Mexico Energy Reform From Regulatory Independence to Centralised Oversight

Mexico has announced a proposed series of reforms to its energy sector. One such reform is the establishment of a new National Energy Commission under the direct control of the Mexican executive branch, replacing independent regulators. This Legal Update examines the regulatory framework under the proposed reforms and their expected impact on international and domestic investors.

THE CHANGES

The following changes represent a substantial departure of the current system:

Mexico has announced a proposed series of reforms to its energy sector (the “Reform”). The Reform includes the National Energy Commission Law, which establishes a new National Energy Commission (Comisión Nacional de Energía, “CNE”), that will be controlled by the Mexican executive branch through the Ministry of Energy. The CNE will replace the Energy Regulatory Commission (“CRE”) and National Hydrocarbons Commission (“CNH”) as regulators of the energy sector and the new law will repeal the Law of Coordinated Regulatory Bodies in Energy Matters (Ley de los Órganos Reguladores Coordinados en Materia Energética). The Reform will impact investors, as the energy sector in Mexico will no longer have independent regulators and the CNE will control permits, the supervision and enforcement of sanctions, and the issuance of new regulations applicable to power, oil and gas activities.

This note summarises: I. the regulatory framework; II. the rules after the Reform; and III. the impacts on international and domestic investors. Understanding the potential changes is important for planning and safeguarding interests across new and ongoing energy projects.

regulatory framework

The energy sector is regulated by two independent regulators: the CRE and the CNH.
The CRE and CNH are granted technical, operational, and management autonomy (including budgetary independence). Commissioners of CRE and CNH can only be removed on strictly defined legal grounds.
CRE is in charge of issuing permits for (i) the commercialisation and generation of electricity; (ii) the commercialisation of petrochemicals and oil products; and (iii) the transport, distribution and storage of hydrocarbons. In addition, CRE establishes the methodologies to calculate the transmission tariffs within the power sector.
The CNH handles upstream contracts such as licence contracts and production sharing contracts.

LACK OF AN INDEPENDENT ENERGY REGULATOR

Mexico will no longer have an independent energy regulator, as the Energy Regulatory Commission (CRE) will be absorbed by the Ministry of Energy. Key legislative changes in the Reform include:

Transfer of CRE´s Regulatory Powers: The powers of the CRE will be transferred to the newly established National Energy Commission (CNE).
CNE as a Ministry-Controlled Regulator: The CNE will operate as an entity within the Ministry of Energy, responsible for regulating, supervising, and enforcing sanctions in the energy sector. Its functions will include setting transmission tariffs and compensation rates within the industry.
Presidential Power to Appoint and Remove CNE Director: The CNE will be led and managed by a Director General, appointed by the President, and confirmed by the Senate. The President has the authority to remove the Director General at will.

The CNE, which will be under direct control of the President, will wield broad regulatory powers with direct implications for private energy generators. These powers include: (i) issuing regulations related to energy activities and ensuring its compliance; (ii) imposing and executing sanctions for non-compliance with energy laws; (iii) granting, modifying, revoking, and supervising permits in the energy sector; and (iv) requesting information from power generators—and their business partners—to provide relevant data on permits and agreements.