The Mexican power sector is open for (limited) private participation in specific areas, namely generation, storage and marketing activities. In contrast, transmission and distribution are exclusively reserved to the Mexican State.

The sector underwent significant transformation in 2024 as a result of a constitutional reform passed by Congress. This reform reversed key elements of the 2013 reform, now imposing certain limitations on the participation of private investors in generation and marketing activities, and transforming the Federal Electricity Commission (CFE), the State-owned power utility, into a vertically integrated monopoly with preferential rights in power generation and marketing activities.

Under the new framework, private participation in generation activities is capped at a maximum of 46% of the relevant market, and the Mexican State reserves the remaining 54%, either through CFE or other State-affiliate mechanisms. Other activities were maintained as being exclusively reserved for the Mexican State, such as nuclear power, transmission and distribution.

The National Electric System (NES), integrated by the National Transmission Grid and the General Distribution Grids, continues to be owned by CFE and operated by the National Centre of Energy Control (CENACE), as the independent system operator under government oversight.

CENACE also manages the Wholesale Electricity Market (WEM), created in 2014 to foster competitive mechanisms for power trading based on a so-called “economic dispatch” model. The model prioritised low variable cost generation in the dispatch process to the NES; however, rules were changed with the 2024 reform in order to introduce the concept of a “load economic dispatch” mechanism that factors in not only variable costs but also operating, safety and reliability restrictions. This adjustment results in a limiting effect on the previous preferential dispatch model of renewal energy sources, considering their variable generation profiles.

On the administrative front, another constitutional reform in 2024 resulted in an institutional restructuring that replaced the Energy Regulatory Commission with the National Energy Commission (CNE), which is integrated into the Ministry of Energy (SENER) and assumes the authority for regulating activities in the power industry. This marks a departure from the previous legal framework, intended to allow for a technical and independent regulatory co-ordinated agency.

The main statutes governing the Mexican power industry are:

• the Electricity Sector Law (LESE);
• the Energy Planning and Transition Law (LPTE);
• the Law of CFE (LCFE); and
• the Law of the CNE (LCNE).

CFE is the main State-owned entity which, after the 2024 constitutional reform, now operates as a vertically integrated monopoly. The reform restructured CFE into a single consolidated entity, reintegrating its generation, transmission and distribution assets, as well as basic (residential) supply; previously, these activities were performed by legally and operationally independent State-productive subsidiaries, subject to strict separation rules following the unbundling principles introduced after the 2013 reform.

Despite this consolidation, specific affiliates of CFE have retained independent legal and commercial status. These entities are primarily focused on industrial (qualified) electricity supply, natural gas marketing and representation of legacy assets. They will continue to operate as separate commercial entities, albeit under CFE’s corporate umbrella.

A key development in 2023–2024 was the acquisition by the Mexican government of 13 power plants from Iberdrola, with a total installed capacity of 8,539 MW. This acquisition was implemented through Mexico Infrastructure Partners (MIP), an investment management vehicle backed by the Mexican government, which will operate these generation assets. As a result, the Mexican State – through CFE and MIP – has control over 54% of the generation capacity in the country (of 93,788 MW). The divestment represented 55% of Iberdrola’s asset base in the country.

On the supply side, CFE continues to be the main supplier of electricity, with exclusive rights over basic supply subject to regulated rates. Notwithstanding this exclusivity, industrial consumers and large-scale consumers (ie, qualified users) are still able to receive electricity supply from private marketers under competitive, market-based conditions.

Foreign investors and investments in the Mexican power industry are afforded the same rights, obligations and legal protections as their domestic peers. The Mexican legal framework does not impose nationality-based restrictions on private investment; limitations apply on equal terms to both foreign and domestic investors, pursuant to applicable constitutional and statutory provisions. Key restrictions include:

• a cap on private (including foreign) participation in power generation activities, limited to 46% of the national generation market;
• priority of the Mexican State in marketing activities; and
• the complete exclusion of private (and thus foreign) participation in nuclear power, transmission and distribution activities, which remain under the exclusive authority of the State.

Foreign investors benefit from both local and international protections against government actions, such as seizure, confiscation, expropriation or other regulatory measures affecting their assets.

