Electric Supply Alternatives for Large Consumers

By Jose Maria Lujambio

Based on the Electricity Industry Law (“LIE” for its acronym in Spanish) of 2014, many companies that currently consume large quantities of electricity can access the benefits of receiving their electricity supply from a company other than Mexico’s Federal Electricity Commission (CFE) as a Supplier of Basic Services, if they register as qualified end users with the Energy Regulatory Commission (“CRE” for its acronym in Spanish).

In order to register with the CRE, the contracted load must be one (1) megawatt (MW) or more. This is not the actual volume of electricity consumption, measured in MWh, but instead a maximum consumption capacity. End users belonging to the same economic interest group may aggregate their loads to reach the minimum of 1 MW. To do this, the economic group must provide evidence of the affiliate relationship of the group’s various legal entities.

In any case, registration as a qualified end user is optional for plants connected before August 12, 2014, but it is required for all those connected after such date, which is the day the LIE entered into force. The registration is a straightforward procedure, which was simplified further by the CRE through modifications to the applicable rules, published in the Official Journal of the Federation on December 6, 2017.

The benefits of competition in the electricity are immediate, creating conditions which allow for lower prices and better contractual conditions. Since late 2016 and throughout 2017, several clients of Cacheaux, Cavazos & Newton began to receive proposals for alternative contracts for basic electricity supply, several of which have already been signed. Other clients have begun to approach the firm with questions about available opportunities under the new electricity distribution system. On the other hand, other clients who are qualified suppliers have requested the firm to assist in preparing model contracts to supply electricity in Mexico.

Beginning in December 2017, applicable basic supply tariffs are determined based on the CRE regulation that provides for such to be based on real costs of service, instead of policies of Mexico’s Department of Finance and Public Credit (“Hacienda”).  In the case of qualified end users, the new basic supply tariffs offer certainty regarding what is the “price to beat” by qualified suppliers who are now competing with the former State electricity monopoly. Despite the initial problems surrounding implementation of the new system and communications from the CRE, the new basic supply tariffs are a true milestone in Mexico´s energy history. They are also the price signal that the country’s wholesale electricity market greatly needed to develop its full potential.