ARIZONA & MEXICO

CHALLENGES FOR EXPANDING ENERGY TRANSACTIONS IN MEXICO
Electricity flows between U.S. and Mexico are fairly limited with geographical, political, operational risks
and transmission limits all playing a role.
Geography
Unlike Canada, which shares the U.S. border with many U.S. states, Mexico only shares the border with
California, Arizona, New Mexico and Texas. Although that imposes a limit as to which states send power
to Mexico, it is an opportunity for those that can.
Political Risk
The U.S. power market is comprised largely of a wide variety of private sector players whereas the
pre-reform Mexican energy market consisted of government-owned CFE. Post-reform, this dynamic will
change but only over time. The mitigant is that the reforms have been fast-tracked, for a reason –
Mexico needs lower power rates and infrastructural investment and will be motivated to have
transactions under its new energy regime succeed. From the U.S. side, the Department of Energy’s recent
Quadrennial Energy Review advocated the integration of North American Energy Market, specifically
citing Mexico’s recent reforms as an opportunity for increased transactions in the energy sector. 10
Operational Risk
Reliability is the predominant concern in cross-border electricity arrangements. Many Department of
Energy authorizations were granted on the condition that counterparties on both sides of the border
disconnect themselves from their respective system whenever energy crosses over to avoid potential
threats.
Transmission
As seen in the Energy Information Administration map below, cross-border transmission lines are limited
– both in number and in scope, with many Presidential Permits imposing a Megawatt limit on the
amount of power that can flow between the two nations.
10
http://energy.gov/sites/prod/files/2015/08/f25/QER%20Chapter%20VI%20North%20America%20April%202015.pdf
63 • ARIZONA & MEXICO • ARIZONA TOWN HALL • APRIL 2016