POWER February 2014 - 8

Mexico Embarks on
Historic Energy Reform
Mexico's much-awaited constitutional
energy reform, passed on Dec. 12 by the
federal congress and a week later by the
required majority of state congresses,
could spark increased private participation
in power projects, lower electricity prices,
and transform the profile of the country's
state-dominated power sector.
The Mexican Congress must still pass
supporting legislation within 120 days
from the date of the official publication
of the Energy Reform, and the executive
branch has a year to create a supporting
regulatory regime. Beyond that, authorities
will need to design contracts to allow
expanded private sector participation in
the oil, gas, and power sectors.
Discussions on the reform were initiated
earlier in 2013, and for experts like
Alex Choinski, a partner at the law firm of
McDermott Will & Emery, the final package
seems " especially broader " than expected.
Significantly, the reform allows stateowned
oil and natural gas monopoly
Petróleos Mexicanos (Pemex) to partner in
projects and to allow private companies
and new entities formed by the government
to participate in exploration and
production. The Ministry of Energy will
now also be able to issue permits to private
industry for refining and petrochemical
activities.
On the power generation front, the
state has historically retained exclusive
control over transmission and distribution
of power through the Comisión Federal de
Electricidad (Federal Electricity Commission,
CFE), a company created and owned
by the Mexican government and which is
also Mexico's dominant generator. Mexico's
infrastructure includes 209 generating
plants with a combined capacity of 52.5
GW. As a result of a 1992 law that partially
opened electricity generation to the private
sector, about 22.6% of that capacity
consists of plants built with private capital;
these 22 plants are mostly combined
cycle gas-fired turbines.
Under the reform, the private sector
will be allowed, on behalf of the state, to
build, operate, finance, and extend infrastructure
required for the " public service "
of transmission and distribution. The private
sector will also be allowed to generate
power and possibly sell it to end-users.
The Comisión Reguladora de Energía will
have the authority to regulate and grant
permits to private sector generators and
regulate and establish transmission and
distribution fees.
1. Earthly power. Mexico has the fourth-largest geothermal power reserves in the world,
and proposed reforms call for a law to regulate exploration and exploitation of the energy source.
Alstom in December signed a $40 million contract with the Comisión Federal de Electricidad to
build the 25-MW Los Humeros III-Phase A geothermal plant in the state of Puebla, a plant that
will operate in tandem with two plants recently installed in the same area: Los Humeros IIA and
Los Humeros IIB (shown here). Courtesy: Alstom
The CFE and Pemex, meanwhile, will be
transformed into " productive state companies, "
meaning they will retain control
over their separate budgets and performance.
It essentially " corporatizes " those
entities, Choinski explained. " The intent
is to make them more competitive and
more productive, but not pull them out
of the picture. "
Another significant change entails the
creation of the Centro Nacional de Control
de Energía (National Center of Energy
Control, CENACE), a federal agency that
will operate the national power system
and power market to ensure nondiscriminatory
access to the national grid. This
is important because under the current
regime, " CFE controls the entire process,
and there is no competitive market
pressure-no independent system operator
in the middle of all this-creating a
wholesale power market on the generation
side, which would ideally bring down
power rates, " Choinski said. " The current
reforms intend to create that wholesale
power market with the hopes that the
savings derived from competitive bidding
would then be transferred to consumers
and end users. "
Mexico suffers prohibitive electricity
rates partly because of CFE's monopoly and
because its costs for natural gas are higher,
he added. " The reforms create a more competitive
wholesale power market that benefits
from the concurrent liberalization of
oil and gas mid-stream distribution, which
promises to create a market where gas supply
for power generation will be cheaper. "
Finally, while an overwhelming majority
of Mexico's electricity generation is
derived from fossil fuels, particularly gas,
coal, and petroleum products, the reform
calls for the establishment of a national
program for sustainable use of energy
within a year of becoming effective. It
also calls for a law to regulate the survey,
exploration, and exploitation of geothermal
resources (Figure 1).
The transition period during which Mexico
will shape a new regulatory scheme to
support the reforms is bound to be protracted,
Choinski projected: " The country
is essentially creating the contours of a
new generation market. " As he told POWER,
" There are a lot of details that have to be
worked out because the guidelines are generally
broad. " Certainties set down by the
legislation include " a provision for turnover
of resources from CFE to the new national
8
www.powermag.com
POWER | February 2014
http://www.powermag.com
POWER February 2014

Table of Contents for the Digital Edition of POWER February 2014
