Government Prepares Initiative to Benefit CFE

President López Obrador has launched a “preferential initiative” to reform certain areas of the 2014 Energy Reform to benefit state utility CFE.  Today, the coordinator of MORENA’s parliamentary group, Ignacio Mier Velazco, said the initiative was fast tracked to prevent CFE’s “extinction.” Industry experts consider the counter-reform to be a bad move, as CCE signals it could open the door for indirect expropriation.

El Financiero reported that the president gave priority to this initiative and wants to immediately process its analysis, discussion, opinion and voting process. The initiative aims to reform Art. 3 of the Electrical Industry Law, “to guarantee reliability and a price rate system, which will only be updated on the basis of the inflation. This proposal aims to modify the order of priority of the dispatch, through the operation of the power plants in the current CFE Legacy Contract and with the design of a new contract for the physical delivery of energy and capacity to the grid.” In addition, the initiative will be able to stop price simulation in the current market, which it claims favors speculation, dumping and subsidies for private players, “as well as years of looting and the recognition of the total costs of generation, which will allow fair competition among market participants.”

“CFE’s extermination will be avoided as soon as possible,” said Mier Velazco during his address to the Chamber of Deputies. He called the Energy Reform an “attack” against Mexico because of “dishonest and fraudulent prices” set to benefit private companies. In a radio interview, Minister of Energy Rocío Nahle said CFE’s hydroelectric plants should be dispatched first. After this, combined cycle and other thermoelectric power plants would be dispatched. This should be followed by wind and solar energy contracted by CFE, with private companies to be dispatched last.

Claudio Rodríguez-Galán, Partner at Thompson & Knight, told El Financiero that the initiative is monopolistic in nature and, therefore, goes against articles embedded in the Mexican Constitution. “This initiative’s only effect is to foster discredit and distrust among investors. These changes do not benefit anyone and harm the modifications that had been previously made to protect and promote clean and renewable energies. It is a monopolistic initiative, unconstitutional and contrary to the international treaties in which Mexico participates,” he said.

Private companies and investors affected by the initiative are seeking out dialog with legislators so the private sector’s opinion is taken into account. The Business Coordinating Council (CCE) said the lack of dialogue with the private sector is “inexplicable,” due to the initiative’s potential effects. “It opens the doors to an indirect expropriation of private plants,” the council said, because of CFE’s monopoly in the dispatch, which would violate the constitution and harm investments in the country.