Iberdrola targeted for sanctions as Mexico-Spain rift deepens

Mexico’s energy sector regulator CRE is seeking to sanction Spanish energy giant Iberdrola by alleging irregular electricity sales, the latest move in a growing diplomatic rift between Spain and Mexico with private investment at its center. 

CRE opened an investigation after Mexico’s state-owned power utility CFE filed a complaint with the regulator in September 2020.

The investigation is looking to show Iberdrola sold electricity from its Dulces Nombres plant illegally, with the potential size of the sanction reaching 8bn pesos (US$391mn). 

Iberdrola’s local operations produce roughly 20% of total generation in Mexico, with the company being one of the most impacted by the country’s shifting energy policy under President Andrés Manuel López Obrador (AMLO). 

Likewise, the proposed constitutional reforms to the electric power sector would hit Iberdrola Generación México particularly hard with non-renewable private generation forced to the lowest priority under the reforms’ dispatch rules.

AN UNEASY "PAUSE"

The investigation also comes as AMLO is stepping up rhetoric against Spain and Spanish firms operating in Mexico, with the leftist leader calling for a “pause” in the countries’ relations in a speech Wednesday.

López Obrador followed up in remarks Thursday morning to say that the pause is not a “rupture” or formal cessation of diplomatic relations, but rather, that Spain during preceding administrations, the so-called neoliberal period, “abused our country and our people. They saw us as a conquered land.” 

“To the extent,” he added, “there was a favorite Spanish company, Iberdrola, that was treated with privileges that have impacted us.” 

Outlining deteriorating relations with the company in the past three years, AMLO said meetings with Iberdrola’s leadership failed to achieve mutual understanding, where they “insisted and insisted and insisted everything they did was legal. Well, yes because they put in place the policies.”

The flare-up has garnered Spain’s attention with foreign minister José Manuel Albares demanding an explanation from the Mexican president, but AMLO has been ruffling Spanish feathers since soon after coming to power in December 2018. 

In March 2019, AMLO insisted Spain make formal apologies for human rights abuses committed in Mexico during the conquest and later colonization – a demand Spain quickly rejected.

Then in 2021 López Obrador apologized for atrocities committed 500 years earlier in the siege of Tenochtitlan (now Mexico City), and he again urged Spain to apologize formally, but to no avail.

Albares issued a statement Thursday afternoon in response to AMLO’s latest comments, saying, “The government of Spain categorically rejects the unjustified statements made by the president of Mexico in recent days.”

“It must be clear,” he said. “Spain is going to defend Spaniards, the good name of Spain and its companies in any circumstance.”

IBERDROLA LOGJAM

Meanwhile, Iberdrola’s Mexican operations have been working to transition away from policies that the current administration has targeted, attempting, for example, to “migrate” contracts under legacy self-supply schemes – and private power-purchase agreements attached – to integrate the generation into the broader wholesale electricity market.

CRE, however, has rejected Iberdrola’s requests to modify at least four permits, leaving some plants twisting in the wind, namely Dulces Nombres whose grid interconnection contract expired on January 31. 

According to news outlet Oil & Gas Magazine, the plant has been offline since that date.

On January 5, an amparo lawsuit – a request for immunity from regulatory measures in this case – that the local subsidiary had filed in a court in Nuevo León state was dismissed on lack of jurisdiction grounds, reported Spanish daily El País. 

Opened in March 2002, the 962MW combined cycle CCC Dulces Nombres plant is located in Nuevo León, which is a hub of industrial activity with the city of Monterrey at its center.

Iberdrola later opened a 1.008GW plant named Dulces Nombres II nearby in December 2016, and the two now form part of the four generation plants located in the northeastern state, along with CCC Escobedo (878MW) and CCC El Carmen (866MW).

LIKELY OFFTAKERS

According to the permit granted in 2002, Dulces Nombres sells electricity to 44 companies, including Kimberly Clark, Mexican cement giant Cemex, steel maker Ternium, Minera Autlán and brewer Cervecería Cuauhtémoc, now owned by Heineken.  

CRE's decision places customers who had a contract with Iberdrola in the need to sign a new one with state-owned CFE, a policy aligned with the proposed constitutional reforms that are now before congress and that have CFE as the sole legal buyer of electricity in the country.