Decree Amending the Electric Industry Law and Order Declaring the Invalidity of SENER's Reliability Policy

I. Decree amending and adding various provisions of the Electric Industry Law (“LIE”) On March 9, 2021, the LIE Reform Decree was published in the DOF which, as we noted in our previous publication, introduces into the regulatory framework mainly the following matters: • Modification of the economic dispatch order of power plants, benefiting CFE's conventional generation plants (hydroelectric, nuclear, geothermal, combined cycle and thermoelectric). • Granting of Clean Energy Certificates (“CELs”) to clean energy generation plants, regardless of their commercial operation date, which allows the power plants owned by CFE's productive subsidiaries to acquire such CELs. • Elimination of the obligation of CFE Basic Services Supplier to acquire energy and products through auctions of the National Energy Control Center (“CENACE”). The foregoing will result in the purchase of electricity by CFE from its own generation subsidiaries, having an impact on the electricity tariff of basic service users, given the increase in the cost of acquiring energy. • The transitory articles of the Initiative establish the obligation of the Energy Regulatory Commission (“CRE”) to revoke self-supply permits “obtained through the performance of acts constituting a fraud on the law.” Such situation would generate legal uncertainty for permit holders, as well as for the self-supplied partners themselves, who would cease to receive the benefits of the self-supply scheme. In this regard, it is important to note that the original proposal of the President of the Republic contemplated only the “possibility” of revocation, having been modified in the Chamber of Deputies to establish that such permits “must” be revoked following an administrative proceeding. • Review of the Power Purchase Agreements with Independent Power Producers in order to “guarantee” profitability in favor of the Federal Government. In this regard, we consider that such LIE Reform Decree presents various issues of illegality and unconstitutionality, as well as various violations of international treaties that could give rise to legal actions before the CRE, the Federal Court of Administrative Justice, District Courts, and the Federal Economic Competition Commission; as well as investment arbitrations. Nevertheless, it is important to review the specific case in order to establish the most appropriate legal strategy that allows the filing of the appropriate means of defense according to the specific case and that, as applicable, does not block or limit the possibility of subsequently filing means of defense such as investment arbitration. For its part, it is important to note that as of the issuance hereof, provisional stays with general effects have been granted in amparo proceedings brought against the LIE Reform Decree. Such provisional stays have temporarily rendered the Decree without effect for all participants of the wholesale electricity market and other private parties that carry out any regulated activity in the electricity sector or that are in the process of entering such sector. However, such stays could be confirmed or revoked at the time the court examines and determines the definitive stay in the respective amparo proceedings, for which reason we will provide close follow-up and keep you informed of any developments in this regard. Likewise, regardless of the legality and constitutionality of the LIE Reform Decree, it is important to point out that, depending on the specific case, the LIE Reform Decree may affect contractual relationships between the participants of the sector, which will have to be reviewed on a case-by-case basis. II. Invalidity of SENER's Reliability Policy On March 4, 2021, SENER published in the DOF the Order declaring the invalidity of the Reliability Policy. The foregoing derives from the judgment issued by the Second District Judge in Administrative Matters Specialized in Economic Competition, Broadcasting and Telecommunications in amparo proceeding 146/2020 and its consolidated case 155/2020, which ordered that such Reliability Policy be declared invalid with general effects for all participants of the wholesale electricity market and for the general public. In this regard, all matters associated with such Reliability Policy, including those decreed as constitutional in the ruling issued by the SCJN in relation to Constitutional Controversy 89/2020, became invalid, thereby reinstating the Reliability Policy issued in 2017 by SENER. Nevertheless, considering the publication of the LIE Reform Decree, specifically as provided in the Second Transitory Article, SENER, CRE and CENACE will have 180 days from the publication of the Decree to make the necessary modifications to all agreements, resolutions, guidelines, policies, criteria, manuals and other regulatory instruments issued in the field of electricity, in order to align them with the provisions of this Decree. In this regard, it is possible that such authorities will seek within the secondary provisions to reintroduce various aspects of the Reliability Policy, including in particular (i) the proactive participation of CFE in the planning proposal for the Expansion and Modernization Programs of the National Transmission Network and General Distribution Networks; and (ii) the inclusion of new ancillary services to guarantee the quality, reliability, continuity and security of the National Electric System, with emphasis on power plants with intermittent clean energy. In light of the foregoing, we will provide close follow-up to any draft modification of the secondary provisions (regulations, administrative provisions, operating rules) and keep you informed. For additional information about our firm and our team, click here. Likewise, you may contact our experts: Edmond Grieger, Partner: +52 (55) 5258 1048 | egrieger@vwys.com.mx Adrián Magallanes, Partner: +52 (55) 5258 1077 | amgallanes@vwys.com.mx Fernando Carreño, Partner: +52 (55) 5258 1042 | fcarreno@vwys.com.mx Ariel Garfio, Counsel: +52 (55) 5258 1048 | agarfio@vwys.com.mx Roberto Flores, Associate: +52 (55) 5258 1048 | rflores@vwys.com.mx