Locally, foreign investors may resort to administrative courts to seek relief. Internationally, foreign investors are (typically) protected under the relevant bilateral investment treaties (BITs) executed and ratified by Mexico, which provide access to investor-state dispute settlement mechanisms. Mexico has ratified more than 40 BITs and has recently ratified its adherence to the ICSID Convention. The protections granted to foreign investors in Mexico under such BITs are usually the same – ie, fair and equitable treatment, national treatment, most-favoured nation clause, performance requirements and expropriation (whether direct or indirect).

Despite not being party to the ICSID Convention until recently, Mexico has been a prominent participant in international investment arbitration, with approximately 22 procedures (most of them governed by Chapter XI of the North American Free Trade Agreement).

The international investment protection obligations assumed by Mexico provide foreign investors a number of benefits and remedies intended to secure the legal certainty of their investments in Mexico; however, the scope and applicability of these protections may vary depending on the specific structure, nationality, and characteristics of each investment.

The sale of power assets or businesses is subject to regulatory authorisations, as well as pre-merger control clearance. The LESE (and its relevant regulations) governs the transfer of permits, while the Federal Law of Economic Competition (LFCE) establishes the relevant rules and procedures on merger control.

From a regulatory standpoint, the CNE has authority to approve or deny the assignment of power generation, storage or supply permits, or changes of control within permit holders. It is worth noting that power activities (including fuel supply) are subject to strict legal separation requirements, which are designed to prevent vertical integration that could distort market dynamics and free competition principles.

On the antitrust front, the sale of power assets may be subject to approval by the federal antitrust agency. Thresholds are determined based on the value of the transaction and/or the parties’ market power, as established in the LFCE.

The Mexican legal regime on economic competition is also undergoing material changes due to the replacement of the Federal Economic Competition Commission (COFECE) (as an independent antitrust agency) with a new public instrumentality under the Ministry of Economy, which will have authority on economic competition matters. These changes are also expected to bring about substantive amendments to the rules governing monopolistic practices, pre-merger control procedures, investigations and sanctions against market participants.

SENER is the policy maker in charge of strategic planning in the Mexican power sector.

SENER’s planning authority has assumed a central role in the development of energy projects as a result of the 2024 constitutional reform. The LESE and the LPTE introduce the concept of “mandatory planning”, which requires both regulatory authorities and market participants to adhere to the official strategies, programmes and objectives of the government through SENER for the construction, installation and improvement of power infrastructure. These are outlined in the Development Plan of the Power Sector (PLADESE).

The PLADESE is issued by SENER each year with a 15-year outlook for the national electricity system, and contains three to five-year investment programmes for the development of generation, transmission and distribution infrastructure, in order to ensure reliability and continuity in the NES.

CFE, the CNE and CENACE are required to comply with the planning directives established in the PLADESE, and new investments in the sector (including private investments) must also comply with the planning criteria established therein. The granting of permits and the regulatory assessment of business plans for new infrastructure are now tied to the consistency of such projects and the goals and priorities outlined in the PLADESE.

As mentioned in 1.1 Law Governing the Structure and Ownership of the Power Industry, the Mexican government introduced two major constitutional reforms in 2024, which substantially changed the legal regime of the power sector in Mexico: the reform on strategic industries and areas and the organisational simplification reform.

The approval of these reforms by Congress gave rise to the enactment of the LESE, LCFE, LPTE and LCNE (among others) in March 2025. The main foundational changes of the 2024–2025 energy reform on electricity matters include the following.

• Transformation of the legal nature of CFE (formerly a State-productive company) into a vertically integrated State-public company. This change consolidated its role across the generation, transmission, distribution and basic supply segments of the electricity value chain.
• Clear preference of CFE and other State-owned generation companies over private participants. This includes a mandate to ensure that the State controls at least 54% of the electricity delivered to the grid (thereby limiting private sector participation to a maximum of 46%).
• New regulatory rules for generation activities.
• Creation of the CNE and broader authority of SENER, expanding the federal government’s purview over sector planning, market oversight and regulatory enforcement actions.

In short, these reforms signal a decisive shift toward greater State control and centralisation in the Mexican power industry, with significant implications for public and private sector stakeholders alike.

