The Mexican Electricity Sector:
Regulatory Update and
Challenges
Association of Power Exchanges APEx 2007
Paris, October 14-16
Carlota Cagigas
Energy Regulatory Commission
Index
I.
Current Situation
II.
Electricity Infrastructure and Trade
III.
Energy Regulatory Challenges
IV.
Final Remarks
2
I. Current Infrastructure Situation
3
Mexican Economy
Mexico has a strong and stable economy
Index
Population
GDP
GDP per capita based on PPP
Federal Budget
2006
104.9 million
/1
usd 791 billion
/2
usd 8,530/2
USD 144,400 million
Total exports
123 billion USD /4
Total imports
124 billion USD /4
Foreign investment (sep 0607)
/5
USD 32.5 billion /year
Inflation
3.79%
/4
Foreign debt / GDP
13.9%
/5
Country risk
167 pts
/
/6
Source:
/1, CONAPO, (2007 estimated); /2, FMI, 2nd Quarter (2007); /3 Banxico, Inegi, Secretariat of Economy, Dic. 2007;
/4 Banco de México, Sep 2007 ; /5 Secretariat of Finance and Public Credit; /6 JPMorgan, Dic. 2006
4
Mexican Energy Sector
Mexico is a rich energy country. The energy sector
contributes with 5% of GDP
Proven
reserves
(2006)
North
America %
Production
(jun 2007)
North
America %
14.54 bcf
5.27%
6.19 bcfd
4.8%
12.35 mmb
20.55%
(5.6%*)
3.2 mbd
31.75%
Natural gas
Oil
Source: Secretariat of Energy, Pemex and BP.
Mexico has
economy
de-petrolized
its
exports,
but
not
its

