UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF PUERTO RICO

 

THE FINANCIAL OVERSIGHT AND 

MANAGEMENT BOARD FOR PUERTO RICO, 

as representative of 

THE COMMONWEALTH OF PUERTO RICO, et al., 

Debtors

 

PROMESA

Title III

Case No. 17 BK 3283-LTS

In re: 

THE FINANCIAL OVERSIGHT AND 

MANAGEMENT BOARD FOR PUERTO RICO, 

as representative of 

PUERTO RICO ELECTRIC POWER AUTHORITY, 

Debtor

PROMESA 

Title III 

Case No. 17 BK 4780-LTS

PV PROPERTIES, INC.’S SUPPLEMENTAL OBJECTION TO 

DISCLOSURE STATEMENT

TO THE HONORABLE COURT: 

COMES NOW PV Properties, Inc. (“PV Properties”), through its undersigned counsel, 

and respectfully states and requests: 

1. On December 16, 2022, the Financial Oversight and Management Board (the 

“Oversight Board”), as representative of Puerto Rico Power Authority (“PREPA”), filed its plan of 

adjustment (the “Plan”) and its Disclosure Statement (the “Disclosure Statement”) in the captioned 

case [ECF No. 23097]. 

2. The Court granted creditors and parties in interest until February 3, 2023 at 5:00 

p.m. (AST) to file objections to the approval of the adequacy of the Disclosure Statement [ECF 

No. 23159]. 

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3. The deadline to object to the Disclosure Statement was February 3, 2023 [ECF 

No. 23159].

4. On January 26, 2023, PV Properties timely filed its objection to the Disclosure 

Statement [ECF No. 23391].

5. However, on February 9, 2023, the Oversight Board filed a first amendment to the 

Plan (the “Amended Plan”) [ECF No. 23506] and an amended Disclosure Statement to the

Amended Plan (the “Amended Disclosure Statement”). 

6. On February 10, 2023, the Ad Hoc Group of PREPA Bondholders filed an Urgent 

Motion to File Supplemental Objection to Disclosure Statement for First Amended Title III Plan of 

Adjustment of the Puerto Rico Electric Power Authority (the “Motion”) [ECF No. 23515]. As 

such, PV Properties respectfully submits this Joinder to the relief sought in the Motion. 

7. As the Amended Disclosure Statement introduces significant changes to its prior 

version, but does not address PV Properties’ objection, PV Properties joins the relief sought in the 

Motion and also requested leave to file a supplemental objection by February 17, 2023, at 3:00 

p.m. (AST). 

8. What follows are PV Properties’ supplemental objections to the adequacy of the 

Amended Disclosure Statement. 

9. PV Properties submits that the Amended Disclosure Statement is defective as it 

attempts to by-pass the rate setting functions of the Puerto Rico Energy Board (“PREB”), as 

established by the following legislation:

Act 57-2014 “The Puerto Rico Energy Transformation and Relief Act”

Act 17-2019 “Puerto Rico Energy Public Policy Act”

10. Specifically when the Amended Disclosure Statement refers to the additional 

charges, (both volumetric and non volumetric) and specifies their application to customers classes, 

it by-passes and overrides PREB’s powers. 

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11. The aforesaid has to be gauged within the context of the Puerto Rico Oversight 

Management and Economic Stability Act (“PROMESA”), 48 U.S.C. § § 2211-2717, which 

recognizes the powers vested on PREB.

12. The Puerto Rico Energy Commission (“PREC”), now PREB, is an integral part of 

PROMESA.

