Clean Energy in the Mexican Energy Reform Secondary Legislation

Jun 2, 2014

In late-April 2014, Mexican President Enrique Peña Nieto sent to the Senate a package of nine bills that propose secondary legislation stemming from the December 2013 constitutional reform in regard to the country’s energy sector, a topic about which Nexant has recently blogged.  The secondary laws represent the critical implementing language for the historic reforms signed by the President late last year.  Senate President Raúl Cervantes Andrade sent three of the bills concerning fiscal issues to the Lower House, as is required under Article 72(h) of the Mexican constitution, and directed the remaining six, which concern non-fiscal issues, to the corresponding Senate committees.

Nexant explores below the general contours of the proposed secondary legislation submitted to the Mexican Congress, and discusses its implications for clean energy:

  • The Power Sector Bill establishes and provides rules that will expand the participation of the private sector in the generation, transmission and distribution, and commercialization of electrical power, while reserving for the Mexican state the planning and control of the National Electrical System and the provision of public transmission and distribution services.  The proposed Bill also establishes a series of obligations that certain power supply companies and qualified electricity users acquire clean energy certificates.
  • The Coordinated Energy Regulators Bill prescribes institutional changes at an operational-level for the (i) National Hydrocarbons Commission (Comisión Nacional de Hidrocarburos (CNH)), which is responsible for regulating and supervising the exploration for and extraction of hydrocarbons, and (ii) the Energy Regulatory Commission (Comisión Reguladora de Energía (CRE)), which is principally responsible for the gas and power sectors.  The changes are intended to enhance the ability of these bodies to carry out their functions in a more competitive Mexican energy sector.  The proposed Bill bolsters the language requiring the Secretary of Energy to regulate and promote renewable energy.
  • The Geothermal Energy Bill seeks to strengthen and widen the exploration for and use of geothermal energy in Mexico.  The Bill establishes a specific legal framework to govern the use of geothermal deposits for power generation in order to afford legal certainty to investors and their respective projects in the stages of survey and exploration for and exploitation of geothermal resources.
  • The Mexican Petroleum and Federal Electricity Commission Bill transforms the organization, operation, functioning, control and accountability of the state-owned oil company Petróleos Mexicanos (PEMEX) and the state-owned electric utility (Comisión Federal de Electricidad (CFE)) in order to turn them into productive state enterprises capable of competing with private sector companies set to enter the Mexican hydrocarbons and power sectors in response to the liberalization contemplated under the December 2013 constitutional reform.  This Bill does not explicitly address clean energy.
  • The Hydrocarbon Bill reaffirms that the hydrocarbons under Mexican soil remain property of the state, but describes the manner in which the state may engage in the exploration and extraction of such hydrocarbons, including by means of contracts with private foreign companies.  The Bill does not explicitly address clean energy.
  • The National Industrial Security and Environmental Protection from Hydrocarbons Agency Bill creates a National Hydrocarbon Sector Industrial Safety and Environmental Protection Agency.  The Bill establishes that such Agency would be responsible for regulating and supervising installations and activities within the hydrocarbons sector in regard to industrial and operational safety and environmental protection, including the dismantling and abandonment of installations, and waste control.
  • The Mexican Petroleum Stabilization and Development Fund Bill establishes the regulation applicable to the constitution, organization and functioning of the Mexican Petroleum Stabilization and Development Fund (Fondo Mexicano del Petróleo para la Estabilización y el Desarrollo), which has two objectives: (i) to serve as a transparent clearinghouse for payments to the state stemming from hydrocarbon exploration and exploitation allotments and contracts; and (ii) to manage revenue stemming from such allotments and contracts, complying with clearly established purposes and uses.  The Bill establishes that among these purposes and uses of these monies is the investment in renewable energy research and development.
  • The Hydrocarbon Revenue Fund Bill provides the purposes and uses for the revenue the state will derive from hydrocarbon exploration and extraction activities, whether through allotments or contracts with private companies.  The Bill does not appear to explicitly address clean energy.
  • Finally, the Budget, Fiscal Responsibility and Public Debt Bill regulates the use of financial resources flowing from the Mexican Petroleum Stabilization and Development Fund, and establishes a budgetary and borrowing regime for Mexican productive state enterprises, i.e., PEMEX and CFE.  The Bill contemplates investment of Mexican Petroleum Stabilization and Development Fund resources in renewable energy, energy efficiency, use of clean energy technologies, and the diversification of primary energy sources.

The Mexican Energy Reform is only one of several reforms launched by the Peña Nieto Administration in 2013, among them the Political Reform and the Telecommunications Reform.  The Mexican Senate passed the secondary laws for the Political Reform on May 14, 2014 during an extraordinary session, and Mexico’s lower chamber expects to pass the Political Reform in the near term; this clears the Congressional docket for consideration of the Energy and Telecommunications Reforms.  Lawmakers appear ready to debate the Energy Reform’s secondary legislation in early- to mid-June 2014, and the Peña Nieto Administration expects the Mexican Congress to pass these laws before September 2014 when the ordinary legislative session commences; however, partisan disagreement over the Energy Reform secondary laws did cause the delay in their introduction, and the lingering undercurrent of citizen concerns over how the Energy Reform will affect energy electricity and fuel prices could again stir this partisan disagreement and further delay the Energy Reform’s implementation.

This body of nine bills does not constitute the entirety of the secondary legislation expected to affect the advance of clean energy in Mexico.  Over the next 12 months, the Mexican Executive must craft and issue a decree making CFE’s National Energy Control Center (Centro Nacional de Control Eléctrico (CENACE)) into an independent system operator to be called the National Energy Control and Power Market Center.  The existence of an independent system operator is expected to facilitate more efficient use of distributed power generation, including power generated from renewable sources.