1. INTRODUCTION

Energy reform in Mexico represents a structural modification of the electricity sector. The recent creation of a wholesale electricity market aims to encourage the participation of private investors, to grant certainty, transparency and more competitive prices to all participants. Based on current international markets, an effort is being made to successfully participate in a global economic environment of stiff competition (^{KPMG, 2014, p. 4}; ^{SENER, 2016, p. 19}).

The wholesale electricity market (WEM) started operations in 2016 and is currently a short-term energy market based on costs, with a daily market and a real-time market (^{Irastorza and Montalvo, 2018}). In the last three years, 134 billion dollars were invested in the generation, transmission and distribution of electrical energy. This investment established a conjuncture to increase competition in the sector. The three long-term auctions carried out, account for 9 billion dollars of support for more than 19 states of the Mexican Republic; the program calls for the construction and commissioning of 70 power plants; 67 of which will produce clean energy (^{García, 2018}).

However, the correct functioning of the wholesale electricity market must face the reality of keeping an industry that has a big impact as a strategic subsector under the protection of the State; therefore, it should be observed in detail if it is favorable to privilege the creation of the wholesale electricity market through increased investment from the private sector. Hence, the significant participation of the State in new investments in the electricity industry is of great importance, given that the purpose of the new Electric Industry Law is to promote sustainable development, guaranteeing that continuous, efficient and reliable actions are taken to benefit consumers.

The energy crisis of 1973 and the relevance of energy in economic development have generated, in many countries, numerous studies of the links between the energy sector and the economy. The realization of these studies in various contexts has had the objective of reducing each country’s energy dependence, establishing more convenient energy policies, and studying the consequences of these on the economy. (^{Cardenete and Fuentes, 2009}, p. 10)

In the same manner, the analysis of the electricity industry, including all the sectors that make up the economic system of a country, and encompassing all sources of electricity generation, favors the quantification of the interrelationships and economic ties of the branches of this industry with those of other economic sectors; as well as the evaluation of the multiplier effects in the economy due to its participation as both a supplier and participant of economic growth (^{Cámara et al., 2011}, p. 495). Therefore, studies such as these facilitate meaningful support in the decision-making processes involved in establishing public policies related to the economy and energy.

The objective of this text is to present the results of a multisectoral analysis on the increase of electricity prices in the Mexican economy, made through the price model and applying the most recent input-output model (IOM). By means of the simulation of scenarios in two endogenous variables, the results of a 40% increase in the petroleum and coal derivatives manufacturing subsector were obtained and shown, which in turn leads to an increase in the Generation sub-sector, transmission and distribution of electric power (5.58%); Likewise, the multiplier effect of this increase is evaluated, which impacts all subsectors of the economy.

In addition to this introduction, the work is divided as follows: point 2 presents the context of the electricity industry worldwide; point 3, the methodology applied; point 4, the database used, as well as the application of technology and the discussion of the results. Finally, the final results and conclusions of the policies derived from the research carried out are presented.

2. BACKGROUND AND CURRENT CONTEXT

Different sources and technology are present in the generation of electricity. At present, there are several options with different characteristics. The main classification in Mexico distinguishes conventional energies and clean energies. According to the Energy Regulatory Commission (^{CRE, 2014, page 8}): "The new regulation aims to create an efficient, safe and clean electric sector with competitive prices". For this reason, it is important to promote competition in each of the activities in the process, and establish a wholesale electricity market (WEM), where large consumers of electricity can make their purchase directly from the generators of electricity.

According to ^{De la Cruz (2006, p.4)}, the experience of the first years of operation of the electricity markets organized in Chile, Australia, the United States of America and Europe, indicates that the liberalization of the electricity sector is a phenomenon that requires direct and continuous attention, since its development involves a long process of slow progress towards true competition, requiring constant adjustments and adaptations.

^{Erdogdu (2010, p.6)} mentions that the cause leading to the modification of the structure of the electricity sector is different for each country, however, the main reason is commonly that reform improves the efficiency of the sector, reduces the price-cost margins and improve the quality in the service. An additional objective, in developed countries, may be to attract investments in the electricity sector.