13. Trough Section 503 (48 U.S.C. § 2213), Congress recognized PREC as an integral

part of PROMESA’s energy revitalization sector, establishing an unambiguous legal duty of the 

Oversight Board to “support” PREC, now PREB, by stating as one of its goals to:

“[...] (iii) expedite the diversification and conversion of fuel sources for 

electric generation from oil to natural gas and renewables in Puerto Rico as 

defined under applicable Puerto Rico laws; (iv) promote the development 

and utilization of energy sources found on Puerto Rico; (v) contribute to 

transitioning to privatized generation capacities in Puerto Rico; (vi) support 

the Energy Commission of Puerto Rico in achievement of its goal of 

reducing energy costs and ensuring affordable energy rates for consumers 

and business [...].” § 2213(a)1.

14. The Oversight Board not only has usurped PREB’s powers, but has done so 

without the due process provided by PREB in establishing rates.

15. The funds needed by PREPA to comply with its legal obligations, new and legacy,

is a cost to be analyzed and provided for in a rate case scenario by PREB. Equally, any additional 

cost to consumer classes, is also PREB’s prerogative in a rate case.

16. To maintain the lowest possible cost per kilowatt/hour is also PREB’s

responsibility in the implementation of the specific mandates of Acts 57-2019 and 17-2019.

17. If the Oversight Board, acting for PREPA, determines PREPA’s new rates, as it 

does in the Amended Disclosure Statement, it would be moving the clock back to before 2014

when PREPA regulated itself and established its own rates. That is no longer the legal model, but 

the Oversight Board’s actions are tantamount to a return to the pre-2014 legal scheme.

18. Moreover, it is obvious that the Oversight Board’s proposed solution imposes on 

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electric power consumers the full cost of a legacy debt that occurred, not for their benefit, but for 

the benefit of Puerto Rico’s economy as whole. Not raising electric rates as was needed was a 

political-economic decision. Now the Oversight Board pretends to impose a payment on the 

consumers of electricity, not responsible and who did not benefit from PREPA’s political 

mismanagement.

19. The increase in costs to the consumers is in fact an increase in rate and charges, as 

such PREB’s responsibility. The additional charge- at least the non volumetric- is a tax on 

electricity consumers for them to pay for PREPA’s political mismanagement. It is a tax that, as 

any tax, should be legislated in conformity with the Constitution of the Commonwealth of Puerto 

Rico (the “Commonwealth”). 

20. It must be underscored that PROMESA Section 303 specifically states that subject 

to the limitations set forth in Titles I and II thereof, inapposite here, does not limit or impairs the 

Commonwealth in the exercise of its political or governmental powers, to control by legislation 

the rates to be paid by the consumer classes. 

21. When addressing PREB’s creation and Act 17. (page 428 of 832) – as to the role of 

PREB, the Amended Disclosure Statement unequivocally states: (“PREB”), is an independent 

governing body responsible for regulating, supervising, and ensuring compliance with Puerto 

Rico’s public policy on energy. Lastly, PREB was also responsible for reviewing and approving 

energy rates.

22. What follows are additional reasons for PV Properties objecting to the Amended 

Disclosure Statement, setting forth particular modifications thereto. 

23. The Amended Disclosure Statement (page 403 of 832) adds the following:

A. Exhibit P – Legacy Charge Derivation (page 416 of 832)

B. The following sentences in I. Preface, B. Revenue Support for Plan and the Legacy 

Charge (page 421 of 832). However, because PREPA’s continued operations are 

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necessary to generate any revenue, the New Bonds are structured so that all revenue, 

including those from the Legacy Charge be destined to the payment of PREPA’s necessary 

and reasonable operating expenses. While there is currently no requirement under the New 

Bonds that rates, other than the Legacy Charge, generate sufficient revenues to pay for 

operating expenses, a task that PREPA’s regulator, PREB, is in charge of and required to 

exercise its power over rates to ensure that PREPA recovers all reasonable operational and 

maintenance costs (Act 57-2014 § 6.25(b)) and meets its obligations to bondholders (Act 

17-2019 § 6.3(p)). If PREB does not set rates sufficient to cover PREPA’s operating 

expenses, the holders of New Bonds may seek enforcement of the Interest Rate Covenant. 

