Supreme Court Will Decide on Electricity Law’s Constitutionality
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Supreme Court Will Decide on Electricity Law’s Constitutionality

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María José Goytia By María José Goytia | Journalist and Industry Analyst - Mon, 04/04/2022 - 15:51

Amid a rushed vote on the new energy reform in Congress, the electricity sector faces a major breaking point at the Supreme Court of Justice (SCJN), as ministers prepare to vote on the possible unconstitutionality of the changes to the Electricity Industry Law (LIE) from 2021. If declared constitutional, CFE will become the preponderant power generator even without seeing the reform proposal approved.

Minister Arturo Zaldivar, President, Supreme Court, announced that the SCJN will vote on three constitutional challenges against the bill on April 5. The procedures were initiated by the Federal Economic Competition Commission (COFECE), the government of Colima and parliament members from the opposition, which claimed that the Congress-approved bill violates free-market principles, the right to a healthy environment and, in the case of COFECE, an invasion on its constitutional powers to protect free market competition.

Shortly after the bill’s approval, the renewed LIE got suspended by judges Juan Pablo Gómez Fierro, Rodrigo de la Peza López Figueroa and by collegiate courts, who all considered that the regulation violates the constitution as amendments give priority to CFE’s electricity dispatch regardless of its costs or pollution levels.

The new LIE was the preamble of President López Obrador’s constitutional energy reform, which is now being discussed in Congress. The bill’s suspension via amparos was the main reason why the president moved on toward a more ambitious regulatory change.

Within the Supreme Court, Minister Loretta Ortiz proposed to endorse the adapted LIE’s constitutionality and requested to present the other ministers of the court with three draft resolutions against its appeals. According to Ortiz, the LIE does not violate competition principles as "public interest must prevail over the individual." Ortiz also rejects the risk of CFE becoming a monopoly since the constitution establishes that "the state’s exclusive activity in strategic areas shall not be considered as monopolies."

As the constitutional reform’s approval still looks somewhat unlikely, the federal government may be seeking to achieve regulatory changes via the Supreme Court. If the new LIE is declared constitutional, companies would no longer be able to file amparos to protect from the legal status quo.

Even though LIE’s effects would harm competition in the energy sector, the blow would be softer than if the constitutional reform would be approved. The reform is more ambitious than the LIE as it cancels all contracts with the private sector, leaves CFE as the head of the market and eliminates the two autonomous regulatory agencies of the sector. However, the LIE does embody the government’s desired market dynamics, based on limiting private participation and imposing a new order in the market where CFE retakes the leading role.

Experts point toward a strong conflict of interest with Minister Ortiz's promotion of LIE’s constitutionality:  she is a founding member of ruling party MORENA and was a federal deputy from 2012 to 2015 for the allied Labor Party (PT). During this period, she voted against the 2014 Energy Reform, which would be all but revoked with her initiative at the Supreme Court. Ortiz is also the fourth Minister appointed during this administration. Other close collaborators of President López Obrador in the Supreme Court include Minister Yasmín Esquivel and Minister Margarita Ríos Farjat. The opposition in the Senate formalized a motion for her to be excused from participating in the resolution of the unconstitutionality procedure.

If the Supreme Court is to declare a Congressional bill unconstitutional, eight out of 11 ministers must vote in favor of the motion. So far, three are expected to vote against the unconstitutionality and support the president’s regulatory changes. As such, the decisive vote may come from Minister Arturo Zaldívar.

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