The reform of the Mexican electricity sector

By Enrique Ochoa Reza

The electricity sector is one of the most important industries in the country. Based on that, and due to advances in this area around the world it was necessary to enact an energy reform initiative to establish a competitive environment, encourage renewable energy, and to increase the quality of electricity service for the Mexican people. These changes haver resulted in the participation of the private sector, rate reductions, better generation of clean energy, the development of gas pipeline infrastructure, the modernization of power plants, and the expansion of power transmission lines around the country. In this book, written by Enrique Ochoa Reza, current Chief Executive Officer of the Federal Electricity Commission, he provides an account of the challenges that the country faced before the energy reform, the change in the legal framework this reform has produced, and the benefits and transformation that have taken place since its implementation. This essay offers a unique opportunity to understand the importance and need for energy reform of this dimension for Mexico.

• Language: English
• Publisher: Nostra Ediciones
• Release date: Jun 30, 2016
• ISBN: 9786078469031

Book preview

Pe  to understand

The reform of the

Mexican

electricity sector

The opinions expressed

in this work are the views

of the author and do not necessarily represent

those of the publisher.

Original title:

para entender

La reforma al sector eléctrico

Enrique Ochoa Reza, 2016

First edition: Producciones Sin Sentido Común, 2016.

Copyright © 2016, Producciones Sin Sentido Común, S. A. de C. V. Avenida Revolución 1181, piso 7, colonia Merced Gomez, 03930, México, D. F.

About this English edition:

to understand

The reform of the Mexican electricity sector

Enrique Ochoa Reza

Text © Enrique Ochoa Reza

ISBN: 978-607-8469-03-1

Academic acknowledgements and translation:

Thomas Tunstall, PhD, Senior Research Director at the University of Texas in San Antonio Institute for Economic Development, and Mariana Barberena Asiain, US/Mexico Relations Coordinator, Office for Global Initiatives, Bi-National Center at Texas A&M International University.

Reproduction, reprinting or retransmitting of this work,

either in whole or in part, is strictly prohibited

without express written authorization

by the publisher, author or rights holder.

Pe  to understand

The reform of the

Mexican

electricity sector

Enrique Ochoa Reza

pe  structural reforms---------------------------------

This book has been made possible by the thousands of people who have worked for decades to supply electricity to 98.5% of the country’s population. I dedicate this book to the current and retired workers and employees of Comision Federal de Electricidad, in recognition of their work for a better future for Mexico.

I thank my wife and my daughter, Greta Rojas and Sofia Maria, for their support, love and patience during these 23 months of work. They are my daily inspiration. For the realization of this book, I recognize the invaluable talent of Jorge Araujo, Jimena de Haro, Gabriela Chagary, Montserrat Soto and Santiago Marcellini, whose commitment to the Energy Reform I greatly appreciate.

Table of Contents

Prologue by Pedro Joaquin Coldwell

1. Introduction

2. Why was a reform of the electricity sector necessary?

2.1 Generation cost

2.2 Renewable energy sources

2.3 Electricity losses

3. Before the reform of the electricity sector

3.1 Power generation

3.2 Dispatch and operational control of the National Electric System

3.3 Transmission and distribution of electricity

3.4 Electricity marketing

4. The Energy Reform

4.1 Power generation

4.2 Operation and dispatch

4.3 Transmission and distribution of electricity

4.4 Electricity marketing

5. Energy Reform implications for CFE

6. Progress in the implementation and initial results of the Energy Reform

7. Conclusion

8. Annexes

9. Glossary

10. References

Prologue

Pedro Joaquin Coldwell

Minister of Energy

2014 was crucial for the Mexican Energy Reform promoted by President Enrique Peña Nieto. During those months, the new regulatory framework for the sector was built. Nine new secondary laws were published and another twelve existing laws were modified in order to allow fair access to new participants and level the playing field in the hydrocarbon and electricity industries. Twenty-four accompanying regulations were also issued.

These and other measures helped to radically transform the Mexican energy paradigm and change the cultural relationship of Mexicans with energy.

While the hydrocarbon component of the Energy Reform has been the most discussed and has received the majority of exposure in the media, the electricity component, where opportunity for true competition also lies, is of equal or greater extent.

The reform model involves substantial changes. In an unprecedented event in our country, we designed the Wholesale Electricity Market (MEM, its acronym in Spanish) to start operations in January 2016. With this Wholesale Electricity Market, generation companies can sell their electricity and qualified users can acquire it at competitive prices. This approach ensures that public and private companies can compete under the same conditions, and an incentive is offered to clean energy. This feature encourages producers to be more efficient, reduce costs and prices, and provides qualified users and suppliers with the possibility of choosing between several companies.

Enrique Ochoa Reza, Chief Executive Officer of Comision Federal de Electricidad, explains each of these features in a detailed, instructive fashion. The arguments and technical elements that provide the rationale for this profound transformation within the country are explained to readers in a clear and simple language.

Throughout the book, Ochoa Reza examines the limitations of having a market that was closed to private participation and how that led to a decrease in investments and an increase in operating costs. These conditions are reflected in the high electricity rates that hampered the competitiveness of industries, commerce and agriculture, and that affected the economy of Mexican households.

Enrique Ochoa addresses how the reform of the Mexican electricity sector is already reaping initial results. The tools that empower Comision Federal de Electricidad as a productive state enterprise to remain competitive in the new context are also explained.

1. Introduction

Consolidation of the energy sector

The Constitutional Reform on energy and its secondary legislation represent a vital step towards consolidating a modern and competitive energy sector. Through these initiatives, the ownership of the Nation over the subsoil resources is maintained, while opening opportunities for these resources to become an engine of economic growth and social development for the Mexicans of today and tomorrow.

The debate and media attention surrounding the Energy Reform have focused on the hydrocarbon sector. However, this Reform also involves major changes to the national electricity sector; hence, the aim of