Mexico top court permanently blocks parts of federal rule on power market

Mexico City — Mexico's Supreme Court of Justice on Feb. 3 permanently suspended parts of a regulation issued by the federal government that gave benefits to the state utility CFE over private energy producers, as it found it to be unconstitutional and hurting competition.

The move could create hurdles for a recent initiative of the president.

The regulation, issued by the energy secretariat, or SENER, in May in order to guarantee stability and reliability in the national electric grid during the pandemic, had been temporarily suspended by the Supreme Court in June 2020, after the country's anti-trust watchdog presented a legal complaint. The complaint was backed by companies, associations and non-profit groups like Greenpeace.

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The Supreme Court's Feb. 3 ruling, which passed with four votes in favor and one against, is definite and states that some aspects of the SENER regulation are contrary to the constitution as modified by a 2013 reform that opened the sector to competition.

The court determined that SENER does indeed have authority to make regulations in the electricity sector.

However, SENER's regulation "eliminates elements that must exist for free economic competition in the markets of power generation and power supply, mainly related to clean energies," the ruling said.

It also gave CFE advantage over other market participants to have a role in the design and operation of the national grid, the Supreme Court said.

The ruling also said that the national electric grid operator Cenace had no authority to reject interconnection permits or to block a generation permit for any private player.

President's initiative

The ruling comes days after the Mexican president presented an initiative to modify the regulation for the electric sector which in many ways has similar intentions -- to give priority to CFE over private producers in the supply of electricity.

"Certainly, some aspects of the regulation, which have been declared unconstitutional by the Supreme Court, will not be able to pass under a new format, even if it is presented by the president," said Julia Gonzalez, a senior associate specialized in Mexico's energy industry at Mexico-based law firm Gonzalez Calvillo.

Institutions, chambers or other organizations, can present a constitutional controversy against the president's initiative, Gonzalez said, adding that law firms will have to analyze which parts of the ruling apply to the president's initiative.

The government seems to be aware of this and is prepared to tone down. Senator Ricardo Monreal, from the president's Morena party, told local media on Feb. 3 that the initiative presented by the president could be modified to avoid legal confrontations and that he would personally seek dialog with the companies involved.

According to data from SENER, investments worth at least $9 billion would be compromised if the president's initiative was passed.

Roberto Velazco Alvarez, who oversees North American relations at the foreign affairs Secretariat, said Feb. 3 during a webinar organized by the Wilson Center that he is aware of the concerns among market participants and that his office will follow the legislative process closely.

"If we get to a point where there is a legal issue that has not been observed by the Mexican government, we always try to find a friendly solution before we get to arbitration," Velazco Alvarez said.