New energy regulator nominees unsettle market sources

Mexico’s president nominates three for energy regulator top spot

Regulatory advancement likely to further slow at CRE

Civil society groups to monitor CRE for impartiality

HOUSTON (ICIS)–Mexico’s President Andres Manuel Lopez Obrador (AMLO) submitted to the Senate on 1 October a list of three nominees for president commissioner of energy regulator CRE – nominees sources say could signal additional threats to the weakened regulator’s autonomy.

The nominees are Alfonso Lopez, Leopoldo Melchi and Maria Rosio Vargas. Lopez and Melchi could not be reached for comment before publication. Vargas declined to comment.

Lopez has twice been rejected for a CRE commissioner post by a Senate controlled by AMLO’s Morena party while Vargas currently works at Pemex, according to the Senate document. Sources said this would legally disqualify her from holding the post. Nominees must not have worked at a regulated entity for at least one year, according to the Mexican law known as LORCME governing energy regulators.

“The nominees’ profiles seem similar to those of the commissioners chosen in April, meaning they are more focused on the hydrocarbons sector than on electricity, with technical experience at Pemex and aligned with the new administration due to a proximity to [energy secretary] Nahle or [CFE director] Bartlett,” said a former regulatory official.

An experienced Mexico-focused energy consultant called Vargas a “nationalist hardliner,” noting her links to CFE director Bartlett.

Vargas has published numerous academic works focused on Mexican and North American energy sectors including a six-chapter book she co-authored in 2016 with Bartlett entitled “Energy reform: the hard power and consensus used to impose it.” The book’s hypothesis, according to a review published by the Instituto de Geografia at Mexico’s national autonomous university (UNAM), is that the US incorporated Mexico into a larger geopolitical strategy designed by elites in Canada, the US and Mexico to guarantee US energy security and to “reinforce a model of economic dependence.”

One gas market participant called Vargas’ links to Bartlett and the theme of their book “frightening.” It is currently unclear how far her candidacy will advance given the LORCME legal constraints.

Market participants polled were divided on which of the three candidates was most likely to be chosen.

“Lopez and Melchi are currently at SENER and Vargas is at Pemex, which makes me think [Vargas will] be the president [commissioner],” said one former government official.

A power market consultant believed Senate members would not truly change their mind regarding the twice-rejected Lopez but said “they will have to accept him this time. He’ll be confirmed.”

The most recent April appointments to the CRE’s board of commissioners came directly from AMLO after the Senate rejected the nominees twice. The LORCME law stipulates that if two sets of CRE commissioner candidates are rejected by the Senate, Mexico’s president may directly select the commissioners. It does not state if the two candidate lists must be different, a feature some consider a flaw that opens the door to undue influence from the executive.

Potential consequences

The CRE’s autonomy and power have been significantly reduced after failed attempts to change legislation to subordinate it to SENER, severe budget cuts, numerous commissioner resignations and a surprise mass layoff in July.

Sources said the heads of CRE’s electricity and LPGs units resigned in September. The heads of CRE’s natural gas and other units resigned shortly after the June resignation of former CRE president commissioner Guillermo Garcia. These changes are likely to slow or halt the drafting of new regulations.

Even so, the CRE’s board of commissioners still has a quorum and is able to meet to complete routine tasks such as granting permits.

Transparency efforts

Market participants as well as civil society groups in Mexico have been closely watching the changes that have taken place at the CRE more quickly than is usual for energy regulators, which are expected to be autonomous from political influence to be able to maintain neutrality.

Maria Fernanda Ballesteros, an attorney and coordinator of the competition and regulation area at Mexico-based think tank Mexico Evalua, said the group will be developing additional efforts to monitor Mexico’s energy regulators as a follow up to its corporate transparency index , a measure published in English and Spanish developed by its economists to hold Pemex and state-run power utility CFE accountable in various areas, including the quality of their tenders.

“At Mexico Evalua, we are convinced of the importance of the role of energy regulators, so with the intention of strengthening them, we will track if they are fulfilling their role in an impartial and objective manner without granting unfair benefits,” Ballesteros said. “We believe this is crucial for the proper functioning of energy markets.”

Ballesteros added that under current post-energy reform laws, preference may not be given to state-owned companies and that Mexico Evalua’s focus is on “efficiency, consumer benefit and value maximisation.”

“This does not mean Mexico’s energy regulators will seek to weaken state-owned enterprises. On the contrary, the goal of their monitoring the energy industry is that these state enterprises be run optimally and in the public’s best interest.”