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Mexican antitrust watchdog asks Supreme Court to rule on power sector regulation

Highlights

Watchdog argues regulation blocks competition

Direction Supreme Court will take unclear

Mexico City — The Mexican antitrust watchdog has asked the country's Supreme Court to analyze whether the energy ministry (Sener) violated the constitution with recently issued power market regulation.

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The Federal Economic Competition Commission (Cofece) sought a ruling on regulation published by Sener May 15 known as the "Agreement for reliability, security, continuity and quality for the national electric system." Cofece argues the regulation blocks competition in the power generation market, a right stated in the Mexican constitution.

The regulation impedes the economic structure of the electricity sector, by eliminating competition and efficiency, Cofece said in a statement June 22. It compromises open, non-discriminatory access to transmission and distribution networks and also distorts the criteria of economic dispatch that regulates the market, Cofece said.

The set of rules gave priority to state-owned CFE plants when dispatching electricity instead of allowing the cheapest energy produced by wind or solar generators to go first. Sener cited the intermittency of the renewable facilities and their impact on operations in the current low demand environment as its justification.

"The reliability and security of the national electric system is above any economic interest, pubic or private and it is considered strategic," Mexican energy secretary Rocio Nahle said June 22 in a tweet.

Supreme Court ruling

The ruling of the Supreme Court could go in different directions, according to Pedro Llado, a senior associate specializing in the Mexican energy industry at law firm Gonzalez Calvillo.

The country's top court could say the regulation does hurt competition and violates the constitution. If competition is found to be affected, that could have a substantial impact on the outcome of various amparos, a legal instrument similar to an injunction that has been sought by some companies to dodge the regulation temporarily until the issue is resolved in court, Llado said. Cofece's move could see the Supreme Court to resolve the competition claim, he said.

One of the arguments companies and organizations have used in the amparos in facing down the regulation is that it violates their rights to compete, Llado said. Other arguments are that the regulation is a violation of the rule of law and violation of environmental laws and the environment.

If the court finds it was constitutional for Sener to issue the policy, it would severely affect the likelihood of success for antitrust arguments under existing amparos, but companies may still win those cases should they take other routes, he said. A third option is that the Supreme Court considers the relevance to the constitution is not the right way to approach the issue, and the amparos should run their course, he said.

In any case, it is good that the Supreme Court learns about the case, he said.