At the time of writing, the government is in the process of drafting and publishing regulations to the LESE and ancillary laws, which will further expand on the new rules and structure of the Mexican power industry brought about by the 2024 energy reform. These regulations are expected to provide guidance on the new legal and institutional framework for the electricity industry, defining operational, technical and procedural rules governing market participation, permitting and infrastructure development across the sector.

Once these regulations are issued, other administrative instruments will need to be enacted and/or amended. These include the WEM market rules and operating provisions, as well as regulations on storage, distributed generation, inside-the-fence projects, and reinforcement and improvement of the NES.

Together, these regulatory developments will shape the evolving landscape of the Mexican power sector and confirm how public and private stakeholders can operate pursuant to the principles already enacted under the new regime.

Government business plans and public presentations have shown that private investment in power infrastructure is critical to meet the country’s increasing demand. This is underscored by the country’s strategic position as a nearshoring investment destination, which drives economic growth but demands incremental energy consumption.

The government has announced investments to increase generation capacity by approximately 29,074 MW by 2030, with 22,674 MW expected to be installed by CFE and 6,400 MW by private sector participants. In addition, investments will target a critical expansion of transmission capacity in the order of 15,729 MVA and distribution capacity of 3,045 MVA. The total projected investment in the power sector for the next six years is estimated to be around USD32 billion.

In the current political environment, with President Sheinbaum’s political party and allies controlling the qualifying majority of the vote of Congress, it is anticipated that the principles introduced by the energy reform of 2024 will remain stable for the foreseeable future. This continuity should provide a measure of legal certainty for private investors operating under the new regulatory and market rules.

Note, however, that the procurement of energy and ancillary products by CFE (as the main supplier) no longer includes the obligation to perform long-term auctions. Therefore, long-term Power Purchase Agreements (PPAs) awarded in such tenders (which anchored clean energy generation facilities) are no longer part of CFE’s investment strategy for the time being.

The energy reform of 2013 established the operation of the WEM, designed to promote competition and efficient electricity trading. While the 2024 constitution did not eliminate the WEM, its operation is expected to materially change as a result of CFE participating as the constitutionally authorised monopoly, with priority over private market participants.

The WEM, operated by CENACE, considers the following transactions:

• electricity (short-term spot markets);
• capacity;
• associated products, such as Clean Energy Certificates (CELs); and
• ancillary services (eg, operating reserves, frequency regulation, emergency start and voltage regulation).

Electricity prices in the WEM are determined based on local marginal prices, which (currently) factor in the cost of energy, technical losses and transmission congestion. For such purpose, the government is transitioning toward a “Load Economic Dispatch” model, which adds operational, safety and reliability considerations to dispatch decisions and, potentially, alters the criteria for energy injections to the NES and the local marginal price calculations for the short-term spot market.

The “54%– 46%” electricity generation rule may also influence the determination of energy dispatch and prices, since this requirement operates over energy delivered to the NES during a relevant year. Therefore, dispatch order for years to follow could be affected if the Load Economic Dispatch distorts the proportion of energy delivered in order to preserve the mandated energy mix balance.

CENACE also operates an annual Balancing Capacity Market, in which Load Serving Entities (suppliers) must procure capacity through transactions with generators to cover the consumption of the loads they represent during the “100 critical hours” of the NES – ie, the most stressed periods of the year for generation reserves.

The Rules of the WEM also consider the operation of the CELs market, which requires Load Serving Entities to credit CELs (which evidence production from clean sources) before the CNE in proportion to the electricity consumed by their loads (currently at 13.9%). Generators can earn one CEL per MWh of power output stemming from clean sources.

To hedge against potential price volatility, market participants may enter into Electric Hedging Agreements (EHAs) for energy products. Those EHAs may also consider bilateral financial transactions in order to assign the receivables or accounts payable from WEM operations.

CFE’s regulated services (including basic supply, transmission and distribution) continue to be subject to regulated rates, determined annually by the CNE under the rules established in the previous regime.

High-load consumers are still eligible to act as “qualified users” – a status that allows off-takers to receive electricity supply from “qualified suppliers” (public or private) under free-market conditions. Qualified suppliers must meet rigorous compliance, reporting and risks management requirements before CENACE, including posting financial guarantees and minimum hedging obligations.

