Multidisciplinary International Capability Lifts Legal ExpertiseBy Cas Biekmann | Tue, 08/10/2021 - 10:45
Q: What sets Jones Day apart from its competition in the energy sector?
A: Jones Day began its Mexican operations in 2009, and then merged with a local law firm. This allowed us to grow our practice into areas that we did not cover before, such as regulation, environment and energy. In the energy sector, we consider ourselves to be somewhat different when it comes to clients looking for support. At Jones Day, we have several practices, including corporate, contracts, environmental and regulation, that work in tandem on energy projects. This is important because we can provide multidisciplinary advice. We even have a litigation team that can help cover further angles on the local side. Our international offices, located in Houston and in Madrid, help us provide further support for foreign companies operating in Mexico. We also advised on the development process of the first private gas station in the north of Mexico.
Q: How can Mexico’s legal sector help private companies protect their energy investments threatened by regulatory changes?
A: It is an unusual time for the Mexican electricity sector. Since the entry of the López Obrador administration, the government has been trying to amend regulatory norms, affecting private investment, despite previous statements that it would leave the reform untouched. Examples of this are an agreement from CENACE and policy from SENER that prioritize CFE power plants. This has led to legal challenges from private participants in the market. We advised several of them. These regulatory matters were dismissed by a court because they went against the principles of the Electricity Industry Law (LIE). Following the rulings, the government changed the LIE, featuring alterations to the economic energy dispatch to favor CFE once again. Amparos were granted leading to definite suspensions based on private litigation efforts. The Supreme Court will address this matter and decide whether these changes are constitutional.
Q: Could the Supreme Court´s decision force the government to build a wider platform for its mission to rescue CFE, including a favorable position for private players in the market?
A: I certainly hope so. It would be a good way to resolve the issue. However, the government has defended its position strongly. It is, therefore, difficult to change its mind toward a more flexible standpoint. We need to wait and see. Even though the courts have generally ruled against the government’s measures, a great deal of harm has already been done. For instance, CRE has stopped granting all permits, even though it is mandated to deliver them within a certain period. It is a pity that we will need to wait for the Supreme Court’s resolution to restart investments.
Q: How do you asses Mexico’s position within the wider global energy transition?
A: In Mexico, we have the Energy Transition Law, which forces companies to push for green energy development. Clean Energy Certificates (CELs) are a driving force within this market for renewable projects. The goal established in the law is to have 35 percent clean energy in Mexico by 2024. Unfortunately, this will likely not be achieved. International treaties and agreements further tie Mexico to these goals. Unfortunately, I believe that all the decisions the government has made are not favorable toward renewable energy development. The auctions from the previous administration in which CFE bought clean energy for its basic supply arm were very successful. At the time of the last auctions, renewable energy hit global record-low prices; nevertheless, the López Obrador administration suspended the fourth auction, eventually canceling it entirely. There are still some projects originating from this phase that still need to come online but many projects that were developed later have been stopped. We recently saw reports that CRE has not issued permits in about eight months. Previously, if you applied and complied with requirements you automatically received the necessary permits. This is no longer happening.
Q: Do you believe that switching from the self-supply scheme to the electricity market’s scheme a viable option for companies?
A: It is the government’s goal to see self-supply users migrate to the wholesale electricity market (WEM). They argue that these companies have much cheaper wheeling rates and are, therefore, harming CFE’s transmission network by underpaying. When Manuel Bartlett was a senator, he opposed changes to the existent law to make the self-supply scheme happen because he saw them as a sort of simulation, a black-market version of a proper electricity market. With these changes, the government is trying to force this switch. Many big companies, such as steel producers, are still under self-supply scheme. This is one of the reasons why the WEM has not grown as much as expected. The issue is that the 2014 Energy Reform stipulates that self-supply scheme contracts are allowed to continue until they expire. Companies have the right to switch back and forth to the WEM within this period. I do not see many companies switching because of the favorable self-supply conditions but they did have to challenge measures such as a sharp hike in wheeling costs last year.
Q: What will Jones Day’s focus on for the remainder of the year?
A: Jones Day continues to assist its clients with their legal challenges. We are delighted to support international clients entering the Mexican market and hope to see more of them. The firm will focus on following up on these legal procedures. Soon, the Supreme Court will address the reforms to the LIE. This will be a crucial decision. If 8 of the 11 Justices of the Court says the law is unconstitutional, it will have no legal effect. But If a minor majority agrees, it will only be applied to those that presented an amparo. If the Court rules the amendments to the LIE to be constitutional, this would be a surprise to most of Mexico’s energy lawyers. A constitutional change would then not be necessary but it is an unlikely scenario so the government will likely prepare a constitutional change soon enough. Pushing this plan might take the rest of what is left of this administration’s term.
Jones Day is a renowned legal firm with over 2,500 lawyers in 42 offices across five continents. In Mexico, it covers all the important economic sectors, including the country’s energy industry, helping clients to negotiate contracts and strategically protect legal interests.