The opening of the wholesale electricity market is bringing important modifications to the Mexican electricity sector. One of the most relevant changes is the introduction of competitive tariffs for industrial and commercial consumers with aggregated electricity consumption above a stated threshold, currently set at 3MW, which are recognized as qualified users by the Law of the Electricity Industry. Nonetheless, the electricity tariffs for the rest of the segments will continue to be regulated by the government as it was done before the reform.

Source: MESR with information from CRE

Source: MESR with information from CRE

Currently, the Mexican electricity tariffs system contemplates five different customer segments according to the final use provided to energy: residential, commercial, agricultural, industrial, and public services. Residential is the segment with the higher number of registered users while industrial is the one representing the highest electricity demand. Before the reform, private companies could already generate electricity but they were not able to commercialize its power as there was no open electricity market. Instead, private generators used to sell their electricity to CFE, which distributed it to the final user at a fixed rate.

Before the reform, tariffs for industrial and commercial users were set considering the hourly prices, tension lines utilized, inflation, and the marginal costs of CFE, as established in 1988. In the wholesale market, industrial tariffs will be defined using a similar scheme, but it will be now calculated per each actor of the market using its specific marginal costs, in concordance with the procedures established by the CRE. Using different marginal costs will result in different tariffs and those with the lower costs will be given an advantage in the market. The competitiveness resulting from this system is expected to lower down the cost of electricity for industrial purposes, which was one of the main objectives of the energy reform.

Regarding the residential customers, the new law states that CFE will continue to be the sole provider for this segment. Therefore, the residential tariffs will continue to be fixed by the government as it was done before the reform. It is important to highlight that residential tariffs are heavily subsidized at the moment and this situation is not expected to change in the close future. In the past, residential tariffs used to follow an increasing tendency. Nevertheless, in 2014, tariffs started to go down as a result of the revamping of CFE’s old facilities using fuel oil for natural gas-based technologies. This same tendency was also observed in industrial and commercial tariffs.

Agricultural and public services tariffs follow different tendencies as they are defined considering other factors rather than pure technical procedures. Differentiation of public services tariffs is justified by its public character and the fact that they are services with a well-defined usage trend, which is usually cheaper to estimate than to measure. As happens with residential and commercial segments, public services tariffs tend to be lower in the summer when a special subsidy is included.  However, the reduction in the summer tariffs is more obvious in the public services segment as it is calculated at a fixed rate.

Finally, the agricultural tariffs are following an unusual trend as they respond to external factors such as political will and the situation of the agricultural industry in the country. Moreover, this is the segment receiving more governmental subsidies. Even though differentiating the tariffs for this segment is economically unsustainable and unjustified, its political weight makes it difficult to eradicate. Therefore, as it happens with residential rates, the government will continue setting the mark for agricultural tariffs in the upcoming years. On the contrary, the case for commercial users might change in the close future once the threshold for qualified users gets lowered down.

Summary of electricity tariffs in the country by 2016*

Source: MESR with information from CRE and CFE (*does not include backup and interruptible services tariffs).

Source: MESR with information from CRE and CFE (*does not include backup and interruptible services tariffs).

Sources: CRE, CFE, Energía a Debate

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