What would Mexico's energy reforms mean for the power regulator?

Even with changes to water down Mexico's proposal to modify the constitution and strengthen public power company CFE, the independence of regulatory bodies would end, an expert told BNamericas.

The changes, which would retain power regulator CRE rather than scrapping it but alter its constitutional status to make it less autonomous, would not significantly modify the essence of the proposed reform, according to analysts.

The chair of the lower house’s energy committee, Manuel Rodríguez, said earlier this week the reform could be modified so it no longer eliminates CRE, changing it instead from a coordinated regulatory body to a decentralized body, giving it fewer guarantees of autonomy.

According to Susana Cazorla, a founding partner at Mexico City consultancy SICEnrgy and former regulator at CRE, a change in the constitutional status of the commission would turn it into a department of the energy ministry, eliminating its remaining independence from the government of the day.

“In the end, it would become an office dependent on the energy ministry,” Cazorla told BNamericas. “Its head would be appointed by the minister. You can imagine the effect this would have on its independence.”

However, for all practical purposes CRE has gradually lost autonomy and is now not acting as an independent body in permitting processes, internal discussions and hiring procedures, Cazorla said. This is because, through political pressures, the government was able to ensure several commissioners resigned concurrently, and President Andrés Manuel López Obrador could then propose replacements to be ratified by congress and quickly gain a politically aligned majority.

“Before being an energy regulatory body, CRE was a deconcentrated body, which is not the same as decentralized. But [essentially] making it into a decentralized body would return it to what it was then, a technical office that is dependent on the ministry,” Cazorla added.

The changes to the proposals signal a growing willingness by ruling party Morena to compromise on parts of the reform in an attempt to sway opposition party PRI lawmakers, as it needs support to secure a supermajority in both houses of congress. 

PRI is the only opposition that so far has not come out decisively against the reforms, as both center-left PRD and center-right PAN have staunchly opposed the proposed constitutional changes.

However, the ruling coalition distanced itself from PRI during the recent 2022 budget debate, refusing to consider many of the party’s requests. PRI, meanwhile, has said it expects debate on the constitutional reforms to take place after state elections scheduled for June.

“There are [political] actors seeking to negotiate, changing a comma or something in the margins, but this is distracting from the main considerations and implications of the reform,” Pablo Zárate, managing director at FTI Consulting, told BNamericas.

“To respect some aspects of CRE’s autonomy in no way corrects other radical aspects of the reform, which by themselves are sufficient to destroy the electric power market,” Zárate said.

The proposed reforms have been heavily criticized by business groups, environmental activists, consultants and market observers and most recently by credit ratings agency Fitch, which said their approval would lead it to downgrade many of Mexico’s generation project owners.

It also sparked the concern of 40 US lawmakers, who in a letter addressed to the heads of the departments of state, energy and commerce stated the reform was “harmful to US investment, American workers, and the North American commitment to sustainability” and would breach the North American free trade agreement (USMCA) with Mexico and Canada.