The second chamber of the Supreme Court has declared this Wednesday that the plan for the electricity sector of the Government of Andres Manuel Lopez Obrador hinders free competition and unduly benefits the Federal Electricity Commission (CFE), the main state company. This same week, the Executive presented a preferential initiative to carry out an in-depth review of the Mexican electricity model and give preference to the CFE over private plants to upload their production to the grid.
The Ruling Came After The Federal Economic Competition Commission (Coface)
The autonomous public body in charge of guaranteeing free competition in the country filed a constitutional controversy against the Policy of Reliability, Security, Continuity and Quality in the System Electrico Nacional the guidelines that the Ministry of Energy presented last May for the sector. The decision approved by a majority of four votes in favor and one against declares some parts of that document unconstitutional because they go against the principle of economic dispatch established in the Energy Reform that former President Enrique Peña Nieto promoted in 2013 and that establishes that the plants with a lower production cost must be the first to upload electricity to the grid.
The Court has decided that just as the Reliability Policy had been proposed by this Administration, it was sought to give preferential treatment to the CFE to the detriment of its competitors, says Paolo Salerno, a lawyer specializing in the Wholesale Electricity Market. This predilection for the state-owned company also affects renewable energy plants, most of which are in private hands, thus violating the principle of energy transition provided for in the law, adds Salerno.
Another problematic point, in the judgment of the magistrates, is that budgets that were intended to promote economic competition were annulled, which meant an interference in the powers of the Coface as an autonomous body. It obstructs the fulfillment of the constitutional purposes entrusted to Coface, the sentence reads, particularly about Intermittent Clean Energies.
The Lopez Obrador government has justified that it needs more reliable sources to ensure the stability of the electricity system and has argued that the intermittent nature of wind and solar generation involves additional costs, which has raised questions among private and foreign companies, which are the main affected. The representation of the European Union in Mexico expressed its deep concern over what private and non-governmental organizations see as a setback in the commitment to move towards clean energy.
It is an extremely important sentence, especially in light of the initiative that has just been presented for the electricity sector, says Salerno. From the perspective of the Lopez Obrador government, it reads in the explanatory memorandum for his initiative, the current law has given great privileges to private companies and has caused serious damage to the CFE. It is evident that the energy policy that the Mexican government is designing is unconstitutional and goes against the principles of free competition because its purpose is to favor a single actor, adds the specialist.
CFE’s rescue plan or to give it certain advantages with an ad hoc regulatory framework collides with a market designed to reward economic and environmental efficiency among the participants that are with two different visions of understanding the economy an active role of the State against the free market. The point is that the current law leans toward competition with the promise of lower prices for consumers and a transition to renewables. The judgment of the Supreme Court puts a stop only to the parties appealed by Coface, while a new reform is being discussed in the Legislative Assembly, which promises to turn the country’s electricity sector upside down.