August 28, 2020

Mexico’s Electricity Policy on Hold

By José María Lujambio and Antonio Riojas

The Mexican energy sector has undergone a major restructuring over the past several years as a result of the 2013-2014 reforms. Nevertheless, Mexico’s current federal government has sought to implement a nationalistic energy policy, which has resulted in the undoing of some aspects of such reforms. Indeed, the government has taken several actions for the benefit of the two large State-owned energy companies: CFE and Pemex. To date, such actions have not involved amending the Mexican Constitution, laws, or presidential regulations.

As relates to electricity matters, the most significant action taken by the current administration has been the Resolution issuing the Policy on Reliability, Security, Continuity, and Quality in the National Electric System (the “Policy”), published by the Department of Energy (“SENER” by its initials in Spanish) on May 15, 2020.

The Policy sets forth a differentiated regime, which primarily affects wind and solar photovoltaic power plants, including those in development and those in operation. The purposes of the Policy include hindering the granting of permits, as well as limiting the number of “intermittent” renewable power plants by zone, region and system. The Policy further provides for the Energy Regulatory Commission (“CRE” by its initials in Spanish) and the National Energy Control Center (“CENACE” by its initials in Spanish) to amend their regulations to comply with the Policy.

Notably, the Policy was issued without following the federal rulemaking process and, with it, the SENER overran the authority of both the CRE as the regulatory agency, and the CENACE as the system operator. The Policy has received an overwhelmingly negative response from generators, developers, non-governmental organizations (“NGOs”), state governments and even public agencies, who have used various constitutional appeals to challenge it.

Firstly, dozens of power plant developers and generators have filed indirect amparo lawsuits opposing the Policy. Mexican district courts have granted injunctions against the enforcement of certain sections of the Policy, meaning that the relevant agencies may not enforce such sections on these companies until the lawsuits have concluded. Such individually granted injunctions benefit only the parties who filed amparo lawsuits.

Secondly, at least two environmental protection NGOs have filed indirect amparo lawsuits opposing the Policy. These organizations have not suffered direct harm from the Policy, but rather have a legitimate collective interest due to the Policy’s impact on the reduction of carbon emissions and the mitigation of climate change. Therefore, the amparo injunctions granted in these lawsuits are broader and prevent the SENER and other Mexican authorities from enforcing the Policy in its entirety until such lawsuits have concluded.

Lastly, the Federal Economic Competition Commission (“COFECE” by its initials in Spanish) and the state governments of Colima, Jalisco, Nuevo León, and Tamaulipas have filed constitutional claims opposing the Policy, arguing that such interferes with functions within their respective jurisdictions. Importantly, in the lawsuit filed by COFECE, one justice of the Mexican Supreme Court (“SCJN” by its initials in Spanish) granted an injunction against the enforcement of the Policy in its entirety. It is noteworthy that the injunctions granted in the NGO cases prevent the enforcement of the entire Policy — however, the SCJN’s decision carries more political weight because a justice of Mexico’s highest court issued the injunction.

In summary, two of the three types of injunctions seem to apply generally, including for the benefit of third parties who have not filed any lawsuits. Although this news should be viewed with optimism, it is important to note that the SENER, as expected, has appealed all the injunctions. None of the the SENER’s appeals has been ruled upon, so it is possible that one or more of the injunctions could be revoked. Thus, the cases remain pending for the Plenary Session of the SCJN and the collegiate circuit courts to decide whether the injunctions previously granted will be upheld.

Please contact us to discuss any questions you may have regarding the Policy or to review its possible impact, so that we may provide guidance on the potential legal remedies that may be available.