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News Article

CFE’s Future Ambitions

Wed, 02/24/2016 - 13:44

The most awaited presentation was carried out by CFE’s Director General, Enrique Ochoa Reza. He began by explaining the restructuring process the utility is undergoing in order to become an energy company. In this sense, CFE will have four generation subsidiaries that will compete against each other and private players. A nuclear power unit will also be created, although this will remain part of CFE board for security reasons. Transmission and distribution are now under CENACE’s control, but CFE will have a transmission company that will be independent from the other subsidiaries for accounting purposes, as it will be able to report transmission costs to CENACE, who will use this information to set tariffs. Distribution will be carried out through a subsidiary that will have 16 business units, which corresponds to the number of the country’s current distribution units. The reason behind this division is also related to tariff setting, explained Ochoa Reza. CFE will have a two-way split subsidiary dedicated to power supply; one branch will focus on the basic segment and another will serve qualified users. Finally, CFE will have a commercialization company also split into two branches, one that will sell in the national market and another one that will operate internationally.

Ochoa Reza pointed out that CFE can cover demands of up to 40,000 MW, “so why did we need an energy reform?” he asked and proceeded to answer. “High tariffs negatively affected basic service users and the productivity of the industrial and commercial segments. The question now becomes ‘why were the tariffs so high?’ Well, fuels account to 80% of generations costs.” Ochoa Reza explained that the National Pipeline System was limited and not fully interconnected back in 2012, so fuel oil was principally used for electricity generation. He also pointed out that places with access to natural gas are likely to develop intense industrial activity, which directly impacts the economy. As a result of the National Infrastructure Plan, Mexico will increase its natural gas pipeline network, gasifying most states. In addition, CFE is converting several power plants so that these can run on natural gas instead of fuel oil. “Tariffs take fuel costs into consideration, so replacing fuel oil with more affordable natural gas results in a reduction of tariffs.” Finally, Ochoa Reza spoke about technical and non-technical losses, indicating that in 2012 these amounted to 16% and cost MX$52 million. These figures were reduced to 13.1% and MX$42 million in 2015. “The goal is to hit the 10-11% mark by 2018 so that future generations can take Mexico to the international average of 6%.”