At A Glance
Mexico has announced a proposed series of reforms to its energy sector. The reforms include new laws and amendments to existing laws, significantly reshaping the country's energy sector. Our analysis has confirmed that certain previously identified risks will materialize: (i) Priority for the State Utility, (ii) the Lack of an Independent Energy Regulator, (iii) Judicial Reform, and (iv) New Regulatory Framework. In this Legal Update, we summarize the current regulatory framework and the rules that will apply once the Reform is approved, as well as the impacts on international and domestic investors with certain projects.
THE CHANGES
The following changes represent a substantial departure of the current system:
Mexicohas announced a proposed series of reforms to its energy sector (the "Reform"). The Reform introduces a new Power Sector Law (Ley del Sector Eléctrico, "LESE"), which replaces the existing Energy Industry Law (Ley de la Industria Eléctrica, "LIE"), and changes the regulatory framework applicable to the Mexican power sector. Once the Reform is approved by Congress and published in the Official Gazette, it will reshape market rules, re-establish state control over electricity generation, and limit private sector participation, significantly impacting existing projects under the LIE regime.
This note summarizes: I. the current regulatory framework, and II. the applicable rules once the Reform is approved, as well as the impacts on international and domestic investors with projects under LIE. Understanding the potential changes is important for planning and safeguarding interests across ongoing LIE energy projects.
REGULATORY FRAMEWORK
- The LIE projects operate under a Wholesale Electricity Market, which fosters free and fair competition between public (through the Federal Electricity Commission, "CFE") and private power projects.
- The market rules prioritize cost-efficient generation through an economic dispatch model that gives priority to power plants with lower generation costs and that is applicable to both private and public generators.
- CFE, its subsidiaries, and its affiliates must participate in open-market transactions under the same rules as private companies.
RULES AFTER THE REFORM
- CNE will regulate the energy sector. A General Director and a Technical Committee will be appointed to lead and administer the CNE.
- Mexico will no longer have an independent energy regulator, as the CNE will become part of the Ministry of Energy. The Mexican President will have the authority to remove the General Director and the Technical Committee at will.
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This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.
