Specialists agree that SCJN's approval of LIE compromises production, supply, costs and the environment

After the Supreme Court of Justice of the Nation (SCJN) approved the Electricity Industry Act (LIE) which establishes a change in the order of dispatch of energy in favor of the Federal Electricity Commission (CFE), several specialists gave their opinions on what it means.

One of the most recognized analysts in the energy and economic sector is Ramses Pech, who in an interview with El Financiero Bloomberg said that we should be focusing on how we are going to generate electricity, not on whom.

And it is that in the consideration of the specialist, one thing is what is being discussed in the Legislative (Chamber of Deputies), which are the constitutional changes that the President of the Republic intends to make and another thing that was discussed and approved by the SCJN, which is around the law that was enacted in 2021.

Ramses Pech stressed that in the Court's decision, the CFE remains as guarantor in domestic service “but not entirely in the wholesale electricity market and what we must bear in mind, most importantly, is that they give Cenace (National Energy Control Center) the specific weight so that it can continue to do the way in which energy must be distributed and dispatched in our country.”

He stressed that this is important “because part of what is being discussed in the Legislative. Cenace becomes part of the CFE and here at the Supreme Court that is something very important that we must take into account. Cenace gives him the power to be the fundamental part of how to dispatch it. Therefore, I think that each of these points needs to be reviewed, what is in the legislative branch and what the Supreme has just mentioned,” he insisted.

Ramses Pech stressed that this situation does not benefit either the CFE or the private ones.

“(...) Why? because there is a high level of uncertainty that after all this and what is currently in vogue in the two powers, there will have to be a solution to what is going to be on the market. Here I think that we are only discussing who, but not how we are going to generate electricity because we are leaving aside the raw materials that we are going to need,” he emphasized.

“Natural gas is a fundamental part of Mexico today, especially because of the way we are going to generate electricity. And today we face a US that is changing its perception of selling natural gas to the European Union on the basis that the European Union intends to stop buying Russian gas. Imagine where we are going to be today knowing that liquefied gas is more expensive for us up to two or three times more, compared to what they are selling to us,” he said.

He considered that the approval of the SCJN is more important than the technical aspects, so he stressed that what should be taken into account is that we have been compared a lot with the US, ensuring that in the neighboring country electricity is more expensive. However, the specialist stressed that in the American Union electricity service is not subsidized, which does happen in Mexico.

“(...) Today morning, reviewing this, it turns out that the kilowatt more or less costs 2.87 pesos (in the US) and they do not subsidize. In Mexico it is costing us between 2.20, 2.80 or 2.90 pesos per kilowatt in the domestic sector, but we do subsidize. The CFE is going to be the guarantor of all electricity generation, transmission and distribution and supply as is being discussed in the Legislative Branch and what we are seeing today at the SCJN is how we are going to do it and how much they will give to the Federal Electricity Commission if they are being given between 80 and 90 billion pesos of the subsidy.. en say, are we going to give it more subsidy to maintain the costs of inflation based on the cost we are having of raw materials such as natural gas?” , questioned the specialist.

He stressed that after the negotiation of the current trade agreement between Mexico, the United States and Canada (T-MEC), the energy sector was included and today no country charges the other country tariffs on the part of natural gas.

“The question here is whether the T-MEC in 2026 is going to be renegotiated and the US sees what is happening today. Do you think we are going to sign and in what condition will we be in for the raw material? That's why I'm asking how we're going to generate electricity, not who; that's what we should be focusing on today,” he said.

For their part, specialists from the Mexican Institute for Competitiveness AC (Imco) condemned the resolution of the SCJN and warned that this will have negative repercussions on Mexico's economic conditions, as they expect a negative environment for foreign investment in the sector.

In a statement, IMCO made several observations to the 2021 reform, which, according to IMCO, violate legal certainty for private capital to settle in Mexico to do business with electricity.

“This decision reduces the country's competitiveness by contributing to the deterioration of the investment climate in Mexico, drastically reducing the possibilities of private investment in electricity generation, putting the existence of the electricity market at risk and benefiting the most expensive and polluting generation plants to the detriment of of the environment”, says the text.

He considered that “the main losers of the reform are renewable and clean energy plants”, since the order of dispatch stipulated by the reform gives priority to new electricity coverage contracts with a commitment to physical delivery, which in fact benefits the CFE power plants in the first place, which, according to the A.C. , “operate from fossil fuels”.

Meanwhile, the organization México Evalua published a letter in which it said “we are deeply concerned about the discussion and voting of the three draft judgments that the rapporteur Minister, Loretta Ortiz Ahlf, has prepared in order to declare the validity of the reform to the Electricity Industry Law, amended in March 2021, and which was challenged (...) We can infer, in the light of the conclusions expressed in her draft judgments, that the minister considers that the reformed LIE does not violate economic competition or affect the environment.”

“However, we respectfully urge you not to give in to political pressure and to give priority at all times to the independence of the High Constitutional Court that you make up. And we believe that the effects of the entry into force of the reformed LIE would be harmful to the environment, health and economy of Mexicans, by harming our ability to meet electricity generation targets with renewable sources.”

“That is, the law would encourage increased greenhouse gas emissions and would privilege the generation of electricity at higher costs than today, causing severe distortions to the national economy and Mexican families. Let us remind you that Mexico is committed to meeting the mitigation goals established in the General Law on Climate Change, which stipulates that by 2024 35% of electricity generation must come from clean energy,” said Mexico Evalua.

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