In some cases, major consumers may also register as market participants and transact directly in the WEM, including executing EHAs with generation companies to optimise procurement strategies and manage risk exposure.

Cross-border transactions of electricity are permitted under the LESE, subject to prior authorisation from SENER for imports and exports of power.

The NES currently has seven interconnection ties for cross-border transactions, with three neighbouring countries:

• one with Belize;
• one with Guatemala; and
• five with the US (three connecting with Texas and two with California).

Market rules allow cross-border transactions for commercial purposes and for emergency or reliability support. Notably, export and import activities are not subject to capacity reservation requirements (except for reliability/emergency transactions, which are given certain preference), so each foreign trade transaction is scheduled and confirmed based on market rules.

In addition, power plants located abroad but exclusively interconnected to the NES may inject power output to the grid based on certain specific rules applicable to interconnection and dispatch.

The NES is heavily reliant on combined-cycle power plants (predominantly controlled by the Mexican State), representing over 58.46% of the energy delivered to the grid. The rest of the generation mix is composed as follows:

• thermal: 8.63%;
• wind: 5.89%;
• hydro: 5.86%;
• solar: 5.16%;
• coal: 4.05%;
• nuclear: 3.42%; and
• others (turbogas, cogeneration, geothermal, distributed generation): 8.53%.

This composition reflects a generation mix still dominated by fossil fuels, albeit complemented by a growing share of renewable and alternative energy technologies. The relative dominance of State-owned generation assets – particularly in combined-cycle and hydroelectric plants – underscores the strategic role of the public sector in shaping energy supply, bolstered by the changes implemented in the 2024 reform.

The reform of 2024 and the LESE formalise the predominance of State-owned assets over private projects in both the generation and marketing of electricity.

On the generation side, this principle is implemented through a mandatory quota, requiring at least 54% of the electricity injected into the NES on an annual basis to originate from State-controlled generation. Subject to upcoming regulations to be issued, this figure is understood to encompass not only electricity generated and delivered directly by CFE (or MIP), but also production from joint ventures or public-private projects in which CFE holds equity or operational involvement.

Notably, however, the LESE does not provide a consequence if electricity delivered by private generation companies exceeds the 46% cap. The pending Regulations to the LESE and other administrative instruments to be enacted as a result of the 2024 energy reform are anticipated to further elaborate on how the quota is expected to be monitored and enforced, as well as how to construe the State’s predominance in marketing activities.

From an economic competition perspective, rules on market concentration may also apply, pursuant to the LESE and LFCE (but they will not apply to CFE, as a constitutional authorised monopoly).

Market concentration is not deemed an anti-competitive behaviour in and of itself (per se), unless it results in harm to the competitive process from an economic agent with substantial market power engaging in exclusionary conduct.

As outlined in 1.4 Sale of Power Industry Assets, the Mexican antitrust framework is undergoing significant structural changes due to the removal of COFECE and the creation of a new public entity under the Ministry of Economy, called the National Antitrust Commission (CNA), which will have authority on economic competition matters. While COFECE continues to exercise transitional powers, the CNA will eventually assume full jurisdiction and authority over all economic competition procedures and investigations (overseeing all markets, including the electricity sector) which, jointly with the new legal framework, will result in changes to:

• investigations into monopolistic practices;
• market dominance assessments;
• pre-merger control thresholds and procedures; and
• the imposition of sanctions.

Once COFECE is replaced, the CNA will be the federal agency tasked with monitoring the Mexican power market on antitrust matters, particularly with respect to private economic agents.

The LFCE classifies punishable exclusionary conducts in two categories:

• absolute monopolistic practices, (including price fixing, bid rigging and unlawful exchanges of information); and
• relative monopolistic practices, which are performed by economic agents with substantial market power, aiming to affect the competitive process.

The enforcement of anti-competitive rules usually involves formal investigations, an administrative adverse procedure (in the form of a trial), and the imposition of substantial economic fines, potentially amounting to as much as 10% of the annual revenue of the economic agent.

The construction and operation of generation facilities are mainly governed by the LESE and the General Law of Environmental Protection and Ecological Equilibrium (LGEEPA).

