SENER to Audit CFE’s Legal Separation

The Ministry of Energy (SENER) announced that it will audit the legal separation of CFE’s subsidiaries. In 2016, SENER published the Terms for Legal Separation for the Federal Electricity Commission (TESL). The terms included that CFE would be submitted to an audit every four years by an independent entity chosen by SENER, and the expenses would be covered by CFE, making this a routine review.

According to the statement, no opportunity areas were encountered by the 2018 audit. With this experience and its presence on the board of CFE, its three boards for affiliated companies and its nine boards for subsidiaries, it is therefore ideally positioned to carry out the new audit, according to the announcement.

However, in 2018,SENER stated that, while the 2018 audit did not find any relevant opportunities to improve decision-making, the SENER found irregularities in CFE’s portfolio while conducting TESL, though none warranted an audit. The main issues identified were that CFE did not guarantee efficient operations nor competitive participation in the electricity industry, as stipulated by the 2014 Energy Reform.

CFE said that the 2018 audit caused extra costs while it did not yield relevant findings, going against the state utility’s austerity policies.

As previously reported by MBN, the Mexican Institute for Competitiveness (IMCO) found CFE to be providing its partnering production companies with subsidies between those incurring losses with funds from those making gains, effectively distorting the financial and operational effectiveness of the company and its subsidiaries. These irregularities violated the 2016 Terms for Strict Legal Separation (TESL), so IMCO claims this may be curbing subsidiary incentives, hurting market competition and inflating consumer prices. Even though this does not alter CFE’s consolidated financial statements from an accounting perspective, it misrepresents the actual performance of each subsidiary company engaging in cross-transfers. According to IMCO, this had negative implications for the state utility’s transparency. On a grander scale it could also hurt market competition within the electricity market and may also be reducing available resources that could go towards continued investment in transmission and distribution networks.