New Secondary Laws for the Electric Sector

On February 4, 2025, President Claudia Sheinbaum presented to the Senate Chamber the initiative with a draft Decree by which eight secondary laws are issued and three more related to the energy sector are reformed, which are part of the secondary legislation derived from the constitutional reforms to Articles 25, 27, and 28 of last year. Regarding the electric industry, the initiative with a draft Decree for the issuance of the new Electric Sector Law (“LSE”) is presented as part of the package, as well as the Law of the State Public Company, Federal Electricity Commission; the Energy Planning and Transition Law; the National Energy Commission Law and the Geothermal Law (the “Draft Decree”).

In this first installment of this two-part article, the main aspects of the LSE are addressed, with which the Electric Industry Law (“LIE”) would be repealed and, therefore, become the substantive law of the electric sector in Mexico.

• Electric Sector Law
The LSE aims to preserve the Nation's energy security and self-sufficiency, as well as to ensure the efficiency, quality, continuity, accessibility, safety, reliability, and sustainability of the National Electric System (“SEN”) and the electric sector as a whole. It also recognizes the prevalence of the State, specifically, the State Public Company, the Federal Electricity Commission (“CFE”) in the activities of the electric sector to guarantee the guiding principles that govern the electric industry.

Regarding private entities, the way in which they can participate in the electric sector activities that are not exclusive to the State is restructured, with the aim of ensuring that electricity is provided to the population at the lowest possible price. It also promotes the sustainable development of the electric sector with social, economic, and environmental responsibility, involving the public, social, and private sectors, while promoting actions in the field of Energy Justice, the use of clean energy sources, decarbonization, and energy transition.

In general terms, the LSE represents a significant change in the way the State and private entities participate and relate in the electric industry, presenting new mechanisms for private investment in electricity generation, while the State exercises greater participation and control over the industry, with the intention of guaranteeing the guiding principles enshrined in the LSE, based on the premise that the electric sector is considered of public utility.

As part of the modifications proposed by the LSE, the following aspects that we consider relevant are presented:

1. Initiative with a Draft Decree by which the Law of the State Public Company, Federal Electricity Commission; the Law of the State Public Company, Petróleos Mexicanos; the Electric Sector Law; the Hydrocarbons Sector Law; the Energy Planning and Transition Law; the Biofuels Law; the Geothermal Law and, the National Energy Commission Law are issued; various provisions of the Mexican Petroleum Fund for Stabilization and Development Law are reformed and various provisions of the Hydrocarbons Revenue Law and the Organic Law of the Federal Public Administration are reformed, added, and repealed.

2. A simplified procedure for interconnected Self-consumption in Electric Plants with a capacity between 0.7 MW and 20 MW is foreseen.

• Elimination of Contracts and Restriction of Auxiliary Services
The LSE eliminates the figure of the Electric Coverage Contracts with Physical Delivery Commitment entered into between a Basic Services Supplier and a Generator (previously contemplated in the LIE) and restricts the possibility for the National Energy Control Center (“CENACE”) to enter into contracts with third parties for the provision of auxiliary services for the operation of the Wholesale Electricity Market (“MEM”).

• Electric Generation Schemes according to the LSE
The LSE establishes a series of electric generation schemes that represent new alternatives that are more permissive and will simplify the regulatory burden for private sector participation in this link of the electric sector chain. According to the LSE, electricity generation can be carried out by:

1. The State (mainly by the CFE);
2. Private entities independently; or
3. Private entities jointly with the State under mixed investment schemes.

In turn, the electricity generation modalities contemplated in the LSE include:

- Distributed Generation. In relation to this scheme, the current maximum limit provided in the LIE regarding Distributed Generation is expanded from 0.5 MW to 0.7 MW. It is not required to obtain a generation permit from the National Energy Commission (“CNE”).

- Self-consumption. The figure of Isolated Supply contemplated in the LIE is replaced by that of Self-consumption. This scheme is defined as the production of an Electric Plant with a capacity equal to or greater than 0.7 MW intended to meet the own needs on-site of the permit holder. The self-consumption scheme can be carried out in isolation or interconnected to the SEN. In the latter case, the Electric Plant can inject its surpluses into the SEN and sell them exclusively to the CFE.

- Generation for the MEM. Generation for the MEM is considered the production of electricity and Associated Products from an Electric Plant with a capacity equal to or greater than 0.7 MW that is intended for commercialization in the MEM and which requires a generation permit granted by the CNE.

- Mixed Development Schemes. Electric Plants that are developed jointly between the State and the pa