April 6, 2017

Mexico Ministry of Energy Releases Management Terms for Independent Power Producers

Holland & Knight Alert
Jose Antonio Prado | Carlos Ochoa | Alberto Esenaro

Under Mexico's Energy Reform of 2013, the power market opened for private investment sector-wide. However, the Federal Electricity Commission, or Comisión Federal de Electricidad (CFE), is still in charge for supplying basic users (low-end users).

Previously, CFE generated basic supply power using its own plants and bought power from independent power producers (IPPs), including most recently from wind power and combined cycle plants. These IPP capacity contracts were awarded through international public tenders. CFE has signed more than 30 IPP contracts for a capacity of more than 14,000 megawatts (MW). These contracts are still in force and regulated under the legal standards of "legacy contracts."

Under the country's Power Industry Law, Mexico's Ministry of Energy, or Secretaría de Energía (SENER), is in charge of reorganizing CFE in business units for different purposes so that competition can be fair among both state and private participants.

To continue with the reorganization of the basic supply market, the Ministry of Energy issued the terms for managing the legacy contracts. Highlights of the terms include the following:

  • CFE remains a party to the legacy contracts
  • terms and conditions of the legacy contracts remain the same, with CFE keeping the authority to execute amendments, assign rights and obligations, cancel charges and request early termination and penalties under the contracts
  • CFE Generación V (CGV) is in charge of managing all legacy contracts to guarantee basic supply
  • CGV represents legacy IPP plants into Mexico's Wholesale Power Market (MEM), only in relation to capacity under the contracts
  • CGV will guarantee payments of legacy contracts
  • includes the criteria, requirements and proceeding for registering the legacy plants under the joint co-ownership standard, or Unidad de Propiedad Conjunta (UPC).
  • CFE or a specially appointed subsidiary will be in charge of the fuel supply for generation of legacy power plants
  • Mexico's National Center for Energy Control, or Centro Nacional de Control de Energía (CENACE), will make the requests to IPP in emergency conditions and for the dispatch of related services to guarantee reliability of the National Power System
  • CFE, its subsidiaries, CENACE and IPPs may ask SENER for non-binding opinions on any topic not included in the terms

It is important to note that IPP plants have the option to request a Universal Generation Permit, which implies termination of their legacy contracts without penalties, and also have the option to return to their original IPP contracts under certain conditions, up to five years thereafter.

Under that perspective, the terms provide additional regulations that allow IPPs to analyze several business strategies in order to maximize the benefits of long-term power projects in relation to the generation business and trading in the MEM.

Holland & Knight's energy law attorneys have extensive experience on matters in the power generation industry, including a variety of projects in the energy and related hydrocarbons sector. For more information, contact Holland & Knight's Mexico City office.


   

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.


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