The LESE and regulations stemming therefrom, such as the WEM Rules, operating provisions and CNE-issued regulations on generation permits, specifically regulate the development and operation of generation facilities, and address their social impacts (whether for small, medium or large-scale operations). The LESE currently provides three distinct regulatory types for power generation, as follows.

• Distributed generation: projects with a capacity of up to 0.7 MW, which do not require a generation permit from the CNE (irrespective of other interconnection agreements with CFE).
• Self-consumption: generation for the “self needs” of users belonging to the same corporate group, whether connected (or not) to the NES (for back-up purposes). The LESE contemplates a fast-track permitting procedure for self-consumption generation facilities for up to 20 MW.
• Generation for the WEM: this includes participation of the State and private parties, either individually or through public-private (mixed) vehicles. As for the latter, two types of public-private participation modalities are provided: long-term production (energy is sold exclusively to CFE) or mixed investment (CFE participates directly or indirectly in at least 54% of the power plant).

In addition, storage facilities associated with a power plant or those “isolated” – ie, operating independently to a load point or power plant – are considered generation assets and, therefore, require a permit from the CNE.

From an environmental standpoint, the LGEEPA governs the requirements of the projects, including their environmental impact assessments and authorisations. Other federal laws may apply, depending on the specifications of the generation projects, such as those related to waste management, forestry land use and water resources. Local (state and municipal) environmental and zoning regulations may also be relevant and must be considered.

Key project agreements – including Development Agreements, EPC, O&M, financing agreements, PPAs and EHAs – are subject to commercial and civil contract laws, which generally support freedom of contract and a choice of law doctrine.

Generation facilities are subject to several regulatory requirements at the federal, state and municipal levels. The main governmental authorisations for the construction and operation of power generation facilities include the following.

• Generation permit: facilities exceeding 0.7 MW of capacity require a generation permit granted by the CNE, the application for which requires the submission of comprehensive technical, financial and legal documentation and information of the project. The LESE now mandates that generation permits align with the PLADESE, so permit applications for projects falling outside the scope of such plan may be denied. The process to obtain currently takes from six to 12 months (depending on the requests for additional information by the CRE). This timeline may change as a result of the enactment of the LESE and its regulations.
• Interconnection agreement: although the grids of the NES are owned by CFE, CENACE oversees grid operation and interconnection procedures. Any interested party seeking to interconnect its generation facilities to the NES must follow a phased technical process administered by CENACE to determine the necessary grid reinforcement and interconnection requirements. Once the technical studies are concluded, CENACE directs CFE to execute the relevant interconnection agreement with the generation permit holder.
• Market Participant Agreement: during the operational phase of the project, generation assets are required to execute a market participant agreement with CENACE to represent those assets in the WEM. Financial guarantees shall be posted in order to perform sales of energy products in the WEM.
• Environmental Impact Authorisation: the construction and operation of power generation facilities require a federal environmental authorisation from the Ministry of the Environment and Natural Resources (SEMARNAT), which evaluates the environmental, safety and health aspects of the project.
• Social Impact Authorisation: generation facilities are also required to obtain clearance from SENER on the social impacts of the project. Filing this application is necessary to obtain a generation permit, while the operation of the project depends on securing the relevant social impact authorisation.
• Change of Forestry Land Use: if the project affects protected flora, an authorisation must be obtained from SEMARNAT for the relocation of such species.
• Archaeological clearance: in specific regions, developers must secure archaeological clearance before commencing construction.
• Water concession: the use of national waters may require permits or concessions from the National Waters Commission (however, hydroelectric plants of 30 MW capacity may be exempted from water permitting requirements).
• Local authorisations: construction permits, land use approvals and civil protection authorisations, governed by local regulations, must also be secured prior to construction and operation.

In addition, if the project site is located on lands inhabited or claimed by indigenous communities, SENER is obliged to conduct a prior consultation process to ensure the protection of indigenous rights.

Government-issued authorisations for the construction and operation of generation facilities typically include strict deadlines for meeting key project milestones, such as the start of construction, provisional acceptance (ready for testing) and the commencement of commercial operations. Failure to meet these milestones may trigger administrative procedures to amend relevant permits; otherwise, the effectiveness of the permit may be at risk.