Oil exports represent around 14.9% of total exports7

Oil revenues contributes with one third of the Federal
Budget
Source:
/7 INEGI, Dic, 2006
5
2007 Highlights of the Mexican
Electricity Industry
1. Installed capacity  51,033 MW
Thermal
IPP
Otros
68%
22%
46%
Nuclear
3%
Hydro
22%
Geothermal
2%
Coal
5%
2. 2007 power generation  220 TWh
3. National Transmission Grid  759,552 km(>115kV)
4. Strong presence of state-owned vertically integrated
monopolies
CFE
LFC
Other*
69.3%
1.7%
28.0%
Transmission
98%
2%
0%
Distribution
79%
21%
0%
Generation
System operator is part of CFE
* IPP, self-supply, Cogen
Source: Electricity Prospective, Secretariat of Energy, 2006-2015
6
Mexican Energy Sector
Generation
Transmission
Distribution
Final users
Own Capital:
69.3%
CFE
IPP:
15.4%
84.7%
98%
79%
LFC
1.7%
2%
21%
PEMEX
3.7%
Self-supply &
Cogen
Service provided through CFE
and LFC transmission lines
9.9%
57,600 miles
Source: www.cfe.gob.mx
373,600 miles
29 million
The system operator CENACE (National Energy Control
Center) is part of CFE
7
2007 National Installed Capacity
By the end of July 2007, Mexico had an installed generation
capacity of 51,033 MW.
60,000
51,033
50,000
MW
40,000
30,000
23,233
20,000
11,333
11,457
11,457
10,000
1,365
960
85
0
Hydro
Thermal
Source: Secretariat of Energy; 2007
1/ Includes all IPP capacity
Coal
Nuclear
Geothermal
Wind
Total
IPPs
1_/
8
Mar 06 - Feb 07
Abr 06 - Mar 07
May 06 - Abr 07
Jun 06 - May 07
Jul 06 - Jun 07
Ago 06 - Jul 07
Sep 06 - Ago 07
30,032
29,824
29,563
28,621
27,891
27,596
27,300
13.86%
13.72%
13.63%
13.16%
12.80%
12.63%
12.41%
10,363
9,986
10,102
10,394
10,367
10,392
10,380
4.78%
4.59%
4.66%
4.78%
4.76%
4.76%
4.72%
6,358
6,349
6,378
6,466
6,681
6,911
7,006
2.93%
2.92%
2.94%
2.97%
3.07%
3.16%
3.19%
38
64
85
105
117
126
142
0.02%
0.03%
0.04%
0.05%
0.05%
0.06%
0.06%
Electricty Generation by Source
Hidroeléctrica
Nuclear
169,847
171,102
170,729
171,887
172,871
173,433
175,108
78.40%
78.73%
78.73%
79.04%
79.33%
79.39%
79.62%
16%
86%
14%
84%
12%
82%
10%
80%
8%
78%
6%
76%
4%
74%
2%
72%
216,638
217,325
216,857
217,473
217,927
218,458
219,936
Fósil
Jul 06 - Jun 07
Sep 06 - Ago 07
May 06 - Abr 07
Ene 06 - Dic 06
Mar 06 - Feb 07
Nov 05 - Oct 06
Jul 05 - Jun 06
Sep 05 - Ago 06
May 05 - Abr 06
Ene 05 - Dic 05
Mar 05 - Feb 06
Nov 04 - Oct 06
Jul 04 - Jun 05
Sep 04 - Ago 05
May 04 - Abr 05
Ene 04 - Dic 04
Mar 04 - Feb 05
Nov 03 - Oct 04
Jul 03 - Jun 04
Sep 03 - Ago 04
May 03 - Abr 04
Ene 03 - Dic 03
Mar 03 - Feb 04
Nov 02 - Oct 03
Jul 02 - Jun 03
Sep 02 - Ago 03
May 02 - Abr 03
Ene 02 - Dic 02
Mar 02 - Feb 03
Nov 01 - Oct 02
Jul 01 - Jun 02
Sep 01 - Ago 02
May 01 - Abr 02
Mar 01 - Feb 02
Ene 01 - Dic 01
Nov 00 - Oct 01
Geotérmica
Source: CFE, september 2007
9
The Mexican Electricity Sector
Thermal (coal )
Thermal (dual coal-fuel oil)
Thermal (fuel oil )
Thermal (fuel oil – nat. gas)
Therma l (natural gas)
Combined cycle
Internal combustion
Nuclear
Hydraoelectric
Geothermal
Wind
By August of 2007 CFE and LFC
had a total combined capacity
of 51,033 MW
10
The Mexican Electricity Sector
Electricité
de France
Hermes
There are 22 permits for
natural gas fired combined
cycle plants under the IPP
scheme.
Of these, 21 permits, with
11,457 MW capacity, are in
operation
11
The Mexican Electricity Sector
 There are and 431,205 miles of transmission & distribution infrastructure,
( 57,600 miles of transmision lines > 115 kV )
400 kV
230 kV
115 kV
161 kV, 138 kV, 69 kV, 34.5 kV y 13.8 kV
12
The Mexican Electricity Sector
Scheme
No. of Permits
Authorized Capacity
(GW)
IPP
22
12.6
Self-supply &
Cogeneration
540
8.23
+0.6*
Export
6
2.2
Import
32
0.243
Total
600
23.5
* Old Permits
Source: Energy Regulatory Commission; Aug.2007
13
II.
Electricity Infrastructure and Trade
19
Commercial Cross-border
coordination issues
 CFE exports and imports electricity for public service
 Private generators are allowed to export and consumers are allowed to import
electricity for self consumption. Both activities require a permit issued by the CRE
 Future interconnections between Mexico and the United States (WECC and ERCOT)
and between Mexico and Central America (SIEPAC), will allow greater interchanges
 However, the development of a Regional Market may be an important challenge due
to regulatory differences
SMD - FEA
Initiative
Regional Energy
Markets
WECC
WSCC
Regulatory
ERCOT
WSCC
Differences
Strong Integration
National and
CENACE
WSCC
Reform Process
Vertical Integration
or Moderated
Openness
CFE can not sign long term
