Contributed By Dentons
Until 2013, the generation, transmission, distribution and marketing of electric power for public utility service purposes in Mexico was exclusively reserved to the federal government, through the Federal Commission of Electricity (, CFE), a public body of the federal government operating as a vertically integrated monopoly. Private participation was allowed only in the generation and transmission of power not intended to provide public utility services, under six types of permit. However, as a result of the significant increase in energy demand during the past decade and as part of the package of structural reforms that Mexico has enacted during the administration of President Enrique Peña Nieto, the Mexican energy sector is now subject to a completely new legal framework, enacted on 11 August 2014, following a historic constitutional reform – passed and enacted in December 2013 and known as the Energy Reform – that opened almost all areas of the oil, gas and power industries to private participation and competition.
The Energy Reform created a completely new industry model based on a competitive wholesale electricity market operated by a new independent system operator (ISO), while keeping the state’s control and ownership of the National Grid and its exclusivity with respect to power transmission and distribution activities (through two different state productive subsidiaries of CFE), but with the express possibility of entering into contracts with private parties assisting the Mexican state in the development of such activities (including public-private partnerships, PPP arrangements). Also in 2014, CFE transformed into a state productive enterprise, vertically and horizontally separated into different subsidiary entities for each one of its main activities, from generation to utility power supply services, and the procurement and marketing of natural gas and other inputs for the power industry.
All power activities are regulated by the Energy Regulatory Commission (Comisión Reguladora de Energía, CRE), a federal co-ordinated regulatory agency that is also the regulator of the midstream and downstream oil and gas industry. The CRE is currently a powerful and critical instrument of the Mexican government.
The principal federal statutes that govern the ownership and structure of the power industry in Mexico are the following:
Notwithstanding the changes approved by means of the Energy Reform, certain transitory provisions of the LIE acknowledged the right of ongoing projects to maintain (subject to certain conditions and milestones to be satisfied and evidenced to the CRE) their condition as generators and/or basic off-takers (despite the amount of their consumption) in terms of the previous legal framework. Those “grandfathered generators” remain subject to terms and conditions which considered, among others, their ability to own power facilities, private transmission lines and to sell the electricity generated through any of the authorised schemes – which include self-supply, co-generation, small-scale production, independent power production, and import/export for self-use purposes – while the “grandfathered off-takers” remain entitled to secure a PPA directly from the generators, which is currently restricted in the LIE.
Commercially speaking, the Mexican electricity sector is still divided into two main areas: (i) the electric power public utility service, and (ii) the activities in which private participation is allowed.
The generation, transmission, distribution and sale of power for public utility service purposes, previously reserved to the federal government through CFE, is still controlled by CFE.
CFE’s activities are separated into 14 different entities for each of the activities carried out by CFE in the energy market, although additional subsidiaries and affiliates may be created as necessary or convenient for CFE:
Private participation, on the other hand, is still concentrated in those activities where private participation was already allowed prior to the Energy Reform, those “grandfathered projects” – particularly independent power production (IPP) (private generation facilities aimed at supplying all of their capacity and power output to the CFE) and self-supply generation (private generation facilities aimed at supplying power for self-supply purposes to the holder of the relevant self-supply power generation permit and its shareholders). Nevertheless, now that the wholesale electricity market has initiated operations allowing private companies to participate in new areas such as power marketing and even public utility services, private participation has grown consistently in all areas of the electricity industry.
In parallel with the enactment of the Energy Reform, various federal statutes were amended, including the Foreign Investment Law, in order to open the power industry to private participation and competition, with no foreign investment restrictions.
Regarding available protections for foreign investments, Mexico has executed more than 30 bilateral investment treaties (BIT) with other countries, and is part of several free trade agreements that contemplate investment protection provisions (such as the NAFTA).
Moreover, on 11 January 2018, the Minister of Economy, Idelfonso Guajardo, executed on behalf of the Mexican government its adherence to the Convention on the Settlement of Investment Disputes between States and Nationals of other States (which is still subject to approval by the upper chamber of the Mexican Congress).
