Mexico’s Supreme Court ruled Wednesday that changes in the country’s electricity market regulations that give priority to the public company over private power generators are unconstitutional.
The ruling is a setback for President Andrés Manuel López Obrador’s plans to restore dominance of state-owned energy companies and badly augurs a bill he sent to Congress this week that would give public company CFE a dominant position in market power .
It could also establish a confrontation between the court and the president, a nationalist who seeks to reverse key parts of a historic overhaul of the energy sector conducted under his predecessor that ended Mexico’s state monopoly on the oil market and went open electricity markets to large private companies. investment.
Mexican courts are emerging as an obstacle to Mr. Lopez Obrador’s drive to centralize power, analysts say. There are several decisions of the lower courts against the government of the energy sector and the Supreme Court had prevented the government from lowering the salaries of senior officials of autonomous institutions such as the central bank.
Wednesday’s resolution by a 4-1 vote destroys key aspects of a policy released last year by the Ministry of Energy that required the national power grid operator to take electricity generated by CFE before cheaper options of private generators that have invested billions of dollars in the country. , especially in wind and solar stations. The ministry argued that the change was necessary to ensure the reliability of the network.
The policy was challenged in the Supreme Court by the country’s antitrust commission on the grounds that it violated constitutional principles of free competition and market access.
“The feeling that this court decision leaves us with is that one way or another, there is still a good system of control and balance,” said Rodolfo Rueda, a senior attorney at Thompson & Knight LLP who focuses on energy projects in Latin America. .
The ruling comes two days after Mr. López Obrador sent a bill to Congress to change electricity laws that would further limit competition in the electricity sector in favor of the CFE and put billions of dollars of investment at risk. private.
Analysts said the court ruling makes it much more likely that the bill, if enacted into law, will also be overturned.
“The bill is much more aggressive against the rights of private investors than the policy of reliability, so it is an unequivocal indication that the reforms proposed in the bill would be unconstitutional,” said Pablo Zárate, managing director in Mexico. of FTI Consulting,
a global consulting firm.
Today, the law requires that the cheapest electricity be used first and the most expensive energy last, with the idea that the savings can be passed on to consumers. The rules have favored private sector wind and solar power generators over many of CFE’s older generating plants, which have higher costs.
Under the proposed changes, hydropower would be the first energy to be placed on the grid, followed by any energy generated by CFE, electricity from independent energy producers contracted with CFE, then private solar and wind energy, and finally , other privately owned power plants.
CFE, which for many decades enjoyed the monopoly, has large hydroelectric power plants, a nuclear power plant and plants that run on natural gas, coal and fuel, but with little solar and wind energy.
The proposal also allows regulators to revoke permits for private generators to build plants under a 1992 law that allowed companies to generate electricity for their own use and force them to apply for permits under current legislation.
Mexico’s largest business organization called the bill “an indirect expropriation” and said it violated the constitution. He added that the bill also goes against international agreements on trade, investment and environmental protection.
The bill is backed by lawmakers from the ruling Morena party, which has a majority in the lower house of Congress and the Senate.
Last month, U.S. secretaries of state, energy, and trade sent a letter to their Mexican counterparts saying the Lopez Obrador administration could violate the U.S.-Mexico-Canada trade pact if regulators block the permits to private companies in favor of the Mexican state energy companies.
“While we respect Mexico’s sovereign right to determine its own energy policies, we are bound to insist that Mexico comply with its USMCA obligations,” they said.
—Santiago Pérez contributed to this article.
Write to Anthony Harrup to [email protected]
Copyright © 2020 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8