POWER May 2010 - 66

POWER IN MEXICO
A Brief History of Mexico's
Power Sector
Mexico, one of the few countries in Latin America that has resisted the tide of
liberalization, retains a monopolistic state player in the electricity market.
In treading its own path by maintaining the government's predominance
in the sector, Mexico has an important question to answer: Is this path
sustainable?
By Clotilde Bonetto and Mark Storry, Global Business Reports
T
he Mexican electrical sector is federally
owned, as is required by the constitution,
with Comisión Federal de Electricidad
(CFE) directly responsible for around 70% of
all electricity produced in Mexico. Following
its recent takeover of Luz y Fuerza del Centro
(LyFC), the CFE controls 100% of the transmission
and distribution network in the country.
Few countries have maintained this level
of government control over the industry. Private
companies can only participate in specific
tenders offered by the CFE.
The structure of Mexico's power sector reflects
Mexico's radical revolutionary past and
the dominance of the Partido Revolucionario
Institucional (PRI), which came into existence
under the guise of the Partido Nacional
Revolucionario in 1929. This party was
formed as an attempt to keep the various factions
of the Mexican revolution together and
to unite the country. The coalition comprises
a wide variety of interests and political opinions,
including a strong left-wing element.
This left-wing influence led to the creation of
the CFE in 1934 with the mandate of regulating
the private vertically owned energy monopolies
and also of supplying the areas that
the private sector neglected due to their being
perceived as unprofitable (Figure 1).
Throughout the 1940s and 1950s, the
CFE slowly and steadily acquired regional
concessions throughout the country. On September
27, 1960, under the administration of
Adolfo López Mateos, the government fully
nationalized the sector, and constitutional arrangements
were enforced, making the state
the sole producer, provider, and distributor of
electricity in Mexico.
The concentration of the sector within
state hands allowed for considerable planned
expansion of energy supply during the 1970s.
This expansion was fueled by the availability
of fuel oil from Petróleos Mexicanos (PEMEX),
which was provided at subsidized
prices to the CFE. PEMEX's vast profits
66
1. Percentage of new capacity by firm, 1930-1960. In 1960, when the constitution
was changed to designate the state (CFE) the sole electricity producer, provider, and
distributor, Mexican, Impulsora, and Chapala were all nationalized. Source: SENER
Mexican
100
90
80
70
60
50
40
30
20
10
Impulsora
Chapala
CFE
1930
1940
from high oil prices in the 1970s fueled the
CFE's investments.
The final piece of the social puzzle involved
subsidies on the price of electricity for the end
user. Though these tariffs supplied relief to
many lower-income families, they inadvertently
subsidized higher-income households
too. The thinking at the time, which continues
today, is that electricity is a basic need and, as
such, the state has an obligation to provide it
at an affordable rate to its population. During
the 1970s the CFE was very successful at expanding
the reach of electricity to rural areas,
and the number of households with access to
electricity roughly doubled. Nevertheless, an
estimated 6 million Mexicans remain unconnected
to regular electricity today.
During the 1980s, Mexico, following
the global trend, allowed increasing private
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1950
1960
participation in its economy; but electricity,
together with hydrocarbons, remained firmly
in the hands of the public sector. In 1992 the
government allowed for the introduction of
independent power producers (IPPs) with
the reform of the Ley del Servicio Público
de Energía Eléctrica as well as cogeneration
and self-supply schemes. According to
the Mexican energy regulatory commission,
Comisión Reguladora de Energía, around
30% of the electricity currently produced in
Mexico is by private sources, be that through
autogeneration, cogeneration, or by IPPs.
Mexico's energy challenge is twofold.
First, it must determine whether the state can
continue to be the dominant energy provider
or whether radical reform is needed in which
the private sector takes a more prominent role.
The second concerns the role of renewables
POWER | May 2010
Percentage
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