Despite not being part of the ICSID Convention, Mexico has been one of the most active countries in investment disputes, with more than a dozen cases conducted according to either the ICSID Additional Facility Rules or the rules of the United Nations Commission on International Trade Law, as incorporated by reference in the BIT executed by Mexico thus far.
The acquisition of private generation or private transmission facilities that entails the direct transfer of the assets and the relevant power generation or import permit requires approval from the CRE and, if the transaction surpasses the monetary thresholds established under the Federal Law of Economic Competition (Ley Federal de Competencia Económica) to qualify as a reportable transaction, the approval of the Federal Economic Competition Commission (Comisión Federal de Competencia Económica, CoFeCe) is required as well.
If there is no direct transfer of assets or permits, normally there are no change-in-control rules specifically applicable to businesses in the electricity sector in Mexico. Thus, the main authorisation required for a change in control performed at a mezzanine level (ie, a change in control implemented through the acquisition of a participation in the company holding the relevant permit and owning the assets) would be CoFeCe’s approval, which is applicable to all economic activities in general. Nevertheless, the CRE usually includes in its permits and authorisations provisions requiring its approval for any change-in-control of the permit holder and transfer of the permit itself (subject to meeting technical and financial requirements). Owing to its market presence, the CFE’s transfers are generally subject to CoFeCe approval. In addition, a special authorisation may be required from the CRE, with the opinion of CoFeCe if the entities acquiring a power generation company that consumes natural gas has other interests in natural gas pipeline transportation or storage companies.
Likewise, if the transaction relates to a project developed under an independent power production scheme, holding a long term PPA with CFE, CFE’s authorisation may be needed. Finally, when the transaction relates to a project being developed in terms of a hedging agreement awarded as a result of the recent auctions called by CENACE, CENACE’s (or the clearing house’s) authorisation will be required in terms of the applicable clauses.
On foreign investment matters, as a general rule, there are no special requirements or limitations on acquisitions of interests in the electricity sector by foreign companies except for the CFE, in which direct private participation (national or foreign) is legally barred since this entity is exclusively controlled by the federal government. However, if the foreign investor intends to acquire more than 49% of the capital of a Mexican company and such company has more than MXN3.6 billion in assets, the prior approval of the National Commission on Foreign Investments (Comisión Nacional de Inversiones Extranjeras) may be required.
Considering the authorities granted to SENER and CENACE by the applicable laws, such entities are the ones responsible for overseeing and administering the electricity supply and the development of transmission facilities to ensure the reliability of the electric system and the adequacy of supply to satisfy the demand for electricity. On the one hand, SENER is the entity authorised to issue or promote, by means of public policies, federal programmes and plans, investment incentives, and others, the electricity supply, and under certain circumstances to instruct the development of transmission facilities.
On the other hand, one of the most important changes resulting from the Energy Reform is the change on the operational control of the National Electric System (SEN, which encompasses the generation, transmission and distribution facilities used in the provision of electric power public utility services), which has been assumed by the National Centre for Energy Control (Centro Nacional de Control de Energía, CENACE), a new governmental body created as a spin-off of the CFE, in charge of operating the SEN and dispatching all of the power output generated by the CFE and private generators interconnected with this system.
CENACE, as the independent operator of the SEN and the wholesale electricity market, is the entity in charge of guaranteeing open access to the SEN. The general technical requirements to permit the interconnection of generation facilities to the SEN are issued by CENACE and approved by the CRE.
CENACE is also entrusted by law with the dispatch and control of the SEN pursuant to the dispatch regulations and market rules, but transporters and distributors (which are separate state-owned enterprises) are the entities actually in charge of providing transmission and distribution services. CENACE is now independent from the CFE and other market participants, according to the rules that govern reliability of the transmission services contained in the electricity market rules.
As the implementation of the Energy Reform is still ongoing, many regulations have been issued over the past year. Such new regulation continues to set the rules applicable for the operation of the new wholesale electricity market in Mexico, as well as the interconnection/connection of power plants and load points to the SEN, and the provision of the relevant transmission and distribution services, namely:
In addition, the CRE and CENACE have issued a number of important resolutions and decrees aimed at further detailing the criterion, methodology and/or provisions applicable to the calculation of the transmission, distribution and basic supply tariffs, among others.
