Constitutional Reform in Mexican Electricity Sector

WHAT ARE THE MAIN MODIFICATIONS THAT THE LESE ESTABLISHES FOR THE ELECTRICITY SECTOR?

The most significant changes introduced by the LESE for the electricity sector include the following:

State Priority in Electricity Generation and Commercialization

The law prioritizes the State over private entities in electricity generation and commercialization by requiring the State to maintain at least 54% of the average annual energy injected into the grid, while transmission, distribution, and the planning and control of the National Electrical System remain exclusive State functions.

Changes in the Generation and Introduction of New Schemes

The generation modalities are similar to those established under the Electricity Industry Law ("LIE"), including generation, distributed generation—which remains in effect—and isolated supply with or without interconnection to the grid, but with the following key differences:

Generation Modalities

Distributed Generation. The LESE sets a new limit of 0.7 MW, exempting generation below this threshold from requiring a permit from the National Energy Commission ("CNE") if interconnected to a distribution circuit that serves a high concentration of load centers. Electrical energy and associated products may be used for own consumption or sold under the terms of the law.

Self-Consumption. Self-consumption refers to the generation of electricity by power plants with capacity equal to or greater than 0.7 MW, which is intended to meet the needs of the current holder of the generation permit. The new legal framework defines two types of self-consumption:

• Isolated Self-Consumption: Electricity production without interconnection to the grid, though it may be interconnected to a private grid; and
• Interconnected Self-Consumption: Electricity production with interconnection to the grid, with the possibility of selling surpluses exclusively to the Federal Electricity Commission ("CFE"). For intermittent generation injected into the grid, a backup system must be in place, either owned by the generator or provided by the CFE for a fee.

Generation for the MEM. This new figure refers to generation for the Wholesale Electricity Market ("MEM"), meaning electricity and associated products generated by a power plant with a capacity equal to or greater than 0.7 MW, intended for commercialization through the mechanisms contemplated in the MEM. This is the only type of permit under the LESE that may be granted to the State, private entities, or mixed development schemes.

Cogeneration. The LESE also allows generation permits in the form of cogeneration, with capacity limited to power derived from unused thermal energy. The possibility of "mandatory dispatch"—requiring grid operators to prioritize dispatch of cogenerated energy —is restricted to specific circumstances, such as efficient cogeneration projects that meet regulatory thresholds or are aligned with public interest criteria.

Mixed Development Schemes

The LESE provides for mixed development schemes, including long-term production, mixed investment, or other forms to be defined by LESE Regulations or the Secretary of Energy ("SENER").

Long-Term Production. A mixed development scheme for generation projects that must comply with the binding planning of the electricity sector, under which the State does not contribute capital. Under this scheme, all energy and associated products are exclusively allocated to the CFE, which represents them before the MEM. The transfer of project assets to CFE at the end of the contract is optional and, if exercised, occurs at no cost to the latter.

Mixed Investment. A mixed development scheme for generation projects in which CFE must maintain at least 54% direct or indirect participation. CFE has the preferential right to acquire the energy and/or associated products generated, and any energy not used by CFE may be commercialized in the MEM.

Transmission and Distribution of Electric Power

Private entities cannot finance, install, maintain, manage, operate, or expand infrastructure for public transmission and distribution of electric power, as these activities are reserved exclusively to the State and may not be delegated or outsourced.

Electricity Commercialization

The categories of Basic Supply, Qualified Supply, and Last-Resource Supply are retained, while Energy Storage and Infrastructure and Electricity Supply for Electromobility are introduced within the scope of electromobility.

Key changes in commercialization include:

• Basic Supply: Only the CFE may provide Basic Supply, with the authority to enter into Electricity Coverage Contracts (i) directly with any generator under the generation categories contemplated by the LESE or (ii) through competitive mechanisms conducted by the National Energy Control Center ("CENACE") for the acquisition of energy and associated products in the MEM.
• Qualified Supply: Registration of load centers in the Register of Qualified Users becomes optional, and qualifying load centers may instead choose to remain under Basic Supply.

For Energy Storage and Infrastructure and Electricity Supply for Electromobility:

• Energy Storage and Infrastructure: The necessary permits and requirements for this activity will be issued by SENER. The same capacity or available energy may not participate in more than one service, must be offered entirely to CENACE and the CNE, and may include compensation mechanisms for services not included in the MEM.
• Electromobility Electricity Supply: Defined as land transportation systems using light and heavy vehicles powered by an electric or hybrid traction system that draw energy from an electric supply system and are used to transport people or goods. SENER will regulate the infrastructure and electricity supply, while the CNE will regulate interconnection matters, compensation, and the terms and conditions applicable to this activity.

Restructuring of State Electricity Authorities

SENER and CENACE do not undergo major changes in their functions and powers; the most significant changes affect the CFE and the CNE.

The CFE is transformed from a State-owned productive entity ("empresa productiva del Estado," in Spanish) into a State-owned public entity ("organismo público descentralizado," in Spanish), acquiring the status of a Federal Public Administration entity under SENER—with technical, operational, and management independence, legal personality, a special regime, and its own assets. The legal requirement for CFE to operate through separate subsidiaries is no longer applicable, resulting in the dissolution of those subsidiaries and the consolidation of its operations under a single entity.

The CNE is created to replace the Energy Regulatory Commission ("CRE") and the Coordinated Regulatory Bodies in Energy Matters, becoming a technical body under SENER with technical, operational, management, and decision-making independence.

WHAT ARE THE MAIN CHANGES ESTABLISHED BY THE LCNE FOR THE ELECTRICITY SECTOR?

As part of the broader reform package, the LCNE sets out the governance structure, mandate, and composition of the newly created CNE, which absorbs the CRE and the National Hydrocarbons Commission. The CNE's primary function is to regulate, supervise, and impose sanctions on activities within the energy sector.

Unlike its predecessor agencies, the CNE is led by a General Manager, who is freely appointed and removed by the Federal Executive and ratified by the Senate, replacing the prior model of a President and Technical Secretary.

The CNE's most significant decisions—such as granting permits, imposing sanctions, and issuing regulations—are made by a collegiate body (with substitution mechanisms) composed of:

1.  The SENER (who presides and holds the casting vote);

2.  The Undersecretary of Electricity of the SENER;

3.  The Undersecretary of Hydrocarbons of the SENER;

4.  The Electricity Unit of the CNE;

5.  The Hydrocarbons Unit of the CNE; and

6.  Three technical experts from the energy sector.

WHAT WILL HAPPEN WITH THE PERMITS, AUTHORIZATIONS, CONTRACTS, INSTRUMENTS, AND/OR ADMINISTRATIVE ACTS GRANTED AND ISSUED UNDER THE NOW REPEALED PUBLIC ELECTRICITY SERVICE LAW ("LSPEE") AND THE LIE?

Pursuant to the Fifth and Ninth Transitory Provisions of the LESE, such instruments will remain valid until their original expiration, governed by the laws under which they were granted and the provisions in force at the time of their formalization. However, they may not be extended beyond their original term.

WHAT IS THE IMPORTANCE OF THE LESE?

The importance of the LESE for the Mexican electricity sector lies in the fact that, after several years of uncertainty and stagnation, it provides clarity regarding private sector participation in the industry and establishes the possibility of both joint and independent participation alongside the State.