Mexican judge grants 6 injunctions to shield firms from electricity reforms

A federal judge ruled Monday to grant injunctions requested by six firms to shield them against the application of reforms passed in March to Mexico’s electricity industry law (LIE).

Judge Juan Pablo Gómez Fierro of the second district court specialized in administrative matters, economic competition, telecommunications and broadcasting granted the injunctions, known as amparos as per the specific circumstances detailed in their petitions. 

In addition to granting the injunctions, the ruling also stated that the legislation approved on March 9 “significantly” broadens the margin of discretion of electricity grid operator Cenace to give access to the national transmission network and the general distribution networks to power plants operated by state-owned utility CFE, thereby displacing other market participants.

With this, he considered, “a mechanism is constituted that allows the displace or prevention of entry to this essential input to other competitors who wish to interconnect, even when they have the technically feasible infrastructure to do so,” he was reported as saying by energy news outlet Energía a Debate. 

However, very importantly, these injunctions were granted with particular effects, meaning they only apply to the plaintiffs and not to all players in the electricity market.

As such, they are unlike the general injunctions struck down last month that applied to the entire industry, where a higher court judge determined that the temporary injunctions previously granted by lower judges were too broad and that companies needed to show evidence that the reforms had materially impacted them to the detriment of free competition.

Regardless, these latest injunctions could also be struck down by a higher court, with much of the ultimate fate of the reform likely to come down to the supreme court, which experts consulted by BNamericas see happening sometime in late 2022.

Mexican President Andrés Manuel López Obrador (AMLO) has already announced that he plans to introduce reforms to the constitution in the legislative session beginning in September that would remove any question of unconstitutionality now being weighed up by the courts.

While the constitutional reform has little chance of passing, the president is clearly doing everything in his power to push through the changes he sees as necessary to prop up state-owned power company CFE as the predominant player in the market, one empowered to shape the market and regulatory actions as it sees fit. 

Among the reforms most criticized in the LIE are new dispatch priority rules, which gives CFE priority dispatch above all others, regardless of price, with hydro power plants given top berth, then the remaining CFE capacity, followed by private renewables and then private non-renewables.

It also grants clean energy certificates (CELs) to CFE for its hydro, geothermal and nuclear generation via a controversial interpretation of the government’s clean energy transition guidelines. 

With respect to the dispatch rules, Gómez Fierro wrote that giving preference to coverage contracts with a commitment to physical delivery over the dispatch of clean energy generation plants distorts the dynamics of competition and competition in the market.

Regarding care for the environment and the health of the public, the judge said that the fact that the energy dispatch from clean power plants is established at a lower priority wherever feasible, “pushes aside the criteria for economic efficiency, and this in turn has a detrimental impact on [clean energy], with no regard to the concept of sustainability and lacking support for the promotion of opportunities in the development of clean, cheap and efficient energies that reduce the cost of electrical energy, as well as the replacement of electrical energy production based on fossil sources by renewable sources.”

The judge, nevertheless, limited the scope of the protection to the specific companies that requested the injunctions.

“In order to avoid creating a regulatory vacuum, it is specified that the responsible authorities must continue to apply the regime provided for in the electricity industry law," he wrote.

He added that in these specific cases, the unconstitutional impacts occurring to these six companies are well-known to the district and as such can be ruled upon in particular, without casting judgment on the law's other impacts across the country.