EconomyFinancialElectrical reform: what is at stake in the Chamber...

Electrical reform: what is at stake in the Chamber of Deputies?

The dynamics of the electricity market have been modified since the first days of this administration. But the coup de grâce could come this Sunday with the vote on the constitutional reform sent by the president six months ago and discussed among legislators since the beginning of the year.

The future of the document is uncertain. Morena, the president’s party, does not have the necessary votes for its approval and the attempts to negotiate with the opposition, mainly with the PRI, seem to have been unsuccessful. The discussion began five hours later than expected and has been colored by ideological overtones, accusations of treason and defense of private or foreign interests.

These are the key points of the reform that is discussed in Deputies:

Goodbye to the electricity market

The initiative proposes the disappearance of the wholesale electricity market, one of the main bases of the 2013 reform. The reason: the document proposes the cancellation of all contracts awarded to private companies, eliminates electricity auctions and removes its independence from the National Center for Energy Control – which until now is the operator of the short-term market, where companies buy and sell energy – so that it becomes part of the state-owned CFE once again.

The document eliminates all the figures under which the companies participated in the market –such as generator, qualified user or supplier– that were also exchanged in the market. Now, all generation activities would be in charge of the Mexican state company.

The creation of the wholesale market removed the power generation monopoly from the CFE, giving way to the entry of private and foreign companies. Its creation was based on the idea of prioritizing the use of lower-priced energy –generally produced by private companies that own solar and wind plants–, with which the plants owned by the state company were relegated due to their high production costs.

The new thesis of the electrical reform is totally contrary. The document proposes a distribution of the participation in electricity generation and proposes that at least 54% be produced by the Mexican state company and up to 46% by private companies that own a plant.

CFE, the almighty

The document proposes to give the state entity the figure of a State body with legal personality and its own assets. The details have not been fully defined, but the initiative anticipates that the company would have management and budget independence. to give him the opportunity to become a designer of electricity policy, a function that until now has been carried out by the Secretary of Energy.

The state company would be the exclusive entity to guarantee electricity generation in the country and, by adding the National Center for Energy Control (Cenace) to its ranks, it would have the power to decide how to operate the national electricity system, what electricity to buy and from what central and in what order it is uploaded to the network.

The company will seek to create a system of competition between private parties, says the document, and “will dispatch in order of the merit of production costs, in accordance with the security and reliability requirements of the national electricity system.” But this is still ambiguous and gives the company discretion in its decisions, analysts say.

The initiative also proposes the disappearance of the subsidiaries in which the company is divided and only keeps CFE Telecomunicaciones and Internet para Todos.

Cancellation of contracts and a new electrical system

One of the most critical points of the document is based on the cancellation of the contracts granted during past six-year terms and of all the permits that are currently in process.

The initiative says that the power plants will be able to be part of the new electrical system and sell their electricity to the state-owned CFE. But the document gives some warnings and says that some self-supply plants -which have operated under a scheme other than the authorized one- will not be able to sell their electricity to the company and the surplus generation of the Independent Power Producers will not be acquired either.

“The power plants will be able to continue generating electricity and compete to offer the lowest production costs, so that it is acquired by the CFE through Cenace, in the short and long term, for the benefit of end users,” says the document.

The CFE will seek to sign some new contracts with the companies for the sale of power, financial coverage, purchase of electricity and other services, but the initiative does not give more details on this point.

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