In March 2018, the Ministry of Energy (Secretaría de Energía, SENER) published the Public Policy on Storage of Natural Gas, which sets the minimum levels of storage integrated to the transport system to ensure the security of natural gas supply during contingencies, which may impact the costs of generation facilities that use natural gas. Likewise, the federal government has announced the need to set clear rules for electricity storage, which is a critical element to reach the renewable goals established in the applicable laws and for the SEN’s reliability.
On a related matter, each year SENER publishes the Development Programme of the SEN (PRODESEN) for the next 15 years containing the policy and the projects envisioned for the next years in the power industry, including development of generation and transmission infrastructure. Based on the projects announced in the latest PRODESEN, the federal government will launch an important number of ambitious transmission infrastructure projects, which may have an impact on import/export activities, as well as on transmission and distribution rates.
The process to restructure the Mexican energy sector, including the electric industry, is ongoing. Important progress has been made, as the wholesale market begins operations in a series of stages that were initiated in 2017.
The Energy Reform opened the market to merchant power plants that sell their power in bulk, where the CENACE dispatches the system on the basis of cost efficiencies, providing market participants with non-discriminatory access to the grid, which is expected to affect the cost of power to the end-user, thereby reducing the price differentials that the industrial and residential sectors currently have with respect to other economies.
Over the last years, and due to the renewable resources available in the country, the Mexican government has specially focused on:
The new design of the sector, as contemplated in the Electricity Industry Law, includes:
Pursuant to the Electricity Industry Law, the prices for all transactions undertaken through the wholesale electricity market shall be determined by CENACE, based on the Market Rules and the offers received from the market participants. Moreover, marginal local prices shall be determined for each node and period, in accordance with the Market Rules, and those prices shall be applicable to the energy transactions on the wholesale electricity market.
The wholesale electricity market contemplates (i) a short-term energy market (real-time and day-ahead), (ii) a balancing capacity market, and (iii) a market of clean energy certificates.
The export and import of power by private parties requires an authorisation by the CRE. In addition, the import or export of power requires a special permit granted by the customs authorities in connection with the metering facilities used to measure the imported or exported power. Foreign power plants exclusively connected to the SEN may interconnect and inject power to the SEN under specific interconnection and dispatch rules that are different from those applicable to other foreign power plants, because under the applicable provisions, they are considered as local generators.
Currently there are seven DC ties connecting Mexico with neighbours on its northern and south-eastern borders, five of them are with the USA (three with ERCOT in Texas and two with CAISO in California) and the other two with Guatemala and Belize. The Manual for Imports and Exports will include further details regarding the operation, capacity allocation, and interconnection to the aforementioned DC ties, as well as other commercial and technical requirements to trade products with either foreign generators or users. Even though a draft of the aforementioned manual has been released for comments, the final version has not yet been agreed and published in the Federal Registry to become legally effective.
During 2016, power in Mexico was produced from these sources in the following proportions:
Currently there are no concentration limits regarding the percentage of electricity supply. However, the Federal Law of Economic Competition grants CoFeCe broad power and authority to determine the exercise of “substantial power in the market” by the economic agents participating in the market, and thus such authority is authorised to issue recommendations to the governmental authorities regarding the need to impose concentration limits. In this regard, we note that the market is still mainly controlled by CFE.
In addition to the foregoing, under a "rule of reason" analysis, the CoFeCe is empowered to prosecute and punish any anticompetitive or manipulative conduct aimed at or having the effect of damaging or impeding the competition process or free concurrence in the production, processing, distribution and marketing of products or services in the relevant market, provided the party undertaking such conduct is proven to have substantial power over the relevant market.
SENER and CRE have been vested with broad powers aimed at assuring competition in the industry.
The CoFeCe is the Mexican federal agency empowered to prevent and prosecute anticompetitive practices in all economic sectors, including the electricity sector. The CoFeCe may impose penalties on the economic agents involved upon determining the existence of a punishable conduct (such as tie-in sales, bid rigging or other sorts of monopolistic practices) that causes harm to other economic agents, vertically or horizontally located.
