Long ago, PEMEX announced its new structure, shifting from four subsidiaries to two main subsidiaries and five branches or service companies. The separation was an immediate result of the Energy Reform and its bylaws, as these prohibit the vertical integration of State-owned companies. It was evident that CFE would have to undergo a similar process, but the how remained unclear. Most speculations revolved around CFE separating into at least four companies, with each one dedicated to one of the parastatal’s activities.

On January 5, 2016, the Ministry of Energy issued the terms for the legal separation of CFE, which will enable the company to properly compete in the wholesale electricity market. CFE should create a company dedicated to transmission, one for distribution, one for the basic services segment, and at least four companies dedicated to generation. César Hernández Ochoa, Undersecretary of Electricity, claims the State-owned company will have at least eight subsidiaries and two branches: four generation subsidiaries and others dedicated to distribution, transmission, basic services, and qualified services, a branch focused on independent power producers, and another branch for the self-supply scheme.

The horizontal separation of CFE’s generation activities is intended to ensure conditions of competitiveness in the wholesale market, thus reducing costs. These subsidiaries should not hold any sort of national or regional dominance in order to ensure a balanced market, and each subsidiary should present similar conditions in terms of financial sustainability and profitability. According to Hernández Ochoa, some plants could be assigned to a specific subsidiary according to the technology used.

The transmission company will operate the 58,000 km of power lines in the country, while the distribution subsidiary will have 16 units, the same number of the regional divisions CFE currently possesses. It is worth highlighting that these two areas were not fully open to private participation after the reform, thus remain in the hands of the State-owned utility.

The basic services subsidiary will cater to the residential segment, the qualified services company will look after qualified users, and two more subsidiaries will deal with independent power producers and self-supply projects respectively. In addition, two previously created subsidiaries will add to CFE’s new structure: CFE International, which is intended to compete in international markets, and CFE Energy, a company that can commercialize natural gas, fuel oil, and diesel in the Mexican market. The latter demonstrates CFE’s shift from a utility company to an integrated energy company.

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The Ministry of Energy states that CFE’s market participation will be independent and carried out through its several subsidiaries and branches, ensuring each one of these competes in equal conditions as other companies entering the market. The Ministry also developed schemes to hinder communication and information exchanges between CFE’s companies in order to guarantee legitimate competition. “In the case of CFE’s supply subsidiary, which buys energy, and the four generation companies, it is important that there is no complicity between these,” stated Hernández Ochoa, highlighting the authorities’ efforts to maintain a level playing field.

According to Hernández Ochoa, CFE has six months to create the boards of the new subsidiaries, which will be composed of members of the federal government and headed by the holding group’s Director General.

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