IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF PUERTO RICO

In re:

THE FINANCIAL OVERSIGHT AND 

MANAGEMENT BOARD FOR PUERTO RICO,

as representative of

THE COMMONWEALTH OF PUERTO RICO, et 

al.

Debtors.1

PROMESA

Title III

Case No. 17 BK 3283-LTS

(Jointly Administered)

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

SISTEMA DE RETIRO DE LOS EMPLEADOS DE LA AUTORIDAD DE ENERGÍA 

ELÉCTRICA’S OBJECTION TO PREPA’S PLAN OF ADJUSTMENT 

1 The Debtors in these Title III Cases, along with each Debtor’s respective Title III case number and the last four 

(4) digits of each Debtor’s federal tax identification number, as applicable, are the (i) Commonwealth of Puerto 

Rico (Bankruptcy Case No. 17 BK 3283-LTS) (Last Four Digits of Federal Tax ID: 3481); (ii) Puerto Rico Sales 

Tax Financing Corporation (“COFINA”) (Bankruptcy Case No. 17 BK 3284-LTS) (Last Four Digits of Federal 

Tax ID: 8474); (iii) Puerto Rico Highways and Transportation Authority (“HTA”) (Bankruptcy Case No. 17 BK 

3567-LTS) (Last Four Digits of Federal Tax ID: 3808); (iv) Employees Retirement System of the Government of 

the Commonwealth of Puerto Rico (“ERS”) (Bankruptcy Case No. 17 BK 3566-LTS) (Last Four Digits of Federal 

Tax ID: 9686); and (v) Puerto Rico Electric Power Authority (“PREPA”) (Bankruptcy Case No. 17 BK 4780-LTS) 

(Last Four Digits of Federal Tax ID: 3747). (Title III case numbers are listed as Bankruptcy Case numbers due to 

software limitations.)

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TABLE OF CONTENTS

PRELIMINARY STATEMENT .............................................................................................1

I. FACTUAL BACKGROUND RELEVANT TO SREAEE.............................................1

II. PROCEDURAL BACKGROUND..................................................................................4

III. LEGAL STANDARD FOR CONFIRMATION.........................................................5

IV. ARGUMENTS ..................................................................................................................6

A. THE PLAN IMPERMISSIBLY CAUSES PREPA TO REJECT ITS PENSION 

OBLIGATIONS. ....................................................................................................................8

i. Applicable Law for Rejection .....................................................................................9

ii. Rejection of SREAEE in the Plan of Adjustment .....................................................12

iii. Application of the Rejection Standard ......................................................................13

B. THE PLAN IS UNFAIRLY DISCRIMINATORY TOWARDS SREAEE AS A 

CURRENT EXPENSE CLAIMANT...................................................................................17

i. Applicable law to subordination and priorities.........................................................17

ii. Applicable law to Equitable Distribution..................................................................18

iii. SREAEE is a creditor and is not treated as such under the Plan of Adjustment.......20

iv. Bond subordination to Current Expenses, which includes SREAEE........................22

v. Current Expense Treatment of the Fuel Line Lenders ..............................................24

C. THE PLAN IS CONTRARY TO LAW TO THE EXTENT THAT IT DOES NOT 

APPLY A PROPER PREEMPTION ANALYSIS................................................................26

i. Applicable law for preemption..................................................................................26

ii. List of preemption clauses in the Plan under SREAEE class treatment. ..................28

iii. Analysis of the laws and the lack of preemption. .....................................................28

D. THE PLAN IS NOT FEASIBLE DUE TO THE MACROECONOMIC EFFECTS OF 

THE LEGACY CHARGE....................................................................................................28

i. Applicable Definition of Feasibility..........................................................................29

ii. Legacy Charge in the Plan of Adjustment.................................................................29

iii. Impact of the Legacy Charge on Feasibility .............................................................31

V. CONCLUSION...............................................................................................................33

RELIEF REQUESTED.........................................................................................................34

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TABLE OF AUTHORITIES

Federal Statutes

11 U.S.C. § 1122......................................................................................................................22

11 U.S.C. § 1129(b).................................................................................................................20

11 U.S.C. § 365(a) ...............................................................................................................9, 19

11 U.S.C. § 510(a) ...................................................................................................................19

48 U.S.C. § 2103......................................................................................................................30

48 U.S.C. § 2141(b)(1)(C). ......................................................................................................15

48 U.S.C. § 2174(b)...................................................................................5, 6, 9, 19, 29, 32, 37

Federal Cases

Allied Fin., Inc. v. WM Capital Partners 53, LLC (In re Allied Fin., Inc.),

572 B.R. 45 (Bankr. D.P.R. 2017)........................................................................................30

Arizona v. United States, 

567 U.S. 387 (2012) .............................................................................................................29

Assured Guar. Corp. v. Garcia-Padilla, 

214 F. Supp. 3d 117 (D.P.R. 2016) ......................................................................................29

Bank of Am. Nat'l Tr. & Sav. Ass'n v. 203 N. Lasalle St. P'ship,

526 U.S. 434 (1999) .............................................................................................................20

Crosby v. Nat'l Foreign Trade Council,

530 U.S. 363 (2000) .............................................................................................................29

Goya de P.R., Inc. v. Santiago, 

59 F. Supp. 2d 274 (D.P.R. 1999) ........................................................................................29

In re BanVest Capital Corp., 

290 B.R. 443 (B.A.P. 1st Cir. 2003).....................................................................................10

In re Crystalin, L.L.C., 

293 B.R. 455 (B.A.P. 8th Cir. 2003) ..............................................................................10, 18

In re Fed.-Mogul Glob.,

684 F.3d 355 (3d Cir. 2012) .................................................................................................31

In re Fin. Ove rsight & Mgmt. Bd.,

637 B.R. 223 (D.P.R. 2022) ...................................................................................6, 7, 32, 33

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In re FirstEnergy Solutions Corp., 

945 F.3d 431 (6th Cir. 2019)................................................................................................11

In re Greate Bay Hotel & Casino, Inc.,

251 B.R. 213(Bankr. D.N.J. 2000).................................................................................22, 23

In re MF Glob. Holdings Ltd.,

466 B.R. 239 (Bankr. S.D.N.Y. 2012)....................................................................................9

In re Mirant Corp., 

378 F.3d 511 (5th Cir. 2004)..........................................................................................11, 12

In re Noranda Aluminum, Inc., 

549 B.R. 725 (Bankr. E.D. Mo. 2016)............................................................................10, 17

In re Ocean Blue Leasehold Prop. Ltd. Liab. Co.,

414 B.R. 798(Bankr. S.D. Fla. 2009) .............................................................................19, 20

In re Pilgrim’s Pride Corp., 

403 B.R. 413 (Bankr. N.D. Tex. 2009) ..........................................................................11, 12

In re TM Vill., Ltd., 

598 B.R. 851 (Bankr. N.D. Tex. 2019) ..........................................................................10, 17

In re Tribune Co.,

972 F.3d 228(3d Cir. 2020) ............................................................................................21, 22

In re Unbreakable Nation Co.,

437 B.R. 189 (Bankr. E.D. Pa. 2010)...................................................................................22

Law Debenture Tr. Co. of N.Y. v. Tribune Media Co. (In re Tribune Media Co.),

587 B.R. 606 (D. Del. 2018).................................................................................................20

Medtronic, Inc. v. Lohr,

518 U.S. 470 (1996) .............................................................................................................31

N.L.R.B. v. Bildisco, 

465 U.S. 513 (1984) .....................................................................................11, 12, 13, 15, 17

Norwest Bank Worthington v. Ahlers,

485 U.S. 197 (1988). ............................................................................................................20

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Official Comm. of Unsecured Creditors v. Dow Chem. Corp. (In re Dow Corning Corp.),

456 F.3d 668 (6th Cir. 2006) ...................................................................................................21

RadLAX Gateway Hotel, LLC v. Amalgamated Bank,

566 U.S. 639 (2012) .............................................................................................................20

Rosselló Nevares v. Fin. Oversight & Mgmt. (In re Fin. Oversight & Mgmt. Bd.), 

330 F. Supp. 3d 685 (D.P.R. 2018). .......................................................................................6

Zante, Inc. v. Delgado (In re Zante, Inc.), 

467 B.R. 216 (D. Nev. 2012)................................................................................................23

Secondary Sources

Subordination agreement, BLACK’S LAW DICTIONARY (11th ed. 2019) .................................18

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TO THE HONORABLE DISTRICT COURT:

COMES NOW Sistema de Retiro de los Empleados de la Autoridad de Energía 

Eléctrica (“SREAEE”) duly represented by the undersigned counsel and respectfully states as 

follows: 

PRELIMINARY STATEMENT

1. After five years on the sidelines of this process, SREAEE’s assets and strengths are nearly 

depleted. Throughout this time, the Oversight Board, through and in collusion with other 

entities, have done everything in their power to dismantle the Puerto Rico Electric Power 

Authority (“PREPA”) and, by extension, eliminate SREAEE. Nearing insolvency due to 

PREPA’s failure to pay the actuarially determined contributions and the Oversight Board’s 

insistence of eliminating all defined-benefit pension systems, SREAEE is faced with a 

restructuring process that aims to disregard its existence, treating it as a part of PREPA

rather than the creditor it is. It is faced with extinction, where other creditors fight over the 

percentage of their return on investments. Meanwhile, in the background, the Oversight 

Board’s plans to pay those returns will plunder what is left of Puerto Rico’s already weak 

and stagnant economy. While one wouldn’t know it to hear the parties in this case, the 

effects of the Plan of Adjustment will be catastrophic for Puerto Rico. This Court cannot 

allow the confirmation to go forward under those circumstances, particularly when 

PROMESA’s own requirements are not met. The Plan of Adjustment does not meet the 

requirements under the law, and it is not feasible. 

