Foley Assisted Client in Obtaining Favorable Resolution in Constitutional Trial Against the Reforms Made to the Electric Industry Law

On October 2021, President Andrés Manuel López Obrador submitted to the Mexican Congress a Bill to amend Articles 25, 27, and 28 of the Mexican Constitution related to energy matters. The purpose of the Bill, named the “Constitutional Bill,” was to undo the Constitutional changes that opened the power market for private investment and to limit/preclude private sector participation. 

The Constitutional Bill intended to, among other matters:

(a) cancel all power generation permits and power purchase agreements entered into with the private sector;
(b) cap the participation of the private sector in the power generation up to a 46% of the total generation capacity in Mexico;
(c) give back to CFE (Mexico’s Power Utility Company) the control of the electric system (this would allow CFE to define the dispatch criteria for the power stations); and
(d) to dissolve the Energy Regulatory Commission.

After an ample discussion in the House of Representatives, the Bill was not passed.

Bill to Reform Mexican Electricity Industry Law

On February 2021, in an attempt to change the legal framework of the power industry in Mexico that was meant to promote the private investment on renewable energy projects, President Andrés Manuel López Obrador sent to the House of Representatives a preferential bill to reform the Electricity Industry Law (the “Bill”).

The main topics of the Bill included:

(a) the modification of the Dispatch Rules;
(b) new criteria for the granting of power generation permits and for the interconnection to the national power grid;
(c) the revocation of power generation permits by the Energy Regulatory Commission; and
(d) the authority for CFE to execute PPAs with any power generator entity without conducting public auctions as required under the law and granting preference to such PPAs over the private generators.

For additional comments and information on the Bill, you can review our client alert here.

The proposed amendments were against the antitrust provisions and principles regulated in the Mexican Political Constitution introduced by the Energy Reform of 2013.

The Bill was passed by the Mexican Congress and enacted on March 9, 2021.

Constitutional Trial against the Bill

Foley assisted the Client in the preparation, filing and follow up of constitutional trial before the Mexican Federal District Courts against the Bill.

According to Mexican law, the parties affected by a Bill passed by the Congress are entitled to file a constitutional trial before Mexican Courts and request the Court for a temporary injunction so that the law does not apply to the plaintiffs during the trial. In representation of the Client, Foley requested and obtained from the Courts, the temporary injunction.

After one and a half year of trial, the District Court finally issued a resolution declaring that the Bill was unconstitutional; therefore, it cannot be applicable to the Client. The main reasons and arguments of the District Court are that the reforms passed by the Congress are against the antitrust provisions and principles introduced by the Energy Reform of 2013 in the Mexican Constitution.

The District Court considered that the change of the dispatch rules and the introduction of new criteria—for the granting of permits and for the interconnection of new power stations—is against the competitive model created for the power generation and commercialization of electricity sectors created by the Energy Reform of 2013. More importantly, the Bill cannot favor one competitor against the others in the industry.

The District Court resolution was challenged by the Mexican Government. The appeal will be resolved by the Federal Circuit courts in the following months. It is important to mention that the Mexican Government has requested the Supreme Court to resolve these cases and not the Circuit Courts considering the relevance of the matter.