New Electricity Sector Regulations Now In Force

The Regulations of the Electricity Sector Law (the "Regulations") were published on October 3, along with a series of other regulations corresponding to the new legal framework for the Mexican energy sector in force since March of this year. In line with the principles established in the Electricity Sector Law ("LSE") for the governance of the sector and prevalence of the State and the conditional participation of the private sector, the Regulations regulate, at the administrative level, the authority of the Ministry of Energy ("SENER") as the governing body, the authority of the National Energy Commission ("CNE") as the regulatory body, the Center for Electric Energy Control ("CENACE") as operator of the National Electric System ("SEN") and the Wholesale Electric Market ("MEM"), and the participation schemes of Comisión Federal de Electricidad ("CFE") and other stakeholders of the electricity sector. However, there is an important number of matters that are still left to be defined and further regulated in subsequent regulatory instruments.

The Regulations became effective the day after their publication. With the issuance of the new Regulations, the Regulations of the Electricity Industry Law and other legal provisions that conflict with them are repealed. The Regulations of the Electric Power Public Utility Law on Contributions remain in force, insofar as they do not conflict with the Regulations, while the CNE issues general administrative provisions on contributions. Other legal provisions issued prior to the effectiveness of the Regulations remain in force until those replacing them become effective, insofar as they do not conflict with the LSE and the Regulations.

Among the most important elements introduced by the Regulations, we highlight the following:

Wholesale Electricity Market and National Electricity System

• Planning for the electricity sector will be developed in the Electricity Sector Development Plan, which will be published in May of each year. SENER may define strategic projects to comply with the national energy policy on electricity, which shall be subject to administrative simplification in the procedures necessary for their execution and expeditious implementation.
• Prior to the issuance of the first Electricity Sector Development Plan, during the last four months of 2025, SENER may receive proposals from any interested party for generation, industrial, production, and infrastructure projects in the electricity sector to be considered in the binding planning.
• The concepts of State-Injected Electricity Generation and Total Injected Electricity Generation are defined, which are relevant for the purposes of determining compliance with the State's prevalence in electricity generation established under the LSE. The percentage of State-Injected Electricity Generation with respect to Total Injected Electricity Generation will be determined annually and may result in SENER including in the Electricity Sector Development Plan the additional capacity requirements required to reach 54% and the execution of the corresponding projects.
• The MEM, operated by CENACE under the supervision of the CNE, shall be subject to the Market Rules, prioritizing the reliability, efficiency, quality, accessibility, security, continuity, and sustainability of the SEN, and pursuing equal conditions among market participants. No intervention by any authority will be required for CENACE to restrict or suspend the participation of those who commit serious breaches of the Market Rules.
• CENACE will determine the allocation and dispatch of power plants, controllable demand, electric energy storage systems ("SAEEs"), and import and export programs based on dispatch security, reliability, and economic efficiency criteria, regardless of the ownership or representation of such assets or import and export offers.
• CNE, in coordination with SENER, shall issue the criteria by which CENACE shall abide in connection with competitive mechanisms for acquiring power, energy, ancillary services, and other associated products, as well as the protocol for acquiring energy, power, and related services in emergencies, which shall be flexible with respect to the technology that provides the required technical solution.
• The products of State-owned power plants may be traded on the MEM, but CFE may preferentially acquire the electricity and associated products from such plants.
• SENER shall coordinate the updating of the Market Rules to align them with the objectives of the LSE and the Regulations, with the participation of CNE, CENACE, CFE, and, where appropriate, representatives of the private sector.
• CFE, with SENER's authorization, may implement financing schemes with third parties to carry out projects for the expansion and modernization of grids, which shall be awarded through competitive processes.

Permits and Authorizations

• The Regulations establish the types of permits to be granted by CNE and SENER, and the requirements to be met by the corresponding permit applicants, which include the submission of the acknowledgment of receipt or, where applicable, authorization regarding environmental impact and any modifications thereof.
• SENER and CNE shall evaluate and, where appropriate, grant the requested permits, authorizations, and modifications within a maximum period of 60 business days. The Regulations provide, as a reason for denying a permit or authorization (or its modification), the cases where it is determined, with the opinion of CENACE, that the activity or its modification represents a risk to the accessibility, quality, reliability, continuity, efficiency, safety, and sustainability of the SEN or compromises supply.
• SENER shall issue administrative provisions to establish the criteria for evaluating compliance with binding planning for the granting of permits and authorizations in the electricity sector, which shall be taken into account for the granting of permits and authorizations.
• A five-year prohibition is established on obtaining a new permit or authorization for the same activity in the event of revocation (applicable to the permit holder and the persons exercising control over it).
• The guidelines for the expedited procedure for the migration of permits issued under the Electric Power Public Utility Law (and associated contracts and agreements) to LSE permits shall be issued by SENER within the following 120 days.