Since its creation in 1993, the CoFeCe has been gradually developing an understanding of the energy sector and the important role this federal agency has to play in enforcing antitrust laws and regulations in a market that is, by its very nature, monopolistic, particularly with regard to the unparalleled situation of the Mexican energy industry, which involved for decades two vertically integrated monopolies controlled by the government: (i) Pemex, in the oil, gas and basic petrochemicals sectors; and (ii) the CFE, in the electricity sector. The restructure of the energy sector calls for a more active role for the CoFeCe, assisting the regulators in the development of new competitive markets. As a result of another constitutional reform in 2013, CoFeCe has become fully independent and has a very broad scope of authority. Moreover, as a result of the Energy Reform, SENER has also been vested with very broad powers in order to ensure the appropriate separation of activities in the energy sector, with the authority to order the divestiture of assets and companies.
In addition, the Market Rules contemplate the creation of a Market Surveillance Unit as an administrative arm of the CRE or SENER (who may decide to appoint a third party) in charge of monitoring the activities within the wholesale electricity market. Such unit has ample authorities to validate transactions, establish floors and caps for the sale and purchase offers, verify compliance with the Market Rules, and to establish additional procedures or criteria to facilitate the performance of its monitoring activities.
Mexico is currently encouraging the development of renewable energy projects. Based on the latest National Development Plan 2013-2018, and other governmental programmes and plans, it is likely that this trend will continue and the Mexican government will continue its efforts to implement a legal framework that is adequate to promote the development of renewable energy projects, which is a leading topic in the Mexican electricity industry. There are two main instruments promoting the use of renewable energy.
On one hand, the General Climate Change Law (Ley General de Cambio Climático), published in the Federal Register on 6 June 2012, considers one of the most important objectives to be the gradual substitution of fossil fuels, by means of the use and consumption of renewable energy. Under that statute, certain economic incentives, such as subsidies, may be introduced to foster the development of clean energy-sourced facilities, efficient co-generation and renewable energies. Moreover, the aforementioned statute provides for:
On the other hand, in December 2015, the new Energy Transition Law (Ley de Transición Energética) was enacted (and the previous Law for the Use of Renewable Energies and the Financing of the Energy Transition was repealed). This statute is aimed at promoting the diversification of the energy sources used to generate electricity through the use of renewable energies; this statute provides that SENER shall set forth the following goals for the participation of clean energy sources in the generation of electric power: 25% for 2018, 30% for 2021, and 35% for 2024.
Government policy with respect to climate change is mainly focused on the incorporation of renewable energy sources on a larger scale. As a result, the federal government has so far promoted the development of renewable energy projects anchored by long-term power purchase agreements awarded through public bidding processes to sell power to the CFE, which in turn is used to provide electric power utility services. The effects of the new mechanisms that are contemplated in the LIE – which consist mainly of requiring qualified off-takers and power suppliers to acquire certain number of clean energy certificates – are yet to be seen. Moreover, CENACE is expected to continue launching long-term auctions for the purchase of energy and clean energy certificates (CELs) from renewable energy generators as a way to further promote renewable energy sources.
For over a decade, the government has encouraged combined-cycle gas-fired power plants, making this type of technology a requirement in most of the international public tenders called by CFE for the award of long-term contracts for the commitment of power generation capacity and the purchase and sale of associated power output, but in 2010 CFE began undertaking international public tenders for the award of long-term contracts for renewable energy projects (especially wind farm projects). These power plants and renewable energy facilities were developed by private companies under the IPP scheme contemplated in the previous legal framework.
The IPP programme began in 1997 and AES Corporation was the first to develop a power plant under this scheme. Under the IPP programme, all of the financing and risk is placed on the sponsors and payment is made to the contractor based on capacity and O&M charges, with natural gas paid as a pass-through cost to the CFE.
At the outset, the IPP bids were purely "output contracts", where the developer was barred from aggregating loads and building oversized plants. The developers were not able to take advantage of economies of scale, normally with minimum flexibility regarding the supply of natural gas. Thereafter, in 2008, the Law for the Use of Renewable Energies and the Financing of the Energy Transition (the Renewable Energies Law) was enacted (recently repealed by the Energy Transition Law), precisely to regulate and promote power generation based on renewable energy sources, and in September 2009 the implementing regulations of the Renewable Energies Law were published.
