AMLO’s Electricity reform violates the USMCA

AMLO’s Electricity reform will lead to higher prices by using inefficient and polluting fuels, the CFE will cause higher rates and higher subsidies for consumers.

MEXICO CITY (El Economista) – The electricity reform proposed by President Andrés Manuel López Obrador is a “setback” for Mexico, and price hikes in the service will be expected.

 Simultaneously, it violates Mexico, United States, Canada Treaty (USMCA) by changing regulatory conditions, investments in the sector will become unviable, according to the Mexican Institute for Competitiveness (IMCO). Using inefficient and polluting fuels, the CFE will result in higher tariffs for users and higher subsidies for consumers. 

“CFE’s finances will be harmed, as the incentive for the system to buy the cheapest electricity first is eliminated, destroying the efficiency derived from competition among producers. The incentive to grow in generation from renewable sources is destroyed, given that the current scheme, which the reform seeks to repeal, offers better profits to generators that use less polluting sources,” IMCO explains. Besides, it violates state-owned companies’ provisions by benefiting one state participant over all the others. 

On January 29, 2021, the Executive’s head sent Congress an Initiative with a Draft Decree by which various Provisions of the Electricity Industry Law are reformed, and others added. AMLO wants to eliminate the Wholesale Electricity Market (MEM) with a series of regulatory changes to benefit the Federal Electricity Commission (CFE) at private producers’ expense. 

“If approved, it would not only go against the current constitutional provisions enacted during the previous administration but would also set a dangerous precedent for investments in the country and the Mexican economy by threatening legal certainty and the rule of law,” warned the private organization.

The modification to the electricity industry would have negative repercussions on public finances, the environment, and Mexican consumers by making the electricity system more expensive and destroying the prospects for a cheap and clean generation. “It is not congruent with the Constitution nor with international trade treaties, specifically with the Mexico-United States-Canada Treaty. In addition, it would move the country away from the path of trans Besidesds greater clean energy generation by promoting non-compliance with the Paris Agreement and the Energy Transition Law,” IMCO added.