CRE Fines Iberdrola US$466 million for Self-Supply Misconduct

The Energy Regulatory Commission (CRE) fined a Nuevo Leon-based arm of Iberdrola, imposing the highest charge in the history of the Mexican energy sector. The penalty is the first concrete action taken by the López Obrador's administration against the self-supply market.

CRE fined Iberdrola MX$9.14 billion (US$466 million) for operating based on illegal self-supply contracts via its plant in Nuevo Leon, called Dulces Nombres. The announcement was published after the regulator’s extraordinary session past Friday, May 26. CRE considers the Spanish multinational violated the law by illegally selling electricity to its partners.

The fine is the second-most expensive fine imposed in Mexico's history, surpassed only by the Federal Economic Competition Commission (COFECE) fine for Telmex in 2011, costing the telecommunications company MX$11.98 billion (US$612.89 million). However, CRE’s fine is far and away the largest fine imposed on an energy sector player.

According to CRE, Iberdrola failed to comply with Art. 36 of the Public Energy Service Law and 90 percent of the corresponding regulation, since the law prevents the "selling, reselling or alienating, by any title, directly or indirectly, electric capacity or energy, except for the cases authorized by the LSPEE and its regulation."

This resolution responds to a 2020 CFE complaint filed against several energy companies for alleged administrative irregularities. After receiving the complaint, CRE requested invoices from the Tax Administration Service (SAT) that it claims prove Iberdrola unjustly received payments for supplying electricity to its partners.

For its part, the Spanish energy giant, the largest private company in Mexico’s energy sector, denies having broken any rules. Iberdrola argues that the invoices presented by the CRE do not prove the alleged sale of electricity and that the law does not explicitly prevent payments from its partners. "The rules do not prohibit, limit or regulate the relationship that should exist between permit holders and their partners. Therefore, this relationship is within the freely permitted activities. What the law prohibits, it has stated, is that energy cannot be sold to companies that are not partners in the self-supply scheme,” Iberdrola defends its position.

The decision is the first major penalty of a private player since President Andrés Manuel López Obrador came to power. It also represents a warning to other energy companies operating under self-supply contracts. President López Obrador has repeatedly stated his position against the legacy scheme, as he not only considers them to be illegal but also sees them as hostile to CFE. According to the president, self-supply contracts deprive the state-utility of potential customers and revenue, which costs CFE around MX$8 billion (US$409.1 million) annually. In addition, the president considers that private power producers do not pay enough porting fees for using CFE's transmission network.

When questioned about the CRE's decision, President López Obrador stated that he considered the measure fair "since Mexico is no longer a land of conquest," a reference to Mexico’s colonial past he has made regularly in the past.

In the following years, 457 permits like Iberdrola's will expire, of which 177 could meet a fate similar to that of the Dulces Nombres. The many permits at risk represent a private investment of US$22.1 billion and 13,538MW of capacity.

Iberdrola will have 15 days to file for an indirect injunction, called an amparo in the Mexican context. However, both CRE and grid operator CENACE have ignored several definitive suspensions that favor Iberdrola and would allow the Spanish company to reconnect with its customers in Nuevo Leon. Meanwhile, Iberdrola's partner companies that were supplied by its Dulces Nombres plant have had to supply their energy to CFE’s Basic Supply scheme, reportedly forcing them to pay between 20 and 40 percent more for their electricity supply.