Advanced Search

Weekly Report - 18 June 2020 (WR-20-24)

Click here for printer friendly version
Click here for full report

MEXICO: Government taken to court over ‘electrolinazo’

A Mexican court has agreed to hear the case brought by two private electricity generation firms against the exorbitant increases in the fees that the state-owned electricity company, Comisión Federal de la Electricidad (CFE), can charge private firms to use its transmission lines to access the national grid. The fee increases have been approved by the energy regulatory commission (CRE). But business organisations have accused the government led by President Andrés Manuel López Obrador of trying to impose an ‘electrolinazo’ illegally designed to increase the price of renewable electricity generation artificially in the latest attempt to reduce competition for the CFE to the detriment of the overall market.

The CRE issued a resolution approving the CFE’s request to increase the fees it charges other firms to use its transmission infrastructure by up to 775% on 10 June. The CRE accepted the CFE’s argument that the sharp increases were justified to ‘level the playing field’. The CFE claims it has been subsidising its competitors by letting them use its infrastructure despite having lower production costs. The CFE added that the increases would mostly affect firms that were established before the 2013-2014 energy reform that opened up the sector to increased private participation and not the newcomers to the market that have also benefited from favourable contracts designed to encourage market entry.

However, private energy firms and business associations said that the increase would nonetheless drive some of the CFE’s established competitors out of business to the detriment of free market competition. Noting that the fee increases come hot on the heels of the controversial changes to electricity market regulations published by the energy ministry (Sener) and approved by the Centro Nacional de Control de Energía (Cenace) that limit the operations of private renewable electricity generators [WR-20-20], the business sector denounced this as another attempt by the government to restrict private participation in the electricity market for the benefit of the CFE but not necessarily consumers.

The private sector lobby Consejo Coordinador Empresarial (CCE) issued a statement on 11 June in which it argued that the approved fee increases violate federal competition legislation, as well as international treaties and complained that they would have a negative impact on businesses as well as households, as the increased costs would likely end up being passed on to them. The CCE said that the increases would “directly impact the productive structure” of many firms that have high electricity consumption (representing 14% of GDP according to the CCE), jeopardising their “capacity to maintain their labour force”. The CCE added that the “repercussions will go further and also affect the final consumer, who will see the cost of living significantly increase”.

Then, on 12 June, the specialised second federal district court on economic competition announced that it had agreed to hear an appeal against the fee increases filed by two private renewable energy firms - Tampico Solar and Saferay Solar. The court agreed to analyse the firm’s argument that the proposed charges would unjustly undermine their operations, and it ordered the suspension of the application of the new fee schedule on the two firms until it issues a ruling. This is the latest judicial setback for the government and its new energy policy as other federal courts have ordered the temporary suspension of new electricity market regulations drafted by the Sener until it is determined whether these are lawful or not. With the government insisting that it will defend its policy against all legal challenges, the disputes look set to reach the supreme court (SCJN), proving politically and economically damaging.

Up for the fight

President López Obrador is adamant that his government will fight all legal challenges to its energy policy initiatives. In his 12 June morning press briefing, López Obrador said that the energy policy is designed to stop the “pillaging” by private firms. “Are they going to continue the pillaging thanks to legal complaints and appeals? ... we will litigate…we will defend the national interest,” López Obrador said, accusing private firms of trying to “ruin” the CFE. He went on to complain that Spain’s Iberdrola has a “monopoly in Mexico”. Iberdrola currently has a 15% share of Mexico’s electricity market but, according to López Obrador, the firm has “bought or built the largest number of electricity generation plants in Mexico”.