New Energy Bill Seeks Compromise to Avert Litigation Flood

Critics were quick to denounce President López Obrador´s new power bill, which focuses on strengthening CFE and limiting private participation in Mexico’s energy sector in an attempt to reverse the 2013 Energy Reform. Despite the disparagement, Reuters analyzed that the president is betting that he can reign back control without causing various lawsuits from private investors and companies, which are already on high alert from previous attempts.

The national Business Coordinating Council (CCE) went as far as to call the bill an “indirect expropriation.” Last week, the US Chamber of Commerce argued that this plan goes directly against the USMCA treaty, as it called the developments “deeply troubling.” “Such drastic changes would open the door for the reinstatement of a monopoly in the electricity sector and, we believe, would directly contravene Mexico’s commitments under the USMCA,” said US Chamber of Commerce Senior Vice President of the Americas, Neil Herrington.

The controversial bill is set out to reform Art. 3 of the Electrical Industry Law. Legal intelligence platform JD Supra analyzed the bill, highlighting its ultimate purposes. These include amendments to the framework to eliminate free competition in generation and commercialization of energy, preferential treatment for CFE in the energy dispatch, no obligation for further public auctions, network access and permitting restrictions and an expansion of Clean Energy Certificates (CELs). Furthermore, through transitory articles, the bill would be able provide retroactive provisions as well, allowing CFE to review, renegotiate or even cancel power purchasing contracts and review self-supply permits. However, Reuters reports that Manuel Rodriguez, a member of Lopez Obrador’s party who is spearheading the energy committee and reviewing the bill said that the bill will not have any retroactive qualities through these transitory articles. “Investments already made in accordance with the rules of the Energy Reform are guaranteed and will continue. There will not be a change of rules for those investments,” he told the news agency. Instead, the amended rules would only apply for new investors to cover back-up costs CFE says it needs to incorporate renewables into the grid. With this move, the government hopes to ward off a new flood of private litigation efforts.

López Obrador has clashed continuously with his predecessor’s Energy Reform, which the current president said unfairly favors private companies at the disadvantage of state-owned companies PEMEX and CFE. The president also claims that countries have the sovereign right to alter the constitution and domestic legislation regardless of the USMCA agreement’s protections. The government therefore issued various provisional regulations and held back permitting to the frustration of private companies and trading partners, but has been met with suspensions after private companies were forced to resort to litigation.

Last week, Mexico’s Supreme Court overturned most provisions issued during May 2020. Now, legal experts told Reuters that an actual change in the law through Congress would not be as easy to overturn by courts. Even if previous investments are respected, experts agree that more litigation would follow if the bill passes.