I. FACTUAL BACKGROUND RELEVANT TO SREAEE

2. SREAEE is a public pension trust created and maintained for the benefit of its active 

members and retirees as a separate entity from PREPA governed by its own Rules and 

Regulations. SREAEE is a defined benefit retirement system. It provides retirement, 

disability, and death benefits to PREPA employees and retirees. These benefits are 

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determined by defined benefit formulas. Thus, SREAEE is an independent fiduciary. It is 

a separate entity from PREPA, administered by a Board of Trustees. The Rules and 

Regulations of the System specify the contributions payable by PREPA to maintain 

its sound actuarial funding. Exhibit 4: José Fernández Opening Report, ECF 3415-1 

at L. 66-73 (Fernández Report).

3. SREAEE was created through the Collective Bargaining Agreement (“CBA”) executed by 

the Unión de Trabajadores de la Industria Eléctrica y Riego Inc. (“UTIER”) and PREPA’s 

precursor Autoridad de Fuentes Fluviales in 1942. In 1945, the Board of Directors of 

PREPA’s precursor issued Resolution Number 200 of June 25, 1945, which approved and 

adopted the Retirement System as of July 1, 1945. Exhibit 1: PREPA Resolution Number 

200. It is important to note that, while SREAEE was created per the CBA, its continued 

existence is not contingent on said CBA. According to SREAEE’s Rules and Regulations, 

the trust can be dissolved by PREPA’s Governing Board only upon recommendation of 

SREAEE’s Board of Trustees. Exhibit 2: SREAEE Rules and Regulations.

4. The fact that SREAEE is an entity independent from PREPA with its own assets was 

expressly recognized by the Puerto Rico Legislature in Act No. 34-2005. 

5. In addition, the SREAEE has been recognized as a de facto trust by the Puerto Rico courts, 

with an independent and full legal personality. Exhibit 3: UTIER v. PREPA, Civil No. 

SJ2015CV00100 at 2. . Specifically, in 2015, it was held that the Board of Trustees of 

SREAEE is the entity charged with the administration of the pension system and that all 

the assets of the SREAEE exist for the sole benefit of active members, retired members, 

and beneficiaries and not for another purpose. Id. at 8. Additionally, the court held “that 

payments made by PREPA and individual employees and other income are deposited in 

accounts separate from the PREPA’s accounts.” Id.

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6. SREAEE’s Board of Trustees is responsible for its investment of assets and investment 

policy. Between 2003 and 2022, the average annual investment return of the SREAEE has 

been 7.25%. Fernández Report at L. 75-77.

7. SREAEE is governed by its own Rules and Regulations. Article 5 of the Rules and 

Regulations states that the fiduciary fund is funded by the contributions made by 

PREPA, PREPA’s employees and investment income. In Section (2)(a) this article states 

that: “On a monthly basis, or as frequently as agreed to by the Board of Trustees, 

[PREPA] shall contribute to the Fund created by these Regulations, . . . [PREPA] shall 

make another contribution which shall be referred to as accrued obligations 

contribution.” Exhibit 2: SREAEE Rules and Regulations.at 101 (emphasis added).

8. In addition, in Section (2)(b) of Article 5 provides that “the Actuary shall determine the 

uniform percentage of the compensation of all members calculated to be required as 

contributions payable by [PREPA] to provide the benefits of the System to which members 

are normally entitled, in addition to the contributions payable by said members.” Id. 

(emphasis added).

9. Furthermore, Section (2)(g) of Article 5 added that “[PREPA] shall contribute all of the 

necessary Funds for the administrative expenses of the System.” Id. at 104 (emphasis 

added). Finally, Article 9 establishes PREPA’s purpose with the creation of the retirement 

system, stating that PREPA’s “intention is to maintain the System so long as it 

continues to carry out the role and purposes for which it was created . . . .” Id. at 116

(emphasis added). However, PREPA has continuously failed to meet these obligations and

SREAEE’s collection efforts have been futile. Currently, SREAEE “has no assets to pay 

future benefits and is insolvent.” Fernández Report, at L. 79. The principal reason for 

SREAEE’s insolvency is PREPA’s failure to make the required contributions to adequately 

fund the system. Id. at L. 93-96.

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10. PREPA has not paid the required contributions since July 2016 and had approximately 

$960.6 million in unpaid contributions by the end of February 2023. Id. at L. 119-120. As 

a result, SREAEE has suffered significant investment income losses, while the average 

annual investment return has been 8.07%. Id. at L. 121-123.

11. This situation worsened with the implementation of austerity measures that reduced

PREPA’s workforce and the privatization of PREPA’s operations. In 2017, PREPA 

employed approximately 9,550 workers. By 2021, this number went down to 

approximately 5,411 workers. An additional reduction occurred when LUMA Energy, LLC 

and LUMA Energy ServCo, LLC (collectively and interchangeably “LUMA”) assumed the 

control and operation of the Transmission and Distribution System pursuant to the Puerto 

Rico Transmission and Distribution System Operation and Maintenance Agreement 

(“T&D OMA”). Moreover, in 2023, an additional privatizer, GENERA PR LLC 

(“GENERA”), came on the scene through the Puerto Rico Thermal Generation Facilities 

Operation and Maintenance Agreement dated as of January 24, 2023 by an among the 

Puerto Rico Electric Power Authority as owner, the Puerto Rico Public-Private 

Partnerships Authority as Administrator and Genera PR LLC as Operator (“LGA OMA”). 

The execution of the LGA OMA will inevitably result in the further displacement of 

PREPA’s workforce. 

12. This reduction of the workforce results in reduced employee contributions, increased 

pension payments and substantial refunds of contributions, among other issues.

II. PROCEDURAL BACKGROUND

13. After a long and unsuccessful Mediation process that allegedly continues to this day, on 

December 16, 2022, the Oversight Board, as representative of PREPA, filed the Title III 

Plan of Adjustment of the Puerto Rico Electric Power Authority, ECF No. 3110, and the

Disclosure Statement for Title III Plan of Adjustment of the Puerto Rico Electric Power 

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Authority. ECF No. 3111. Most parties filed their objections to the disclosure statement. 

On February 9, 2023, the first amended versions were filed. ECF No. 3200, ECF No. 

3201. Supplemental objections followed. Another amended version was filed on February 

21, 2023. ECF No. 3245. On February 26, 2023, another amendment was filed. ECF No. 

3278. The next day it filed an amended disclosure statement. ECF No. 3279. 

14. On February 28, 2023, this Court held a hearing on the approval of the disclosure statement. 

ECF No. 3292. Finally, the Modified Second Amended Plan of Adjustment of the Puerto 

Rico Electric Power Authority (“Plan of Adjustment”), ECF No. 3296, and the Disclosure 

Statement for Modified Second Amended Plan of Adjustment of the Puerto Rico Electric 

Power Authority (“Disclosure Statement”), ECF No. 3297, were filed on March 1st, 2023.2

15. On March 3rd, 2023, this Court approved the Disclosure Statement, ECF No. 3304, and 

established the procedures and deadlines for confirmation. ECF No. 3305. The procedural 

order suffered amendments. Pursuant to the Third Amended and Restated Order 

establishing, among other things, procedures and deadlines concerning objections to 

confirmation and discovery in connection therewith (“Procedural Order”), the parties have 

been engaged in rigorous discovery which ended on June 2nd, 2023. ECF No. 3565. 

16. Pursuant to the Procedural Order, on June 5th, 2023, the Oversight Board filed its 

(“Proposed Confirmation Order”). ECF No. 3587. On June 7th, 2023, votes were cast for 

the confirmation of the Plan of Adjustment. Under the same deadlines, SREAEE hereby 

files its Objection to the Confirmation of the Plan of Adjustment.

III. LEGAL STANDARD FOR CONFIRMATION

17. Pursuant to Section 314 of PROMESA, the confirmation of a Plan of Adjustment requires 

meeting certain requirements. 48 U.S.C. § 2174(b). One of the requirements for 

2 As of the date of this filing, these are the most recent versions of the Plan of Adjustment and Disclosure Statement

on the public docket, while the Claim Estimation Hearings revealed that the Oversight Board’s data may result in 

a substantial change in the document. Thus, SREAEE reserves every right to amend and supplement this filing 

should subsequent amendments be filed.

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confirmation is that “the debtor is not prohibited by law from taking any action necessary 

to carry out the plan . . . .” Id. § 2174(b)(3). Additionally, pursuant to Section 314(b) of 

PROMESA, one of the requirements for confirmation of a Plan of Adjustment is that it 

comply with the “the provisions of title 11, made applicable to a case under [PROMESA].” 

Id. § 2174(b)(1).

18. In addition, the Oversight Board must obtain “any legislative, regulatory, or electoral 

approval necessary under applicable law in order to carry out any provision of the 

plan.” See Id. § 2174(b)(5)(emphasis added). This provision exists because, despite the 

extremely vast powers vested upon the Oversight Board, “the Oversight Board has not 

been given power to affirmatively legislate.” Rosselló Nevares v. Fin. Oversight & 

Mgmt. (In re Fin. Oversight & Mgmt. Bd.), 330 F. Supp. 3d 685,701 (D.P.R. 2018).

19. In addition to complying with existent law and obtaining enabling legislation, PROMESA 

requires the Oversight Board to present a Plan that is feasible. 

The Court has an independent duty to determine feasibility and to make specific

findings of fact. Under PROMESA, a plan of adjustment must be supported

by financial projections that are “reasonable and demonstrate a

probability that the debtor will be able to satisfy its obligations under the

Plan.” . . . The core inquiry has been articulated as follows: “Is it likely that

the debtor, after the confirmation of the Plan of Adjustment, will be able

to sustainably provide basic municipal services to the citizens of the debtor

and to meet the obligations contemplated in the Plan without the significant

probability of a default?” In re Fin. Ove rsight & Mgmt. Bd., 637 B.R. 223,

302-03 (D.P.R. 2022)(citations and brackets omitted)(emphasis added).

