On Wednesday, a panel of Supreme Court justices in Mexico delivered a ruling against President Andrés Manuel López Obrador’s policies that favored the state-owned electrical power company at the expense of private power companies.
The five-judge panel unanimously passed a resolution, asserting that the president’s approach is in violation of constitutional guarantees of free competition within the power sector. Previously, power plants engaged in bidding to supply electricity based on offering the lowest price. However, López Obrador introduced a policy giving priority to the state-owned Federal Electricity Commission when selling power to the grid.
This decision relegated private power generators, predominantly foreign-owned, to the last position in line despite their often cleaner power production compared to the commission, which operates numerous power plants using fuel oil or coal.
The U.S. government raised objections to this law, contending that it contradicts the principles of the U.S.-Mexico-Canada free trade agreement, which prohibits favoring domestic companies over those from other member states.
Mexico’s Supreme Court Rejects Electricity Legislation Favoring State-Owned Utility at the Expense of Private Companies. (Credits: Financial Times)
López Obrador also placed private natural gas plants nearly at the bottom of the priority list, ranking only above government coal-fired plants for the rights to sell electricity into the grid. This was done despite the fact that these private plants produce power at a cost that is approximately 24% cheaper. The law essentially guaranteed the government electrical utility a majority market share.
The implications of Wednesday’s ruling remain uncertain, particularly regarding whether it will only benefit the companies that filed the appeal and the specific nature of the relief they might receive.
It is noteworthy that López Obrador has consistently expressed a preference for state-owned firms and has been critical of the policies introduced by previous administrations that opened the door to private investment. These policies allowed foreign companies to construct cleaner gas, wind, and solar power plants in Mexico.
