Mexico: The Energy Regulatory Commission issued new rules for the processing of electricity generation permits

On March 30, 2022, Agreement No. A/006/2022 was published, issuing the new General Administrative Provisions (DACG) that establish the terms for submitting information regarding the corporate purpose, legal, technical and financial capacity, as well as the description of the project, and the format of the application for electricity generation permits.

These new provisions replace those published on April 8, 2015, in order to update the detail of the information required in the applications for electricity generation permits and establish that the Energy Regulatory Commission (“CRE”) has more elements for the evaluation of the applications.

In summary, the DACG incorporates greater requirements to accredit the legal, technical and  financial capacities of the applicants, as well as obligations that must be fulfilled once the permit is granted, considerably  increasing the regulatory burden and discretion of the CRE in the procedures for evaluating applications and revoking electricity generation permits.

Legal capacity

• Of particular relevance, the DACG require the presentation of information that allows identifying the structure of the applicant's capital stock, starting from its partners or direct and indirect shareholders until reaching the level of natural person, as well as manifesting the economic interest group to which the applicant belongs and if persons belonging to that group have permits granted by the CRE or the Ministry of Energy.
• Additionally, the CRE must be provided with a copy of the tax identification card of the applicant, its partners or shareholders and the persons or groups of persons who have control of the applicant company, who hold any proportion of the shares and / or rights inherent to the participation in the corporate structure and capital stock of the latter.

In the light of the above, there is no clarity as to the consequence that one or more persons belonging to the applicant's control or economic interest group have other permits in the energy sector.

Technical capacity

• In the case of generation plants in isolated supply, the "necesidades propias" (own needs) of the project must be described, which is consistent with the recent CRE Agreement by which the new interpretative criterion of this concept was issued.
• In the case of generation plants in isolated supply, the "necesidades propias" (own needs) of the project must be described, which is consistent with the recent CRE Agreement by which the new interpretative criterion of this concept was issued.

This new requirement will have a relevant impact on the development of electricity generation projects since, in order to be able to apply for a generation permit, the interconnection procedure must have been previously initiated, which will imply complying with the subsequent interconnection steps and deadlines under penalty of losing validity of studies already obtained and government fees paid.

• The program of works must contain at least five stages (previously a minimum number was not established), indicating the start and end dates for each of them. Considering that non-compliance with the dates of commencement of activities constitutes a cause for revocation, the greater the number of stages, the greater the risk of revocation of the permit.

Financial capacity

• The current DACG, unlike the previous ones, establish the minimum elements that the  business plan must contain, in the case of plants that are not yet in operation:
  • investment amount and supporting documentation of the presented costs;
  • ROI;
  • O&M breakdown costs;
  • capital flows;
  • operation period and total projected revenues;
  • capital debt ratio; and
  • financing.
• As part of the documentation relating to the investment amount, the DACG now requires the submission of a letter in which the applicant undertakes to submit to the CRE the supporting documentation of the amount of the investment actually made at the beginning of operations of the permit.
• Although the elements of the financing program did not undergo substantial changes, now the financial statements of the 2 years prior to the date of application for the permit must be audited by an accountant who has a current registration in the Accountants Public Registry of the Tax Administration Service.

Obligations in case the generation permit is granted 

Among the novel aspects of the DACG is the imposition of obligations on the permit holder, in the case of granting the permit:

• Within 90 calendar days of notification of the permit, a series of manuals, mechanisms, codes, procedures, policies and programs, relating to the "due control" of the permit holder must be submitted to the CRE, which have nothing to do with the technical aspects of the operation of a generation plant and even less with compliance related to the generation permit.
• Under penalty of administrative sanction and/or revocation of the permit, permit holders are required to:
  • conclude interconnection and market participant contracts in a timely manner;
  • obtain the authorizations or permits required by other authorities regarding the permitted activity, at the beginning of the stage of the performance tests (in clear contravention of the provisions in article 31 of the Electricity Industry Law);
  • to comply with SENER's resolution and recommendations on social impact;
  • provide the CRE every 60 working days with a report on the progress of each of the stages of the works program;
  • inform the CRE of any changes to the shareholder’s structure or business plan, and;
  • submit to the CRE the supporting documentation of the amount of the investment actually made, among other obligations.

In this regard, although the Electricity Industry Law (LIE) only grants the CRE the faculty to regulate the information related to the corporate purpose, legal, technical and financial capacity of the applicant, and the description of the project, the current DAGC seem to generate new obligations to the holders of generation permits not provided for in the LIE.

Legal remedies

The DACG can be challenged through the federal administrative litigation before the Federal Court of Administrative Justice, within 30 working days following the date on which the notification of the resolution that constitutes the act of application of the DACG has taken effect, and / or through the indirect Amparo trial  before the District Courts, within 15 working days from the day following that on which the notification of the first act of application of the DACG takes effect.