EconomyFinancialThe next CFE: what will be its new role...

The next CFE: what will be its new role if the electricity reform is approved?

The purpose has never been hidden. The constitutional reform that will be voted on Sunday in the plenary session of the Chamber of Deputies has a main purpose and that is to concentrate the electricity market and return the leading role to the state-owned CFE .

The national electricity company has stopped behaving like just another company in the electricity market, which was the goal of the 2013 reform. Instead, so far this six-year term, the company that Manuel Bartlett runs today has played the role of decision maker and designer of electricity policy. Several analysts and specialists in the sector agree that the CFE has gone from being a regulated company to dictating the rules of the sector. The presidential initiative would legally give it these powers and raise it to a constitutional level.

The opinion that will go up tomorrow to the plenary session of the Chamber of Deputies undoes one of the core points of the 2013 reform: it removes the CFE’s label as a State productive company and gives it a new one. If the electricity reform promoted by President Andrés Manuel López Obrador is approved, the state company would become a State agency with legal personality and its own assets. A new title – which no other entity has – and whose implications are not yet entirely clear, although the opinion of the initiative already gives some clues as to the magnitude of the modification.

“One of the things that the reform does not clarify is what nature the CFE is going to have. It says that it is going to be autonomous, but it does not say if it is going to be an autonomous constitutional body or a decentralized one,” says Julia González Romero, a lawyer in the sector. “If CFE obtains the degree of autonomous constitutional body, it would be completely independent from the Ministry of Energy, because it is even outside the federal public administration.”

What does the opinion state?

The legal separation of the CFE into six subsidiaries – promoted by the 2013 reform – would be annulled. The 2013 constitutional change ordered the CFE to be strictly separated in order to carry out each of its activities independently and thus improve its profitability and operating efficiency. But the current government has ensured that this only generated economic and customer losses. The document only contemplates maintaining the subsidiary CFE Telecomunicaciones e Internet para Todos, created at the beginning of the six-year term, but whose plan remains blurred. It also maintains the subsidiaries CFE Energía, CFE International and CFE Capital.

The opposition has not denied this point. In the proposal released a few days ago, a subsection is included – at the request of the PRI – to give the state agency budgetary and management autonomy. But the president’s initiative goes beyond these points and goes further: he places the company as the main director of electricity policy, with powers that would even go beyond the Secretary of Energy, which for now is above the company – at least in theory – in terms of the design of the policy on the matter.

The intention that the state company directed by Manuel Bartlett be one more participant in the electricity generation market would be completely forgotten.

The company would take responsibility for the complete planning and control of the national electricity system and would become solely responsible for supplying electricity to consumers, regardless of their size. With the current model, its attributions could even be above those of the Ministry of Energy and it would not be under the surveillance of any regulator.

The company would take responsibility for the complete planning and control of the national electricity system and would become solely responsible for supplying electricity to consumers, regardless of their size. With the current model, its attributions could even be above those of the Ministry of Energy and it would not be under the surveillance of any regulator. “The State, through the CFE, will assume control of the system,” says the initiative. “[The CFE] will preserve energy security and self-sufficiency, as well as the supply of electricity for the entire population and consequently guarantee the human right to a dignified life.” The company would also exercise complete autonomy in the exercise of its functions and the administration of its budget.

What will happen to the electricity sector if the reform passes?

A victory for Morena tomorrow in the plenary session would de facto end the market that was created in 2013: all contracts with private parties and permits currently in process would be cancelled. The National Center for Energy Control (Cenace), which until now operates the electricity market and decides what electricity is uploaded to the system -based on economic criteria-, would lose its autonomy and would become part of the Mexican state company. In simple terms: the company that Manuel Bartlett runs would decide which electricity is used and which is not.

And with this, the reconfiguration of the electrical system would begin: the state-owned CFE would buy electricity generated by private companies and decide the order in which it would be uploaded to the system, with the plants owned by it at the beginning of the row, regardless of the technology, fuel or costs. This is where one of the main points of the document has a place: it would be done by ensuring that the company generates at least 54% of the electricity and the private companies generate a maximum of 46%.

The initiative already includes some warnings: not all plants currently in operation will be able to continue participating in electricity generation activities. The CFE would not buy the electricity generated in the self-supply plants that it considers have operated illegally, nor would it acquire the surplus generation of the Independent Power Producers “derived from the permits superimposed on the original permit of the plant.”

The document that will be voted on tomorrow says that the CFE will exercise a competition process among private parties to decide what electricity to acquire and “will dispatch in order of the merit of production costs, in accordance with the security and reliability requirements of the national electrical system.” But this is still ambiguous and gives the company discretion in its decisions, analysts say.

The Mexican power company would also be in charge of defining all the rates involved in the system: it would define the costs derived from the use of the transmission and distribution networks and the end-user rates.

Until now and after the 2013 reform, the Energy Regulatory Commission was in charge of defining costs and rates. In the initial document, presented by the president at the end of September, the disappearance of the regulator was contemplated, but in a final draft this point has been omitted. But the latter is not yet clear. The permanence of the regulator would be done with a company –the CFE– that would become judge and party. The role of the Commission would be blurred.

The approval of the reform would put on paper the role that the company has already taken for some years. The future of the initiative is still uncertain, but the bets have been turned towards a defeat for the president’s party.

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