COVID-19: Possible legal actions regarding the measures set forth by ruling of the National Center for Energy Control due to the health contingency

• "The electrical infrastructure of the National Transmission Network will operate within its [original] design capacity."
      
  This means that if certain transmission line has 1,000 MW capacity, only the power generation plants that were considered to evacuate their power input when such line was designed at 1,000 MW will be able to operate. Those power plants that were incorporated later could be subject of dispatch restrictions.

• “Depending on the availability of generation resources, the operating limits of the main transmission corridors will be subject to operate at determined magnitudes without dependence on Remedial Action Schemes (EAR).”
                    
  The foregoing implies that transmission lines or corridors will be operated at certain limits of magnitude without considering EAR. This would be an obvious consequence of the reduction in demand, since those lines or corridors are no longer saturated.
• “In the operating condition that there is insufficient generation resources in any area, region, or System, the transmission limits determined with the dependence of the EAR will be activated.”
                   
  This measure only clarifies that it will continue operating in the same way if there is no generation sufficiency in an area and the determined transmission limits will be maintained (although it says they will be activated) and considering the EARs.
• “To maintain control of the voltage regulation, minimizing the opening of transmission lines, adding physical inertia and short-circuit fault currents, Power Plant Units (Must Run) will be registered in some regions of the SEN.”
                        
  This implies that conventional power plants (i.e., fuel oil, coal, gas) will be the dispatched before power plants with intermittent sources (mainly wind and photovoltaic) despite the fact that the generation cost of the first ones is more expensive, in contravention of the provisions of the rules of the Wholesale Electricity Market. Hence, this could imply a privilege in dispatch for fossil fuels power plants owned by the Federal Electricity Commission (CFE) over other more efficient ones owned by private generators.
• “As of May 3, 2020, the pre-operational tests of intermittent wind and photovoltaic power plants in the process of commercial operation are suspended. Likewise, for those that have not started, preoperative tests will not be authorized. ”
                    
  This means that private wind and photovoltaic power plants already built and in test period or that have not yet started operation tests will not be able to start operation indefinitely.
• "In the Electrically Isolated Interconnected Systems, with the integration of intermittent Wind and Photovoltaic Power Plants, operational actions and strategies will be applied to strengthen the sufficiency, Quality and Continuity of the Electric Supply."
                   
  Such actions and operational strategies that CENACE will apply to such power plants are not stated, creating uncertainty among private Generators.
• "The applications for licenses programmed in the National Transmission Network will be studied and analyzed to determine the viability, dates and times in which the Reliability of the SEN is maintained without the dependence of EAR in the event of the occurrence of the N-1 contingency."
           
  This measure could affect the privately owned power plants under construction, which require power outages in order to complete the interconnection infrastructures of their plants with the National Transmission Network (RNT).

It may be preliminarily concluded that the ruling could be legally challenged arguing lack of, or undue legal grounds. In principle, it would seem that the powers to issue certain measures contained in the ruling corresponds to the Energy Regulatory Commission (CRE) and not to CENACE, in accordance with the provisions of Article 136 of the Electric Industry Law (LIE).

Furthermore, the ruling was issued based on Article 25 of the LIE (among other articles) that establishes the obligation of Generators and Exempt Generators to provide, to the extent it is physically possible, power and Related Services complying with CENACE’s instructions during an emergency that puts SEN facilities or the Electric Supply at risk or could be put at risk, for the time such emergency continues. In this regard, it does not appear that the legal assumption foreseen in such provision is met when power generation is limited (as opposed to when power generation is required), neither that any article or other legal provisions used to substantiate the Ruling allows for CENACE's unrestricted powers to exercise Operational Control over the System in an unduly discriminatory manner or for an unspecified period of time.

Likewise, the motivation used by CENACE for the issuance of the ruling lacks an apparent causal link, since it refers to failures, disconnections and oscillations in the RNT that occurred before the Covid 19 outbreak and does not evidence the technical background of the specific problems associated to the stability and reliability of the SEN in relation to the intermittency of generation with renewable sources (specifically wind and photovoltaic).

Based on the above and on additional technical and legal arguments that emerge from the detailed analysis of the Ruling and the applicable provisions, the following legal strategies may be considered against its application: (i) amparo trial; (ii) investigation by the Federal Competition Commission (COFECE), and (iii) investment arbitration in the case of Generators with foreign investment.

It is important to note that COFECE issued a non-binding opinion recommending the Ministry of Energy and CENACE to refrain from providing undue discriminatory treatment to wind and photovoltaic power plants, to apply measures based on technical criteria directly linked to reliability, continuity and stability of the SEN features, jointly with the players in the energy sector to undertake the analysis of actions or regulations required in order to attend in the short and medium terms  failures on the SEN, and to create a stable system consistent with the energy needs and the productive capacity of the country.

At Garrigues we are committed to our clients and we are actively working on identifying and implementing strategies to protect their investment in Mexico.