In a comparative study of the five main electricity markets in the world, the United States of America (California), the United Kingdom, Australia, Norway and Chile, ^{Srivastava et al. (2011, p.198)} present as their main conclusion that the liberalization and restructuring process of the electricity sector in some countries, can be better designed if the experience of existing markets is taken into consideration. However, if the reforms are not carried out in an orderly and meticulous manner, the increase in costs could be manifested as a significant contingency.

3. METHODOLOGY

The structural analysis, based on the IOM, presents the interrelationship between the productive sectors of an economic system. The columns indicate the inputs coming from productive sectors required to manufacture their products and in the lines the quantity of products distributed by this sector to the other sectors; it is a model that quantifies this interrelationship and facilitates the analysis of the impacts presented in each of the elements of the productive system, in quantities or in prices, originated by variations in production and in the prices of goods and services. (^{Leontief, 1973, P. 156}; ^{1993, P. 208}).

The IOM is highly adaptable and has had an impressive development in multiple applications and theoretical aspects, although it has been criticized for its inflexibility related to the conjecture of the fixed technical coefficients (^{Aroche, 2013, pp. 250-254}).

It is through an IOM that detailed studies can be carried out on the production and consumption of goods and services produced in a country or that are acquired from other countries, as well as the income obtained by said production through different production cycles. A general IOM is made up of the following matrices: supply, intermediate demand, final demand and a value-added table. It is created from the input-product registers, in an organized and structured manner in the form of a matrix, from which we obtain the GDP by method of production, type of expenditure, and type of income (^{Schuschny, 2005, p. 7}).

Assuming that the economy can be categorized into n sectors, and X _i corresponds to the total production of the sector, and f _i is the final demand of the products of sector i, then through a simple accounting equation the form in which sector i distributes its products through sales to other sectors, and final demand of the products can be expressed (^{Miller and Blair, 2009, p.11}):

The term z _ij indicates the inter-industry sales of sector i (also known as intermediate sales) to all sectors j (including itself, when j = 1). Equation (1) represents the distribution of the products of sector i , which are indicated in the lines of an IOM. There is one such equation to identify the sales of the products of each of the sectors n:

x₁ = z₁₁ +...+z_1j +...+z_1n +f₁

x_i = zi₁ +...+z_ij +...+z_in +f_i

x_n = zn₁ +...+z_nj +...+z_nn +f_n (2)

Where:

Therefore, the IOM can be described through the application of a system of linear equations, which represents for each sector the identity between the total production achieved and the production purchased and consumed by each of the other sectors of the system. In other words, everything produced by a sector is bought and consumed by others as inputs or by the consumer as final demand. In matrix notation this system of linear equations is represented using the following equation:

Where x is a column vector of production of order n; f is a column vector of final demand of order n; I represents an identity matrix and A is the matrix of technical coefficients. The term (I-A) ^-1 is known as the Leontief inverse matrix (L), so the equation already stated is the solution equation for the input-output analysis and is expressed as:

The multiplier effects refer to the changes presented in one or several sectors of the economy, originated by impacts on a variable that is not part of inter-industry sales by sector (exogenous variable); For example, the final demand (^{Ramos et al., 2013}, p.57) and according to the Center for Latin American Monetary Studies (2012, p.26). These effects "show the sum of all the chain reactions of the needs of both direct and indirect inputs, resulting from an increase in production motivated by an impact on final demand”.

The study of the direct and multiplier effects of a specific sector on the remaining sectors that make up an economic system, is done through the matrix of coefficients of direct needs or technical coefficients, called A in equation (4). This matrix, which is the core of the study, explains the immediate link among sectors and is calculated by dividing the elements of the intermediate demand of each sector by their corresponding production value (^{Figueroa, 2015}, p.51). A study broken down by branches of activity of the circulation and distribution of inputs, products, goods and services, makes it possible to determine the overall impact of each element in each sector and subsector of the total economy (^{Spanish Energy Club, 2014, p 188}). This global impact is made up of direct and indirect impacts.