Material changes to projects (such as changes to nameplate capacity, generation technology or site conditions) generally require a formal amendment to the main permits in order to properly reflect the project scope. The amendment process often mirrors the original permitting procedure in both substance and timing, although for minor changes the administrative process only requires an “update” rather than a full permit amendment.

Interconnection agreements also impose firm deadlines for the works covered thereunder, coupled with the posting of financial guarantees to ensure their timely completion. They are also subject to hard deadlines and the posting of collateral to guarantee their completion in time.

In contrast, environmental and social authorisations focus on terms and conditions to monitor the commitments assumed by the generation company.

The LESE recognises the power sector as a matter of public interest and national policy. However, eminent domain for land use and occupation is limited to only hydroelectric and geothermal power plants.

Land use and occupation for hydroelectric and geothermal power plants follow a predetermined process established in the LESE for both private and agrarian land. This process includes mandatory filings and requirements for compensation and payments based on the value of the land.

The LESE also identifies types of real estate rights available for generation projects, including private ownership, lease, easements and usufruct rights.

The PLADESE includes a dedicated section on the decommissioning of generation facilities. Given the binding nature of the PLADESE, decommissioning is expected to proceed in accordance with the requirements provided thereunder.

Generators are also required to notify CENACE of the decommissioning of the generation assets within one year prior to the effective decommissioning date. Importantly, decommissioning is not permitted for power stations still participating in capacity transactions with binding obligations.

CENACE will assess whether the facility plays a role in system reliability. If it does, CENACE notifies the CNE to obtain approval to perform a capacity auction, in which the generator is obliged to participate.

Environmental authorities may also impose requirements for insurance or financial guarantees to ensure that decommissioning activities comply with the conditions imposed on site remediation, including waste management. SENER may also determine specific social commitments upon decommissioning, if applicable.

The construction and operation of transmission lines is governed by the LESE, the LPTE and the LGEEPA. These statutes also regulate associated facilities, such as energy storage equipment associated with the transmission activities.

Transmission services are exclusively reserved to the Mexican State, through CFE. CFE must comply with the General Administrative Provisions on open access and terms of service for transmission and distribution services, as approved by the CNE.

Nevertheless, the LESE and LCFE allow private sector involvement in the construction, installation, financing and improvement of the National Transmission Grid (NTG). In particular, the LCFE provides that CFE may create joint ventures with private entities for the development of the NTG.

Private market participants, including generators, exporters, importers and consumers, are allowed to construct and operate private lines for specific uses, such as onsite delivery, interconnection and connection to the grid. These private lines are not considered part of the NTG and are therefore not subject to open access rules. However, the provision of transmission services to third parties via such lines is expressly prohibited.

The PLADESE sets forth the government’s policy for the expansion and improvement of the NTR, which includes references to anchor projects and general specifications for their development.

As the exclusive provider of transmission services, CFE is not required to obtain a specific permit for such purposes. However, transmission must comply with the General Administrative Provisions on open access and for the provision of such services issued by the CNE.

Notwithstanding the exemption from sector-specific permitting, the construction and operation of transmission lines requires environmental, social, local and municipal authorisations (similar to those applicable to generation facilities), as well as government approvals for crossroads, lands and water bodies within the jurisdiction of governmental agencies. These approvals are typically contingent on the acquisition of the corresponding real estate rights.

Note that environmental impact authorisations are not required for transmission infrastructure located in urban, rural, industrial or touristic areas.

Environmental and social authorisations related to the construction and operation of transmission infrastructure include provisions for remediation measures, ongoing monitoring protocols and obligations tied to eventual decommissioning.

Transmission services are deemed to be a public utility and are therefore subject to expropriation under that designation. The LESE expressly grants eminent domain rights for the construction and operation of transmission works.

CFE must follow the land use and occupation procedures outlined by the LESE in order to obtain the necessary real estate rights for the development, construction and operation of transmission infrastructure. These procedures consider the execution and ratification of real estate agreements before civil or agrarian courts, as well as specific compensation concepts.

CFE is the only entity allowed to provide public utility transmission services. The terms and conditions governing these services (including rates) are approved by the CNE (whose rules were grandfathered from the former regulator).