20. As such, feasibility is a two prong inquiry: (1) whether the debtor will be able to satisfy its 

obligations under the Plan; and (2) whether the debtor will be able to provide the services 

it owes to the public. Id.

IV. ARGUMENTS

21. Under the Plan of Adjustment, SREAEE or “PREPA ERS” as the Oversight Board 

denominates it, is “the entity responsible for the administration and payment of PREPA’s 

pension obligations, pursuant to the PREPA ERS Regulations.” ECF No. 3296 at 27. Those 

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regulations are defined as “the regulations adopted by PREPA pursuant to PREPA’s 

Resolution No. 200, adopted June 25, 1945, that provide for the governance, funding, and 

operation of PREPA ERS, as amended from time to time.” ECF No. 3296 at 27.

22. Moreover, the Plan of Adjustment defines SREAEE’s claim as “on account of 

contributions owed (including amounts payable in the future) by PREPA to [SREAEE]

to pay retiree pension benefits . . . .” ECF No. 3296 at 27.

23. Notwithstanding the fact that SREAEE is a creditor with its own legal personality, the 

Oversight Board intends to displace SREAEE, replacing it as recipient of PREPA’s 

contributions with the PREPA PayGo Trust (“PayGo Trust”). The PayGo Trust is “[a] 

reserve trust to be created in accordance with the terms and conditions hereof, which 

reserve trust shall be utilized to reimburse [SREAEE] on an annual basis for payment 

of retirement benefits to Participants as adjusted by this Plan.” ECF No. 3296 at 28 

(emphasis added). 

From and after the Effective Date, in full consideration, satisfaction, 

release, and exchange of the Pension Claim held by [SREAEE], Reorganized 

PREPA shall pay to the PREPA PayGo Trust, for the benefit of PREPA ERS, 

the amounts described in Article XXVI.B, sufficient to satisfy of Participants’ 

claims against [SREAEE] to the extent described in this Article VI. ECF No. 

3296 at 42 (emphasis added).

24. As such, the “PayGo Trust shall reimburse the [SREAEE] for retirement benefits paid

and reasonable administrative costs (as determined by PREB to be subject to payment as 

part of the rate to be charged by PREPA to its customers) incurred in the prior Fiscal Year 

. . . .” ECF No. 3296 at 42 (emphasis added). 

[The] benefit payments for which [SREAEE] is entitled to reimbursement 

hereunder shall be limited to (i) benefits payable to any Participant who is a 

Retiree as of the Effective Date, without any further cost of living adjustments 

from and after the Effective Date, and (ii) benefits payable to Participants who 

are Active [SREAEE] Participants as of the Effective Date, (A) with benefit 

accruals frozen as of the Effective Date in the manner set forth in Schedule C

hereto, and (B) not subject to any cost of living adjustments from and after the 

Effective Date. ECF No. 3296 at 42. 

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25. Therefore, under the Plan of Adjustment, the benefits for current and future System retirees 

and beneficiaries will be paid on a PayGo basis. In addition, the Plan of Adjustment 

includes changes in benefits, such as, (i) freezing accrued benefits for active members, (ii) 

changes in the eligibility requirements to commence pension benefits, (iii) the elimination 

of future pension increases every three years, and (iv) the elimination of the summer and 

Christmas bonuses for active members. It also proposes a defined contribution plan for 

active employees for future service, but there would be no employer contributions to the 

plan.

26. Furthermore, the Oversight Board increases the administrative burden on PREPA by 

adding another trust for no reasonable purpose. As explained by Ms. Sheva Levy in her 

deposition, the PayGo Trust will mean an additional administrative fee load of 3%. Exhibit 

5: Transcript of Sheva Levy Deposition at 127, Exhibit 52 at Appendix b (Levy 

Deposition). This administrative fee load is defined as the “assumed administrative 

expenses to be paid from the trust as a percentage of benefit payments paid.” %. Id. This 

refers to the “assumed costs of operating the plan.” Id. However, SREAEE’s administrative 

fee load is currently 0.1%, which means the added 2.9% responds to the creation of the 

PayGo Trust. Id. at 132, Exhibit 54 at 3.

27. As such, SREAEE does not have recovery under the Plan of Adjustment. It will 

continue to pay benefits to retirees and be subject to the proposed reimbursement of the 

PayGo Trust for those disbursements. This overview is necessary to understand the 

following arguments related to the SREAEE’s objection to the confirmation of the Plan of 

Adjustment. 

A. THE PLAN IMPERMISSIBLY CAUSES PREPA TO REJECT ITS PENSION 

OBLIGATIONS.

28. As previously stated, one of the requirements for confirmation is that “the debtor is not 

prohibited by law from taking any action necessary to carry out the plan . . . .” 48 U.S.C. §

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2174(b)(3). However, the Plan of Adjustment violates applicable law for rejection of 

executory contracts.

i. Applicable Law for Rejection

29. Under the Bankruptcy Code, “the trustee, subject to the court’s approval, may assume or 

reject any executory contract or unexpired lease of the debtor.” 11 U.S.C. § 365(a). This is 

subject to the cum onere principle, meaning “[a]n executory contract may not be assumed 

in part and rejected in part.” In re MF Glob. Holdings Ltd., 466 B.R. 239, 241 (Bankr.

S.D.N.Y. 2012) (citation omitted). “This principle prevents a party from using the power 

available under Bankruptcy Code section 365 to ‘cherry pick’ contractual terms by 

assuming those it finds favorable and freeing itself from others it finds unfavorable.” Astria

Health v. Cerner Corp. (In re Astria Health), 640 B.R. 758, 769 (Bankr. E.D. Wash. 2022)

(footnotes omitted). “[T]he estate representative is not allowed to use section 365(a) to 

rewrite or line-item veto the debtors' agreements but must assume or reject each on 

a wholesale basis with all existing benefits and burdens.” Id.(emphasis added). “To be 

sure, the cum onere principle is significant and imposes important constraints on a 

bankruptcy estate representative's ability to manipulate the terms of prebankruptcy 

contracts using the power of assumption or rejection.” Id. at 770 (emphasis added).

30. Generally, “[u]nder a motion to assume or reject an executory contract, the only issue 

properly before a court is whether assumption or rejection of the subject contract is based 

upon a debtor’s business judgment.” In re BanVest Capital Corp., 290 B.R. 443, 447 

(B.A.P. 1st Cir. 2003)(citations omitted). Thus, “[t]o satisfy the business judgment test, the 

debtor must show that the proposed course of action will be advantageous to the estate and 

the decision is based on sound business judgment.” In re TM Vill., Ltd., 598 B.R. 851, 859 

(Bankr. N.D. Tex. 2019)(citations omitted). Therefore, under this test, “the bankruptcy 

court should not interfere with [that] business judgment[,] except on a finding of bad faith 

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or gross abuse of their business discretion.” In re Noranda Aluminum, Inc., 549 B.R. 725, 

728 (Bankr. E.D. Mo. 2016)(quotation marks and citations omitted). However, the court 

may interfere “[i]f Debtor cannot show a benefit to the estate, [and] does not need to make 

a finding of bad faith or gross abuse of discretion.” In re Crystalin, L.L.C., 293 B.R. 455, 

464 (B.A.P. 8th Cir. 2003). Furthermore, although business judgment is the general 

standard to assume or reject executory contracts in bankruptcy, the courts have carved out 

an exception for unique contracts. See, for example, N.L.R.B. v. Bildisco, 465 U.S. 513 

(1984) superseded by statute; In re Mirant Corp., 378 F.3d 511 (5th Cir. 2004).

31. In Bildisco, the Supreme Court considered that collective-bargaining contracts had a 

“special nature” and, therefore, “a somewhat stricter standard should govern . . . .” 465 U.S. 

at 525. Building on that, in Mirant, the Fifth Circuit determined that “[t]he nature of a 

contract for the interstate sale of electricity at wholesale is also unique.” 378 F.3d at 525. 

Therefore, the court determined, the “[u]se of the business standard would be inappropriate 

in this case because it would not account for the public interest inherent in the transmission 

and sale of electricity.” Id. In these cases, the appropriate standard is a balance of equities, 

not a business judgment test. See Bildisco, 465 U.S. at 527; Mirant, 378 F.3d at 525. See, 

also, In re FirstEnergy Solutions Corp., 945 F.3d 431, 453-54 (6th Cir. 2019).

It would make no sense to limit application of a higher standard for rejection to 

just those cases where unfettered rejection is inconsistent with a federal statute 

or would encroach on the turf of a federal regulator. [We] can easily conceive 

of cases where rejection of a contract could have a significant impact upon, say, 

public health, such that its rejection should be allowed only after a more critical 

review by the court than is contemplated under the ordinary business judgment 

rule . . . . In re Pilgrim’s Pride Corp., 403 B.R. 413, 424 (Bankr. N.D. Tex. 

2009).

32. This means that, while it has not been addressed yet, other contracts may be entitled to the 

treatment provided by Bildisco and Mirant. Bildisco extended the balance of equities to

collective bargaining agreements because they were of a special nature, 465 U.S. at 524, 

and citing “national labor policies of avoiding labor strife and encouraging collective 

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bargaining . . . .” Pilgrim’s, 403 B.R. at 422. The analysis includes the provisions of the 

federal statutes involved, but centers on the underlying policies and their importance. 

Mirant further considered that “[t]he nature of a contract for the interstate sale of electricity 

at wholesale is also unique.” 378 F.3d at 525. The Fifth Circuit in that case said: 

“Additionally, Congress found when it passed the [Federal Power Act] that the public has 

an interest in the transmission and sale of electricity. This includes the interest in the 

continuity of electrical service to the customers of public utilities.” Id. Thus, the analysis 

was about underlying policy. While “Bildisco thus focused on the type of contract [and] 

Mirant turned on the effect of rejection on the public[,]” Pilgrim’s, 403 B.R. at 423, they 

both considered the underlying policies of the executory contracts before the courts, in 

order to make their determination.