The present work uses the domestic IOM for 2013, applied to 79 subsectors of the North American Industrial Classification System (NAICS), which is the most recent published by the National Institute of Statistics and Geography (^{INEGI, 2017}). Table 1 presents a summary of this model for three large sectors. It shows the interrelationship among these large productive sectors of Mexico. The inputs necessary for the manufacture of the products corresponding to the primary activities sector are indicated in the corresponding column (called j ), which require inputs in the amount of $273.353 billion Mexican pesos to satisfy the need for the production of the industrial activities, an amount that is the sum of the amounts of $64.515 billion Mexican pesos for the primary sector, $117.098 billion Mexican pesos from the industrial sector, and $55.740 billion Mexican pesos from the service sector.

If the line corresponding to the primary sector (denominated i) is taken, its production is distributed in each sector as follows: $64.515 billion pesos in the same primary sector; $421.732 billion pesos in the industrial sector and $5.710 billion pesos in the services sector, so that the total of the intermediate demand is $491.417 billion pesos for the primary sector. The shaded part of Table 1 shows the matrix of intermediate demands, which is constructed from the flows of inputs and products that are made in each of the three basic sectors of an economy.

The additional columns, called Final Demand, record the sales of each sector to the final markets for their production, such as: private consumption, government consumption, gross capital formation, stock variation, and exports. For example, electricity is sold to companies in other sectors as an input to production (inter-industry transaction) and also to residential consumers (sale of final demand). The additional rows, called Value Added, represent the other non-produced inputs, such as: imports, taxes, labor, and depreciation of capital.

One of the aspects of greatest practical interest of these studies is the evaluation of the various multiplier effects that can occur in the economy as a result of impacts on production and on the costs of inputs produced directly by the subsectors of the economy (endogenous variables), and effects on the monetary values of taxes, imports and value added (exogenous variables) (^{Casares et al., 2017}, p.121).

Table 1 indicates that the industrial sector consumes $421.732 billion Mexican pesos at basic prices in 2013 from the primary sector. Second, it is essential to understand that not all the product of sector i will be destined to the rest of the sectors, given that a part of it is used in the final demand f, which is made up of the following: 1) Individual or private expenditure, $146.023 billion of weights; 2) Public expenditure, does not consume products from the primary sector; 3) Gross production of fixed capital, $7.841 billion pesos; 4) Change in stocks and purchases minus the disposal of valuable objects, $24.058 billion pesos.

It is important to note that the inclusion of exports ($110.404 billion pesos in the example), and imports in the boxes of input products lead to the Leontief extended model, also called open economy (^{Chraki, 2016}, p.58).

4. DATABASE AND RESULTS

The paper used the most recent IOM in Mexico published by INEGI for 2013, specifically the domestic symmetric matrix product x product, disaggregated to 79 subsectors of the NAICS.

A descriptive statistical analysis is needed for more detailed knowledge of the economic structure of the sector or sub-sector under study. A table of the inputs (or consumption taken from each sub-sector) for the subsector Generation, Transmission and Distribution of Electric Power will show the relative importance of the inputs and, therefore, the magnitudes of the backward linkages, as well as those corresponding to added value and generation of employment (see Table 4).

Similarly, the preparation of a table with the way in which electricity is distributed (consumed) by the productive sectors, allows us to identify the relative importance of the use of electricity, as well as the magnitude of the dispersion. Table 5 shows the distribution of electricity to the 16 main subsectors that consume it.

5. ANALYSIS OF THE RESULTS AND CONCULSIONS

The domestic symmetric input-output matrix for 2013, published by the INEGI, was used as a database in this work. According to the data the production corresponding to the Electric Power Transmission, Control, and Distribution subsector represents 1.31% of the total production at basic prices for 2013 and GDP corresponds to 1.13% of the national total.

