GC ALERT | Supreme Court votes LIE Reform: Insufficient to rule its General Unconstitutionality

On March 9, 2021, the decree that amends and adds various provisions to the Electric Industry Law (“LIE Amendment”) was published in the Federal Official Gazette, which entered into force on March 10, 2021.

Consequently, on March 10, 2021, and in the following days, multiple Amparo lawsuits were filed against it by aggrieved individuals. In an expedited manner, the First and Second District Courts in Administrative Matters specialized in economic competition, broadcasting and telecommunications granted provisional and, subsequently, definitive suspensions with general effects, in such way that the LIE Amendment has not been enforceable.

Accordingly, 48 members of the Mexican Senate filed an unconstitutionality action before the Supreme Court of Justice (“SCJN”) against the LIE Amendment (64/2021).

On April 7, 2022, the SCJN ruled to dismiss the unconstitutionality action 64/2021 since none of the points discussed obtained the qualified majority of 8 votes necessary for a general declaration of unconstitutionality.

In general terms, the constitutionality of articles 3°, sections V, XII, XII bis, XIV; 4 section I; 12, section I; 35, first paragraph; and 108, section V, as well as the fourth and fifth transitory articles of the LIE Amendment was recognized in a majority vote.

In particular, the grounds discussed in the unconstitutionality action before the SCJN were the following:

Dispatch order in the National Electric System (“SEN”) – Provisions related to changes in the merit order in the economic dispatch were analyzed. Among them, are the creation of electricity coverage agreements with physical delivery commitments and the liberalization of procurement mechanisms for CFE Basic Supplier.

The vote resulted in a simple majority in favor of its unconstitutionality.

National Treatment – It was analyzed whether the modification to the dispatch order violates the principle of “national treatment” recognized in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and the Treaty between Mexico, the United States, and Canada.

The vote was unanimous in favor of its constitutionality.

Granting of Clean Energy Certificates (“CELS”) – The provisions foreseeing the granting of CELS to power plants that existed before the 2013 energy reform were analyzed.

The vote resulted in a simple majority in favor of its unconstitutionality.

Revocation of Self-Supply Permits and review of contracts executed with Independent Power Producers — The provisions that instruct the Energy Regulatory Commission (“CRE”) to revoke legacy self-supply permits obtained “in fraud to the law” (en fraude a la ley) pursuant to the corresponding administrative procedure were analyzed. Likewise, the provisions that instruct the review of the Power Generation Capacity Commitment and Power Purchase Agreements executed by the Federal Electricity Commission (“CFE”) with independent power producers to confirm compliance with the profitability requirement and, in any case, their renegotiation or early termination.

The vote resulted in a simple majority in favor of its unconstitutionality.
SEN criteria — The provisions related to the faculties of the Ministry of Energy to issue criteria for the planning of the SEN and subjecting the CRE to follow such criteria for the granting of electricity permits were analyzed.

The vote was unanimously in favor of its constitutionality.

Tariffs for End-Users — The implications caused by the modification to the power dispatch order and the potential increase in tariffs for end-users were analyzed.

The vote resulted in a simple majority in favor of its unconstitutionality.

SEN principles — It was analyzed whether the modification to the dispatch order would cause a violation of the SEN principles.

The vote resulted in a simple majority in favor of its unconstitutionality.

As result of the SCJN’s ruling, the LIE Amendment continues to be in force in the legal system; however, the sense of the ruling is undoubtedly a significant argument in the Amparo proceedings filed by plaintiffs against the LIE Amendment. Still, for the time being, its effects continue to be suspended because of the suspensions with general effects that were granted by means of several indirect Amparo proceedings that are currently pending. The suspensions will remain in effect until they are revoked or the Amparo proceedings that gave rise to them are concluded.

In the event the suspensions with general effects are revoked, the LIE Amendment will apply to those who do not have individually granted suspensions, in the understanding that they will have the possibility of filing Amparo trials within 15 business days after the first act of application of the LIE Amendment.

Whilst the ruling issued by the SCJN represents relevant criteria, it is important to emphasize that it does not constitute binding jurisprudence; therefore, judges and magistrates will not be obliged to adhere to such criteria in the resolution of the corresponding Amparo proceedings. It should be noted that, unlike the case resolved by the plenary of the SCJN, the Amparos filed by private companies will be resolved by the Second Chamber of the SCJN or by the specialized collegiate courts and the corresponding voting only require a simple majority to be resolved.

In addition to the unconstitutionality action, the Federal Economic Competition Commission (“COFECE”) and the State of Colima filed constitutional controversies before the SCJN against the LIE Amendment. It is expected that such controversies will be resolved during the next plenary session of the SCJN. Through the resolution of these controversies, the SCJN will determine whether the LIE Amendment was issued invading faculties corresponding to other authorities, including, among others, COFECE and the State of Colima.

González Calvillo is prepared to provide the advice required in relation to the LIE Amendment and SCJN rulings. We remain at your service for any questions or clarification in relation to the scope of this document.

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For over 30 years, Gonzalez Calvillo has been at the forefront of the legal market in Mexico as a full-service leading law firm due to its transactional core and expertise in a wide range of practice areas. The firm is recognized for its ability to build cross-disciplinary teams for the most complex legal challenges and long track record of successfully providing groundbreaking business and regulatory advice to high-profile domestic and international companies. Often described as a pioneer of the Mexican legal services industry, the firm is known for its commitment to do things differently, bespoke solutions, and creating transformational legal changes that enable clients to achieve their objectives.

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