Policy on reliability, safety, continuity and quality for the National Electricity System

On Friday, May 15th, 2020, the Energy Ministry (“SENER”) published in the Federal Official Gazette a Resolution regarding Policy on Reliability, Safety, Continuity and Quality of the National Electricity System (“SENER POLICY”).

The alleged objectives of the SENER POLICY are directed to set forth (i) general guidelines enabling authorities to guarantee electricity supply, under the Principle of Reliability, in the National Electricity System (“SEN”), to satisfy users’ electricity demand, pursuant to the efficient operation, regulation and supervision of the SEN; and (ii) the orderly incorporation of clean energies.

It is important to understand and take into account that the regulatory purpose of the SENER POLICY is to guaranty, as its denomination indicates, achieving reliability, safety, continuity and quality of the supply of electricity, which wind and photovoltaic power plants, due to their intermittent electricity generation are lacking.

The SENER POLICY includes a series of conditions, regulatory requirements, criteria and standards such as, inter alia:

a) Granting authority to the Federal Electricity Commission (CFE) to propose strategic infrastructure projects, necessary to promote the public and in general service, of electricity supply;

b) Granting authority to the Energy Regulatory Commission (CRE) to (i) update, issue and apply regulations; (ii) grant the permits provided for in the Electricity Industry Law to maintain an adequate balance of the electricity supply; and (iii) operational control of the SEN;

C) Granting authority to the National Power Control Center (“CENACE”) to (i) carry out studies in connection with the interconnection of power plants, connection with load centers and carry out execution of interconnection and connection contracts; (ii) preparation of proposals for the National Transmission Network (RNT) and the General Distribution Networks (RGD) for the Wholesale Electricity Market (MEM); and (iii) carry out the dispatch of energy based on criteria of sufficiency, security and economic efficiency and reject requests of power plants with intermittent clean energy, wind or photovoltaic, interconnection points, in an area, region or system already congested with transmission and transformation elements, to compensate for the intermittence and achieve control of frequency, voltage and the reliability and selectivity of protection schemes;

d) Avoid increasing the installed capacity of power plants with intermittent clean energy that have entered into an interconnection contract at the time of publication of the SENER POLICY, and

e) Suspend the processing of pending interconnection contract applications of wind and photovoltaic power plants with clean intermittent energy, if their interconnection contract or generation permit is cancelled, unless the CENACE is able to evaluate the applications, depending on the position of entry and progress in its platform, identified as “SIASIC”, of the interconnection point in the application and the regional accommodation capacity of clean intermittent generation to determine its viability, in order to continue with the application in process.

In our opinion, the SENER POLICY has formal and substantive defects, affecting rights of private investors who have sundry ways to ascertain their defense before competent Mexican authorities, if legally possible before arbitration tribunals available in international agreements.

On April 29, 2020, the CENACE published the “Agreement to guarantee the efficiency, quality, reliability, continuity and safety of the SEN, simultaneously with the recognition by authorities of the Pandemic caused by the SARS-CoV2 virus (COVID-19) disease. The agreement resembles substantially the SENER POLICY. The plenary session of the Federal Antitrust Commission (COFECE) on May 6, 2020, opined that the SENER POLICY goes against the principles of free competition and competition itself.

It is important to emphasize that the deadlines to initiate any legal defense against the SENER POLICY are running as from the day of its publication. Therefore, in the event authorities, directly or indirectly, affect your rights, please contact any of our Partners and Associates to discuss issues.

Yours sincerely,

Cannizzo, Ortiz y Asociados, S.C.