Amendment to Agreement number A/049/2017 through which the regulation of Isolated Supply and Local Generation is modified.
I. Introduction:
On December 13, the Energy Regulatory Commission (“CRE”) submitted a project before the National Commission for Regulatory Improvement (“CONAMER”), which modifies the Agreement number A/049/2017, which establishes the criterion for interpreting the concept of “own needs” in article 22 of the Electricity Industry Law, and which describes the general aspects applicable to the isolated supply activity (the “Agreement”). Likewise, on December 15, 2021, CONAMER granted an exemption to avoid submitting a Regulatory Impact Analysis, and on December 17, 2021, CRE approved said modification, which makes imminent its publication in the Federation Official Gazette (“DOF”).
II. Purpose.
According to the CRE, the amendment pursues 2 main objectives:
1) Clarify the regulation of Isolated Supply.
2) Avoid the undesired effects of a broader interpretation with impacts on the equitable allocation of the costs of the National Transmission Network and the General Distribution Networks, to protect the interests of the End Users, to promote an adequate national coverage, and to attend to the reliability, stability and security in the supply and rendering of services.
However, we consider that the contents of said amendment could actually generate different and even negative results for users and the industry.
III. Main modifications:
a) Local Generation: The Agreement eliminates the concept of Local Generation, which allowed the generation or import of electricity for the satisfaction of the consumption of one or more final users which could belong or not to the same Group of Economic Interest (now it will be mandatory to belong to the same group in accordance to the new definition of said concept), only being possible through the figure of Isolated Supply.
b) New definition of “Group of Economic Interest”: The definition is changed to be more strict and making it necessary for the persons part of the group to do it through schemes of direct or indirect participation in social capital, and establishing that all of them should qualify as companies which produce and/or commercialize goods, or render services, and that a single entity shall mantain control of the group.
c) Definition and limits regarding capacity: A distinction is included between Net Installed Capacity and Installed Capacity. Net Installed Capacity of the power plants is limited to a level equal or less than the maximum demand of the load centers inside the Isolated Supply scheme. When the plant does not use part of its capacity to satisfy the demand of the load centers, or when this demand is cero, the surplus energy shall not be injected into the National Electricity System. Protection devices to limit this injection shall be installed, and when the injection occurs this will not be recognized, being necessary to waive the right to any payment for said energy in the corresponding interconnection contract.
d) Prohibition to coexist with grandfathered contracts: Isolated supply power plants and load centers may not coexist with power plant units included in a grandfathered interconnection contract (which was previously allowed with separated metering).
e) Representation requirement: When the Isolated Supply with interconnection to the National Electricity System the power plants count with infrastructure capable of ensuring that no injection would happen, it will still be necessary to be represented by a Generator (previously this was not required).
f) Guarantees: A limit which previously was established regarding the guarantees to be submitted is eliminated, which may cause larger guarantees to be required.
g) Contracts with third parties: The modification derogates a provision which allowed generators to execute contracts with third parties for the financing, installation, maintenance, management, operation, extension, modernization, vigilance, and conservation of infrastructure to generate and deliver energy to the load centers. It also derogates provisions which clarified the operations of Isolated Supply schemes.
IV. Defense Mechanisms
The modification will enter into force the day after its publication in the DOF. The authority may still make changes to it before its publication. In case it is published in its current version, we consider that it will unnecessary additional obstacles for parties interested in performing Isolated Supply and improperly eliminates beneficial possibilities like local generation, affecting the interests of diverse industry participants and users. It also generates uncertainty by not properly regulating over the modifications made. In this regard, it appears to contradict the Electricity Industry Law, and, being this a hierarchically lower regulation, it will be possible be successfully challenged by affected parties.
Important note: The information contained herein is of general nature and for informative purposes only. Please consider that it does not necessarily apply to individual circumstances. We strongly recommend not to perform any activity based on this information without the professional assistance of our lawyers.
For additional information in this regard, please contact any of the members of our Infrastructure & Energy practice team.
M. Alejandro Ripoll González
aripoll@rrs.com.mx
RAMOS, RIPOLL & SCHUSTER
Guadalupe Esparza Sánchez
lesparza@rrs.com.mx
RAMOS, RIPOLL & SCHUSTER
Diego Álvarez Ampudia
dalvarez@rrs.com.mx
RAMOS, RIPOLL & SCHUSTER
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