33. The test that replaces “business judgment” in these cases is “balance of equities”. In 

Bildisco, the Supreme Court instructs a balance between “the interests of the affected 

parties- the debtor, creditors and employees . . . Nevertheless, the Bankruptcy Court 

must focus on the ultimate goal of Chapter 11 when considering these equities.” 465 U.S. 

at 527 (emphasis added). In addition to establishing a different standard for the rejection of 

collective bargaining agreements, Bildisco imposes other burdens on the debtor:

Before acting on a petition to modify or reject a collective-bargaining

agreement, however, the Bankruptcy Court should be persuaded that

reasonable efforts to negotiate a voluntary modification have been made

and are not likely to produce a prompt and satisfactory solution. The NLRA

requires no less. Not only is the debtor-in-possession under a duty to bargain

with the union . . . but the national labor policies of avoiding labor strife and

encouraging collective bargaining . . . generally require that employers and

unions reach their own agreements on terms and conditions of employment

free from governmental interference. The Bankruptcy Court need step into 

this process only if the parties' inability to reach an agreement threatens to 

impede the success of the debtor's reorganization. Id. at 526-27 (citations

omitted)(emphasis added).

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34. There is room under the Bildisco standard to extend the application of the balance of

equities to other contracts where there are competing federal interests and similar

underlying policies as with collective bargaining agreements.

ii. Rejection of SREAEE in the Plan of Adjustment 

35. Under the Plan of Adjustment, the Oversight Board causes PREPA to reject its obligations 

to SREAEE, in Article VI(A)(1)(b):

b) The contractual obligations of PREPA to PREPA ERS as of the Petition 

Date, including, without limitation, the obligation to pay employer 

contributions sufficient to fund benefits as set forth in the PREPA ERS 

Regulations, shall be rescinded or deemed rejected pursuant to section 

365(a) of the Bankruptcy Code, and, other than the obligations set forth in this 

Article VI and Article XXVI.B, no further obligation of PREPA or Reorganized 

PREPA to PREPA ERS shall arise in connection with such rejection. ECF No. 

3296 at 42 (emphasis added).

36. The Disclosure Statement does not discuss this rejection in detail. However, it does discuss 

the rejection of UTIER’s CBA as a means to dispose of PREPA’s pension obligations. “The 

most significant obligation in the CBAs the Oversight Board seeks to modify is the 

requirement that PREPA maintain a fully funded pension system for Represented 

Employees and retired PREPA employees with ongoing retirement benefit accruals and 

periodic cost of living adjustments.” ECF No. 3297 at 88. Additionally, the Disclosure 

Statement declares:

The Oversight Board has engaged in negotiations with PREPA ERS and UTIER 

regarding the requirement in the CBAs and the PREPA ERS Regulations that 

PREPA continue to maintain the PREPA ERS as a defined benefit plan. If an 

agreement cannot be reached with respect to this, PREPA may need to reject 

the CBAs, and will impose pension reform measures as set forth in the Plan.

ECF No. 3297 at 93.

37. However, SREAEE submits that these negotiations have not been in good faith given the 

Oversight Board’s lack of meaningful engagement to find alternatives. Exhibit 6: 

Declaration of José Rivera.

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38. The referenced negotiations have developed as follows. On August 9, 2022, the Oversight 

Board submitted the proposed pension reform to SREAEE. After the Board of Trustees and 

its advisors carefully evaluated the proposal, it decided to reject it. However, on November 

17, 2022, SREAEE submitted its counterproposal and there was a brief conference on the 

matter with the parties’ actuaries.3 Nevertheless, at the time of this filing, the Oversight 

Board has not responded. SREAEE believes that the Oversight Board is concentrating on 

the elimination of PREPA’s obligations under the CBA, to avoid negotiating with the Board 

of Trustees.

39. Additionally, the Oversight Board proposes to impose a new obligation structure upon 

SREAEE with the creation of the PayGo Trust and rejection of future pension obligations.

Rather than continue paying employer contributions as PREPA was obligated to do 

prepetition, PREPA will be paying only the pension costs in the form of reimbursement for 

actual pensions. However, with regard to future pensions, PREPA will be washing its 

hands. 

iii. Application of the Rejection Standard

40. As previously stated, SREAEE is a public pension system that was created through 

UTIER’s CBA. Though later SREAEE was ratified by PREPA, and its defining 

characteristics were confirmed through legislative and judicial action, it is still the product 

of collective bargaining. The CBA created an obligation that PREPA has to all of its 

employees, whether or not they are members of the union. Additionally, SREAEE is an 

independent trust, run by its Board of Trustees. The Board of Trustees is composed of 

employees and retirees of PREPA, and it acts solely for the benefit of its members. 

SREAEE is not a branch of PREPA, nor does it respond to PREPA. Its members are 

3 SREAEE’s counterproposal, similar to that of the Oversight Board, consists of a two-prong approach. Regarding 

the current pensions, SREAEE’s proposal adheres to the PayGo structure, with the elimination of future increases 

every three years. However, it maintains a separate defined benefit pension system for active members as of June 

30, 2023. Exhibit 7: SREAEE Counter Proposal. 

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elected, not appointed by PREPA. Much like a union, SREAEE is consistently engaged in 

the defense of its members. Additionally, as stated, SREAEE was initially a product of 

collective bargaining. Moreover, pursuant to PROMESA, part of the underlying policy is 

the adequate funding of Puerto Rico’s public pension systems. See 48 U.S.C. § 

2141(b)(1)(C). Thus, there is an underlying federal policy that protects public pension 

systems. 

41. In view of the foregoing, the applicable standard is balance of the equities. The issues here 

are more akin to the rejection of a collective bargaining agreement than other executory 

contracts. Under the balance of equities, rejection of PREPA’s pension obligations is 

unwarranted. To begin with, as shown above, the Oversight Board has not met the burden 

showing that it engaged in reasonable, good faith negotiation to reach a voluntary 

modification of the pension system. See Bildisco, 465 U.S. at 526. It is plain to see that 

the Oversight Board’s intent has always been to reject the pension system, even their 

proposal in these negotiations is not distinguishable from the rejection in the Plan of 

Adjustment. With respect to SREAEE, the Oversight Board has never attempted to 

negotiate based on the unique characteristics of the pension system. On the contrary, it has 

been concerned only with recreating the results of the Commonwealth Plan of Adjustment.

42. In her deposition, Ms. Sheva Ley of Ernst & Young, who advises the Oversight Board on 

pension matters, was asked whether she had a role in the development of Exhibit G of the 

Disclosure Statement, marked as Exhibit 63, which contains the “Terms for Modification 

of PREPA ERS Obligations.” Levy Deposition at 127, Exhibit 65. According to Ms. Levy, 

her role in the process of the Plan of Adjustment was to “review the changes that were 

made under the Commonwealth plan of adjustment to the Commonwealth pension plans 

and to identify what the—what changes to the PREPA ERS Pension Plan would be 

consistent with the changes made to the Commonwealth pension plans.” Id. at 214-

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15(emphasis added). Her understanding of the purpose of this assignment is that the 

Oversight Board wanted to “treat the people in the PREPA ERS in the same manner that 

they treated the people in the Commonwealth pension plans.” Id. at 215(emphasis added). 

Ms. Levy expressed, with regard to Exhibit G, that she “reviewed this document to confirm 

that it was consistent with my understanding of how the board wanted to reform the 

pension system.” Id. at 235 (emphasis added) When asked about specific provisions of 

the pension reform, Ms. Levy’s answers reflected that her only assignment was to ensure 

that it was consistent with the Commonwealth’s reform. Id. at 235-41.

43. As will be discussed in more detail below, this approach is unwarranted given the 

differences between the Commonwealth pensions and PREPA pensions. Nonetheless, 

for the purpose of this section, it is sufficient to acknowledge that the only goal of the 

Oversight Board is to make SREAEE the same as the Commonwealth ERS. This is 

wholly inconsistent with a good faith negotiation based on the actual realities of SREAEE 

and PREPA. It is a one size fits all, take it or leave it, style of “negotiation” that is 

incompatible with good faith. Furthermore, as detailed below, SREAEE’s counterproposal 

is viable, particularly if SREAEE is treated as a creditor, rather than strong-armed into 

accepting its own demise. Fernández Report at p. 13-14.

44. Moreover, it is clear that the equities are skewed in favor of SREAEE in this matter, 

pursuant to the stricter applicable standard of Bildisco. See Bildisco, 465 U.S. at 527. In 

striking a balance between the interests of the debtor, creditors, and employees, while 

focusing on the goals of PROMESA which include adequate funding of the pension 

systems. Moreover, the prejudice it causes SREAEE far exceeds any possible benefits to 

PREPA or its creditors. Thus, the balance of equities standard does not favor the 

rejection of the pension system and it should be denied. Particularly when the Oversight 

Board has not met the minimum requirement of exhausting good faith negotiations.

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45. Moreover, even under the laxer business judgment standard, the Oversight Board has not 

established that the rejection of the pension system “will be advantageous to the estate and 

the decision is based on sound business judgment.” In re TM Vill., Ltd., 598 B.R. at 859 

(Bankr. N.D. Tex. 2019)(citations omitted). Sound business judgment requires the 

voluntary and reasonable consideration of an arm’s-length transaction, which 

presupposes that the parties have roughly equal bargaining power.

4 Thus, where the 

rejection provides minimal savings which barely affect PREPA, particularly given the 

continuing development of the “transformation” of PREPA, a finding of bad faith and gross 

abuse of business discretion is inevitable. See In re Noranda Aluminum, Inc., 549 B.R. at 

728. Furthermore, the Oversight Board “cannot show a benefit to the estate, [therefore, 

this Court] does not need to make a finding of bad faith or gross abuse of discretion” to 

deny rejection. See In re Crystalin, L.L.C., 293 B.R. at 464 (emphasis added). 