Following the global need to reduce the emission of greenhouse gases and global warming, the Renewable Energies Law aimed at strengthening the competitiveness of the Mexican energy sector, reducing the use of fossil fuels and promoting the use of renewable energy. However, even though the aforementioned reform was aimed at promoting the reduction of emissions by increasing the use of clean technologies, no mandatory programme or provisions were issued requiring the early retirement of carbon-based generation facilities.
Just recently, as part of the PRODESEN, SENER has included the Indicative Program for the Installation and Retirement of Power Plants (known as PIIRCE). This is a planning programme which generally identifies those facilities which are advisable (due to various reasons, including costs and emissions) to install and/or retire in each region of the country. However, this is only an indicative programme, and there is no obligation to follow the recommendations included herein.
Some of the incentives for renewables that the Mexican government had already implemented under the previous legal framework (including accelerated tax depreciation rates and financing programmes) are still in play, but not all of them have been retained in the new regime.
Instead, the new statutes provide for different incentives, intended to:
Pursuant to the Electricity Industry Law and subsequent resolutions by the Ministry of Energy, qualified off-takers and power suppliers are required to acquire CELs for at least 5% of their total energy consumption during 2018, rising to 5.8% for 2019, 7.4% for 2020, 10.9% for 2021 and to 13.9% for 2022. CELs are granted to clean energy generators based on their power output, and are part of the products that may be traded in the wholesale electricity market. Moreover, the Energy Reform included a new Geothermal Energy Law, aimed at creating a new framework to develop Mexico’s vast geothermal resources, which have been under-used for decades, mainly owing to the absence of adequate regulations.
The principal laws governing the construction and operation of generation facilities are as follow:
The main permit required to operate generation facilities is the power generation permit granted by the CRE. This permit is requested electronically by filing a permit application attaching all the information and documents required under the Regulations to the Electricity Industry Law (eg, location of the power station, nameplate capacity, documentation to evidence technical and financial capabilities for the project, etc). The process to obtain the permit usually takes about three to four months.
For the interconnection of the power station to the SEN, an interconnection agreement with the transporter (CFE Transmisión) shall be executed, although the administrative process to be granted with access to the SEN is carried out before CENACE. The interconnection process is often lengthy and may take between six and 12 months to complete, depending on the capacity of the power station and the transmission and reinforcement works required for the interconnection. Note that preference for the interconnection is not granted until the latest stages of the interconnection process, which means that commencing punctually with this process is critical not only for a proper assessment of costs and timing, but also for purposes of securing the rights of way necessary for the required transmission lines.
In addition, power generation facilities require a federal environmental, safety and health impact authorisation granted by SEMARNAT. This process also takes between three and six months. In addition, SEMARNAT shall also authorise the change of forest land use and the reallocation of certain flora; this process may be commenced jointly with the aforementioned impact authorisation or shortly after obtaining it, however, it is advisable to have a final or close-to-final layout for the project.
If the use of national waters is involved or the project will be located within federal water bodies, a concession or a permit granted by the National Waters Commission will be required; hydroelectric projects with a generation capacity of 30 MW or less that do not affect the flow or quality of water do not require a water concession.
Land use, construction and local environmental permits must also be obtained from the state and municipal authorities where the project is located. The process and the time estimation for the obtainment of these approvals vary depending on the location of the project.
Moreover, the new Electricity Industry Law requires those intending to obtain a generation permit to file with SENER a social impact assessment; SENER shall then evaluate the assessment and issue the corresponding resolution and recommendations. The regulations establishing details about the scope and effects of this new requirement are yet to be issued.
Finally, in the event that the producer will be participating in the wholesale electricity market, a power market participant agreement shall be executed. The process to be authorised to act as market participant requires CENACE’s review of the power facilities, CFE’s confirmation regarding compliance with the technical provisions for the interconnection, and posting the required guaranties.
The generation permit granted by the CRE usually sets forth several conditions for the interested party, namely:
If any of these conditions are not met or are breached by the interested party, the CRE may revoke the permit.
