Power Struggles: Latest Developments in Mexico’s Energy Sector Litigation Landscape

Daniel Amézquita and Iván Valdespino of Galicia Abogados examine the latest developments in the ongoing legal battles in Mexico’s federal courts over the constitutionality of the government’s key measures in the energy sector, which have led to a strained relationship between the government and the judiciary.

Published on 15 November 2023
Daniel Amézquita, Galicia, Chambers Expert Focus contributor
Daniel Amézquita
Ranked in Public Law in Chambers Latin America 2023
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Iván Valdespino, Galicia, Chambers Expert Focus contributor
Iván Valdespino

Galicia Abogados’ previous article, published in February, outlined the key measures initiated by the Mexican government in the energy sector since 2019. The constitutionality of these measures has been vigorously challenged by various parties before the Federal Judicial Branch (Poder Judicial de la Federación or PJF).

Eight months since that publication, the legal battles continue in the federal courts, bringing with them significant political consequences that threaten to undermine judicial independence in Mexico. Although the Mexican government has managed to resolve some disputes, it looks increasingly likely that a dispute resolution panel under the United States-Mexico-Canada Agreement (USMCA) will be established, particularly in the wake of President Joe Biden’s recent request to US energy companies to prepare affidavits documenting Mexico’s protectionists policies.

The role of the PJF in upholding constitutional principles and fundamental rights in the energy sector, such as free competition and the right to a healthy environment, has been a bulwark against greater damage and conflict. The current government’s rhetoric blames judges for impeding its “transformation” agenda, which allegedly aims to achieve energy sovereignty and security for Mexicans through protectionist means. Judicial resolutions have suspended or invalidated several legislative, regulatory, and public policy measures that support this agenda.

The Impact on the Electricity Sector: Controversies Surrounding the LIE Reform

In the electricity sector, for instance, ongoing judicial suspensions in force since 2021 have hindered the implementation of the Power Industry Law reform (the “LIE Reform”). Under the LIE Reform, the Federal Congress granted power plants operated by the Federal Electricity Commission (Comisión Federal de Electricidad or CFE) priority national grid access and dispatch, irrespective of higher generation costs and the use of more polluting technologies.

Originally, the Second Chamber of the Mexican Supreme Court of Justice (Suprema Corte de Justicia de la Nación or SCJN) had earmarked 27 September 2023 to rule on several appeals brought by the government against rulings favourable to private permit holders and establish a legal precedent concerning the constitutionality of the LIE Reform. However, prior to the session, the Mexican President filed motions for the recusal of two justices. The President claimed that the justices’ impartiality was compromised due to their associations with a civil association that had also challenged the LIE Reform and with the lawyer who chairs that association. Consequently, a decision on the constitutionality of the LIE Reform has been postponed indefinitely until these recusal motions are settled.

Likewise, some suspensions granted by federal judges are currently preventing the application of Resolution A/018/2023 issued in May 2023, under which the Energy Regulatory Commission (Comisión Reguladora de Energía or CRE) relaxed certain criteria and technical methodologies. The aim was to allow more energy from cogeneration plants that utilise fossil fuels like natural gas for electricity production to qualify as “clean energies”. This would contribute to meeting the country’s outstanding clean energy targets and make them, to some extent, eligible for Clean Energy Certificates.

Developments in the Hydrocarbons Sector

In the hydrocarbons sector, in June 2023 the SCJN invalidated a reform by which Congress had abruptly removed the asymmetric regulation imposed on PEMEX (Petróleos Mexicanos, the Mexican state-owned petroleum company) as well as CRE’s authority to issue said regulation. The SCJN concluded that CRE is the constitutionally empowered authority to regulate first-hand sales and define the applicable methodologies and principles to evaluate the conditions of efficiency and effective competition in the market.

Moreover, while its constitutionality is under review, both the SCJN and other federal judges have suspended the enforcement of a public policy from the Ministry of Energy. This policy would have restricted the transport of natural gas via the national integrated system solely to companies that source their gas from PEMEX or the CFE. The suspension granted by the SCJN suggests that the policy is in violation of the principles of free competition.

The Judiciary’s Balanced Approach: Rulings in the Government’s Favour

Despite the aforementioned issues, the Mexican government overlooks the fact that the very judiciary it accuses of favouring specific interests has also issued numerous rulings in the government’s favour. To illustrate this point, consider the following examples:

  • In June 2022, the First Chamber of the SCJN established a mandatory precedent stating that the conditions set forth in power generation permits do not create acquired rights for their holders and are subject to modifications under legislative reforms.
  • In September 2022, the judiciary dismissed hundreds of amparos filed against the reform of the Hydrocarbons Law, which substantially modified the permit regime. Among other changes, the reform introduced new grounds for revocation or suspension of said permits on the basis of “national security” or “energy sovereignty”. This reform, expressly approved to strengthen the substantial power of PEMEX at the expense of its private competitors, is fully in force because the federal courts considered that the reform does not harm permit holders merely by taking effect; rather, specific acts of application must occur for it to be contested.
  • Following the same line of reasoning, the Collegiate Courts have continued to revoke multiple suspensions granted by federal judges to permit holders regarding the LIE Reform.
  • Federal courts have rejected dozens of constitutional claims filed by consumers of electricity or natural gas. The courts have determined that these consumers lack standing to challenge the measures, even though they might seek to invoke protection under the “legitimate interest” framework recognised in applicable law.

Attacks on the Federal Judiciary

Although the government may not publicly acknowledge these resolutions, they demonstrate that the judiciary has not displayed bias against governmental measures. Rather, it has maintained its impartiality, issuing rulings both favourable and unfavourable to both sides based on strictly legal interpretations.

Despite this, the government’s need for an antagonist in its electoral narrative has led to unwarranted and excessive attacks on the federal judiciary. At the time of writing, the Federal Congress has approved the dissolution of 13 of the 14 trusts in which the PJF kept MXN20 billion to cover workers’ pensions, medical benefits, and infrastructure needs, among other things. This led to a nationwide strike by all PJF workers from 18 to 27 October 2023, with the possibility of an extension.

To exacerbate matters, one of the electoral pledges of the current government is a constitutional reform initiative aimed at allowing the justices of the SCJN and other judges to be elected by direct popular vote, regardless of their credentials.

Mexico’s Judiciary: A Vital Counterbalance to Presidential Power

From a purely legal standpoint, the core issue is not the rulings of the PJF but rather the incongruence between the government’s actions and the fundamental principles and rights stipulated in the Federal Constitution. Since the government failed to secure a qualified majority in 2022 to pass constitutional reforms that would reassert State preeminence in the energy and hydrocarbons sectors, their “Plan B” is to undermine the judges responsible for upholding the Constitution.

In the current climate of growing presidential power, the PJF serves as an increasingly vital counterbalance. Therefore, it is incumbent upon us to speak out and defend this institution.

Galicia Abogados

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