46. This is particularly true when the Court considers that PREPA’s workforce is continuously 

decreasing as a result of the Oversight Board’s own projects, including the T&D OMA and 

the LGA OMA. Conversely, the rejection of the pension system is more likely to cause a 

drastic increase in retirements before the effective date of the Plan of Adjustment, which 

will increase the costs of the PayGo Trust.

47. Moreover, the Oversight Board’s proposed reform imposes additional costs on PREPA. By 

creating the PayGo Trust and the bureaucracy to run it, rather than keeping SREAEE, the 

Plan of Adjustment adds a 3% administrative fee load. Levy Deposition at 127, Exhibit 

52 at Appendix b. This increases the administrative burden on PREPA by adding another 

trust for no reasonable purpose. This administrative fee load is defined as the “assumed 

administrative expenses to be paid from the trust as a percentage of benefit payments paid.” 

Id. at 127. This refers to the “assumed costs of operating the plan.” Id. However, 

4 Arm’s-Length, Black’s Law Dictionary (11th ed. 2019).

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SREAEE’s administrative fee load is currently 0.1%, which means the added 2.9% 

responds to the creation of the PayGo Trust. Id. at 132, Exhibit 54 at 3.

48. The modifications the Oversight Board hopes to achieve are arbitrary, capricious, and 

purely ideological. Throughout the years of PROMESA’s implementation, the Oversight 

Board has not been shy about its attitude towards defined benefit pension systems, 

regardless of available funding. This is even expressly included in the Plan of 

Adjustment. ECF No. 3296 at 88. This is a vendetta against defined benefit pension 

systems. This is not a business judgment tailored to PREPA and SREAEE.

49. Lastly, it should be noted that the Oversight Board’s proposal is not a complete rejection 

of the pension obligations but a modification of those obligations. With respect to current 

pensions, PREPA will be changing its obligations from an actuarially determined employer 

contribution to a reimbursement of pension costs. With respect to future pensions, PREPA 

will not assume any obligations. This is an improper cherry picking of obligations, which 

is not permissible under Section 365 of the Bankruptcy Code and imposition of obligations 

without the consent of the other party. 

B. THE PLAN IS UNFAIRLY DISCRIMINATORY TOWARDS SREAEE AS A 

CURRENT EXPENSE CLAIMANT.

50. As previously stated, one of the requirements for confirmation is that “the debtor is not 

prohibited by law from taking any action necessary to carry out the plan . . . .” 48 U.S.C. §

2174(b)(3). Additionally, pursuant to Section 314(b) of PROMESA, one of the 

requirements for confirmation of a Plan of Adjustment is that it comply with the “the 

provisions of title 11, made applicable to a case under [PROMESA].” Id. § 2174(b)(1). 

i. Applicable law to subordination and priorities

51. The Bankruptcy Code provides for distinct types of subordination. Among them, 

subordination by agreement. A contractual subordination agreement is enforceable “to the 

same extent that such agreement is enforceable under applicable non-bankruptcy 

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law.” 11 U.S.C. § 510(a) (emphasis added). A subordination agreement is defined as a 

“[f]ormal document that acknowledges a party’s interest or claim is inferior to that of 

another party.”5“Under the Bankruptcy Code, subordination commonly refers only to 

the priority of distribution. Several federal courts agree and interpret "subordination" in

section 510(a) to only implicate the priority scheme in bankruptcy.” In re Ocean Blue

Leasehold Prop. Ltd. Liab. Co., 414 B.R. 798, 804 (Bankr. S.D. Fla. 2009)(citations

omitted). “By subordinating its claim, a subordinated creditor agrees to lower its priority to 

below that of the senior creditor for purposes of distribution with respect to a particular 

transaction.” Id. at 805. A court can ignore this only “as long as it is fair and equitable and 

does not discriminate unfairly.” Law Debenture Tr. Co. of N.Y. v. Tribune Media Co.

(In re Tribune Media Co.), 587 B.R. 606, 614 (D. Del. 2018)(emphasis added).

ii. Applicable law to Equitable Distribution 

52. Section 1129(b) of the Bankruptcy Code permits cramdown of a plan of adjustment if “[it] 

does not discriminate unfairly, and is fair and equitable, with respect to each class of 

claims or interests that is impaired under, and has not accepted, the plan.” RadLAX

Gateway Hotel, LLC v. Amalgamated Bank, 566 U.S. 639, 641-42 (2012)(emphasis

added); 11 U.S.C. § 1129(b).

As to a dissenting class of impaired unsecured creditors, such

a plan may be found to be “fair and equitable” only if the allowed value of the

claim is to be paid in full or, in the alternative, if “the holder of any claim or

interest that is junior to the claims of such [impaired unsecured] class will not

receive or retain under the plan on account of such junior claim or interest any

property,”. Bank of Am. Nat'l Tr. & Sav. Ass'n v. 203 N. Lasalle St. P'ship, 526

U.S. 434, 441-42 (1999)(citations omitted). See, also, Norwest Bank

Worthington v. Ahlers, 485 U.S. 197, 202 (1988).

53. “By incorporating the fair and equitable standard in § 1129(b) of the Code, Congress 

codified the ‘absolute priority rule,’ which provides that absent full satisfaction of a 

5

Subordination agreement, BLACK’S LAW DICTIONARY (11th ed. 2019).

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creditor's allowed claims, no member of a class junior in priority to that creditor may 

receive anything at all on account of their claim or equity interest.” Official Comm. of

Unsecured Creditors v. Dow Chem. Corp. (In re Dow Corning Corp.), 456 F.3d 668, 672

(6th Cir. 2006)(citations omitted).

54. On the other hand, the unfair discrimination standard “ensures that a dissenting class will

receive relative value equal to the value given to all other similarly situated classes.” In re

Tribune Co., 972 F.3d 228, 240 (3d Cir. 2020)(citations omitted). There has been more than

one approach to this test. See Id.

The “mechanical” test prohibits all discrimination, that is, it requires that 

similarly situated creditors’ recoveries be 100% pro rata. The “restrictive” 

approach narrowly defines unfair discrimination such that, in the absence of 

subordination, no disparate treatment of similarly situated creators would 

qualify . . . The “broad” approach is generally applied as a four-factor test . . .

To determine whether the plan unfairly discriminates, the test considers

whether: (1) a reasonable basis for discrimination exists; (2) the debtor cannot

consummate its plan without discrimination; (3) the discrimination is imposed

in good faith; and (4) the degree of discrimination is directly proportional to its

rationale. Id. at 240-241 (citations, brackets, quotation marks, ellipsis and

footnotes omitted).

55. In addition to the foregoing, there is the “rebuttable presumption” test. See Id. at 241.

A rebuttable presumption of unfair discrimination exists when there is (1) a

dissenting class; (2) another class of the same priority; and (3) a difference in

the plan's treatment of the two classes that results in either (a) a materially lower

percentage recovery for the dissenting class (measured in terms of the net

present value of all payments), or (b) regardless of percentage recovery, an

allocation under the plan of materially greater risk to the dissenting class in

connection with its proposed distribution. Under this test, a presumption 

of unfair discrimination may be overcome if the court finds that a lower 

recovery for the dissenting class is consistent with the results that would obtain 

outside of bankruptcy, or that a greater recovery for the other class is offset by 

contributions from that class to the reorganization. The presumption of 

unfairness based on differing risks may be overcome by a showing that the risks 

are allocated in a manner consistent with the prebankruptcy expectations of the 

parties. Id. (citations and quotation marks omitted). 

56. Nonetheless, it should be noted that “the need for classes to be aligned correctly is a 

precursor to an effective assessment. A typical refrain in bankruptcy is that many plan 

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disputes in § 1129 begin as misclassifications under § 1122.” Id. at 243(citations omitted).

Under Section 1122:

(a) Except as provided in subsection (b) of this section, a plan may place a claim 

or an interest in a particular class only if such claim or interest is substantially 

similar to the other claims or interests of such class.

(b) A plan may designate a separate class of claims consisting only of every 

unsecured claim that is less than or reduced to an amount that the court approves 

as reasonable and necessary for administrative convenience. 11 U.S.C. § 1122.

57. This section “does not expressly provide that 'substantially similar' claims may not be 

placed in separate classes [nor] necessarily prohibit the placement of similar claims in 

different classes. [However, c]lassification of claims by the debtor must be reasonable.” 

In re Unbreakable Nation Co., 437 B.R. 189, 200 (Bankr. E.D. Pa. 2010)(citations

omitted)(emphasis added).

58. While it is true that the plan proponent generally has considerable discretion in the

classification of claims, “that discretion is tempered by the caveat that a proponent may 

not classify similar claims differently in order to gerrymander an affirmative vote on 

a reorganization plan.” In re Greate Bay Hotel & Casino, Inc., 251 B.R. 213, 224 (Bankr.

D.N.J. 2000)(citations and quotation marks omitted)(emphasis added).

59. “Separate classification of similar claims has been found to be permissible where the 

classification is offered in good faith, does not foster an abuse of the classification system, 

and promotes the rehabilitative goals of Chapter 11.” Id. (citations omitted). 

“Whether claims are "substantially similar" under 11 U.S.C. § 1122(a) is a question of fact 

. . . .” Zante, Inc. v. Delgado (In re Zante, Inc.), 467 B.R. 216, 218 (D. Nev. 2012).

iii. SREAEE is a creditor and is not treated as such under the Plan of Adjustment

60. As detailed above, under the Plan of Adjustment, SREAEE’s claim is defined based on

contributions owed by PREPA to SREAEE to pay retiree pension benefits. ECF No. 

