Mexican Supreme Court Invalidates Sections of Ministry of Energy's Controversial Reliability Policy

On February 3, 2021, the Second Chamber of the Mexican Supreme Court decided Constitutional Action 89/2020, filed by the Federal Antitrust Commission (Comisión Federal de Competencia Económica, “COFECE”), against the Ministry of Energy's (Secretaría de Energía, “SENER”) Policy for the Reliability, Safety, Continuity and Quality of the National Electric System (the "Policy"). The Policy had created concern regarding private sector participation in Mexico's electric industry.¹ The antitrust watchdog claimed that SENER overstepped its authority and undermined competition in the electric industry by unduly strengthening the government-owned Electricity Federal Commission ("CFE").

The Decision

In a 4-1 decision (with the objection of Justice Yasmín Esquivel, who was appointed by President López Obrador, dissenting), the Second Chamber of the Court declared invalid several sections of the Policy. Nevertheless, the Second Chamber upheld some sections of the Policy, determining that the new regulations did not differ from the rules provided for in the existing Network Code (Código de Red). In a few other instances, the Second Chamber did not analyze the constitutional arguments advanced by COFECE against the Policy, considering those irrelevant for the matter at hand.

A summary of the key elements of the Court's decision follows:

• CFE is integral to the State’s endeavor to develop the National Electric System (Sistema Eléctrico Nacional, “SEN”). The Court upheld Section 3.8.5. of the Policy, which provides that CFE may actively participate in the design of the expansion and modernization of the national distribution and general distribution networks.
• The Court declared that drafting Reliability Criteria and Guidelines is beyond the scope of CFE´s permitted activities.
• CFE may not propose to SENER strategic infrastructure projects to improve SEN.
• The Court also stated that Section 5.7 of the Policy is invalid. Section 5.7 provided that, for the interconnection of private projects, an interconnection feasibility opinion issued by the National Center of Energy Control (Centro Nacional de Control de Energía, “CENACE”) could be required.
• It is discriminatory that provisions of the Policy require CENACE to consider in its interconnection studies: (a) the local demand and consumption of electricity; (b) the state of congestion in the interconnection network; (c) the availability of solar and wind resources; (d) how the interconnection would impact the reliability of the electric supply; and (e) "distance" between projects.
• The ability of SENER to prioritize certain projects and grant them a preferential status for interconnection is invalid.
• The provision of the Policy prioritizing "security" over cost in the dispatch of electricity is invalid.
• The rule setting forth that access to the grid may be denied to a renewable generation project that requests interconnection to a congested point is unconstitutional.

The Court did not address the new early termination clauses advanced by the Policy. These clauses require that "new and amended" generation permits and the corresponding interconnection agreements include provisions regarding their early termination in the event that interconnection and commercial operation are not achieved within the specified timeframe. This requirement could represent a high risk for projects under construction (especially those that have already suffered delays due to COVID-19).

Other Proceedings

Many power generation projects across the country have also filed amparo proceedings against the Policy and have obtained injunctive reliefs against the Policy from lower courts.

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For further information on this topic, please contact:

Ariel Ramos
aramos@mayerbrown.com

Vera de Gyarfas
vdegyarfas@mayerbrown.com

Aldo Jáuregui Garcia
AJauregui@mayerbrown.com

Julio M. Martínez Rivas
jmartinez@mayerbrown.com

Claudia Ramos
cramos@mayerbrown.com

¹ For more information please see: https://www.mayerbrown.com/en/perspectives-events/publications/2020/05/mexican-ministry-of-energys-new-policy-impact-on-wind-and-solar-generation-projects