Mexico's Supreme Court Declares Main Amendments to Electricity Industry Law Affecting the Private Sector Unconstitutional

Background 

A few days after the EIL Reform Bill was published, numerous foreign and domestic investors filed amparos during the month of March 2021, considering that the EIL Reform Bill violated the constitutional regime, mainly with respect to free competition guarantees and concurrence of economic agents, the right to a healthy environment and the principle of legal certainty.

Thus, on March 12, 2021, the First District Judge in Administrative Matters Specialized in Economic Competition, Broadcasting and Telecommunications, with residence in Mexico City and jurisdiction throughout the country (the "Judge"), ordered the joinder of the amparo lawsuits. 

On July 1, 2022, the Judge issued a judgment in which it granted the amparo with respect to certain amendments, denied said constitutional remedy in others and dismissed the amparo in others. 

As a result of the foregoing, some of the plaintiffs in the above amparo suits, as well as Mexico's president, House of Representatives and Senate, filed an appeal for review against the Judge's judgment ("Appeal for Review," known as recurso de revision in Mexico).

On December 5, 2022, the Second District Judge in Administrative Matters Specialized in Economic Competition, Broadcasting and Telecommunications, with residence in Mexico City and jurisdiction throughout the country, was the court in charge of the Appeal for Review. 

However, in a private session of January 25, 2023, the Ministers of the Second Chamber of the Supreme Court resolved to reassume the original jurisdiction to hear the Appeal for Review since the matter would allow setting an important and transcendental criterion.

Mexico's Supreme Court Judgment

On January 31, 2024, the Second Chamber of the Supreme Court ruled the Appeal for Review. For its resolution considered the following arguments as the basis for the judgment:

• The economic steering role entrusted to the State in which it's supported the amendments, has limits in the Constitution itself, and the challenged EIL Reform Bill does not respect them;
• The amendments cannot be justified under the idea that these are strategic activities, as they go against the principle of sustainability, economic competition and free concurrence; 
• The amends to the EIL can't be justified by virtue of guaranteeing security in the electricity dispatch or to strengthen the CFE, because neither the security of dispatch nor the strengthening of CFE can be more important than energy efficiency;
• The fact that CFE is exempted from using auctions as a means of contracting energy, implies a differentiated and privileged treatment and, therefore, its contracting conditions are not located in a healthy competitive environment; and
• Including the possibility of acquiring clean energy certificates ("CELs") to state-owned companies that are governed according to the previous regulations, distorts the market and generates discouragement to achieve the effective sustainability of the National Electric System.

Therefore, the Appeal for Review, in its most relevant aspects, was resolved as follows:

• Aspects considered unconstitutional, and therefore would lose their validity: Market design amends.
• Aspects considered constitutional, and therefore would continue to be in force: (i) Incorporate within the "public and universal service obligations" (Article 4, section I, EIL) the obligation to grant open access to the grid on terms that are not unduly discriminatory, "when technically feasible"; and (ii) the addition to the already existing power of National Center for Energy Control (or CENACE) to assign and dispatch power plants, controllable demand, and import and export programs to "maintain the Security of Dispatch, Reliability, Quality and Continuity of the National Electric System."
• Aspect considered dismissed, and therefore would continue to be in force: Self-supply permits revocation.

The constitutionality or unconstitutionality of this aspect's instruction was not ruled upon, as the Supreme Court considers that it does not affect the general public by its sole entry into force, but requires the authority to apply it, so that if applied in the future, an amparo would be appropriate.

Effects of the Judgment. It is determined that the judgement of the Supreme Court has general effects, meaning that it applies in a general manner to all the participants of the wholesale electricity market, since otherwise, it would generate a distortion in the market.

Vote on the Draft for Appeal of Review of the Second Chamber of the Supreme Court. The voting on the draft for the Appeal of Review was tied at two, with the Ministers Alberto Pérez Dayán and Luis María Aguilar in favor of the above, and Ministers Yasmín Esquivel and Lenia Batres (both whose appointment was proposed by AMLO) against, and an excuse to vote was raised by Minister Javier Láynez. 

Minister Pérez Dayán broke the tie with his casting vote as President of the Chamber, applying Article 56 of the Amparo Law, which allows such vote when an excuse to vote expressed by a Minister is approved.

AMLO's Reaction to the Declaratory of Judgment to the Appeal of Review

The next day on his morning conference AMLO criticized the decision of the Supreme Court and stated that "it will be challenged", and also criticized the decision of Minister Perez Dayan to use his casting vote. Likewise, he stated that, once again, he will send a proposal for constitutional reform to "leave the Constitution as it was before the so-called Energy Reform; and leave it as President Lopez Mateos left it because if not, imagine how we are going to accept the predominance of private power over public power?"

Regarding the above, it is important to point out that the Amparo Law does not provide any remedy against the Supreme Court's pronouncements, but does provides against a casting vote; therefore, a challenge to the sentence does not seem legally viable. 

On the other hand, regarding his new proposal for constitutional reform, it is important to mention that in the middle of his six-year term AMLO tried to establish such reform without success, since his party and allies lacked the necessary congressional votes for such purpose.