3296 at 27. Nonetheless, this is not the claim that SREAEE filed. SREAEE’s claim 

includes PREPA’s liability based on the following:

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The actuarially determined present value of future benefits (“total actuarial 

liabilities”) is the measure of the amount as of a given date that would be 

sufficient to pay for all future benefits payable from the [SREAEE] for current 

active and inactive members assuming all actuarial assumptions are met. As of 

June 30, 2021, the total actuarial liabilities are $4,459.5 million according to 

the June 30, 2021, actuarial valuation report prepared by Cavanaugh Macdonald 

Consulting, assuming a discount rate of 5.75% per annum. The total actuarial 

liabilities of $4,459.5 million is the estimated claim by [SREAEE] to maintain 

the promised benefits under the current System without any changes or reforms. 

Fernández Report, at L. 131-138 (emphasis added).

61. The Oversight Board is instead concerned with the bare minimum of covering current 

pensions with unilaterally imposed reductions. That is, instead of addressing what PREPA 

owes SREAEE, the creditor, the Plan of Adjustment only intends to cover the modified 

pensions of current retirees and practically eliminate SREAEE. As such, SREAEE does 

not have recovery under the Plan of Adjustment. It will continue to pay benefits to 

retirees and be subject to the proposed reimbursement of the PayGo Trust. 

62. Notwithstanding the fact that SREAEE is a creditor with its own legal personality, the 

Oversight Board intends to displace, reform, and eventually destroy SREAEE. This 

treatment is illegal and unheard of even under bankruptcy proceedings. This Court should 

ask itself whether the Oversight Board would ever even consider imposing such reforms 

on any other creditor. Had the Oversight Board proposed any such treatment for another 

creditor, to eliminate a creditor to avoid paying its debt, SREAEE cannot fathom that this 

Court would not jump. Had the Oversight Board determined that the Ad Hoc Group or the 

Fuel Line Lenders did not deserve recovery and instead they would eliminate them, this 

Plan of Adjustment would not be up for discussion. Rather than treat SREAEE as a 

creditor in its own right, the Plan of Adjustment treats SREAEE as though it were an 

entity within PREPA or somehow comparable with the Commonwealth’s pension systems 

over which the Oversight Board can unilaterally make decisions. This is not the case.

63. From the start, the Oversight Board has been concerned only with recreating the results of 

the Commonwealth Plan of Adjustment, which is unwarranted given the vast differences 

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between the pension systems involved. For example, in the Commonwealth’s plan of

adjustment, the Oversight Board included the Employees Retirement System (“ERS”) as 

the debtor in a Title III Plan. Meanwhile SREAEE is a creditor in PREPA’s Title III 

case.

64. Additionally, the pension reforms instituted in the Commonwealth’s Title III plan were for 

pension claimants as individuals. This is so because the Teachers’ Retirement System 

and the Judiciary’s Retirement System were not independent trusts or entities separate 

from their respective instrumentalities or the Commonwealth. Therefore, these 

retirement systems were not the creditors, just parts of the debtor to be molded pursuant 

to the Commonwealth’s reorganization. These are incompatible situations. The Plan of 

Adjustment does not pay SREAEE’s claim as a creditor. The Plan of Adjustment imposes 

new obligations on SREAEE as a creditor, essentially liquidates it and adds intermediary 

entities to operate and oversee SREAEE’s duties for additional costs. The proposed pension 

reform that the Oversight Board imposes through the Plan of Adjustment inevitably 

eliminates SREAEE, as its active members are unilaterally removed from the system.

iv. Bond subordination to Current Expenses, which includes SREAEE.

65. On January 1, 1974, PREPA and U.S. Bank entered into the Trust Agreement, which 

provides for “the fixing, charging and collecting by [PREPA] of reasonable rates and 

charges for the use of the services and facilities furnished by the System sufficient to 

provide for the payment of the expenses of [PREPA] incurred in the conservation, 

repair, maintenance and operation of the System . . . .” Exhibit 8: Trust Agreement, ECF 

No. 118-1 Exhibit A at 8 (Trust Agreement) (emphasis added). According to the Trust 

Agreement, recovery for bondholders is contingent on the Current Expenses getting paid in 

full. Pursuant to the Trust Agreement, PREPA’s Revenues refer to “all moneys received by 

[PREPA] in connection with or as a result of its ownership or operation of the System, 

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including the income derived by [PREPA] from the sale of electricity generated or 

distributed by the System . . . .” Trust Agreement at 36. These Revenues would be applied 

to the General Fund, which was created by the Trust Agreement. 

[PREPA] covenants that, after the outstanding 1947 Indenture Bonds have been 

paid or provision has been made for their payment and the release of the 1947 

Indenture, all Revenues, other than income from investments made under 

the provisions of this Agreement, will be deposited as received in the name 

of [PREPA] with a qualified depositary or depositaries to the credit of the 

General Fund and applied in accordance with the provisions of this Article. 

Trust Agreement at 68 (emphasis added).

66. Pursuant to Section 505, the General Fund would be used first for the payment of PREPA’s 

Current Expenses. Trust Agreement at 70. As such, under the Trust Agreement

bondholders are entitled to payment only from Net Revenues, “the amount of the excess 

of the Revenues for such period over the Current Expenses for such period.” Trust 

Agreement at 28 (emphasis added). These would be transferred to the Sinking Fund. 

67. The Trust Agreement defines Current Expenses as:

The term “Current Expenses” shall mean [PREPA’s] reasonable and 

necessary current expenses of maintaining, repairing and operating the System 

and shall include, without limiting the generality of the foregoing, all 

administrative expenses, insurance premiums, expenses of preliminary surveys 

not chargeable to Capital Expenditures, engineering expenses relating to 

operation and maintenance, fees and expenses of the Trustee, the 1947 Trustee, 

the Paying Agents and of the paying agents under the 1947 Indenture, legal 

expenses, any payment to pension or retirement funds, and all other 

expenses required to be paid by [PREPA] under the provisions of the 1947 

Indenture, this Agreement or by law, or permitted by standard practices for 

public utility systems, similar to the properties and business of [PREPA] and 

applicable in the circumstances but shall not include . . . . Trust Agreement 

at 23 (emphasis added).

68. Pursuant to the foregoing, Current Expenses expressly include the payments to pension 

and retirement funds. It should be noted that this language does not limit the status of

Current Expense to pension benefits, but payments to pension and retirement funds. 

This means that it is not the pension beneficiaries but the retirement trust that is entitled to 

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this treatment. Pension and retirement funds are within the inclusive language of the 

definition of Current Expenses, and clearly precede the exclusionary language. 

69. However, the Plan of Adjustment does not respect that priority or subordinate bond 

payment to the payment of Current Expenses, which is impermissible when the Plan of 

Adjustment also discriminates unfairly against SREAEE. 

v. Current Expense Treatment of the Fuel Line Lenders

70. Pursuant to the Plan of Adjustment, the Fuel Line Lenders have achieved one of the highest 

recoveries among creditors. They “will receive (i) Series A Bonds in the face amount 

equal to 84% of their Fuel Line Loan Claims, and (ii) for the remaining 16% of their 

Claims, a pro rata share of the Series B Bonds available . . . .”6 ECF No. 3297 at 278 

(emphasis added). This treatment is a direct result of the Fuel Line Lenders’ PSA:

On December 1, 2022, the Oversight Board, as PREPA’s Title III 

Representative, and the Fuel Line Lenders entered into the Fuel Line Lender 

PSA, which generally resolves the Fuel Line Lenders’ claims and asserted 

priority treatment as “Current Expenses” under the Trust Agreement and 

provides for the Fuel Line Lenders to support the Plan. Pursuant to the Fuel Line 

Lender PSA, the Fuel Line Lenders will be receiving Series A Bonds, which 

will be current interest bonds with a 6.0% coupon, at an exchange ratio of 

84% of the Allowed Fuel Line Loan Claim (as defined in the Plan). 

Series A Bonds shall have a final maturity of fifteen (15) years from the 

Effective Date, with an expected repayment of five (5) years from the 

Effective Date based on upon 2022 Fiscal Plan Projections. The Series A 

Bonds shall be issued on the Effective Date but shall accrue interest from 

the deemed issuance date of December 1, 2022 for purposes of the calculation 

of interest accrued; provided, however, the accrual of interest prior to the 

Effective Date shall be capped at one (1) year. Such interest shall be payable in 

either cash or in the form of additional Series A Bonds at the Oversight Board’s 

discretion. 

Additionally, the Fuel Line Lenders will be entitled to receive on 

account of their Remaining Claim a Pro Rata Share of Net Remaining New 

Bonds, if any, available for distribution to the Remaining Series B Bond 

Claims Pool (each, as defined in the Plan). Finally, Fuel Line Lenders shall 

also receive certain consummation fees and professional fee reimbursement 

fees, in the amounts of $15,000,000 and up to $11,000,000, respectively, each 

6

It should be noted that, pursuant to the distributions shown in the Disclosure Statement, the PayGo Trust would 

not receive any distribution of the Series B Bonds, because the Oversight Board was only successful in the lien 

issue of the Lien Challenge Adversary. ECF No. 3297 at 45.

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of which shall be payable in either cash or in the form of additional Series A 

Bonds at the Oversight Board’s discretion. 

In exchange for such consideration, the Fuel Line Lenders have 

agreed to support confirmation of the Plan and, following the Effective 

Date, move to dismiss Adv. Pro. 19-00396 with prejudice. ECF No. 3297 at 

278 at 46 (emphasis added).

71. The Fuel Line Lenders are the only recipients of Series A bonds. This treatment clearly 

complies with the subordination of bond payments to the payment of Current Expenses, to 

the extent that the Fuel Line Lenders have asserted this claim and members of the Oversight 

Board has conceded that their argument is solid.7

72. As such, Fuel Line Lenders, a similarly situated creditor to SREAEE, receive at least an 

84% recovery. Meanwhile, SREAEE does not recover on its claim. Instead, SREAEE 

receives the promise of reimbursement for its own payment to pensioners.

