COFECE issues an opinion regarding the potential effects on the electricity market resulting from the Resolution with extraordinary measures published by CENACE in the light of COVID 19.

Given the numerous responses in the Power & Utilities sector upon the publication of the Resolution to guarantee the efficiency, quality, reliability, continuity and safety of the National Electricity System (the “Resolution”) by the National Energy Control Center ("CENACE") on April 29, 2020, the Federal Economic Competition Commission (“COFECE”) noted that the measures contained in the Resolution could be detrimental to the competition process and free market since they could lead to an increase in power prices and/or government subsidies to electricity rates at a cost to consumers and Mexican companies, as well as  a violation of the CENACE´s mandate to operate the electricity market under conditions that promote competition, efficiency and non-discriminatory treatment in terms of Article 108 of the Electricity Industry Law ("LIE").

It should be noted that the Resolution provided, as part of a set of measures aimed at preserving the integrity and reliability of the National Electricity System ("SEN") in the light of COVID 19, that as of May 3, 2020 (i) the power dispatching rules were modified, indicating that "must run" power plants will be enabled (e.g., conventional thermoelectric plants); and (ii) the authorization and execution of pre-operational tests of wind and solar power plants to enter into commercial operation were suspended indefinitely.

In this regard, through Opinion OPN-006-2020, dated May 6, 2020, COFECE pointed out that the measures adopted through the Resolution and the uncertainty in their implementation may (i) indefinitely prevent the participation in the electricity market of new power plants without any clarity on how this measure contributes to the stability of the SEN in a context of low energy demand and (ii) generate uncertainty as to whether the modification of the dispatching rules entails limiting the delivery of energy by both wind and solar power plants in favor of conventional power plants (which generally have higher production costs) without said measure being technically based on criteria strictly related to the instability of the SEN.

Therefore, the measures adopted may displace - even temporarily - more efficient generators and, consequently, lead to an increase in electricity tariffs or subsidies in a context of budgetary restriction, as well as violate Article 108 of the LIE. As a consequence, COFECE issued the following recommendations:

1. With respect to wind and solar power plants in operation, the measures to be adopted by the CENACE shall be based on strict technical criteria directly linked to aspects of reliability, continuity and stability of the SEN, and shall be made public.
2. Not to apply undue discriminatory treatment to power plants and to guarantee electricity dispatch according to an economic criterion (from cheapest to the more expensive), without compromising the stability of the SEN.
3. To define and report clear and measurable criteria and parameters for the resumption of pre-operational testing for wind and solar power plants.
4. To apply the measures only under principles of strict necessity and non-availability of other less restrictive measures to ensure the stability of the SEN in the light of COVID-19
5. To develop an analysis -including all players in the sector- addressing the effects identified in the SEN and in the operation of the CFE as "last resort" dispatcher in the short term, and to create, in the medium term, a stable and coherent system to reduce the social costs of electricity generation.

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