Carlos Pascual, IHS Senior Vice President, chaired the plenary session "The Future of Mexican Power," which addressed the ongoing, profound transformation of the Mexican power industry. The transformation encompasses regulatory and structural changes along with increased competition and private sector involvement. Mr. Pascual was joined by Dr. Enrique Ochoa Reza, Director General of the Mexican Federal Electricity Commission (CFE).

Mr. Pascual opened the session by asking Dr. Ochoa Reza about the current reforms taking place in the Mexican power industry. Dr. Ochoa Reza outlined CFE's three main goals over the next five years. The first is to decrease the use of fuel oil in power generation because of its high cost and to replace it with natural gas. He believes the shift away from fuel oil use will be a "win-win" situation for both consumers and the electric utility industry. The consumer will benefit from lower electricity prices, and the power industry will benefit from opportunities in the private sector with new joint ventures and market access.

To decrease fuel oil use, CFE must ensure an adequate supply of natural gas for industrial use and for power generation by securing sufficient pipeline access and by adopting reforms to support the extraction of natural gas. Dr. Ochoa Reza stated that CFE will not own pipelines, but instead will focus on supporting natural gas commercialization through the adoption of reforms. Some of these reforms include revising the tender process for pipeline construction, establishing long-term contracts to promote capital investment, and enabling market access to unused pipeline capacity.

The second goal is to promote the development of renewables to reduce negative impacts on the climate. Dr. Ochoa Reza talked about CFE's investment in hydroelectric power plants. One plant was built last year and an additional plant will be completed by the end of this year. He said that the hydroelectric plants are successful because of their ability to exploit the water flow from Mexico's rainy season and because of the clean nature of this power source.

CFE's final goal is to decrease technical and non-technical losses in power transmission and distribution. The aim is to cap losses at 10-11% by 2018, and to eventually be on par with the United States at 6-7% losses.

Dr. Ochoa Reza is confident that the current reforms and progress will ultimately transform the oil, natural gas, and power sectors; lower the cost of electricity for customers; improve the quality of service; and enhance private sector investments.

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By Dennis Yang April 23, 2015

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.