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Legal Update: Energy Regulatory Commission (CRE) | Interpretation of the Concept of Own Needs and Isolated Supply

Printable version | January 2022

On December 31, 2021, the Energy Regulatory Commission (“Comisión Reguladora de Energía (CRE)”) published, in the Official Gazette of the Federation (“Diario Oficial de la Federación (DOF)”), “Agreement No. A/037/2021 of the Energy Regulatory Commission through which modifies Agreement No. A/049/2017, which issues the criteria for the interpretation of the concept of Own Needs, established in article 22 of the Electricity Industry Law, and which describes the general aspects applicable to the activity of Isolated Supply” [1] (el “Acuerdo”), using which the new interpretation criteria were issued in the subject of reference.

By what was published, the Agreement has as its main objectives:

  1. Issue clear interpretation criteria through which the concepts of Own Needs and Isolated Supply must be analyzed and understood;
  2. Avoid undesirable effects derived from an incorrect interpretation of said criteria that threaten the "adequate national coverage", as well as the reliability, stability, and security of the electricity supply and the provision of this service, and
  3. Promote the necessary mechanisms for the generation of electrical energy for end users who seek to carry out said activity.

The Agreement proposes, among others, the following modifications:

  • The possibility of entering into contracts with third parties to carry out financing, installation, modernization, and operation activities, among others, by Abasto Isolate permit holders is eliminated.
  • The figure of the local generation is eliminated.
  • The possibility of carrying out an Isolated Supply project with a legacy interconnection contract is eliminated.
  • The business scheme for power plants and load centers in the Isolated Supply modality is eliminated. 
  • The definition of economic interest group is modified to be defined as:

"Group of natural or legal persons organized under direct or indirect participation schemes of social capital provided that in this group all legal persons qualify as companies that produce and/or market goods or provide services, in which the same company maintains the control of the said legal persons.

Control will be considered to exist if a natural or legal person directly or indirectly owns the majority of the shares, partnership interests, contributions, or outstanding titles with voting rights of the controlled company(ies).

  • The definition of the concept of Own Needs is modified to be understood as:

"(...) the generation or import of electrical energy, consumed by the Load Centers of the same natural or legal person, or of a group of these that belong to the same Economic Interest Group, or for export, without transmitting said energy through the National Transmission Network or the General Distribution Networks.

For the previous paragraph, it will be considered that de jure control, as well as related interests and coordination of activities, can be demonstrated and, consequently, there is an Economic Interest Group when any of the following criteria or a combination of criteria are updated: the same:"

  • The definition of the concept of Isolated Supply is modified to be understood as:

“(…) the generation or import of electrical energy to satisfy one's own needs or for export, without transmitting said energy through the RNT or through the RGD[2].

The Isolated Supply facilities may or may not be permanently or temporarily interconnected or connected to the RNT or the RGD for the sale of surpluses or purchase of shortages of Electricity and Associated Products through the point of interconnection or connection, as appropriate.

In these cases, the holder of the generation permit must be: a) the physical or moral person that consumes the electrical energy; b) one of the people that make up the economic interest group; or c) Repealed. (…)

In the follow-up to the aforementioned modifications, the consequences and impacts for the electricity sector are increasing since said modifications were raised from a specific and independent point of view without considering the general panorama of the operation and the production chain of the industry.

An example of the above is the impossibility of delegating activities of financing, installation, operation, maintenance, etc., of power plants to expert third parties, understanding that now that the load centers will be the only ones that will be able to carry out the actions and works necessary to its operation directly, which will result in additional expenses and costs for those who participate in the Isolated Supply schemes and, as a consequence, the general prices of electrical energy will rise and competitiveness in the sector will be limited.

Another consequence derived from the Agreement is the repeal of numerals 2.3 and 3, second, third, and fourth paragraphs, through which the figure of local generation is eliminated, which, unlike what is contemplated and stated in the Agreement, does not constitute a new modality of ownership of the electricity generation permit but rather this figure is contemplated within the specifications and generation modalities that cover the pass granted by the CRE, added to the fact that by eliminating the figure of local generation it is presented a reduction in the alternatives that users can access, taking into consideration that it is one of the power generation figures that seek to reduce the costs of generation and supply of electricity for end users, and makes it impossible for generators to recover their costs through the sale of surpluses.

It is essential to highlight that the CRE requested the National Commission for Regulatory Improvement (“CONAMER”) the exemption from presenting the regulatory impact analysis (“AIR”) since it considered that the proposed modifications do not affect the rights of individuals. However, the reality is that every one of the proposed modifications affects, to a greater or lesser extent, the rights and interests of individuals who carry out generation activities under the modalities of isolated supply and local generation, especially by eliminating the figure of a local generation because the rights acquired by individuals who carry out this type of activity, and whose power plants are in operation, will be affected, making it impossible for some participants to migrate to the MEM, as well as being able to continue carrying carry out their activities.

Furthermore, the proposed modifications not only have the fundamental objective of limiting the power generation activity under the Isolated Supply and Local Generation modalities but also affect the interests and rights of end users by limiting the power supply options to those that have access, raising the costs of generation and supply and restrict the business models of the generators, which generates a distortion in the market and threatens, mainly, against principles and rights of free competition and economic competition in the generation sector and electricity supply, as well as security and legal certainty.

In this sense, the general director of competition promotion of the Federal Economic Competition Commission (“COFECE”) sent, using an email to CONAMER, COFECE's comments about the preliminary draft of the Agreement, through which, among other issues, it was recommended that the Agreement be submitted to the regulatory improvement process with an AIR with an impact on competition because the proposed modifications limit the use of efficiency in the generation of electrical energy under the self-supply scheme, as well as it prevents access to electricity in the best conditions, compromising the competitiveness of the sector, however, said the comment was not taken into consideration since the exemption was granted.

Following up on the above, there are arguments and defense mechanisms available to the agents involved and affected by the modifications proposed in the Agreement to maintain and respect the balance and certainty of the current legal framework in the energy sector. Specifically, it is possible to promote a support lawsuit against the Agreement, for which, there is 30 business days from its entry into force.

Our office offers the possibility of supporting the affected agents based on the arguments presented in general in this document, as well as on the specific aspects derived from the analysis and study of each particular case, to develop an ad strategy ad hoc for each situation, with the collaboration of our lawyers specialized in energy, economic competition, human rights, constitutional litigation and protection of rights. The Agreement entered into force the day after its publication in the DOF.

The Agreement entered into force the day after its publication in the DOF.

[1] Original publication in the DOF:

[2] Where RNT means "National Transmission Network" and RGD means "General Distribution Networks".

If you require additional information, please contact the responsible partner for your affairs or one of the lawyers mentioned below:

Mexico City Office

Lic. Juan Carlos Machorro G. (Partner),

Lic. Mariano Calderón V. (Partner),

Tel: +52 55 5279-5400

Monterrey Office

Lic. César Cruz A. (Partner),

Tel: +52 81 8133-6000

Queretaro Office

Lic. José Ramón Ayala A.

Tel: +52 442 290-0290