Mexico Needs an Energy Reform, But not This One

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Mexico’s Congress will take up President López Obrador’s proposed Energy Reform this spring, which many view as a “counter-reform” to his predecessor’s 2013 keystone legislation. The reform aims to increase state control of the electricity market as a means to reduce energy prices for Mexican consumers. It would essentially replace the existing bidding system for electricity sales with a tiered system that prioritizes selling state-produced electricity over private generation. This reprioritization would grant the Federal Electricity Commission (CFE) exclusive access to 54% of the electricity market, up from its current 38% share, to strengthen the state-owned enterprise.

However, given high levels of inefficiency, CFE may not be able to supply enough energy, which would lead to widespread power outages and likely increase electricity costs – which the state would have to subsidize to keep consumer prices low. The reform would sideline private investors and repeal contracts for hundreds of private electricity sales, which could discourage foreign direct investment and competition – particularly because the Electricity Regulation Commission (CRE) would cease to exist.

In addition to economic hindrances, the reform could bring major environmental setbacks because it would favor state-produced energy sources, which tend to be dirtier, over the current preferential clean energy purchase programs, eliminating incentives to research, design, and invest in renewable sources. Politically, the proposed reform raises questions about Mexico’s compliance with its obligations under the U.S.-Mexico-Canada Agreement (USMCA).

Yet, proponents are adamant that the 2013 reform favored private companies at the expense of consumers, and it may indeed be appropriate to review and consider amendments to the 2013 legislation several years after implementation. Please join us on April 7 to learn more about the steps Mexico could take to improve the efficiency of its electricity sector, while minimizing political, economic, and environmental costs.