73. If SREAEE “received 84% of its total actuarial liabilities claim of approximately $4,459.5 

million, [it] would be $3,746.0 million at a discount rate of 5.75%. Instead under the Plan 

of Adjustment’s proposed treatment of the Retirement System, the System would receive a 

value of approximately $3,344.8 million.” See Fernández Report at L. 183-87. Even 

then, this value would not be recovered by SREAEE, it would be a reimbursement for 

PREPA’s pension obligations which have already been paid out by SREAEE. This 

means that SREAEE does not receive a distribution under the Plan of Adjustment. 

Meanwhile the “Pension Claim” is addressed as though it belongs only to current retirees 

and, even then, the disbursement will not occur pursuant to terms of the Plan of Adjustment, 

but as part of the operational expenses of PREPA through an additional entity. It should be 

noted that the pensioners were not included as a class of creditors, nor did they have the 

opportunity to vote on the Plan. This treatment is not only unfair and discriminatory 

7 SREAEE does not adopt any position at this time regarding whether the Fuel Line Lenders are in fact entitled to 

Current Expense treatment. This argument is limited to the unfair exclusion of SREAEE from the treatment of a 

Current Expense claimant. SREAEE reserves the right to raise any and all arguments that the Fuel Line Lenders 

are not Current Expense claimants.

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compared to any other creditor and especially the Fuel Line Lenders, but it is also a 

determination that SREAEE is not entitled to payment within the Plan but rather will be 

subject to the same consistent risks of PREPA’s lack of payment of pension expenses which 

it has suffered in the past. 

74. Moreover, it should be noted that in the 2023 Certified Commonwealth Fiscal Plan, the 

Oversight Board includes a rate increase for legacy pension debt. Yet, this is not part of the 

Plan of Adjustment. Meanwhile, the Legacy Charge is part of the Plan of Adjustment. This 

results in two problems: (1) The payment of SREAEE’s Pension Claim is subject to a rate 

increase that will not have the benefit of being a part of a confirmed plan, adding another 

layer of discrimination to the treatment of Class 3; and (2) The feasibility analysis of the 

Legacy Charge is incomplete and unreliable, because it does not consider the totality of the 

rate increases that the Oversight Board proposes to impose upon the people of Puerto Rico 

and its economy to comply with PREPA’s restructuring. 

C. THE PLAN IS CONTRARY TO LAW TO THE EXTENT THAT IT DOES NOT 

APPLY A PROPER PREEMPTION ANALYSIS. 

75. As previously stated, one of the requirements for confirmation is that “the debtor is not 

prohibited by law from taking any action necessary to carry out the plan . . . .” 48 U.S.C. §

2174(b)(3). However, the Plan of Adjustment violates the preemption doctrine.

i. Applicable law for preemption. 

76. Rooted in the Supremacy Clause of the United States Constitution, Congress has the

power to preempt state law. See Arizona v. United States, 567 U.S. 387, 398-99 (2012). 

Thus, preemption is the name given to “certain circumstances, [where] federal law will take

precedence over state regulation.” Goya de P.R., Inc. v. Santiago, 59 F. Supp. 2d 274, 279 

(D.P.R. 1999) (citations omitted). The Supreme Court has stated that preemption occurs in 

three circumstances: (1) express preemption, where there is an express provision of 

preemption; (2) field preemption, where Congress intended federal law to occupy the field; 

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and (3) conflict preemption, where there is a direct conflict between state and federal law. 

See Crosby v. Nat'l Foreign Trade Council, 530 U.S. 363, 372 (2000). 

77. As such, “[p]reemption is a ‘strong medicine,’ that is not casually to be dispensed.” Assured 

Guar. Corp. v. Garcia-Padilla, 214 F. Supp. 3d 117, 125 (D.P.R. 2016) (citations and 

quotation marks omitted). “It has long been the case that [the courts] sole task is to 

determine the intent of Congress, and in so doing we have been mindful that Congress 

does not cavalierly pre-empt state-law causes of action . . . .” Blue Cross & Blue Shield v.

AstraZeneca Pharm. LP (In re Pharm. Indus. Average Wholesale Price Litig.), 582 F.3d 

156, 173 (1st Cir. 2009) (citations and quotation marks omitted). 

78. Thus, Courts should presume that preemption does not occur, unless the clear and 

manifest purpose of Congress is shown. See Id. “When a challenge to a state law is raised 

on the basis of preemption, a presumption exists that the state statute is valid.” Allied

Fin., Inc. v. WM Capital Partners 53, LLC (In re Allied Fin., Inc.), 572 B.R. 45, 53 (Bankr.

D.P.R. 2017)(citations omitted)(emphasis added). This means that the burden of 

establishing the preemptive effect of a federal statute rests on the movant.

79. PROMESA contains a supremacy clause which states “[t]he provisions of this chapter

shall prevail over any general or specific provisions of territory law, State law, or regulation 

that is inconsistent with this chapter.” 48 U.S.C. § 2103 (emphasis added). However, 

even where there is a finding of express preemption, the courts “must, nonetheless,

identify the domain expressly pre-empted by the statutory language . . . .” Medtronic,

Inc. v. Lohr, 518 U.S. 470, 484 (1996) (emphasis added)(citations and quotation marks 

omitted).

80. PROMESA expressly preempts any state law that is inconsistent with its own terms. 

Therefore, before a state law can be deemed preempted by PROMESA, there must be an 

analysis regarding whether and how that state law is inconsistent with PROMESA and 

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its provisions, which is the domain expressly preempted. See Medtronic, 518 U.S. at 484.

Even though the Bankruptcy Code and PROMESA provide that a plan of adjustment may 

preempt non-bankruptcy laws, this is also subject to the preemption doctrine analysis. See

In re Fed.-Mogul Glob., 684 F.3d 355, 382 (3d Cir. 2012). 

ii. List of preemption clauses in the Plan under SREAEE class treatment. 

81. Pursuant to Schedule D of the Plan of Adjustment, includes as preempted by PROMESA

“Act 106-2017 (to the extent it does not allow participants in the PREPA ERS to participate 

in the Act 106 defined contribution plan).” ECF No. 3296-4 at 2.

82. Moreover, it contains a broad preemption clause with regards to the Pension Claim. Under 

Article VI, regarding the treatment of the pension claims, the Plan of Adjustment states:

All provisions of the Commonwealth Constitution, Commonwealth 

statutes, executive orders, rules, regulations, and policies that create, require, or 

enforce employee pension and other pension-related benefits that are modified 

and/or preserved in whole or in part herein, to the extent inconsistent with the 

treatment of Allowed Pension Claim hereunder, including any provisions that 

would prohibit the enrollment of Active PREPA ERS Participants and 

subsequently hired employees of PREPA in the defined contribution plan for 

Commonwealth employees under Act 106-2017 as set forth in Article XVIII, 

are preempted as inconsistent with PROMESA. ECF No. 3296 at 42.

83. As such, the Oversight Board has included an extremely broad preemption clause that 

applies to just about any text related to PREPA’s pension obligations without even 

identifying what those are. 

iii. Analysis of the laws and the lack of preemption.

84. Through the Plan of Adjustment, the Oversight Board promotes a casual approach to 

preemption that is incompatible with the doctrine. However, it has the burden of 

establishing the preemptive effect of PROMESA on these specific laws. Because it has not 

done so, the Plan of Adjustment violates the preemption doctrine.

D. THE PLAN IS NOT FEASIBLE DUE TO THE MACROECONOMIC EFFECTS OF 

THE LEGACY CHARGE. 

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85. As previously stated, under Section 314(b), In addition to complying with existent law and 

obtaining enabling legislation, PROMESA requires the Oversight Board to present a Plan 

that is feasible. 48 U.S.C. § 2174(b)(6).

i. Applicable Definition of Feasibility

86. This Court has provided a specific definition of feasibility under PROMESA:

The Court has an independent duty to determine feasibility and to make

specific findings of fact. Under PROMESA, a plan of adjustment must be

supported by financial projections that are “reasonable and demonstrate a

probability that the debtor will be able to satisfy its obligations under the

Plan.” Additionally, as in [C]hapter 9, a PROMESA debtor, as a government

entity, must show that it is “probable that the debtor can both pay post-petition

debt and provide future public services at the level necessary to its viability as

a territory.” The core inquiry has been articulated as follows: “Is it likely that

the debtor, after the confirmation of the Plan of Adjustment, will be able

to sustainably provide basic municipal services to the citizens of the debtor

and to meet the obligations contemplated in the Plan without the significant

probability of a default?” In re Fin. Ove rsight & Mgmt. Bd., 637 at 302-

03(citations and brackets omitted)(emphasis added).

87. As such, feasibility is a two prong inquiry: (1) whether the debtor will be able to satisfy 

its obligations under the Plan; and (2) whether the debtor will be able to provide the 

services it owes to the public. Id.

ii. Legacy Charge in the Plan of Adjustment 

88. The Plan of Adjustment includes a Legacy Charge for the purpose of ensuring “sufficient 

cash flow required for PREPA’s debt service on the New Bonds issued under the Plan.” 

ECF No. 3296-2 at 2. It consists of “all applicable Flat Fees and Volumetric Charges set 

at the levels for each customer class set forth . . . .” ECF No. 3296-2 at 2. Thus, the Legacy 

Charge includes a Flat Fee, “incremental to any existing PREPA rates and fees . . . [which] 

is not linked to a customer’s power consumption, but rather is assessed for each non-exempt 

customer being connected to the PREPA electricity grid.” ECF No. 3296-2 at 3. It also 

includes a Volumetric Charge “incremental to any existing PREPA rates and fees . . . based

on each customer’s monthly consumption of electricity.” ECF No. 3296-2 at 3. This is 

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assessed on the basis of cents per kilowatt hour (c/kWh) and depends on whether the 

threshold of 500 kWh. ECF No. 3296-2 at 3. Pursuant to Annex 1 of Schedule B of the 

Plan of Adjustment, the numbers vary depending on the classification of the customer 

sector. ECF No. 3296-2 at 5.

