The Supreme Court of Justice of the Nation upholds amparo relief against the recent amendment to the Electric Industry Law

Although amparo relief was granted to six complainant companies that filed for it, the SCJN noted that, were the benefits in question to be granted solely to the complainant companies, “a further distortion could be created in that market, precisely because the complainant companies would be placed in a position of specificity in terms of competition,” which is why it was determined that the Ruling will have effects and benefit third parties in order to avoid market distortions in favor of certain economic agents. In light of the foregoing, the Ruling declares unconstitutional articles 3, sections V, XII, XII bis and XIV, 4, section VI, 26, 53, 101, 108, section VI, and 126, section II, of the LIE Amendment, that is, the seven amended articles that were most harmful to private investment and to participants in the sector (“Unconstitutional Articles”). This means that the Unconstitutional Articles will not be applied to the complainants or to third-party participants in the electricity market, regardless of whether or not they filed an amparo suit against the LIE Amendment. This translates into the following: • The dispatch order in the National Electric System (dispatch by economic merit) is preserved, as provided under the legislation prior to the LIE Amendment. • The obligation on the National Energy Control Center (CENACE) to give priority in the use of the National Transmission Grid and the General Distribution Grids to Legacy Power Plants and Legacy External Power Plants with a physical delivery commitment is eliminated. • Legacy Contracts for Basic Supply will be entered into without the need for a commitment to physically deliver the energy. • The obligation on Basic Service Suppliers (CFE) to enter into electricity coverage contracts exclusively through auctions is preserved. • It is preserved that the issuance of Clean Energy Certificates to power plants depends on ownership and on the date on which their commercial operation began. It is important to point out that the LIE Amendment was NOT declared unconstitutional in its entirety, but only the aforementioned articles. In this regard, articles 4, section I, 12, section I, 35, and 108, section V contained in the LIE Amendment will continue to apply to market participants, notably including the following: • Access to the National Transmission Grid and the General Distribution Grids will be granted when it is “technically feasible.” • Permits relating to electric power will be granted, amended, revoked, assigned, extended or terminated taking into account the planning criteria for the National Electric System established by the Ministry. As set out in SCJN Press Release No. 028/2024 of January 31, 2024, the Second Chamber specified that “the alleged strengthening of State-owned companies is not a reason to disregard the constitutional framework on electric power, since it cannot be overlooked that in certain activities, such as the generation of electricity, CFE is just another competitor in the market and, indeed, the Constitutional Reform Power ordered that it be given a structure allowing it to compete on equal terms, which is why the secondary legislator cannot introduce a design that hinders free concurrence and competition.” The foregoing shows that the conditions of economic competition in the Wholesale Electricity Market (MEM) will be maintained. It is extremely important to mention that the specific effects of the Ruling in question can only be confirmed once its official version is published and analyzed. In addition, there are still other appeals arising from amparo suits against the LIE Amendment pending resolution by the SCJN, although they are likely to be resolved on similar terms and with similar scope. The decision of the Second Chamber of the SCJN in the Ruling represents a positive signal for domestic and foreign investors in Mexico, confirming to such companies that their investments have been made in a “Rule of Law” State in which the rules of the game are respected and which allows for the establishment of sustainable companies that, under the “nearshoring” trend, intend to set up in Mexico, acquiring clean, safe and reliable energy from the best bidder and under conditions of free concurrence and competition. Considering the Ruling, as well as the excellent results obtained by Von Wobeser y Sierra for our clients in connection with the amparo suits filed against the Amendment to the Mining Law published on May 8, 2023, we are facing a series of positive milestones for investors in the energy and natural resources sectors in Mexico, which will allow private investment—and, consequently, Mexico’s sustainable development—to continue. Should you require additional information, please do not hesitate to contact our partners with expertise in this area: Edmond Grieger, Partner:+52 (55) 5258-1048 | egrieger@vwys.com.mx Ariel Garfio, Partner:+52 (55) 5258-1008 | agarfio@vwys.com.mx Adrián Magallanes, Partner:+52 (55) 5258 1077 | amagallanes@vwys.com.mx Raymundo Soberanis, Partner:+52 (55) 5258 1077 | rsoberanis@vwys.com.mx Rodrigo Barradas, Counsel:+52 (55) 5258 1077 | rbarradas@vwys.com.mx