While CFE holds exclusive rights to operate transmission services, the participation of private investment in transmission infrastructure is expected, either under contractor modality or through partnerships. In support of this, the Mexican government recently announced investments of up to USD6.5 billion for the 2025–2030 period, aimed at 158 transmission projects that would reinforce the NTG with 15,729 MVA of capacity.

Transmission rates are issued and approved annually by the CNE. These rates are calculated using methodologies that ensure a reasonable return of investment and cost recovery on the operation, maintenance, financing, investment, improvement, expansion and depreciation of the NTG, as well as accounting for both technical and non-technical losses.

Market participants pay for transmission services through CENACE, which incorporates these rates into the settlement processes of the WEM. Basic supply rates also consider specific transmission costs reflected as part of the variable energy charges.

The CNE is also empowered to issue general terms of service for transmission services, outlining the scope and types of service offered, credit terms, conditions for service suspension, penalties and compensation mechanisms, and procedures for addressing complaints from users.

Open access to the NES is recognised as universal and a public utility service obligation, provided that it is technically feasible and does not compromise the reliability of the system.

CENACE is mandated to ensure that open access obligations are met while safeguarding the operational reliability of the NES.

The legal, financial and technical requirements to allow the interconnection of generation facilities and the connection of load points are established in the Market Rules, which include a dedicated Manual detailing the procedures. The interconnection and connection processes involve several technical studies to identify reinforcement works (which are incorporated in the relevant interconnection or connection agreements), including indicative, system impact and facility studies.

Subject to completion of the relevant studies, CFE is obliged to allow the interconnection and connection of power stations and loads on a non-discriminatory basis. In this regard, CENACE instructs CFE to enter into the agreement with the interested party.

Upon completion of the required infrastructure, verification units certify that the interconnection facilities comply with the technical specifications established in the agreements. Interconnection or connection works may be executed directly and financed by the interested party or integrated into the expansion and improvement works outlined in the PLADESEN.

Distribution services are exclusively reserved to CFE, pursuant to the Mexican Constitution and the LESE.

The operation of General Distribution Grids (GDGs) are governed by the LESE and the General Administrative Provisions on open access and terms of service for distribution services, as approved by the CNE.

As with transmission services, CFE is not required to obtain a specific permit to provide distribution services.

However, the construction and operation of distribution facilities require environmental, social, local and municipal authorisations (similar to those applicable to generation facilities), as well as government approvals for crossroads, lands and water bodies within the jurisdiction of governmental agencies. These approvals are typically contingent on the acquisition of the corresponding real estate rights.

Note that environmental impact authorisations are not required for distribution substations located in urban, rural, industrial or touristic areas.

Environmental and social authorisations related to the construction and operation of distribution infrastructure include provisions for remediation measures, ongoing monitoring protocols and obligations tied to eventual decommissioning.

Distribution services are deemed to be a public utility and are therefore subject to expropriation under that designation. The LESE expressly grants eminent domain rights for the construction and operation of distribution works.

CFE must follow the land use and occupation procedures outlined by the LESE in order to obtain the necessary real estate rights for the development, construction and operation of distribution infrastructure. These procedures consider the

execution and ratification of real estate agreements before civil or agrarian courts, as well as specific compensation concepts.

CFE is the only entity allowed to provide public utility distribution services. The terms and conditions governing these services (including rates) are approved by the CNE (whose rules were grandfathered from the former regulator).

While CFE holds exclusive rights to operate distribution services, the participation of private investment in distribution infrastructure is expected, under contractor modality. In support of this, the Mexican government recently announced investments of up to USD3.79 billion for the 2025–2030 period, aimed at 97 brand new substations, 95 expansion projects for existing substations, 6,875 modernisation works and 42,221 electrification works.

Distribution rates are issued and approved annually by the CNE. These rates are calculated using methodologies that ensure a reasonable return of investment and cost recovery on the operation, maintenance, financing, investment, improvement, expansion and depreciation of the GDGs, as well as accounting for both technical and non-technical losses.

Market participants pay for transmission services through CENACE, which incorporates these rates into the settlement processes of the WEM. Basic supply rates also consider specific distribution costs reflected as part of the fixed capacity charges.

The CNE is also empowered to issue general terms of service for distribution services, outlining the scope and types of service offered, credit terms, conditions for service suspension, penalties and compensation mechanisms, and procedures for addressing complaints from users.