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Mexico – Government’s Electricity Counter-Reform – More than 90 Amparo Actions Filed to Challenge its Constitutionality

As many experts predicted, the "DECRETO por el que se reforman y adicionan diversas disposiciones de la Ley de la Industria Eléctrica", the controversial fast-tracked electricity counter-reform pushed by Mexican government, has caused a wave of amparo actions, upon entering into force.

The reform entered into force on March 9th, 2021. On March 11th, a Mexico City District Court, specialized in administrative, antitrust and telecom law, granted, within an amparo proceedings, the first of a large number of suspension injunctions against it.

The application of the counter-reform has been suspended in court erga omnes, in order «to guarantee the rights to competition and a free (energy) market».

Since then, more than 90 amparo actions have been brought by private power companies seeking protection against a reform which allegedly violates antitrust and environmental protection constitutional provisions.

The amparo action aims at protecting constitutional rights but it can also be considered, particularly when exercised against State acts and actions, as a judicial mean for reviewing the constitutionality thereof.

Generally, injunction issued within amparo has no erga omnes effects. However, in the abovementioned cases the judges have argued that a protection granted only to the claimants would have resulted in competitive advantages to those claimants and distorted the free (power) market «which is precisely one of the adverse effects that this injunction seeks to avoid».

Erga omnes suspension, on the other hand, would have protected all players in Mexican power market from the effects of the alleged unconstitutionality of the amendments recently entered into force and complies with the purposes of Mexican Constitution to allow a large participation in the power market and to achieve an efficient and competitive development thereof, for the benefit of the market itself, the players and consumers in general.

According to Mexican President, the reform to "Ley de la Industria Eléctrica" aims at reinforcing CFE ("Comisión Federal de Electricidad"), the Mexican state-owned power utility and protecting its prominent role in the Mexican energy market for the purpose of national energy security, after the (alleged) disaster provoked by the 2014 Energy Reform pushed by former government, which opened country's energy sector to private investments.

However, most energy experts coincide that those amendments represent the latest attempt by President López Obrador's administration to revert, despite campaign promises, the 2014 Energy Reform, at the expense of private power companies, mostly in renewable energy sector.

There is almost no doubt that those amparo proceedings are the prelude to a larger and very dangerous for Mexican economy wave of international arbitrations under foreign trade agreements, if Mexican Supreme Court declares the constitutionality of the reform.

The reform, in fact, contravenes, in addition to several constitutional principles, Mexico's international commitments concerning free trade, climate change and emissions reduction, among others.

Among the amendments, the reform:

  1. 1.changes the dispatch rules, reverting the cost-based mechanism introduced in 2014 by the Energy Reform aimed at developing Mexican renewable energy sector. Under the new rules, power generated by CFE plants (mostly thermal plants), will be fed into the power grid first, regardless of the cost thereof and the pollution produced in the generation process. The reform, despite Mexico's domestic and international commitments regarding climate change and emissions reduction, opens the market to a huge amount of (very expensive) electricity generated through the obsolete and highly contaminating power plants of CFE which will be preferred to the (clean and cheap) power generated by renewable plants, not to mention the negative impact on the environment and the profitability of the private investments in the Mexican power industry;

  2. 2.eliminates the power auctions as the sole, mandatory, procurement process for CFE, as basic service supplier, to purchase electricity and capacity. Under the reform, CFE may buy electricity and capacity even from its own power plants, even if the energy generated is more expensive than the one produced by renewable plants. In case the reform is declared constitutional, we would witness the elimination of a very successful electricity procurement process, internationally recognized for its transparency, which moreover allowed Mexican market to get the cheapest electricity prices in the world

  3. 3.amends the rules concerning clean energy certificates (certificados de energía limpia) introduced in 2014 to boost the development of new renewable energy projects in the country. Clean energy certificates will be granted to any clean power plants, even if launched before 2014, in order to favor (old) CFE's clean power plants, to the detriment of the renewable plants developed as a result of the 2014 Energy Reform;

  4. 4.requires the revision and potential termination of certain power purchase agreement and the revocation of certain self-supply generation permitsallegedly "secured by fraud".

The cases are likely to arrive to the Supreme Court.

The application of the new rules as well as the development of Mexican renewable energy sector, and the confidence of foreign investors which has been seriously undermined, at the precise moment when foreign direct investment in the country is needed more than ever, will depend on the Supreme Court's ruling.

DISCLAIMER: the content of this news is for informational purposes only and neither represents, nor can be construed as a legal opinion