C. A new sentence to Overview of Legacy Charges- Application of the Legacy 

Charges (page 455 of 832) is added at the end and a detailed description of the derivation 

of the Legacy Charge structure is attached as Exhibit P, as well as a Legacy Charge 

Allocation. 

PV Properties’ Proposed Modifications to the Disclosure Statement:

24. PV Properties requests that Exhibit P and Schedule B to the Amended Disclosure 

Statement, Legacy Charge and Annex 1 (to Schedule B) Article XVIII. F. Legacy Charge (page 

41) be substituted with the following statement:

Assignment of the Legacy Charge Among Customers

Having developed what the projected annual value of the Legacy Charge needs to be, the 

Oversight Board should request PREB to develop the specific Legacy Charge rate designated for 

each customer class in order to assure the needed revenue, keeping in mind that the Legacy 

Charge is not a liability built in good faith but for political gain, incurred with the consent of the 

self-regulated monopoly (PREPA) and its bondholders. This liability was incurred for the 

Commonwealth’s economy to grow, when, as recognized by the Oversight Board, increases in 

energy process have a detrimental effect on the Commonwealth’s economy. 

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The Legacy Charge was generated by the Commonwealth’s self-regulated monopoly 

(PREPA), with no timely action by the bondholders, who now pretend for it to be paid from rates 

to be borne by current and future generations of the residents of Puerto Rico with no responsibility

for what is tantamount to a self-inflicted injury. The specific composition of rates to be charged 

across the various PREPA rate classes in connection with the Legacy Charge, should be fixed by 

PREB.

PREPA, the Commonwealth’s self-regulated monopoly didn’t charge fair and reasonable 

rates to guarantee compliance with its bond obligations and the bondholders, who had the power to 

demand that such rates were sufficient to meet the obligations, failed do so in order to meet the 

required payments. 

25. PV Properties also requests that Article XVIII. F. Legacy Charge (page 41) which 

currently reads:

“On or prior to the Effective Date, the Legacy Charge shall be implemented 

by the Reorganized Debtor or any qualified operator of the transmission and 

distribution system (including LUMA Energy), and approved by PREB, as 

detailed in Schedule B hereto and required by the New Master Indenture; 

provided, however, that, Reorganized PREPA and/or PREB, with the 

approval of the Oversight Board while in existence, can modify the fixed fee 

and volumetric charge that comprise the Legacy Charge in an economically 

neutral manner as set forth in the New Master Indenture, in structure and 

amounts that do not delay or extend the respective expected repayment date 

and expected weighted average life of the Series A Bonds and the Series B 

Bonds, and otherwise that are reasonably acceptable to the Required Fuel 

Line Lenders, and which shall not decrease the projected Revenues 

attributable to the Legacy Charge as of the date of the amendment to the 

Legacy Charge (the “Amendment Test”). The Oversight Board as 

representative of the Debtor and/or Reorganized Debtor is authorized to take 

all actions necessary to enter into, implement, and enforce the Legacy 

Charge, and amendments thereto in accordance with this Article XVIII.F.

As required by the Plan, consistent with PREPA Fiscal Plan, mandated by 11 

U.S.C. § 1142(b) and the Confirmation Order, PREB shall approve and 

implement the Legacy Charge as required by §§ 6.3(p) and (q) of Act 17-

2019 and the New Master Indenture (subject to its right, in accordance with 

the Amendment Test, to modify the fixed fee and volumetric charge that 

comprise the Legacy Charge in a neutral economic manner), until the New 

Bonds, Refunding Bonds (if any), and CVI are defeased in full or have 

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expired in accordance with their terms and shall refrain from taking any 

actions that will frustrate, diminish, or otherwise impair the value of the 

Legacy Charge or PREPA’s ability to collect the Legacy Charge.”

be amended to simply state: 

On or prior to the Effective Date, the Legacy Charge shall be implemented

by the Reorganized Debtor or any qualified operator for the transmission and 

distribution system (including LUMA Energy), as approved by PREB.

