In July 2020 the higher porteo charge that CRE set for holders of legacy interconnection contracts took effect. La Jornada reported on 11 June 2020 that CFE Intermediación de Contratos Legados raised those porteo tariffs by 427 to 811% depending on voltage level. Not one of those companies had signed a contract that promised to hold porteo flat. The charge sat outside the negotiated price, so it moved, and the operators carrying it discovered which line of their agreement had actually been fixed.
That is the recurring failure in Mexican power contracting. A facility with 1 MW or more of demand registers as a Usuario Calificado, runs a competitive process, signs at a price it likes, and finds that the components it did not negotiate are the ones that move. A suministro calificado contract is negotiated in free competition under Article 48 of the Ley de la Industria Eléctrica, so there is no CRE-approved model contract to fall back on and no regulated tariff to appeal to. Whatever the document says is the deal.
This is a clause-level review guide for whoever reads the agreement before it is signed. The separate question of how to run the process that produces the contract is covered in reducing risks in energy contracts.
Establish what is priced and what is passed through
Start by decomposing the offer, because in Mexico four things can appear on an industrial power invoice and a quoted price may include any combination of them.
- Energy. Settled at the Precio Marginal Local of the node, which decomposes into the componente de energía, the componente de pérdidas and the componente de congestión (CENACE, Diccionario de Datos Abiertos, referencing the DOF note of 4 July 2016). A fixed energy price is a hedge the supplier provides, and it has a cost.
- Potencia. Settled annually and after the fact through the Mercado para el Balance de Potencia under the Manual published in the DOF on 22 September 2016. The obligation is calculated from a load-serving entity's average demand across the 100 critical hours of the production year, not from annual consumption.
- Porteo. The CRE-regulated transmission and distribution charges. Regulated means CRE can change them, and in 2020 it did.
- Certificados de Energías Limpias. Either included in the price, priced separately, or absent. Confirm which.
Two offers that differ only in what they bundle look like a price difference and are not one. Require every bidder to quote on an identical itemized basis.
Credit terms and collateral
Credit quality moves the price and it determines what security the supplier demands. Expect a letter of credit or a parent guarantee sized against several months of supply. That instrument consumes a credit line the treasury function may have earmarked elsewhere, so the cost of the contract includes the cost of the collateral, not only the energy rate.
Read the collateral adjustment clause closely. A supplier that can unilaterally increase the required security on a rating change or a covenant trip holds an option against you. Negotiate the trigger, the cap, the notice period and the release conditions on early termination.
Billing, metering and the migration itself
Migration to suministro calificado requires CRE registration in the Registro de Usuarios Calificados, under the disposiciones administrativas published in the DOF on 6 December 2017, and registration of the Centro de Carga with CENACE. The contract should say which party files what, who pays for the metering and telecommunications equipment, and what happens to the price if registration runs long.
A supply start date tied to a fixed calendar day rather than to the completion of registration transfers regulatory timing risk to the buyer. Look for the clause that governs a delay: does the price hold, does it re-fix at market, or does the contract lapse. Where a company operates several plants, consolidating billing under one agreement simplifies reconciliation, while separate contracts let each site take the best regional offer.
Adjustable charges are where fixed-price contracts leak
The clause worth the most attention in a Mexican contract is the one covering regulated and market-settled charges. Fixed-price agreements normally fix the energy component only. Porteo and potencia are frequently written as pass-through, sometimes in an annex rather than in the body of the contract.
The July 2020 porteo revision showed what pass-through means when the regulator acts. A supplier can fix these components, and some will, but the hedge is priced. Ask for the same offer with and without it and the premium becomes visible. On our read, most industrial buyers should fix energy and accept pass-through on porteo, because a supplier pricing regulatory risk it cannot control will charge more than the risk is worth. The exception is a site whose margin cannot absorb a step change in delivered cost.
Potencia deserves separate treatment because the buyer has partial control over it. The obligation follows average demand across the 100 critical hours, so a plant that can shed or shift load during tight system conditions reduces the charge. Pass-through lets the site keep that saving. A fully bundled rate hands it to the supplier. The mechanics sit in our note on capacity prices and the wholesale electricity market.
