Effort to salvage Mexican private power sector advances

Effort to salvage Mexican private power sector advances

August 20, 2021 | By Hernán González Estrada and Carlos Campuzano in Mexico City

A federal district court in Mexico blocked enforcement earlier this month of steps that the López Obrador government has taken to strengthen the national electric utility, the Comisión Federal de Electricidad (CFE), at the expense of independent generators. 

The decision only blocks enforcement against four private power projects that brought the lawsuit.

The government will almost certainly appeal.  A decision in any appeal will take at least four to six months.

At issue are amendments to the Mexican “Electric Industry Law” (LIE) that the López Obrador government put through Congress in March to reverse steps the previous government had taken to allow the private companies to engage in the generation and supply of electricity.  Private participation started to increase in late 2013.  Various independent power companies began developing projects in Mexico with the aim of selling electricity and other related products through a wholesale electricity market with open access and free competition rules.  Long-term contracts were signed with the CFE and industrial customers to supply electricity.  A number of projects secured financing on the basis of such contracts.

López Obrador promised when he took office in late 2018 to reverse the privatizations.  He has taken a number of steps in that direction.  Earlier this year, the government changed the order in which power projects are dispatched to give priority to CFE projects, made it harder to get power generation permits and to interconnect renewable energy projects, and allowed older power plants owned by CFE to obtain clean energy certificates. (For previous coverage, see https://www.projectfinance.law/publications/2021/february/new-obstacles-to-private-power-projects-in-mexico/.)

New independent power development ground quickly to a halt.

Various project developers filed “amparo” lawsuits against the government in the federal courts seeking injunctions to prevent the government from enforcing the new policies against their projects.

The latest ruling is in a lawsuit by four private companies.  The court said the reforms violate the constitutional rights of the four companies and cannot be enforced against them.

It determined that the LIE reforms affect not only private companies engaged in generating and marketing electricity, but also end users of the electricity and that the new provisions violate free competition principles and will eventually lead to higher electricity prices to the detriment of end users.

The court said the LIE reforms create access barriers that allow the state-owned CFE unduly and unfairly to displace its competitors by granting priority access to the utility grid to power plants owned by CFE in violation of the principles of universal and non-discriminatory access.

The same court granted temporary injunctions after preliminary hearings in a number of amparo trials filed by industry participants earlier this year, preventing the LIE reforms from being enforced or implemented until a final ruling was issued.  These temporary injunctions have started to be lifted by appeals courts.  In some cases, such as this latest decision, they are being replaced by permanent injunctions called amparos.

The latest ruling is not premised on a general declaration of unconstitutionality.  Confirmation of amparo protection for other companies that have filed amparo demands against the LIE reforms will have to wait until final judgments are issued in their respective amparo trial dockets.

The district court decided against giving general effect to its ruling so that it would apply to all independent generators, since the LIE reforms are currently being analyzed by the Mexican Supreme Court in a case brought against the reforms by both the Federal Antitrust Commission and members of the Senate.

The broader fate of the LIE reforms will be decided ultimately by the Supreme Court.