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CFE to cancel Mexico's
independent power contracts

Luis Antonio Rojas/Bloomberg
Mexico's CFE Aims to Consolidate Power -Bloomberg

By Rebecca Conan /Argus

MEXICO CITY
Petroleumworld 02 12 2021

Mexico's state-owned utility CFE called to cancel long-term power purchase contracts it holds with independent producers, citing losses for the utility.

"The contracts should be terminated early because they have caused losses of Ps412bn ($20.6bn) to the state," Miguel Reyes, director of CFEnergia, said during a presentation to congress today.

President Andres Manuel Lopez Obrador submitted a bill to congress on 1 February that seeks to roll back the market opening in the electricity sector by restricting the dispatch of power generated by independent power producers (IPPs), revoking IPP generation permits and reviewing all existing IPP contracts with CFE.

Lopez Obrador's government has been openly hostile to private investment in the energy sector, but this is the first time a state-owned company has expressly called for cancellation of existing contracts. The president had said previously that while no new contracts would be awarded either in the power or upstream sectors, existing contracts would be respected.

Federal budget laws allow to end contracts early when they do not provide sufficient revenues to cover their costs, Reyes said.

Gas-fired IPPs including IEnova, Saavi and Iberdrola operating under long-term power supply agreements with CFE or under self-supply and private generator permits that precede the 2014 energy reform operate 24,077MW of Mexico's installed 86,034MW of power.

But 14 of the 27 long-term combined-cycle power supply contracts contain "increasing and onerous tariffs," Reyes said today.

The Ps412bn figure is based on exchange losses incurred by CFE given the dollar-denominated contracts, inflation and "subsidies" in the form of lower transmission costs paid by IPPs and CFE's investments in transmission, Reyes said.

Under the constitution, the private sector is precluded from investing or owning transmission infrastructure.

CFE also complained about the self-supply rules for gas and renewable energy IPPs, claiming that lower transmission costs established under the 2014 energy reform, as well as CFE's costs for back-up supply, allow IPPs to offer tariffs up to 10pc cheaper than the state utility.

"All we want is a level playing field," Reyes said. "The self-supply rules are a fraud."

The private sector has attacked the bill, claiming it seeks to reimpose CFE's monopoly, despite committed investments and contracts. But Reyes argued, without providing evidence, that the 2014 energy reform gave unfair advantage to the private sector and gutted CFE's ability to compete.

________________


By Rebecca Conan
/Argus Media

argusmedia.com
02 11 2021

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