August 20, 2021

Mexico’s CFE Requests Regulator to Suspend Generation Permits

By Antonio Riojas and Elena Hernández

Toward the end of last month, Mexico’s Federal Electricity Commission (“CFE”) stated in a press conference that a December 28, 2020, interruption in electricity supply was mainly due to a failure of the San Carlos wind power plant in Tamaulipas, which is owned by the Spanish company Acciona. Such conclusion was based on an expert report ordered by CFE itself, which has not been made public.

This statement is consistent with the declarations made by CFE in January, in which it blamed the variability of some renewable energy power plants as the cause of the failure, and it is consistent as well with numerous affronts by the government against foreign companies over the last few months, including Iberdrola and Enel.

In the press conference, CFE stated that it will take several actions, including being more demanding in verifying interconnection requirements, implementing a system of inspections, and requesting the Energy Regulatory Commission (“CRE”) to not grant new permits in areas lacking transmission capacity. It further called on the CRE to suspend permits to power plants that have not made progress in their construction.

Regarding this last point, it should be noted that generation permit holders have several obligations. These include adhering to the construction schedule, not suspending construction for more than three months, and complying with the authorized commercial operation date. The CRE has the power to revoke permits for failure to initiate the activities covered by the permit, and to suspend operations to protect the public’s interests regarding quality, reliability, continuity, and security of electric supply.

A proper basis and justification should exist in order to suspend operations or revoke permits. Both involve formal procedures, including the right to a hearing in accordance with the Mexican Constitution. Accordingly, permit holders may assert force majeure or acts of God defenses, provided they can provide reliable evidence of such occurring.

In any case, as has already been seen, considerable delays can be expected with respect to the CRE’s granting of generation permits, as well as greater scrutiny for existing permits, both for projects that are underway and those already in operation. The CFE is also expected to take an even more proactive role in interconnection procedures, especially when evaluating applicable requirements prior to a new power plant’s commissioning.

In recent months, the electricity sector has taken several blows.  The CRE has been weakened and left unable to fulfill its constitutionally mandated role. Since the personnel cuts instituted in 2018 at the beginning of the president’s six-year term, deadlines to respond to applications have rarely been respected. This will only be made worse by two term suspensions supposedly justified by the pandemic, the second of which continues in force until further notice.

Previously it had been complicated, and nearly impossible, to initiate new power generation projects; now it will also be difficult to maintain them.