the LIE empowers the CRE to revoke the self-supply permits granted under the previous regulations.

More importantly, the SLPs were canceled on December 11, 2019, despite the fact that they assured providers of basic services the purchase of energy and Associated Products at competitive prices and the generators gave them certainty about the financing and profitability of their projects.

Electricity

The cancellation of the SLP will cause CFE SSB to be unable to contract energy and Associated Products at stable and competitive prices.

In this same sense, the Reform to the LIE allows basic service providers to acquire electricity without resorting to the SLP, so CFE SSB will contract electricity, CEL and Power without obtaining them through a competitive method that ensures that it comes from who offers the best conditions.

This could lead to an increase in the Final Basic Supply Rates or the subsidy granted by the Mexican Government for them.

On May 15, 2020, the Sener published the Agreement issuing the Policy of Reliability, Security, Continuity, and Quality in the National Electric System (Reliability Policy), which prevented equal access to the transmission and distribution networks and eliminated the economic dispatch mechanism, arguing that intermittent clean energies affected the reliability and stability of the SEN.

SCJN

In this regard, Cofece filed a Constitutional Controversy against the Reliability Policy, considering it contrary to the provisions of articles 16, 28, and 133 of the Constitution, which establish a regime of competition in the generation and supply of electricity.

As a consequence, on February 3, 2021, the SCJN invalidated various provisions of the same. In compliance with this resolution of the SCJN, SENER annulled the Reliability Policy. However, the Reform to the LIE takes up various provisions contained in the Reliability Policy that were invalidated by the SCJN.

The Reform to the LIE: a) eliminates economic dispatch and, therefore, competition in the generation of electricity through cost reduction; b) violates the guarantee of open access to the National Transmission Network and the General Distribution Networks; and c) allows CFE SSB to acquire electricity without resorting to competitive mechanisms that guarantee the best prices.

Therefore, this Commission issued an opinion on the LIE Reform Initiative.

After its approval and publication in the DOF, it presented a new Constitutional Controversy that is pending resolution in the SCJN.

Competition is not an end in itself. In the case of the electricity industry, it is the means to achieve lower rates and environmental impact. Recent modifications to the legal framework and especially the Reform to the LIE imply a paradigm shift in the model that considered competition in the generation and supply of electricity as the mechanism to promote cost reduction and efficiency in the industry. without substituting it for another that motivates the transition towards its environmental and economic sustainability.

Markets and the Cofece

Therefore, an increase in the social costs of generation (environmental and monetary) is foreseeable, affecting the environment and the pocket of Mexicans directly through the payment of more expensive electricity or indirectly, through the increase in the subsidy of electricity rates by the Federal Government.

The analysis and recommendations contained in the document published by Cofece serve as a starting point in the event that the Mexican State decides to restore the path to competitive electricity generation and supply markets, while resuming the energy transition.

 

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