In connection with the environmental and social authorisations, the conditions vary depending on the region and potential affects of the project. However, most of the conditions include compliance with the mitigating measures proposed by the owners in their application process and a number of reporting obligations.
The Electricity Industry Law and its regulations contemplate specific provisions regulating the process that developers shall follow to obtain the use and occupation of the land required for their projects, including procedures for land-owners and developers to negotiate the terms, conditions and price for the use and occupation of the required land. However, the law specifically provides that the parties (ie, the developer and the land-owners) may enter into any type of agreement as permitted by law.
The Electricity Industry Law indicates that most of the requirements related to the negotiation process are only applicable to power generation projects when “a specific location is required due to the characteristics of the project”. Given the questions raised by multiple industry participants with respect to the scope of the “specific location” concept, in 2016 the CRE issued a criteria establishing that only geothermal and hydroelectric projects fall in that category (ie, no solar, wind or gas-to-power projects would be considered), so the procedures and requirements established in the Electricity Industry Law concerning land rights would only be applicable to that type of projects.
The environmental permits, specifically the environmental impact authorisation, establish conditions with respect to the activities and requirements that shall be followed for the decommissioning of a power station. SENER may also require the inclusion of specific measures on abandonment and decommissioning within the Social Management Plan that needs to be adopted for the purposes of obtaining the social impact authorisation for the project.
Unlike other projects in Mexico (mostly in upstream activities), owners of generation facilities are not required to fund decommissioning over the physical life of the project.
The principal laws governing construction and operation are as follows:
In addition, there are a number of general administrative provisions and technical standards that shall be considered as part of the construction process.
Public utility transmission services are exclusively reserved to the Mexican state. However, the participation of private entities through different types of contracts is allowed in order to finance, install, maintain, administer, operate or expand the infrastructure necessary to provide transmission and distribution of public utility services. The associations and contracts entered into between the Mexican state and private parties for these purposes shall be awarded through competitive processes where any interested party is entitled to participate.
The state productive enterprise providing transmission services (ie, CFE Transmisión) does not require any specific permit for that purpose. However, the terms and conditions for the provision of such services are subject to CRE approval. In any case, the construction of transmission lines requires environmental and municipal authorisations, as well as authorisations to cross lands, lakes, rivers or other infrastructure facilities under the jurisdiction of governmental agencies or bodies, in which case, rights of way and crossing permits must be obtained. In addition, in the case of transmission lines for public utility services, a social impact assessment shall be filed with SENER, for approval of the proposed impact mitigation and management measures.
Transmission lines constructed and owned by private power generation, export or import permit-holders may only be used to transmit the power generated, exported or imported by such permit-holders, who are not allowed to provide transmission services to third parties.
For the construction of private lines and substations in order to interconnect generation facilities or load points to the SEN, the execution of an interconnection/connection agreement is required, which process is governed by CENACE according to the Manual of Interconnection of Generation Plants and Connection of Load Points.
As a general rule, in order for a private entity to participate in the development of a transmission infrastructure project, CFE (or SENER) shall carry out a competitive process. Such competitive process and the legal and economic structure should be defined jointly by SENER, CRE and, in some cases, CFE, on a case-by case-basis. The potential schemes consider the award to private entities of EPC Contracts, BOT Agreements, DBFO Agreements, among others.
As mentioned in section 5.1.2 Regulatory Process for Obtaining All Approvals to Construct and Operate, there are no specific regulatory permits for the construction and operation of transmission lines and associated infrastructure. When dealing with interconnection and connection works, the relevant agreements entered by the generator/off-taker with the transporter establish the following main terms and conditions:
The specific provisions regulating the process that transporters and/or its contractors shall follow to obtain the use and occupation of the land required for their transmission projects under the Electricity Industry Law and its regulations applies to transmission works used for the provision of the public service of transmission through the RNT.
The negotiation process considered in the Electricity Industry Law is described below:
The agreed considerations may be paid in cash, in kind or by means of the following: (i) social programmes for the benefit of the community; (ii) any other consideration that is not against the law; or, (iii) a combination of all the foregoing options.