contracts except for IPP
Guatemala
International
Markets
Honduras
EL
UA
El Salvador
(Nodal prices, FTR’s)
Nicaragua
Costa Rica
Panama
20
Electricity Trade in North America
Net Exporter
Total Exports
1,291 GWh
14,637
Total imports:
87 GWh
37,940
Net Importer
1,037
Net Exporter
Self Sufficient
87
Guatemala
1.0
Belice
253
Net Importer
North America Energy Trade
(GWh, 2000)
Source: EIA, Annual Energy Outlook 2006, DOE/EIA-0383 (2006) (Washington, DC, December 2001).
Secretariat of Energy of Mexico; Electricity Prospective 2007-2015
21
Mexican Energy Sector
US and Canada
 The electricity sector in US and Canada is in the process of evolving
from a heavily regulated industry, dominated by vertically integrated and
locally (or regionally) based utilities, into one with many more
companies that produce and market electricity at both the wholesale
and retail level
 Electricity markets in many parts of North America are evolving from
geographically limited markets to broader regional markets through an
increasingly interconnected system
Mexico
 Generation, transmission, distribution and supply for public service is
reserved to the State. Private generation is allowed under the following
categories: cogeneration, self-supply, IPP, small scale production, and
generation for export. Imports are also allowed.
The demands on the grid have grown significantly by the increased
electricity trade that followed the restructuring of the industry in
recent years
22
North America Electricity
Interconnection Infrastructure
 Electric systems in US and Canada are highly interconnected
 Close to 100 interconnections points
 On the US-Mexico border, interconnections are weak (they were intended to satisfy
stand-alone customers, and not regional electric demand)
 There are only 19 high voltage interconnections (> 115kV)
Interconexiones eléctricas
Canadá
- Estados Unidos
Source: Secretariat of Energy; Electricity Prospective 2005-2014
23
North America Electricity
Interconnection Infrastructure
Total Interconnection
capacity: 1,336 MW
Interconnections
 5 Permanent interconnections in Baja
California WECC 4 x230kV, 1 x115 kV
 5 Non-Permant lines connected with
WECC 4 x 230kV, 1 x115 kV
 5 Permanent back to back
interconnections with ERCOT (138 kV)
 2 Non-permanent lines connected to
ERCOT (138 kV)
 1 Permanent line to Belize (115 kV)
 1 Permanent back to back
interconnection to SIEPAC by
Guatemala (in construction) (400 kV)
Source: Secretariat of Energy; Electricity Prospective 2006-2015
24
SIEPAC Market
Guatemala
Capacidad (23%)
2,015.7MW
Hidro = 34%
Geo = 1%
Term= 65%
Total Istmo
Capacidad
8,938.6 MW
Hidro =43 %
Geo= 5%
Term=51%
Eol= 1%
Honduras
Generación (21%)
7,009.3 GWh
Hidro= 36%
Geo= 3%
Term= 61%
Capacidad (16%)
1,386.9 MW
Hidro = 34%
Term= 66%
Generación (15%)
4,907.9 GWh
Hidro= 29%
Term= 71%
Generación
33,076.4 GWh
Hidro= 48%
Geo= 8%
Term= 43%
Eol= 1%
EP= 31%, Pri= 69%
EP= 36%, Pri= 64%
EP= 36%, Pri= 64%
El Salvador
Capacidad (13%)
1,197.90 MW
Hidro = 37%
Geo = 13%
Term= 50%
EP= 31%, Pri= 69%
Generación (14%)
4,689.6 GWh
Hidro= 31%
Geo= 20%
Term= 49%
Nicaragua
Capacidad (8%)
742.2 MW
Hidro =14 %
Geo= 10%
Term=75%
Generación (8%)
2,647.4 GWh
Hidro= 12%
Geo= 9%
Term= 80%
EP= 11%, Pri= 89%
Costa Rica
Capacidad (22%)
1,961.2 MW
Hidro =67%
Geo = 8%
Term= 21%
Eol= 3%
EP=Public Utilities Installed Capacity
Pri= Private Utilites installed Capacity
Generación (24%)
8,061.8 GWh
Hidro= 81%
Geo= 15%
Term= 1%
Eol= 3%
Panamá
Capacidad (18%)
1,634.7 MW
Hidro= 53%
Term= 47%
Generación (18%)
5,912 GWh
Hidro= 65%
Term= 35%
25
SIEPAC vs CFE
Index
Installed Capacity (MW)
SIEPAC
CFE1/
8,939
46,552
-Pulblic
3,680
39,287
-Private
5,206
7,265 2/
5,688
29,301 3/
Total Generation (GWh)
33,076
208,634 4/
Sales (GWh)
27,286
163,509 5/
24,962
NA
2,306
NA
6,592
28,003
17.1
16.8
66
72
Max Demand (MW)
-Regulated
-Not regulated
Users (thousand) Including LFC
Losses (TyD) %
Load Factor %
Fuente: CEPAL 2004 – Istmo Centroamericano: Estadísticas del sub-sector eléctrico. 2004
1 Public Service does not include self-supply generators
2 IPP projects
3 National Interconnection Grid
4 Gross Generation
5 Not considering exports
26
CFE and SIEPAC Interconnection
TAPACHULA POTENCIA - LOS BRILLANTES.
CHICOASEN
ANGOSTURA
TAPACHULA
POTENCIA
( ACSR )
( ACSR )
LOS BRILLANTES
NIVELES DE TENSION
400 KV
230 KV
115 KV
30 KM
ZONA TAPACHULA
70 KM
GUATEMALA
27
Central America Interconnection
Interconexión
México – Belice
(115 KV)
Chixoy
Belmopan
Mollejón
Planta Hidro
Los Brillantes