Generation

• Self-Consumption Groups may be created, consisting of a power plant associated with a permit for the generation of electricity for self-consumption and the load centers of one or more self-consumption users who use the electricity output to meet their needs through a private grid. It is not established that the other users of the self-consumption group shall belong to the same economic interest group as the permit holder.
• Self-consumption power plants may receive clean energy certificates. Self-consumption generation permit holders shall assume responsibility for the clean energy certificates required for the electricity consumed by the consumption centers to which they supply electricity that does not come from clean energy sources.
• Exempt generators may apply for a generation permit to be able to sell energy on the MEM without the intermediation of a supplier. To supply electricity to end users or represent exempt generators, a marketing permit in the supplier modality and a market participant contract in the same modality are required.
• For interconnected self-consumption plants, the Regulations provide that: (i) for the purposes of intermittent generators that shall have their own backup or pay for it to CFE, it is understood that the plant has its own backup if it has capacity in SAEEs or has contracted hedging to meet ramp management, intermittency, and variability requirements with CFE, when technically feasible, or with a third party, in its case; (ii) if the plant requires electricity supply to cover its needs in the event of maintenance or failure, the corresponding interconnection contract shall be entered into and such service shall be contracted; and (iii) the minimum and maximum volumes of energy allowed as generation surpluses for injection into the SEN are subject to reliability criteria determined by CENACE for each plant.
• Until the applicable regulatory provisions are issued, the twentieth transitory article provides the information that shall be submitted by those interested in migrating generation permits granted under the laws prior to the LSE. Likewise, such article provides the conditions that shall be met for the new permits issued resulting from the migration to become effective, which vary depending on the status of each power plant. Partial migration requests will not be processed.
• The Regulations establish the figures under the LSE that will be applicable for granting generation permits |requested before March 18, 2025, that have been ratified and are still under evaluation.
• Generators that requested a modification of their permit to incorporate SAEEs or increase their capacity before March 18, 2025, or request it after the entry into force of the Regulation, may be subject to recognition of the physical delivery availability criteria, provided that they request and complete the procedure for migrating their permit to the terms of the LSE, the Regulations, and the guidelines issued by SENER.
• Within 60 days, SENER will publish a call for private parties to submit applications for generation permits (or permit migration applications) for strategic and priority power plants under the binding planning for the electricity sector until 2030. Distributed generation, self-consumption, cogeneration and mixed development projects will not be eligible to be considered.

Interconnection and Connection

Requests for interconnection studies shall consider the maximum interconnection capacities without reinforcements to the National Transmission Grid published by CENACE (which shall be published within 20 business days after the publication of the Electricity Sector Development Plan). CFE is required to carry out the specific works, expansions, or modifications necessary to interconnect power plants or connect load centers if the applicant makes the corresponding contribution, or otherwise, these may be carried out by the applicant.

Mixed Development Schemes

Projects under mixed development schemes may include, in addition to the power plant, the associated infrastructure and ancillary works, as well as the storage of electric energy and the associated products necessary for the operational stability of the SEN. These projects shall be approved by the CFE's board of directors, which shall select the individuals participating in the project (who shall be Mexican nationals) through competitive processes. Special purpose legal or financial vehicles may be established for the development of these projects.

Long-Term Production

In the long-term production scheme, the private party shall build, finance, operate, and maintain the power plant, its associated infrastructure, and ancillary works, and therefore CFE will not contribute equity for the development of the project. The electricity and associated products shall be sold exclusively to CFE or its subsidiaries, which shall pay for the energy and associated products from the moment the power plant begins commercial operation. When the corresponding contract ends, CFE may acquire the assets at no cost.

Mixed Investment

In mixed investment projects, CFE's participation of at least 54% shall be formalized no later than 180 days after the commencement of commercial operation. This participation may be obtained through cash, in-kind, or intangible contributions to a legal or financial vehicle, or through partnership arrangements with private parties in which CFE's rights and obligations with respect to the corresponding legal or financial vehicle are established.

Cogeneration

Cogeneration is defined as a form of distributed generation, generation for self-consumption, or generation for the MEM, which consists of producing electricity and heat sequentially from a single energy source with the aim of substantially increasing the efficiency of the first process, in addition to reducing the combined consumption of fuels and their associated emissions, as well as the production costs and sale prices of electricity.

The mandatory dispatch of cogeneration plants and the injection of excess power will be subject to the Market Rules and the reliability criteria issued by CENACE.

Efficient cogeneration power plans may receive clean energy certificates for the percentage of their power output generated without consuming fossil fuels.

Electric Energy Storage Systems

• SAEEs may participate jointly in generation and marketing activities, whether or not associated with load centers or power plants, or otherwise be integrated as part of the infrastructure for public transmission and distribution services; in the latter case, they are considered part of CFE's exclusive transmission and distribution activities.
• The CNE will issue administrative provisions to regulate the services that SAEEs may provide in the SEN, their participation modalities, and the circumstances under which they can be installed by groups. These provisions shall be issued within 180 business days.
• SAEEs not associated with a power plant or load center require a storage permit when their capacity is equal to or greater than 0.7 MW. SAEEs associated with a load center with a generation permit do not require a permit. To participate in the MEM, SAEEs shall be represented by market participants.
• SAEEs integrated into CFE's infrastructure to provide public transmission and distribution services do not require a permit and shall not participate in the MEM.
• CENACE may enter into contracts for the use of SAEEs through competitive mechanisms, when it is determined that such systems constitute a more efficient alternative for maintaining the reliability of the SEN compared to other conventional works.

