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Regulatory Challenges at the National and Continental Level. Camput 2005 Quebec City, Canada. Dionisio Pérez-Jácome Comisión Reguladora de Energía. Index. 2004-2005 Update Energy Industry Challenges North America Energy Regulation: Coordination Issues Final Remarks. 2. 2004-2005 Update.

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Regulatory Challenges at the National and Continental Level

Camput 2005Quebec City, Canada

Dionisio Pérez-JácomeComisión Reguladora de Energía


Index

2004-2005 Update

Energy Industry Challenges

North America Energy Regulation: Coordination Issues

Final Remarks

2



2005 highlights of the Mexican Natural Gas Industry

  • Production 4.63 bcfd

  • Consumption  5.91 bcfd

    • Power Generation 36% Industry 22%

    • Pemex 40% Other 2%

  • Imports  1.28 bcfd

  • Private investment allowed in transportation, storage and distribution

4

  • Source: Natural Gas Prospective, Secretariat of Energy, 2004-2013



Cross border capacity and new pipelines potential

  • Cross-border pipelines capacity is close to 3 Bcfd

  • Cross-border pipelines capacity is close to 3 Bcfd

  • There is a large potential for new pipeline projects, particularly in the Pacific coast, directly related to new LNG terminals and new IPPs

  • The potential for new pipelines projects is enormous, specially in the Pacific Rim and is directly related with LNG teminals and Power plants

6


2005 Highlights of the Mexican Power Industry

  • Installed capacity  50,676 MW

  • 2004 power generation  205 TWh

  • National Transmission Grid 57,622 miles (>115kV)

  • Strong presence of state-owned vertically integrated monopolies

7

  • Source: Electricity Prospective, Secretariat of Energy, 2004-2013



North America Electricity Interconnection Infrastructure

800 MW

WECC

200 MW

36MW

ERCOT

100MW

80MW

120MW

Total Interconnection capacity: 1,336MW

100 MW

200 MW

9

  • Source: Electricity Prospective, Secretariat of Energy, 2004-2013


Legal Certainty in Power Generation

  • On 2003, the Mexican Federal Congress Controller carried out two special Audit Procedures related to the legality of private generation permits granted by CRE. It concluded that:

    • The permits did not comply with several laws and regulations, and contravened the spirit of the Mexican Constitution

  • The Federal Government submitted a Constitutional Dispute arguing that all permits fully comply with the legal framework

  • On April 12, 2005, the Supreme Court of Justice ruled an order in favor of the Executive branch ruling the annulment of the audits results, thus providing full legal certainty to private power projects

10



During the next ten years, demand for Natural Gas is expected to grow by 5.8% annually, while supply is expected to increase at a rate of 2.5% per year

To meet growing demand Mexico needs to increase production and further diversify imports

Natural Gas Forecast

bcfd

Historic

Forecast

9

9.3 bcfd

8

Demand

Deficit: 3.8 bcfd

7

Imports

5.5 bcfd

6

5

4

3

Supply

2

1

2013

1995

1997

1999

2001

2003

2005

2007

2009

2011

  • *Source: Natural Gas Prospective, Ministry of Energy, Mexico 2004-2013

12

  • Source: Natural Gas Prospective, Secretariat of Energy, 2004-2013


Challenges in Natural Gas expected to grow by 5.8% annually, while supply is expected to increase at a rate of 2.5% per year

Strategy

Challenges

  • Increase Domestic Production

    • PEMEX Fiscal Regime

    • New legal schemes for non-associated natural gas E&P

Satisfy Domestic Demand

Reduce Domestic Prices

Promote LNG Terminals

Increase pipeline interconnection infrastructure

Improve Permitting Process

Achieve Open Access in PEMEX Pipelines

13


Challenges in Natural Gas expected to grow by 5.8% annually, while supply is expected to increase at a rate of 2.5% per year

Strategy

Challenges

  • Increase Domestic Production

    • PEMEX Fiscal Regime

    • New legal schemes for non-associated natural gas E&P

Satisfy Domestic Demand

Reduce Domestic Prices

Promote LNG Terminals

Establish economically efficient tariffs

Improve Permitting Process

Keep market references & promote hedging schemes to mitigate volatility

Achieve Open Access in PEMEX Pipelines

Implement Federal subsidy to assist low income residential consumers

14


Challenges in Natural Gas expected to grow by 5.8% annually, while supply is expected to increase at a rate of 2.5% per year

Strategy

Challenges

Satisfy Domestic Demand

Reduce Domestic Prices

Simplify Regulations

Improve Permitting Process

Open hearings to address stakeholders concerns

Improve Federal / State / Local Government coordination

Achieve Open Access in PEMEX Pipelines

15


Challenges in Natural Gas expected to grow by 5.8% annually, while supply is expected to increase at a rate of 2.5% per year

