Overhead power lines in Mexico

Sempra’s Mexico Unit Says Power Proposal Hobbles the Sector

Feb. 19, 2020
Modification of some transmission permits would make it impossible to supply power to new partners or implement expansion plans, according to IEnova.

(Bloomberg) -- Infraestructura Energetica Nova SAB said a draft proposal by Mexico’s energy regulator to modify some transmission permits would make it impossible to supply power to new partners or carry out any expansion plans.

In a letter posted in response to the draft proposal, the Mexican subsidiary of the United State’s Sempra classifies it as "high regulatory impact" and argues that it violates policy that is already in place.

“This modification implies that it will be impossible to deliver energy to new self-supply partners, with consequential costs and losses due to breach of contract, and will make it impossible to carry out expansion plans,” IEnova’s letter says.

Mexico’s President Andres Manuel Lopez Obrador has sought to dial back energy reforms from the previous center-right administration and consolidate power in the hands of Mexico’s state-owned energy companies. The leftist leader has criticized some subsidies for electric power, saying they have benefited private companies rather than consumers, and has vowed to review the contracts.

The draft proposal, posted by Mexico's Regulatory Energy Commission, or CRE, would prohibit companies from adding new clients to self-supply contracts that were granted before the electricity reforms of 2013 and 2014. This will force some companies to migrate to the new model for the wholesale power market and no longer receive incentives that reduced transmission and distribution charges for self-supply contracts, which enable companies to generate electricity for their own businesses.

Industry members fear that this could add financial risk to companies’ operations. The self-supply contracts in operation account for US$16.23 billion in investments, of which 57% are renewables, according to the Mexican Wind Energy Association, known as AMDEE.

Mexico’s Federal Electricity Commission, or CFE as the state utility is known, has sought to roll back discounts on transmission costs and give itself preference over private generation when electricity is dispatched into the national grid. The draft proposal, which includes some aspects of a CFE draft that was leaked in December, still needs need to be approved by the CRE.

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