Term, renewal and termination
Renewal language does more damage than any other clause in this market, because it is read last. An evergreen renewal at a price set by the supplier, cancellable only in a window that closes months before the anniversary, converts a competitive contract into an uncompetitive one without anyone signing anything. Insist on a defined notice window and a renewal price mechanism that is either a stated formula or a return to a competitive process.
Termination fees set the real cost of switching. A liquidated damages formula tied to the mark to market of the remaining term is defensible and can be modeled. A flat fee expressed as a multiple of monthly consumption is not tied to the supplier's actual loss. Model the fee at the price levels that would make you want to leave, not at today's price.
Suppliers also terminate. Typical triggers are a change in law, a change in the customer's consumption pattern, or a failure to post collateral. Change in law deserves particular scrutiny here. In two months of 2020, CENACE issued an acuerdo on 29 April restricting pre-operational testing of wind and solar plants, SENER published the Política de Confiabilidad in the DOF on 15 May, federal judges granted provisional suspensions against the CENACE acuerdo on 18 May, and COFECE announced a controversia constitucional against the SENER policy on 22 June. A change in law clause drafted broadly enough gives a supplier an exit in a period like that.
What happens if your supplier fails
Mexico has a specific answer to this. The Suministrador de Último Recurso is a registered participant category under the Manual de Registro y Acreditación de Participantes del Mercado, created to pick up load whose supplier can no longer serve it, temporarily and at a CRE-regulated price. A supplier failure is therefore a cost event rather than an outage.
The exposure is the gap between your contracted price and the regulated last-resort price, for however long a new process takes. Suppliers commonly cap liability at something like the largest monthly invoice of the preceding year, which will not cover that gap in a stressed market. Negotiate the cap against plausible replacement cost, and confirm the notice you receive and the period you have to arrange alternative supply.
Volume tolerance and assignment
Most contracts define a consumption band and price energy outside it differently. Set the band against the plant's production plan rather than against last year's total, and confirm how a shutdown, a shift addition or a capital project is treated. A plant that installs onsite generation or an efficiency program mid-term can fall through the floor of its own band and pay for the privilege.
Assignment matters where a corporate group buys and sells plants. If a facility is divested and the agreement cannot be assigned to the buyer, the seller pays the termination fee. A consent-not-to-be-unreasonably-withheld provision costs nothing at signature and is expensive to obtain later. Check the reverse case too, where the supplier assigns its obligations to an affiliate whose balance sheet you have not reviewed.
Before you sign, confirm these ten items
- The offer is itemized into energy, potencia, porteo and Certificados de Energías Limpias.
- The CRE registration and CENACE Centro de Carga filings are assigned to a named party with a deadline.
- The supply start date is tied to registration completion, not to a fixed calendar date.
- The collateral amount, its adjustment triggers and its release conditions are defined.
- Porteo and potencia treatment is stated in the contract body, not only in an annex.
- The renewal notice window and the renewal price mechanism are written out.
- The termination fee formula can be modeled at stressed price levels.
- The change in law clause is narrow enough to exclude ordinary regulatory activity.
- The supplier's liability cap is measured against replacement supply cost, not against a past invoice.
- The consumption band matches the production plan, and assignment is permitted with reasonable consent.
One point of practice sits behind all ten: the legally binding version of a Mexican power contract is the Spanish text. English translations are useful, but a negotiation conducted only in translation leaves the buyer relying on a document that will not govern. Have Mexican counsel review the Spanish original against the commercial terms your team believes it agreed.
Have your supply agreement reviewed before signature
Mexico Energy Partners reviews suministro calificado contracts and PPAs clause by clause against the risks above, and models termination and pass-through exposure at stressed price levels. A review needs the draft contract and its annexes in Spanish, 12 months of CFE billing, and the site's tariff class and voltage level. Our approach to running the process that precedes it is set out in energy procurement.