Although the current discourse makes an effort to point out that CFE is one and that, therefore, the best thing is for the company to be integrated into a single organism, the reality is that there are many CFEs and that has fundamental implications that can help us go deeper into the current problem in which the Mexican electric sector finds itself.
Certainly, after the energy reform CFE went from being a parastatal entity to a productive company of the State and that allowed the company to divide itself by business segments. Part of these strategies had been established in PEMEX since 2008 and were reinforced in 2013, then they were extended to CFE.
The objective was for CFE to have operational flexibility for the development of its activities, for it to be able to optimize costs, to have an adequate debt ceiling, for subsidies to be gradually eliminated, for its business plan to be the guiding axis of its activities and for regulators to have clear information for the setting of tariffs for the benefit of citizens.
The CFE Law established only one exception: those strategic activities of the nation, those where the government reserves the monopoly, should be carried out through subsidiaries and the rest could be affiliates. In this way, transmission and distribution should be carried out through subsidiaries. Meanwhile, in the affiliates, CFE could associate itself while maintaining more than 50% of the capital stock. In the subsidiaries this was not possible.
From this, six productive generation subsidiary companies were born, as well as CFE Transmission, CFE Distribution and CFE Basic Service Supplier. Also created as affiliates were CFE Qualified, CFEnergía, CFE Capital, CFE International and CFE Legacy Contracts Intermediation.
“The logic is that the businesses of the various faces of CFE are different and, therefore, on many occasions they pursue diametrically opposed objectives. This is a key point.”
Here arises the quid of the question. The logic is that the businesses of the various faces of CFE are different and, therefore, on many occasions they pursue diametrically opposed objectives. This is a key point. While for the six subsidiaries of CFE Generation the most beneficial thing is to sell the greatest amount of energy possible at the highest price, for CFE Basic Supply the most beneficial thing is to have the cheapest energy possible according to how demand behaves.
Or, on the other hand, it is convenient for CFE Generation II, for example, to save its hydroelectric energy for those moments in which the price paid for it is higher and which is set by a thermoelectric plant of CFE Generation IV. Or it is not convenient for CFE Generation III that CFE Generation V offers cheaper energy from the Independent Producers because it will not be dispatched.
Also, while the six subsidiaries of CFE Generation seek to have the cheapest fuel price possible to sustain the hedging contracts with CFE Basic Service Supplier, CFEnergía benefits from selling the fuel at the highest price possible to whoever pays it best.
As for CFE Qualified, it benefits from more industrial users who want to migrate to the electric market, those that represent more than 50% of the sales income of CFE Basic Service Supplier, a situation that would cause the first to increase its income at the expense of the second.
For their part, since CFE Transmission and CFE Distribution have tariffs that cover all their efficient costs without the need to invest, it is convenient for both to increase the costs that can be transferred to the tariffs, convincing the regulator, the CRE then, that they are efficient and that it is convenient for us that they be added as part of the tariffs.
In that logic, CFE Capital would prefer to have in its portfolio low-risk projects with guaranteed returns, easily projectable over time and even better if they are a monopoly, like Transmission, than projects with management, operation, administration, fuel risks and where they have to compete, according to the current model, like electric generation.
As you can observe, it is not one CFE, there are many CFEs with different objectives and with different business logics. The reason for separating them was so that we could observe these differences and know the real and efficient costs of each segment in order to have clear tariffs for the benefit of all consumers.
But that is precisely what the electric reform being discussed these days intends to disappear.
This article was originally published by Energía a Debate.
Date: January 17, 2022
Link: https://energiaadebate.com/no-es-una-cfe-son-muchas-cfe/ [Online]