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UPDATE 3-Mexico's top court strikes down parts of president's power plan

(Adds reaction from energy minister, context)

MEXICO CITY, Feb 3 (Reuters) - Mexico’s Supreme Court on Wednesday upheld an antitrust suit against government measures seeking to strengthen the national power company, dealing a blow to a central plank of President Andres Manuel Lopez Obrador’s agenda.

The Federal Economic Competition Commission (COFECE) antitrust body submitted the challenge to the court last year after the energy ministry issued orders to give the state more power over the electricity sector to support national power utility, the Comision Federal de Electricidad (CFE).

Those measures modified rules on who can generate power and in what quantity, and set new standards for renewable plants that private companies have since challenged.

In a 4-1 vote, the court rejected regulations designed to give preference to power produced by the CFE.

The government argues this is necessary on the basis the CFE’s fossil-fuel heavy supply of energy is more reliable than power produced by intermittent solar and wind sources.

But under existing law, the grid must take up cheaper electricity first, putting the CFE’s older, more expensive plants at a disadvantage against renewable providers.

The court also threw out a measure requiring firms to secure so-called “feasibility” approval - effectively, the endorsement of the power market regulator CENACE for them to be able to upload their electricity onto the national grid.

Furthermore, the judges struck down provisions that made the energy market regulator, the CRE, take into account the CENACE’s endorsement, as well as government plans for the electricity sector, in granting power generation permits.

Lopez Obrador argues the last government’s opening of the energy sector skewed the market in favor of private companies, and has cast the debate as a matter of national sovereignty.

However, his policies have upset some of Mexico’s main allies, including the United States, Canada and European countries, and angered investors who believe the government is violating their rights under trade agreements Mexico signed.

Energy Minister Rocio Nahle said on Twitter she would respect the Supreme Court decision, then pointed to a draft bill Lopez Obrador sent to Congress this week that aims to change the electricity industry rules for the CFE’s benefit.

That initiative was panned by Mexico’s top business lobby and is likely to become the new front line of Lopez Obrador’s battle to strengthen state influence over the energy sector.

If he cannot get his way, he has threatened to change the constitution to overturn his predecessor’s energy market overhaul. But that could violate Mexico’s international trade deals and cause serious friction with its top trade partners. (Reporting by Adriana Barrera and Stefanie Eschenbacher; Editing by Aurora Ellis and Kim Coghill)

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