MEXICO Law and Practice Contributed by: Bernardo Cortés and Fernando Quesada, Cortés Quesada Abogados, S.C.
5.2 Regulatory Process for Obtaining Approvals to Construct and Operate Electricity Distribution Facilities
5.5 Monopoly Rights for Electricity Distribution Entities
CFE is the only entity allowed to provide public utility distribution services. The terms and conditions gov- erning these services (including rates) are approved by the CNE (whose rules were grandfathered from the former regulator). While CFE holds exclusive rights to operate distribu- tion services, the participation of private investment in distribution infrastructure is expected, under con- tractor modality. In support of this, the Mexican gov- ernment announced investments of up to USD3.79 billion for the 2025–2030 period, aimed at 97 brand new substations, 95 expansion projects for existing substations, 6,875 modernisation works and 42,221 electrification works. These projects are intended to strengthen supply reliability, support industrial growth corridors, improve service quality and expand elec- tricity access in under-served regions as part of the broader energy justice policy introduced by the 2024 reform. 5.6 Electricity Distribution System Charges and Terms of Service Distribution rates are issued and approved annually by the CNE. These rates are calculated using method- ologies that ensure a reasonable return of investment and cost recovery on the operation, maintenance, financing, investment, improvement, expansion and depreciation of the GDGs, and also accounting for both technical and non-technical losses. Market participants pay for transmission services through CENACE, which incorporates these rates into the settlement processes of the WEM. Basic supply rates also consider specific distribution costs, reflect- ed as part of the fixed capacity charges. The CNE is also empowered to issue general terms of service for distribution services, outlining the scope and types of service offered, credit terms, conditions for service suspension, penalties and compensation mechanisms, and procedures for addressing com- plaints from users.
As with transmission services, CFE is not required to obtain a specific permit to provide distribution ser- vices. However, the construction and operation of distribu- tion facilities require environmental, social, local and municipal authorisations (similar to those applicable to generation facilities), as well as government approv- als for crossroads, lands and water bodies within the jurisdiction of governmental agencies. These approv- als are typically contingent on the acquisition of the corresponding real estate rights. Note that environmental impact authorisations are not required for distribution substations located in urban, rural, industrial or touristic areas. 5.3 Terms and Conditions Imposed in Approvals to Construct and Operate Electric Distribution Facilities Environmental and social authorisations related to the construction and operation of distribution infra- structure include provisions for remediation measures, ongoing monitoring protocols and obligations tied to eventual decommissioning. 5.4 Eminent Domain, Condemnation or Expropriation Rights to Construct and Operate Electricity Distribution Facilities Distribution services are deemed to be a public util- ity and are therefore subject to expropriation under that designation. The LSE expressly grants eminent domain rights for the construction and operation of distribution works. CFE must follow the land use and occupation proce- dures outlined by the LSE in order to obtain the neces- sary real estate rights for the development, construc- tion and operation of distribution infrastructure. These procedures consider the execution and ratification of real estate agreements before civil or agrarian courts, as well as specific compensation concepts.
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