CFE’s Prices Surge After February’s Gas Import Block

Electricity rates belonging Mexico’s public utility CFE are set to increase in April, when the price hike in natural gas experienced during February’s natural gas shortage will take its toll. Extreme weather conditions led to a large cut in supply from Texas, from where CFE imports most of its gas, as well as a 200 percent increase in gas prices that lasted several days. For domestic users, prices can increase 3.3 percent over the year.

“In February, an increase of costs of MX$50 billion (US$2.49 billion) occurred. The CRE and the Ministry of Finance are working to dose or transfer these extra costs in the months where electricity rates are lower,” said José Martín Mendoza, Director of CFE’s Basic Supply arm during President López Obrador’s morning conference earlier this week. The domestic users affected by the increase represent 40.7 million out of CFE’s 48 million clients. Nevertheless, the lower electricity use of the basic scheme means that this group represents only 30 percent of CFE’s sales.

Using CFE data, El Economista noted that the increase in electricity prices for the basic supply scheme increased by 20 percent in total over the last 10 years. Between April 2019 and 2021, CFE’s prices increased 6.9 percent out of the 20 percent. El Economista furthermore points out CFE’s decision to not migrate home users consuming more electricity to higher rates. Even though the monthly price increase of 0.274 percent will reach a 3.33 percent increase from last year by the end of 2021, the hike is still below four percent inflation rates.

Commercial and industrial service rates regulated by CRE dropped by 5 percent over 2020, but total have increased by 3.4 percent up to April 2021 so far.

The increasing energy prices are often linked to López Obrador government’s energy policy by industry experts, even though in this case abnormal weather in Texas can be blamed. Focusing on the concept ‘energy independence’ through state-owned entities PEMEX and CFE, players in the renewable private sector that arrived after the 2014 Energy Reform have seen their opportunities dwindle and have taken efforts to protect their investments as policies aimed to strengthen CFE directly disadvantaged them. Despite the focus on energy independence, Mexico imports a large amount of the natural gas it consumes directly from the US instead of producing the resource itself. Even though natural gas production remains somewhat unprofitable for PEMEX, this year’s events might bring change in this regard. Furthermore, renewable resources have recently again proved to showcase low MWh prices according to CRE, especially for wind and solar. Nevertheless, CFE claims that the backup needed to deal with their intermittency is a major source for extra costs.