Strategy

Challenges

Satisfy Domestic Demand

Reduce Domestic Prices

Improve Permitting Process

Implement open access regulation

Introduce further regulations to reduce PEMEX market Power

Achieve Open Access in PEMEX Pipelines

Promote competition in Natural Gas Trading

16


Not Associated Natural Gas Investments expected to grow by 5.8% annually, while supply is expected to increase at a rate of 2.5% per year

Record Investments in E&P have reverted the decreasing trend in production, but have not been enough to meet national demand

Investments

(USD million)

Natural Gas Production

(Mcfd)

  • Source: Pemex, Direction of Corporate Finance and Oil Indicators, 2003

17


Electricity Forecast expected to grow by 5.8% annually, while supply is expected to increase at a rate of 2.5% per year

Power demand is expeced to grow by 5.6% per year over the next ten years

350

National Electricity Demand (TWh)

300

Increase rate=5.6%

250

200

Self supply and cogeneration

150

100

IPP’s and Public Monopolies

50

0

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

18

  • Source: Electricity Prospective, Secretariat of Energy, 2004-2013


Power Industry Investment Requirement for 2004-2013 expected to grow by 5.8% annually, while supply is expected to increase at a rate of 2.5% per year

To satisfy demand, the Power Industry will requiere investments of more than USD 52 billion over the next ten years

19

  • Source: Electricity Prospective, Secretariat of Energy, 2004-2013


Challenges in Electricity expected to grow by 5.8% annually, while supply is expected to increase at a rate of 2.5% per year

Strategy

Challenges

Promote private investment in generation that does not require Government financial back up

Satisfy Domestic Demand

Develop sufficient Transmission and Distribution infrastructure

Efficient Prices

Develop more power interconnections

Power Quality

Power Dispatch

Promote Renewable sources

20


Challenges in Electricity expected to grow by 5.8% annually, while supply is expected to increase at a rate of 2.5% per year

Strategy

Challenges

Satisfy Domestic Demand

Strengthen CRE to give it the mandate to set economically efficient electricity tariffs

Efficient Prices

Power Quality

Power Dispatch

Promote Renewable sources

21


Challenges in Electricity expected to grow by 5.8% annually, while supply is expected to increase at a rate of 2.5% per year

Strategy

Challenges

Satisfy Domestic Demand

Efficient Prices

Strengthen CRE to give it the mandate to set Power Quality Regulation

Power Quality

Power Dispatch

Promote Renewable sources

22


Challenges in Electricity expected to grow by 5.8% annually, while supply is expected to increase at a rate of 2.5% per year

Strategy

Challenges

Satisfy Domestic Demand

Efficient Prices

Power Quality

Strengthen CRE to give it the mandate to approve generation dispatch rules

Power Dispatch

Promote Renewable Energy Sources

23


Challenges in Electricity expected to grow by 5.8% annually, while supply is expected to increase at a rate of 2.5% per year

Strategy

Challenges

Satisfy Domestic Demand

Efficient Prices

Power Quality

Power Dispatch

  • Implement regulations to foster renewable sources of energy:

    • Capacity payments & energy bank

    • Renewable Sources of Energy Bill

Promote Renewable sources

24


North America Energy Regulation: Coordination Issues expected to grow by 5.8% annually, while supply is expected to increase at a rate of 2.5% per year

25


CRE- FERC letter of intent expected to grow by 5.8% annually, while supply is expected to increase at a rate of 2.5% per year

In November 2004, CRE and FERC signed a Letter of Intent to enhance interagency coordination on cross-border energy projects. Among the main issues considered in the Letter of Intent are:

  • Sharing of information to facilitate the effective application of the respective regulatory frameworks

  • Coordination among agencies to promote the public interest

  • Increasing communication and cooperation among agencies

26


Security and Prosperity Partnership of North America expected to grow by 5.8% annually, while supply is expected to increase at a rate of 2.5% per year

On March 2005, Presidents Fox and Bush and Prime Minister Martin established the Security and Prosperity Partnership of North America, in order to promote growth, competitiveness and quality of life

This partnership is divided in three major groups: i) Security, ii) Political relationship and iii) Prosperity and Quality of Life. Different working groups have been created to accomplish specific tasks

One of the objectives of the third group will be to strengthen energy markets in North America and to guarantee a reliable energy supply in the long run, as well as to promote investments in energy infrastructure and foster new technologies

A report is being prepared and it is expected to be ready by the end of next June

CRE is currently participating in this project

27


Other Coordination Mechanisms expected to grow by 5.8% annually, while supply is expected to increase at a rate of 2.5% per year

CRE participates in the North America Energy Working Group (NEAWG) and holds quarterly meetings with FERC and NEB to discuss common regulatory issues

CRE plans to join NARUC in the near future

28


Final remarks expected to grow by 5.8% annually, while supply is expected to increase at a rate of 2.5% per year

29


What keeps me, as a regulator, awake at night? expected to grow by 5.8% annually, while supply is expected to increase at a rate of 2.5% per year


www.cre.gob.mx expected to grow by 5.8% annually, while supply is expected to increase at a rate of 2.5% per year


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