Mexican Supreme Court Declares the 2021 Electric Power Reform as Contrary to the Constitution
The Mexican Supreme Court (“SCJN”) declared as unconstitutional the provisions in the Reform to the Electricity Industry Law, which were proposed by the Federal Executive in 2021. This occurred on Jan. 31, 2024, and the principal effect of the Reform was to benefit the State Productive Entity, CFE, in the order of dispatch of power generated by it over private generators (including renewables).
Finally, the SCJN established that their decision regarding the Reform will apply generally over all participants of the Wholesale Electricity Market ("MEM"), including the Energy Control Center ("CENACE") as operator of the MEM and the National Electric System ("SEN").
The Second Chamber of the Mexican Supreme Court of Justice determined on January 31 that the reform to the Electricity Industry Law of 2021 introduces new rules regarding
(i) the order of dispatch of electricity,
(ii) the form of awarding electricity coverage contracts, and
(iii) the system for the procurement of clean energy certificates, which unduly benefit the state-owned company, Comisión Federal de Electricidad and its affiliates (CFE), to the detriment of private participants in the electricity market, thus, violating the constitutional principles of free and fair competition and sustainable development.
The Chamber itself specified that the alleged strengthening of state companies is not a reason to disregard the constitutional framework on electric energy. In accordance with the constitutional principles in force in certain activities, including the generation and commercialization of electricity, CFE is one more competitor in the wholesale electricity market with a corporate, administrative and economic structure that allows it to compete on equal terms with private participants, so the challenged legal reform cannot introduce rules that give CFE a preponderant position and hinder free and fair competition, in addition to discouraging the generation of clean energy.
Despite the fact that this important resolution is limited to an amparo under review filed by several private generators, the Supreme Court decided to extend its application in a general way, because when the disincorporation of the legal reform claimed is materialized, the same consequences must necessarily be generated for the all of the participants in the wholesale electricity market or otherwise the principles of free and fair competition would be violated.
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