Mexico state power utility could annul pipeline contracts

MEXICO CITY (ICIS)–Private companies that have natural gas pipeline contracts with state-run utility CFE should renegotiate the contracts or could face the prospect that they would be annulled, CFE director Manuel Bartlett said in a 28 March press conference.

“We hope there is an agreement, but if we can’t reach one and we conclude that we can’t keep commitments that the CFE can’t sustain, of course we will try and annul the contracts,” he said in the conference where he also said the administration could investigate former CFE officials involved in negotiating the contracts, including the former head of CFEnergia Guillermo Turrent.

Bartlett complained – as president Andres Manuel Lopez Obrador has before – that CFE is obligated to pay billions of dollars in fixed capacity payments to private companies that are developing natural gas pipelines, even though those projects are incomplete. Most have stalled because of local opposition and related legal challenges. The affected companies include IEnova, TransCanada and Grupo Carso.

The new administration has not released the contracts for public review, despite promising to do so. Bartlett made vague promises to do so, but he said they would only be released after the administration had fully reviewed them.

Bartlett defended the administration’s energy plan, which largely focuses on returning Mexico to its status as an oil powerhouse and returning CFE to a dominant position in the market. He repeatedly said CFE has no interest in purchasing energy from private companies when the company’s mission is to generate electricity.

Bartlett rejected widespread criticism that Mexico is turning its back on clean energy solutions. But he railed at length about the failures of clean energies, saying they aren’t the “great solution.” The new administration cancelled in January a fourth long-term auction that could have allowed more clean energy projects to be funded and built.

And he said “it’s a lie” that clean energy is cheaper, because he said CFE effectively “subsidizes” clean energy companies by providing power when the clean energy manufacturers cannot because of a lack of sun or wind.

It is common in power markets for renewable power to be dispatched when it is available and other generation like that fired by natural gas to be dispatched when renewables are unavailable. He also alleged that clean energy companies are subsidized because of low or non-existent transmission costs for them, alternating between the two explanations.

In January, Mexico’s energy ministry SENER cancelled the Baja transmission line project, which would have linked the isolated electricity system of Baja California with the SIN mainland interconnected electric system. It also cancelled a transmission line project tender from Yautepec, Morelos to Ixtepec, Oaxaca. The projects were considered by market participants to be crucial in decreasing congestion on Mexico’s power grid.

Bartlett attacked energy regulator CRE for not setting higher tariffs on a variety of services CFE provides including transmission.

He also defended the plan to re-integrate CFE, which has alarmed the private sector. The CFE currently has six private subsidiaries that operate as independent companies. He said any consolidation or reorganisation moves would not turn CFE into a “terrible monster,” as some have suggested, but would instead “correct important errors.”