 
Cd. Guatemala
 

San Salvador
Solo 115 kV.
Red. Nal.
San Pedro Sula

El Cajón
Tegucigalpa
Under Construction
15 de Sep.


Pavana

León
Pta. Nicaragua

Managua
 
Arenal-Carobicí
San José
Bayano

Fortuna

Panamá
28
SIEPAC Interconnection
Mérida

Cancún


Nuclear Laguna
Verde
A Ciudad de
México
Interconexión
GU-BL

Angostura
Chicoasen
Malpaso
Belmopan
Mollejón
Planta
Hidro
Tapachula 
Interconexión
GU-MX
Los Brillantes 



San Pedro Sula

El Cajón
Cd.

Guatemala
Tegucigalpa

San Salvador


 León
REFERENCIA

Managua
Central Hidroeléctrica
Central Térmica
Subestaciones
Línea SIEPAC


Arenal-Carobicí
San José
Capitales
Bayano

Línea Doble
Línea de Interconexión
Fortuna

Panamá
29
III. Energy Regulatory Challenges
14
CRE Act
In 1995, Congress enacted the CRE Act, to:

Establish CRE as an independent authority responsible for natural
gas and electricity regulation

Provide technical and operational autonomy to render the
regulatory framework operative

Enhance its jurisdiction and legal standing

Concentrate regulatory instruments previously scattered among
several agencies
Regulatory
Functions
Private
Operators
State
Operators
Domestic
and Foreign
Investors
Pemex,
CFE
and LFC
Government
CRE
Ministry
of
Energy
Source: Natural Gas Prospective, Secretariat of Energy, 2006-2015
CRE regulates state
entities and private
participants
Energy
Policy and
Operation
Functions
15
Regulatory Framework
Natural Gas
Trading
Generation
Transmission
CFE & LFC
Electricity
Third Parties
Private
Parties
Distribution
National
National
Transmission
Transmission
Grid
Grid
Others
Imports
Imp
/ Exp
Reserved activities
Open to private
participation
CRE’s mandate
Competencia CRE
16
Regulatory Framework
Regulated activities require
Government Agencies:
authorization
Regulated Activity
Generation
Transmission
Distribution
from
different
Authority
Private Generation
Requires a CRE permit
CRE
regulates
the
interconnection contract
between generator and
CFE (backup, wheeling
& surplus energy sale)
LFC & CFE Public
Service generation
Expansions
require
approval from SENER,
SHCP, SEMARNAT,and
CNA
Public Service Grid
(National Transmission
System)
Expansions
require
approval from SENER,
SHCP, SEMARNAT and
CNA
Public
Service
Distribution network
Expansions
require
approval from SENER,
SHCP, SEMARNAT and
CNA
State reserved activity
17
Regulatory Framework
Regulated activities require
Government Agencies:
authorization
Regulated Activity
Imports
Tariffs
different
Authority
Private entities
LFC & CFE: for Public
Service use
Exports
from
Private Generation
Requires a CRE permit
Includes private interties
(Connected or not to the
National
Transmission
Grid)
Requires authorization
by CRE
Requires a CRE permit
Includes private interties
(Connected or not to the
National
Transmission
Grid)
Final user tariffs are set by the Ministry of Finance (SHCP)
Tariffs are bundled and include generation, transmission,
distribution and supply costs
18
IV. Final remarks
30
Final Remarks
Despite being an energy rich country, Mexico imports
large amounts of natural gas on which 42% of the
electricity generation is based
After several years it has become necessary to improve:
Quality: Provide energy supply services with competitive cost
indicators, power quality and service continuity standards
Transparency: provide the public electricity sector information such
as plant costs, dispatch costs and plants, etc
Equity: Review present rules for electricity dispatch
Competitivity: Establish Regulatory Accounts in electricity tariffs
CRE will play an important role in the definition
and supervision of these competitive actions
31
Final Remarks
Several bills aimed at strengthening CRE have been
submitted to Congress and last November of 2006.
Although they vary in scope and depth, most of them
concur in granting CRE the following additional mandates:
• Electricity Tariff Determination
• Aprove Terms & Conditions for electricity transmission,
distribution and supply services
• Publish rules for the system operation and dispatch
• Surveillance of the System Operation
32
www.cre.gob.mx