Based on this matrix, a descriptive analysis was carried out that shows that the electricity generation, transmission and distribution subsector is supplied with inputs from 47 sub-sectors, of which the largest percentage corresponds to the Petroleum and Coal Products Manufacturing subsector with 46.05%, which is due to the fact that the use of natural gas, fuel oil and coal prevails in electric power generation, which in turn demonstrates a high dependence on fossil fuels, and suggests the need to establish generation of electricity with alternative sources of energy.

Similarly, the analysis of the 2013 input-output matrix indicates that the Electric Power Transmission, Control, and Distribution, subsector supplies or distributes its production to 78 of the 79 sub-sectors, that is, all those that are dedicated to the production of electricity, goods and services in the Mexican economy. The Grocery and Related Products Retail subsector stands out with a consumption of $29,322.635 million pesos at basic prices for 2013 which corresponds to 10.34% of the demand for electric power.

In the corresponding application of an increase in the prices of 2 endogenous variables, to know the multiplying effects of the Electric Power Transmission, Control, and Distribution, subsector, an increase of 40% in the Petroleum and Coal Products Manufacturing subsector was first considered, assuming an increase in the price of inputs corresponding to an endogenous sector. The results indicate that the corresponding subsectors with the greatest impact were the following: Air Transportation (7.76%); Transit and Ground Passenger Transportation (6.04%); Scenic and Sightseeing Transportation (6.04%); Electric Power Transmission, Control, and Distribution (5.58%); and Rail Transportation (4.78%). This example shows the backward linkage of any of the subsectors that have been impacted by the price increase in the subsector Petroleum and Coal Products Manufacturing.

In accordance to the application of the price model and considering the 2013 IOM, it appears that a considerable increase in prices in the subsector Petroleum and Coal Products Manufacturing, in this case 40%, does not significantly impact the electricity industry and its consumers (5.58%). It is worth mentioning that the price increase in Petroleum and Coal Products Manufacturing is just one of several elements that make up the price increase in electricity. According to the report "The Impact of Oil Price on EU Energy Prices"(^{Albrecht et al., 2014}) the most important factors influencing electricity prices are the following:

In Mexico, the model for obtaining electricity prices takes into account the following: the cost of generation linked to the increase in the prices of inputs, interruptions in the supply of natural gas, the fall in hydroelectric generation, maintenance costs, expansion of the national electricity grid, and losses in the system (^{Sigler, 2018}). It is important to emphasize that it would be enriching to develop future research with alternative methodologies, which contrast with the results presented.

In order to analyze the forward linkage, an impact of 5.58% was applied to Electric Power Transmission, Control, and Distribution subsector; obtaining impacts in all subsectors of the national economy, among which the following stand out: Distribution of Water or Gas Via Ducts to the final consumer, Nonmetallic Mineral Product Manufacturing, Textile Mills and Textile Product Mills, Mining (except Oil and Gas) and Plastics and Rubber Products Manufacturing. Although the subsector corresponding to Groceries and Related Products Merchant Retailers has the largest electricity consumption in millions of pesos at basic prices in 2013 (10.34% of the total demand for electricity) the impact of this increase only represents 0.04%.

The electricity industry in Mexico is important as it supplies 78 of the 79 subsectors of the national economy and over time has been a significant source of employment, as well as an important element for economic development. According to the expected growing demand for electric power, one of the main objectives of the energy reform is to promote mechanisms that meet this demand efficiently with low costs. A greater private participation in the sector will result in the incorporation of private generation plants, which would demand less labor and would also substitute unproductive or inefficient State generation plants. This would generate greater efficiency, but would indirectly result in increased in unemployment, which would have to be met in other ways, such as the investment in basic infrastructure.

Considering the high impact that the electrical industry has as a strategic sub-sector, it is not advisable to favor the creation of the wholesale electricity market through investment by the private sector, given that the purpose of the new Electric Industry Law is to promote its sustainable development, guaranteeing its action continuously, efficiently, and reliably for the benefit of consumers. Therefore, the participation of the State in new investments in the field is of great importance. On the other hand, if the dependence on prices and the international availability of natural gas, which at the beginning of 2017 showed an increase of 40%, is maintained, it is very likely that there will also be an increase in average prices of electricity.