Amendments to Mexico’s Power Industry Law on Hold
On 1 February 2021, President Andrés Manuel López Obrador submitted a bill to the Mexican Chamber of Deputies to amend the Power Industry Law’s specific provisions. The Chamber of Deputies and the Senate approved the bill shortly after, without significant changes.
On 9 March 2021, the Decree through which several Power Industry Law provisions are added and modified (Decreto por el que se reforman y adicionan diversas disposiciones de la Ley de la Industria Eléctrica or “Decree”) was published in the Federal Official Gazette. The Decree entered into force the next day following its publication. However, the effects of the Decree are currently on hold.
The Decree – A Major Change to the Energy Private Market
The Decree introduced provisions intended to strengthen the state-owned Federal Electricity Commission’s (Comisión Federal de Electricidad, or “CFE”) finances by increasing its market participation. For example, among the main changes, we could point to the following:
First, the order to access the national grid no longer depends on the power generation costs. Under the Decree, the energy produced by CFE has priority over privately-owned clean energy (Art. 4).
Second, the Mexican Energy Regulatory Commission (Comisión Reguladora de Energía or “CRE”) has the authority to grant permits, provided for in the Power Industry Law, subject to the criteria set out in the National Electric System Development Program 2020-2034. CRE also has the power to amend or revoke them (Art. 12).
Fourth, the Decree changes the criteria to grant clean energy certificates in favor of CFE (Art. 126).
Fifth, the Decree obligates the CRE to revoke privately held self-supply permits if the private parties obtained them using a fraudulent scheme (Art. fourth transitory).
Sixth, generation capacity commitments and power purchase agreements, entered into with independent power producers in the past, shall be reviewed to guarantee their legality and profitability (Art. sixth transitory).
The Decree’s Provisional Suspension
On 11 March 2021, the Second District Court for Administrative Matters Specialized in Economic Competition, Broadcasting and Telecommunications, located in Mexico City, granted the provisional suspension of the Decree’s general effects to a plaintiff who started amparo proceedings. As of today, other similar suspensions have accumulated from further amparo proceedings. Thus, its effects are on hold.
Hence, the Mexican authorities in the energy sector cannot implement the Decree. They must continue applying the Power Industry Law provisions without considering the Decree until the judges analyze the merits of the amparo proceedings and a decision on the definitive suspension is made.
A Split in Powers
The legislative power by majority has endorsed the Decree. By contrast, the judicial power and other Mexican institutions such as the antitrust commission have raised some concerns regarding the Decree’s constitutionality. To date, the effects of the Decree are provisionally on hold.
Likely, the last word would be in the hands of the Supreme Court. The Decree takes up various aspects of the Policy of Reliability, Safety, Continuity and Quality of the National Electric System (Política de Confiabilidad, Seguridad, Continuidad y Calidad en el Sistema Eléctrico Nacional) issued by Mexico’s Ministry of Energy on 15 May 2020. The Supreme Court has already set aside various aspects of the policy because they violate the Mexican constitution. Therefore, it remains to be seen whether the Supreme Court would follow its line of decision or side with the legislative and the executive powers.
If the Supreme Court upholds the Decree, foreign investors should analyze their rights and dispute resolution options under the multilateral and bilateral investment treaties to which Mexico is a party.