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Energy Regulatory Agencies in Mexico

September 18, 2014
Energy Regulatory Agencies in Mexico

One of the new statutes that constitutes the Mexican energy reform is the Energy Coordinated RegulatoryAgencies Law (Ley de los Órganos Reguladores Coordinados en Materia Energética, LORCME) that came intoeffect on August 12, 2014. This law sets forth the legal provisions of the eighth paragraph of article 28 of theConstitution, which was amended in December 2013 to establish that the executive branch would include theagencies known as the National Hydrocarbons Commission (Comisión Nacional de Hidrocarburos, CNH) andthe Energy Regulatory Commission (Comisión Reguladora de Energía, CRE).The CRE had been created by a presidential decree in 1993 as a consultative agency of the Department of Energy(Secretaría de Energía, SENER) regarding the interactions that began to increase between the Federal ElectricityCommission (Comisión Federal de Electricidad, CFE) and private power producers. In 1995, the CRE wasgranted its own law as part of the reform that opened transportation, storage and distribution of natural gas toprivate investment, and it became a true regulatory agency of the energy network services, which are renderedper se under monopoly conditions.The 2008 energy reform led to the strengthening of the CRE by broadening its scope and capabilities, specificallythose pertaining to renewable energy, and providing better structural provisions and statutory capability toimpose penalties and safety measures. In addition, such reform gave way to the creation of the NationalHydrocarbons Commission Law as an oil and gas upstream regulatory agency, also within the scope of theDepartment of Energy and with a clear mandate to oversee energy security by preserving the levels ofhydrocarbons’ reserves in the long term. Finally, there was a specialized government agency that could challengethe decisions of the all-powerful Pemex Exploration and Production.In mid-2013 began the most in-depth energy reform process in Mexico in the past several decades. While thepresidential constitutional reform initiative did not mention the regulatory agencies in this sector, the initiativepresented by senators from the National Action Party (PAN) granted the CNH and the CRE constitutionalautonomy. In an essay then published by the Center of Research for Development (CIDAC) and the UnitedStates Agency for International Development (USAID), the author argued that the CRE should have this degreeof autonomy and regulatory strength by coming out of the sphere of the executive branch, just as the FederalInstitute for Telecommunications and the Federal Commission for Economic Competition previously did severalmonths before (http://cidac.org/esp/uploads/1/5Reg_CRE2608.pdf).In any case, the consensus for the constitutional reform led to the emergence of coordinated regulatory agencies,a new figure in Mexican administrative law. Although the CNH and the CRE are still part of the executivebranch, they did manage to leave the ambit of the Department of Energy in order to have their own legal statusand access to revenue from fees paid for their services, as determined by applicable law. In addition, it wasestablished that commissioners would be designated by a two-thirds vote of current members of the Senate, froma list of three candidates submitted by the President. The integration of these two agencies results in an increasefrom five to seven commissioners.In order to enable the coordination required by the Constitution, the LORCME created the Coordination Councilof the Energy Sector, chaired by the Secretary of Energy and composed of the presidents of the CNH and theCRE, the undersecretaries of energy, and the general directors of the national centers for the control of natural gasand energy. Its principal function is to inform the commissions as to the energy policy and to provide specificrecommendations based on such. Hopefully, this mechanism will be able to efficiently achieve its purpose oflinking public policy with regulation without decreasing the autonomy of these agencies, which would belamentable and dangerous.The commissions will issue their internal regulations and will directly request publication of their generalprovisions and other acts in the Official Journal of the Federation. Further, both commissions will have advisoryboards comprised of representatives from well-known institutions in the sector and associations that representinterests governed by the new regulatory framework.The LORCME presents interesting developments that certainly contribute to transparency and accountability:strict norms are established to prevent improper usage of confidential information and to resolve conflicts ofinterest that the commissioners may encounter; plenary sessions will be public and are slated to be broadcastedelectronically; to mitigate regulatory capture, commissioners may meet with those subject to regulation onlythrough hearings attended by at least two commissioners; all public servants forming part of the commissionsmust agree to abide by a code of conduct proposed by the LORCME’s ethics committee. The criteria that willserve as the basis for decisions by these agencies must be categorized and published, thus creating a new type of“administrative jurisprudence.”To a large extent, the success of the Mexican energy reform will depend on strong, independent, transparent, andtechnically and ethically impeccable regulation of the activities required to achieve such success. Now the CNHand the CRE have the proper tools to achieve this mission.

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