Mexico’s CFE argues for proposed electric market reforms

Mexico’s 2013 energy reforms locked in changes to the electricity market that cost state-owned power firm Comision Federal de Electricidad (CFE) MXN412 billion (US$20.6 billion) in contractual payments with independent energy producers, according to company representatives.

According to BNamericas, CFE officials made this and other arguments in a public forum Thursday, mounting a defense of the legislative package that would re-write many aspects of the nation’s electricity law (LIE). The statements come amid intense and growing criticism of the package from business groups, energy experts, U.S. and Canadian trade representatives and private sector think tanks.

“The 2013 energy reform displaced CFE and unduly privileges its competitors,” said CFE lead counsel Raúl Jiménez. CFE said it is false that the initiative entails the closure of the wholesale electricity market, arguing rather that it will help establish a truly competitive marketplace, and adding that the real monopolistic activities were those resulting from deals struck between private companies and officials in creating the 2013 reforms.

Jiménez said that under these reforms, CFE is obliged to grant subsidies to its competitors and hold auctions to buy energy for basic supply, while those same competitors engage in “dumping” practices because “competitors only report variable and not total costs.”

Speaking at the forum, CFEnergía and CFE International Chief Executive Officer Miguel Reyes argued that such dumping practices had caused MXN250 billion (US$12.5 billion) in losses for the company via subsidies to private firms through electricity transport costs. “With this unfair competition, it is clearly a dumping situation that should be seen if it cannot be dealt with in the USMCA,” said Reyes, “It makes it so these self-suppliers can offer electricity between 8% and 10% cheaper to [what we offer] to large consumers.”

The USMCA free trade agreement between the U.S., Mexico and Canada came into effect in July 2020. Many experts, including one of the lead USMCA negotiators, Kenneth Smith, has said the LIE reforms would violate the treaty and trigger a strong response.

Reyes, in contrast, said the initiative guarantees the reliability, safety, continuity and quality of the national grid, adding that rather than restoring the market to a single dominant company, it provides a level playing field, removing unfair trade practices and restrictions that CFE was subjected to under the 2013 reforms.

Clean energy debate

Jiménez and Reyes both discussed how the current laws prevent CFE plants from obtaining clean energy licenses (CEL), in reference to the company’s desire to have nuclear and hydro generation added to the list of sources considered renewable.

The revised scheme, as CFE argues, would help the company benefit from Mexico’s energy transition law and associated benefits. But some clean energy advocacy groups claim CELs should primarily go to solar and wind generation.

CFE is not engaged in solar or wind projects and has indicated in its long-term energy plans that it will not be looking at adding solar and wind capacity in the coming years.

Reyes said CFE already produces almost twice as much clean energy (13% of the market) than is produced by private generators (7%) – assuming the inclusion of hydro and nuclear. However, according to Reyes, the current legislation does not recognize this as clean energy. CFE is obliged to buy the certificates from the competition, a situation he said goes against the free market and does not occur in any other part of the world.

Jiménez also said the company “has suffered a reduction in its client portfolio due to [self-supply contracts].” A variety of industries, and miners in particular, have shown eagerness in stepping up self-supply projects, both to acquire a cheaper and more secure energy supply, but also to contribute to climate transition and improve their environmental, social and governance (ESG) profiles.

But the legislation would counter this movement that the company argues deprives it of clients and potential revenue.

Reyes also said that the energy reforms had led to a 35% increase in electricity rates and that the increase had been halted during the current administration, but not as a result of improved competition.

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