Mexican court puts electricity market overhaul on hold

A sweeping overhaul of Mexico’s electricity market advocated by President Andrés Manuel López Obrador has been put on hold by a court just two days after it became law.

The suspension came after a court granted provisional injunctions against the law sought by France’s EDF, Naturgy of Spain and Mexico’s Zuma, according to market sources.

Julio Valle, spokesman for the wind and solar power associations Amdee and Asolmex, said more than two dozen proposed injunctions had been filed as the industry united in opposition to the law.

In ruling on Wednesday, a federal judge said the injunction would be extended collectively to shield “all participants” from the law, in order to avoid distorting the market.

The decision is a victory for the private sector, which slammed the rules passed by congress earlier this month as unconstitutional, tantamount to expropriation and in violation of international trade treaties.

The bill, which was fast-tracked through the legislature, would change the order in which electricity is dispatched into the grid in a way that favoured state utility CFE.

The cheapest generation, from renewables, and all other privately generated power, would be sent to the back of the queue behind CFE’s coal and fuel oil-fired plants and its hydroelectric generation.

“We’re happy, but this is just the first battle,” Valle said. The provisional ruling could still be struck down and the law is expected to face further constitutional challenges.

“I think here the big question is what happens when this gets to the Supreme Court,” said Lourdes Melgar, a former energy under-secretary at the time of Mexico’s landmark energy reforms in 2013-14, which López Obrador has said put the future of CFE and Pemex, the state oil company, at risk.

The government’s previous attempts to rewrite the rules in the electricity sector to favour CFE — including changes to clean energy certificates designed to incentivise investment in green power — have all been halted by the courts. Last month, the Supreme Court found an earlier attempt by the energy ministry to overhaul the sector was unconstitutional.

“Given all the precedents at play here, it’s not really surprising that injunctions were granted less than 48 hours after the ‘reform’ was published,” said Pablo Zárate, managing director at FTI Consulting.

The president’s spokesman did not immediately reply to a request for comment, and companies were treading cautiously. “We don’t want to inflame a confrontation because our president then just gets more obstinate,” said one senior player in the sector who asked not to be named.

Kenneth Smith Ramos, Mexico’s chief USMCA trade pact negotiator, said injunctions were “the easiest way to stop the bleeding”. He did not rule out investor-state, or state-to-state dispute settlement procedures could be initiated under USMCA, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and EU trade agreements.