89. The Legacy Charge Derivation contained in Exhibit P of the Disclosure Statement 

establishes that “[t]he Legacy Charge was designed to incorporate many economic and 

societal considerations . . . .” ECF No. 3297-16 at 2. These considerations include: (1) 

residential affordability; elasticity; comparables and precedent; cost of service; projected 

capital expenditures and costs; and debt repayment. ECF No. 3297-16 at 2-3.

90. Regarding the first two considerations, Exhibit P declares:

Residential Affordability. The large number of low-income households in 

Puerto Rico means that many PREPA residential customers have limited 

or no ability to afford higher rates without sacrificing other necessities. 

Elasticity. As discussed in detail below, higher rates, and the resulting higher 

bills for customers, ultimately induce customers to reduce their 

consumption of electricity from PREPA (including notably by using 

electricity generated by solar PV installed at their premise), “cut the cord” 

from the grid entirely either through taking full responsibility for their 

electricity generation or even out-migrating from Puerto Rico. Whenever 

customers decrease their consumption, the remaining customers must 

shoulder higher shares of the electric system’s fixed costs. . . . ECF No. 

3297-16 at 2 (emphasis added).

91. As such, Exhibit P recognizes that affordability and elasticity are important issues in the 

concoction of the Legacy Charge.

The Oversight Board derived the Legacy Charge in light of the Oversight 

Board’s goal of ensuring PREPA’s rates are sustainable in the long-term 

and affordable for PREPA’s consumers. Any increase in PREPA’s rates, 

including the Legacy Charge, cannot exceed the conceptual upper bound of 

affordability: the total rate that PREPA customers can pay without (1) 

threatening the sustainability of PREPA as a functioning utility; (2) threatening 

the sustainability of the Puerto Rico economy; and/or (3) subjecting 

customers to undue hardship. . . . ECF No. 3297-16 at 4 (emphasis added).

92. As such, the Oversight Board appears aware of the repercussions of the increase in rates. 

However, SREAEE submits that this awareness has not translated into execution. 

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93. In fact, in his deposition Mr. William Zarakas from Brattle Group, admitted that the impact 

of the Legacy Charge on GDP, private sector employment or business closures was not 

considered in the development of the Legacy Charge. Exhibit 9: Transcript of William 

Zarakas Deposition at 276, 278-79 (Zarakas Deposition). As such, there is no data in the 

derivation of the Legacy Charge regarding how these rate increases will impact the private 

sector and whether this will impair PREPA’s ability to provide service, as well as affect the 

Commonwealth’s ability to collect sufficient tax revenue to pay its own obligations. Of 

course, fewer customers than projected would require increasing the Legacy Charge on the 

remaining consumers, leading either to more cost cuts and worse service by the utility or 

even higher rates that force more customers to leave—neither is sustainable for the utility

nor for Puerto Rico.

iii. Impact of the Legacy Charge on Feasibility

94. It is important to remember, at every point in this proceeding, that Puerto Rico is a U.S. 

territory and, therefore, not a sovereign. As such, it has “no power to pursue an endogenous 

economic policy, as opposed to many independent countries within a framework of 

integration. Even the [Oversight Board] was a direct imposition of Congress, with little 

influence from the local government and legislature. Puerto Rico lacks economic 

sovereignty.” Exhibit 10: Dr. José I. Almeda Opening Report, ECF 3427-1 at 29

(Alameda Opening). Even the Oversight Board’s rebuttal expert, Dr. Andrew Wolfe states 

that “[r]egional economies can experience long-term secular declines, particularly where 

there is outmigration.” Exhibit 11: Dr. Andrew Wolfe Rebuttal Report, ECF 3504-2 at 

10 (Wolfe Rebuttal). This is further supported because regional economies, like Puerto 

Rico, lack access to international lenders to finance reforms. Id. at 11. “Puerto Rico is a 

region within the United States and not a sovereign nation. As such, comparing Puerto Rico 

to other nations . . . is inappropriate . . . .” Id. at 9. 

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95. That said, Puerto Rico has a fragile and weak economy that is vulnerable to macroeconomic 

imbalances and unable to address them. Alameda Opening at 7. Because Puerto Rico’s 

economy is currently unsustainable and does not project growth, the Legacy Charge will 

have a severe negative impact on it. Id. at 9. Energy is a vital part of sustained economic 

growth. Id. at 34. Conversely, “increases in the kWh cost rising quicker than the (real or 

nominal) economic growth rate are not acceptable for Puerto Rico’s economy.” Id. at 37

(citing Case No. 17-03283-LTS, ECF No. 7816, Brownstein Declaration). 

96. In view of the foregoing, it is essential to determine a threshold cost per kWh, the level of 

electricity rates that would make economic growth become negative. Id. at 38. This 

threshold cost has been estimated to be between $.012 and $0.21 per kWh. Id. at 39 (citing, 

among others, Case No. 17-04780-LTS, ECF No. 149-2, Wolfe Declaration). As such, 

anything above $0.21 per kWh will undoubtedly lead to a steep economic decline, though 

Dr. Alameda maintains that this threshold cost is $0.16.Id. at 39. This will affect the people 

of Puerto Rico and impact the Commonwealth’s revenues, which in turn affects the debt 

service under the Commonwealth’s own plan of adjustment. Id. at 57-59, corrected at 

Exhibit 10a: ECF No. 3574-1 (Alameda Corrections). 

97. Accounting for the price elasticity as a result of the increased rates, demand for electricity 

in each sector will be negative. Alameda Corrections at 2.

An increase in electricity rates increases the retail price of electricity for the 

various sectors, leading to a lower demand in kWh. This can be due to the price 

effect, replacement effect or energy conservation effect. Such lower demand 

affects the level of the real GNP and PREPA’s revenues. The reduction of the 

real GNP is, in turn, affected by the shrinking population and the effect of a 

lower demand for energy. The ultimate effect falls upon net revenues to the 

General Fund. Alameda Opening at 44.

98. Moreover, “[t]he level of residential consumption is not only associated with the cost per 

kWh but also to the amount of customers and the population size in Puerto Rico.” Alameda 

Rebuttal Unredacted at 20. In his Rebuttal Testimony, Dr. Wolfe recognizes that raising 

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rates can be unfeasible to the extent that residential customers, already facing a high Share 

of Wallet, would be inclined to leave Puerto Rico. Wolfe Rebuttal at 22. Part of Dr. 

Wolfe’s analysis is precisely grounded in the ease of labor mobility in Puerto Rico that 

facilitates out migration. Id. at 9.

99. Additionally, “[t]aking all macroeconomic variables together coupled with all sectors 

(commercial, industrial, and residential), as a result of the Legacy Charge, PREPA’s 

revenues will suffer in the long run. Including additional charges, PREPA’s revenues can 

be expected to decrease from $4,100 million in 2023 to $2,484 million in 2040.” Exhibit 

12: Dr. José I. Almeda Unredacted Rebuttal Report at 22.

100. In view of the foregoing, the Legacy Charge is unsustainable as it will affect Puerto 

Rico’s ability to sustain any potential economic growth and impair the Commonwealth’s 

ability to comply with its financial obligations while providing services to the people.

Moreover, the factors that influence this economic debacle likewise affect PREPA’s 

revenues. In particular, the issues related to population decrease will have a significant 

impact. To the extent that feasibility requires PREPA to remain sustainable and provide 

services while meeting debt payments, the Legacy Charge makes the Plan of Adjustment 

unfeasible. Additionally, the Legacy Charge threatens the feasibility of the 

Commonwealth’s plan of adjustment and the health of Puerto Rico’s economy. 

V. CONCLUSION

101. In conclusion, the Plan of Adjustment is not confirmable under Section 314(b) of 

PROMESA. As it stands, the Plan of Adjustment does not meet Section 314(b)(3) or (6). 

Additionally, it does not comply with the applicable sections of the Bankruptcy Code. The 

confirmation of this Plan of Adjustment will spell disaster for the people of Puerto Rico 

and prejudice SREAEE in ways that are unbecoming of the equitable and fair policies of 

bankruptcy.

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RELIEF REQUESTED

WHEREFORE, in view of the foregoing, the Court should deny the confirmation of 

the Plan of Adjustment and instruct the Oversight Board to return to the drawing board, with 

the idea of helping Puerto Rico emerge from its fiscal and energy crisis, without discriminating 

against its most vulnerable creditors. 

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 participants and Standard Parties. A courtesy copy of this Motion will be 

delivered to the Court by email to SwainDPRCorresp@nysd.uscourts.gov as provided in First 

Amended Standing Order.

In Ponce, Puerto Rico, this 12h day of June 2023.

ORTIZ MENDOZA & FARINACCI FERNÓS, LLC

Edificio Banco Cooperativo Plaza 

623 Ponce de León Ave., Suite 701-B

San Juan, PR 00917-4820

Tel: 787-963-0404

BUFETE EMMANUELLI, C.S.P.

P.O. Box 10779

Ponce, Puerto Rico 00732

Tel.: 787-848-0666

Fax: 787-841-1435

/s/ Rafael A. Ortiz-Mendoza 

Rafael A. Ortiz-Mendoza, Esq. 

USDC-PR: 229103

rafael.ortiz.mendoza@gmail.com

/s/ Rolando Emmanuelli-Jiménez 

Rolando Emmanuelli-Jiménez, Esq.

USDC: 214105

rolando@emmanuelli.law

Co-counsel to SREAEE /s /Jessica E. Méndez-Colberg 

Jessica E. Méndez-Colberg, Esq.

USDC: 302108

jessica@emmanuelli.law

/s/ Zoé C. Negrón-Comas

Zoé C. Negrón-Comas, Esq. 

USDC: 308702

zoe@emmanuelli.law

Co-counsel to SREAEE

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