26. In support of the above PV Properties submits: “give to Caesar what is Caesar’s 

and to God what is of God”. With this in mind we must ask ourselves: 

(a) Does PROMESA allow PREPA to set electric tariff rates? 

No Public Utility Regulatory Commission (PUC) in the USA will accept Exhibit PLEGACY CHARGE DERIVATION- to determine rates. Exhibit P is a conundrum of 

simplistic and unsupported statements. 

(b) Are economic and societal considerations the exclusive purview of the Oversight 

Board? 

Is the Oversight Board the only one capable of determining how to achieve the goals of 

sustainability and affordability?

Shouldn’t this be PREB’s task, a Puerto Rican Regulatory Agency established for 

regulating the rates of electricity in the public interest, the one to define and design the 

general design of the Legacy Charge rates, or should it be the Oversight Board, whose 

purpose is to provide a method for a covered territory to achieve fiscal responsibility 

and access to the capital markets. Consequently, PREB’s powers and functions are not 

inconsistent with PROMESA nor with the purpose for the creation of the Oversight 

Board to provide a method for the Commonwealth to achieve financial responsibility

and access to the capital markets, as set forth in PROMESA Section 101.

(c) In regulating electricity rates in Puerto Rico, PREB is not interfering with any of the 

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provisions of PROMESA, unless it “refrains from taking any actions that will frustrate, 

diminish, or otherwise impair the value of the Legacy Charge or PREPA’s ability to 

collect the Legacy Charge.” There is no reason to believe it has or that it will.

(d) A Public Utility Company makes a new tariff rate determination only after public 

hearings where stakeholders, the general public and the commissioners question the 

petitioner’s statements and evidence. 

(e) The Oversight Board proposes a debt adjustment to the Legacy Debt that in its best 

judgement will allow PREPA to emerge from bankruptcy as a viable enterprise. The 

annual revenues needed to pay for the new debt depend on the negotiated new debt 

amount, its amortization rate and interest payment. The needed annual revenue can 

come either from the Puerto Rican taxpayers and/ or from PREPA’s customers. 

(f) What is difficult to understand is why the Oversight Board seeks to by-pass PREB and 

have the Court adjudicate its unsupported simplistic determination of what each tariff 

class client should contribute to the needed annual revenue amount. Allowing the 

Oversight Board’s Guiding Principles to become the foundation for PREB’s 

“independent” approval of rates, is a slippery slope.

(g) The Oversight Board’s role is to determine the annual revenue needed to pay for the 

adjusted debt. PREB’s role is to carry out a regulatory proceeding to determine what 

are the fair and equitable rates that each rate payers will have to contribute to pay for 

the annual cost of the Legacy Debt. 

(h) The Oversight Board is only Puerto Rico’s debt Caesar it should not vest itself with

additional robes.

WHEREFORE, it is respectfully requested that the Amended Disclosure Statement be 

further amended to provide as indicated above.

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CERTIFICATE OF SERVICE: We hereby certify that on this same date we 

electronically filed the foregoing with the Clerk of the Court using the CM/ECF system, which 

will send notification of such filing to all CM/ECF participants.

San Juan, Puerto Rico this 17th day of February 2023

s/Fernando E. Agrait 

USDC-PR 127212

701 Avenida Ponce de León

Edificio Centro de Seguros 

Oficina 414

San Juan, Puerto Rico 00907

Tel. 787-725-3390/3391

Fax: 787-724-0353

E-mail: agraitfe@agraitlawpr.com

s/Charles A. Cuprill-Hernandez

USDC-PR 114312

Charles A. Cuprill, P.S.C., Law Offices

356 Fortaleza Street - Second Floor

San Juan, PR 00901

Tel.: 787-977-0515

Fax: 787-977-0518

E-mail: cacuprill@cuprill.com

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