In case of projects located in lands regulated by the Agrarian Law, the negotiations shall comply with additional requirements, as detailed below:
Following the publication of an excerpt, the court shall issue its ruling within a term of 15 business days, which shall be considered final, and will not be subject to appeals, except through an amparo proceeding.
If the parties do not reach to an agreement within a term of 180 calendar days following the commencement of the negotiations, the developer may either (i) request from the court the establishment of a legal easement, or (ii) request SEDATU to commence a mediation procedure to establish the best option to obtain the required land and develop the project, and the applicable consideration. If the parties do not reach an agreement 30 days after the commencement of the mediation procedure, SEDATU shall undertake the necessary procedures to establish an administrative easement. In any case, the monetary considerations to be determined by SEDATU shall be calculated pursuant to the rules provided by the Electricity Industry Law.
At present, the only common carrier allowed to provide public utility transmission services in Mexico is the CFE (through its separate subsidiary enterprise in charge of transmission services, CFE Transmisión), under terms, conditions and rates approved by the CRE.
The principal laws are as follows:
The rates payable for power transmission services through the RNT and the general distribution grids are approved and supervised by the CRE, under methodologies intended to promote an efficient use of the grids, while allowing the carrier to recover adequate costs incurred in the provision of the services.
As one of the mechanisms to promote renewable energy projects, in April 2010 the CRE issued a methodology specifically applicable to determine transmission rates for projects based on renewable energy sources and efficient co-generation projects. That methodology was aimed at promoting the use of clean technologies in the generation of power and was based on a post-stamp scheme, where a fixed charge (denominated in pesos/kWh) was applicable to each level of transmission services (depending on the applicable voltage) subject to monthly inflation adjustments. However, those preferential rates will only remain applicable to those power projects that were grandfathered under the Electricity Industry Law. All other generators, importers, exporters, suppliers and off-takers contracting transmission and distribution services shall pay for those services at rates determined pursuant to the new methodology that the CRE approved on 7 September 2015. The new methodology became effective on January 2016 and is expected to remain in effect until December 2018. It is based on a post-stamp concept, with rates subject to adjustment based on inflation, exchange rate variations and the implementation of a new transmission infrastructure.
The terms and conditions for the provision of transmission services through the RNT are also approved by the CRE. These terms and conditions are mandatory for CENACE (as operator of the RNT and the RGD), CFE Transmisión (as transporter) and CFE Distribución (as distributor).
The current terms and conditions were published in the Federal Register on 2 February 2016, and include the following:
All market participants (including representatives of power projects that were grandfathered under the Electricity Industry Law) are eligible to receive power transmission or distribution services, whenever the interconnection and/or connection is technically feasible. Transporters and distributors shall grant access to transmission and distribution services on a non-discriminatory basis, according to prior instruction by CENACE.
When there is available capacity and access to a user is denied without any reasonable cause, the affected party may request SENER’s or the CRE’s intervention.
The principal laws are as follows:
Under Mexican law, no private power distribution networks are allowed, except in the case of small-scale electrical systems (which are systems that are not interconnected to the National Electric Grid but provide power utility services). Distribution grids held by the state-owned enterprise (CFE Distribución and its 16 business units) do not require a permit from the CRE, but the terms and conditions of their services are subject to CRE approval; however, the construction of power distribution grids is subject to the obtainment of environmental permits and local construction permits.
Until now, only a few private entities have obtained power distribution permits – the terms for which change on a case-by-case basis – mainly for small delimitated areas, and CFE continues to be the largest, and almost only, distributor.
The same specific provisions regulating the process that a transporter and/or its contractors shall follow in order to obtain land rights for the development of transmission infrastructure also apply to the construction and operation of distribution facilities; see 5.1.4 Proponent's Domain, Condemnation or Expropriation Rights, above.
The only company allowed to provide public utility distribution services in Mexico is the CFE – through its separate subsidiary enterprise in charge of distribution services, CFE Distribución – under terms, conditions and rates approved by the CRE.
The principal laws are as follows:
The applicable rates are approved by the CRE, under methodologies intended to promote an efficient use of the grids, while allowing the distributor to recover adequate costs incurred in the provision of the services.