Qualified Users

• Rules are established for the registration of load centers in the qualified user registry, including rules allowing the aggregation of load centers belonging to the same economic interest group to reach the level of demand required to register as qualified users.
• While SENER sets the required consumption or demand levels for a load center to be registered as a qualified user, load centers with a demand equal to or greater than 1 MW may register, and the required demand level for qualified users to participate in the MEM will be at least 5 MW.

Other obligations of the stakeholders of the sector

• The construction, development, or execution of infrastructure shall not begin until the final favorable resolution on social impact has been obtained and SENER or the CNE has been formally notified of their receipt. Isolated self-consumption plants with a capacity of no more than 20 MW are exempt from submitting a social impact assessment for the electricity sector.
• Whenever the SEN faces emergency situations, SAEEs, generators, and exempt generators are required to provide all their electric energy and associated products, to the extent of the physical and technical capabilities of the plants they represent, and in such cases, they shall be entitled to receive the compensation established by the Market Rules. Representatives of exempt generators and SAEEs shall report their effective available capacity to CENACE at least twice a year.
• SENER may order and regulate the legal separation of generators, marketers, and suppliers of primary inputs for the electricity sector, and order the divestiture of assets, rights, equity interests, or shares when necessary to promote access to, and the efficient and reliable operation of, the electricity sector (with the exception of CFE). The coordination and transactions between generators and marketers or other stakeholders of the electricity sector belonging to the same economic interest group shall be subject to the rules issued by SENER. For its part, CNE shall establish the conditions for the accounting, operational, and functional separation of the stakeholders of the electricity sector (with the exception of CFE).
• The procedures for public consultation with indigenous and Afro-Mexican peoples and communities in which electricity infrastructure projects are developed are regulated, as well as the basic content of the social impact assessments that CFE and those interested in developing such projects shall submit to SENER, and the procedures for their evaluation and authorization. The final authorization of the social impact assessment will be required to initiate development of infrastructure linked to each project.
• In the event of a substantial modification of projects that have a social impact assessment resolution issued under the Electricity Industry Law and its regulations, the social impact assessment for the energy sector shall be submitted for approval in accordance with the Regulations and other applicable regulatory provisions.
• In terms of verification and inspection, the Regulations establish various obligations applicable to stakeholders of the electricity sector and other obligated persons, the procedures to be followed for verification visits, and verifications through requests, appearances, and inspection visits.
• Surface occupation contracts that were concluded prior to the date on which the Regulations became effective shall be submitted to SENER for follow-up.
• SENER shall publish the clean energy requirements for the years 2025 to 2028 within 120 days of the date when the Regulations became effective.

Small Electric Systems

A distinction is made between the concepts and rules for small electric systems (non-interconnected and with demand between 5 MW and 100 MW) and small electric systems under microgrid regime (demand not exceeding 5 MW, with defined electric boundaries and behaving as a single entity). Small systems under microgrid regime with a capacity of up to 0.7 MW are exempt from obtaining a generation permit.

Intervention and Takeover

With regards to cases of intervention or takeover (requisa), the Regulations provide that no administrative or ordinary means of defense may be used against administrative acts related to intervention or takeover, and those may only be challenged through an amparo proceeding, without suspension during the amparo proceeding. We believe the validity of these limitations is questionable.

Penalties

• Criteria are established for considering a violation to be serious, including the direct or indirect personal financial benefits that were obtained and the actual or potential economic impact.
• The Regulations provide the cases in which it will be possible to resort to mechanisms that prioritize the repair of damage, the regularization of the relevant conduct or omission, and the non-repetition of such conduct or omission in order to reduce or avoid penalties.
• The possibility of SENER and CNE implementing a register of sanctioned persons is contemplated.
• Holders of permits granted under the Public Electricity Service Law who are subject to a revocation procedure or in any of the grounds for revocation may be fined so that the permit is not revoked, provided that, prior to the resolution of the revocation procedure, migration to one of the permits under the LSE is requested.

Other provisions

The Regulations also include various provisions on:

• infrastructure and electricity supply for electromobility;
• procedures applicable to obtaining the use and occupation of land, property, or rights and easements;
• strategies for promoting national industry;
• universal service and energy justice;
• obligations in the area of clean energy, energy transition, and decarbonization of the electricity sector;
• revocation of permits;
• standardization, reliability, and security of the SEN;
• methodologies and tariffs for transmission, distribution, basic supply, operation services, research, updating, and development of CENACE, related services not included in the MEM, and last resort supply;
• intervention or takeover procedures; and operation of the Advisory Council for the Promotion of the Electricity Sector.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.