Mexico’s CFE Loses High-Consumption Households As Solar Rooftop Arrays Proliferate

The state-owned utility has gained ground in the industrial and commercial sector, even without the constitutional changes sought by President Andrés Manuel López Obrador

Manuel Bartlett, chief executive of Mexico's state-owned utility CFE
July 20, 2022 | 12:30 PM
Reading time: 2 min.

Mexico City — Mexico’s state-owned utility Comisión Federal de Electricidad (CFE) has gained thousands of new industrial and commercial clients, despite the Mexican government’s proposed legal changes aimed at benefiting the company having been halted in court, while the company has also suffered a massive desertion of high-consumption residential clients.

The Mexican electricity giant gained 9,000 industrial customers, a growth of 2%, according to its 2021 annual report. But the company also suffered a loss of 110,000 high-consumption residential customers, known as DAC users, during the year, equivalent to 40% of the company’s total household client base.

The high-consumption segment is seeing mass desertion from the CFE, mainly due to the proliferation of solar rooftop arrays in Mexico, where at least 75% of the territory is optimal for electricity generation with photovoltaic technology.

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President Andrés Manuel López Obrador and the CFE have tried to improve the company’s finances through administrative agreements and changes to secondary legislation, including an attempt to reform the Constitution to give control of the electricity sector to the utility, which is headed by chief executive Manuel Bartlett Díaz.

But a wave of injunctions and legal appeals have stood in the way of the government’s plans, and which have escalated to the Supreme Court (SCJN), which dismissed an action of unconstitutionality brought by opposition legislators and validated the president’s reform to the Electricity Industry Law in April.

The current administration has also aligned the regulator, the Energy Regulatory Commission (CRE), to favor the CFE. The most recent example was the rejection to change an electricity self-supply permit for Spanish company Iberdrola to a generation permit. As a result, CFE took on the Spanish energy giant’s clients in the northern city of Monterrey.

The government’s rescue attempt comes after three decades of the gradual opening up of the electricity market, which intensified in 2013 with former president Enrique Peña Nieto’s energy reform and the creation of the wholesale electricity market and the holding of long-term power auctions that awarded a number of energy-generation projects to local and foreign companies.

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However, the CFE has accused companies such as Iberdrola, Italy’s Enel and Spanish utility Naturgy of participating in an energy black market, with 77,000 clients such as Walmart and Oxxo under the self-supply model, which dates back to the 1988-1994 administration of former president Carlos Salinas de Gortari.

That model was designed to allow high-energy-consuming industries, such as cement production, automotive and mining, to generate their own energy and distribute it on the CFE’s transmission networks.

The CRE, which is headed by Leopoldo Melchi, has turned down multiple requests for permits and procedures by companies in the private sector, while resolving electricity permits for Pemex and CFE just hours before the inauguration of works.

Sources who asked to remain anonymous told Bloomberg Línea that the CFE is pursuing the industrial sector as its main method of improving its finances.

Moody’s downgraded the credit rating of the state-owned giant due to the escalation of the price of natural gas, the main source of electricity generation in Mexico, as well as its dependence on the Mexican government for more than $2.5 billion in subsidies to households with low electricity consumption.

Following the Supreme Court ruling, the Mexican government began negotiations with private companies to migrate self-supply power plants to the wholesale market, but the results have yet to be presented.