In a recent speech in Tijuana, President Lopez Obrador expressed the willingness of his Government to lower the price of gasoline, natural gas and electricity as part of the economic incentives within the Free Border Zone Program (“Programa de la Zone Libre de la Frontera”).
Unfortunately, President Lopez Obrador’s comments have been misunderstood by Commercial and Industrial end-users. First, President Lopez Obrador only referred to the energy prices for residential users; and, second the President’s inclinations conflict with the mandate awarded to CRE (“Comision Reguladora de Energia”) in the Energy Reform Law approved in August 2014. The Energy Reform Law is very clear with respect to CRE’s role as an independent regulatory body of the power sector in Mexico; and states that one of the main functions of the CRE is to approve changes in the electricity tariffs in Mexico.
In this context, CRE determines the adequate tariff levels in order to recover the generation costs and provide transparency to the market with the ultimate objective of fostering competition within the energy sector. The results of the actions on the electricity tariffs undertaken by the CRE have translated into an increase in the CFE tariff over 2018; this is due to a deeper appreciation of CFE’s generating costs. Moreover, CRE has hinted to a review of the CFE tariff during 2019 which, based on previous instances, may well translate into additional increases in the CFE tariffs.
Another important consideration is CFE’s higher generation costs which are driven by CFE’s aging and less efficient generation fleet that relies on diesel and fuel oil. These two fuels are more expensive than modern combined cycle natural plants owned and operated by other generators present in Mexico. These generators have a clear competitive advantage over CFE despite President Lopez Obrador’s administration for a more competitive CFE.
Therefore, Acclaim Energy is actively seeking competitive electricity supply offers for its clients, so they can benefit from a cheaper and more reliable supply of energy to fit their needs.
Supplier of Last Resort
The 2014 Energy Reform Law establishes the creation of a supplier of last resort. The role of the supplier of last resort is to step in when a qualified user may not be able to acquire energy from a qualified supplier.
A resolution published at the end of 2015 clearly describes the considerations for which the supplier of last resort can be called in. These considerations are:
- The qualified supplier has not complied with its obligation to provide collateral to support its activities in the Mercado Electrico Mayorista (“MEM”)
- Market participants which have the obligation to register as qualified users that have not done so.
- Registered qualified users, both under self-supply or qualified supply schemes:
- Whose qualified suppliers have either not fulfilled its supply obligation or early-terminated their supply agreement without the qualified supplier having been able to find a convenient replacement; or
- Which have not found a new supplier after the end of their current supply agreement
This resolution also describes the criteria for qualified suppliers to become suppliers of last resort and the process to be sent to the suppliers of last resort. Currently, CFE Calificados and Iberdrola clientes are the only qualified suppliers approved by the CRE as supplier of last resort.
Since the inception of the Energy Reform, there has only been one instance in which one user was sent to a supplier of last resort. In 2017, SUMEX notified CENACE and CRE that it was unable to fulfill its obligations as a supplier to the Government of Baja California. Baja California Government’s energy supply was then sent to CFE Calificados, which charged real-time prices plus a surcharge of between 20 and 100% of the real-time price in accordance with the CRE-approved methodology for serving as the supplier of last resort. It is worth noting that real-time prices are much more volatile than day-ahead prices and other market prices because the dispatch of electricity is adjusted to the system load that is demand plus outages, as it occurs.
Generating Value
Acclaim’s approach is to prevent the situation described above from happening to our clients by:
- Vetting each supplier and their offers to ensure that they can fulfill their obligations throughout the term of the contract
- Work with our customers to ensure that the renewal or change in their supply contracts happens in a timely and seamless fashion
Expert Recommendations
- Acclaim Energy has been signing supply contracts for large industrial and commercial users in the past months in Mexico that have delivered on average 30% in savings on their electricity.
- Significant tariff increases, create uncertainty in a client’s budgets. Therefore, large consumers must be vigilant when it comes to market trends and very agile in making a decision to switch to alternative supply that will give those benefits that CFE cannot provide.
- Because the signing of energy supply contracts have increased in the past months, availability of supply is decreasing and only those clients, making decisions now will be able to take advantage of the current opportunities in the energy market.
| About the author(s) Victor Ureta, Director, Risk Management for Acclaim Energy Mexico Contact: vureta@acclaimenergy.com or Phone: (713) 858 – 2773 |
Company Profile:
Acclaim Energy is a Mexico-based independent, unbiased customer advocate that helps businesses across Mexico and North America minimize total energy costs and unlock value through a proven integrated energy management approach. Acclaim Energy’s suite of services includes strategic energy procurement, energy risk management, demand response, distributed generation energy analytics. Acclaim Energy manages a customer portfolio with electricity and natural gas spend in excess of $1.5 billion, more than 30,000 meters and with an annual aggregate flow of more than 4.7 million MWh/year for electricity and 4.4 million Dt/year for natural gas.
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