EXHIBIT 21 

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 1 of 66
UNITED	STATES	DISTRICT	COURT

DISTRICT	OF	PUERTO	RICO

In	re:

THE	 FINANCIAL	 OVERSIGHT	 AND	

MANAGEMENT	 BOARD	 FOR	 PUERTO	

RICO,

as	representative	of

PUERTO	 RICO	 ELECTRIC	 POWER	

AUTHORITY	(“PREPA”),

Debtor.

PROMESA	

Title	III

No.	17	BK	4780-LTS	

PUERTO	RICO	ENERGY	COMMISSION

																				Plaintiff,	

																																v.	

THE	 FINANCIAL	 OVERSIGHT	 AND	

MANAGEMENT	 BOARD	 FOR	 PUERTO	

RICO;	 PUERTO	 RICO	 ELECTRIC	

POWER	AUTHORITY,

																		 Defendants.

Adversary	No: ________

Verified	Adversary	Complaint	of	the	Puerto	Rico	Energy	Commission

For	Declaratory	Judgment	and	Request	for	Injunctive	Relief

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 1 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 2 of 66
i

TABLE	OF	CONTENTS

Introduction ...................................................................................................................................... 1

COUNT	ONE: Declaratory	Judgment	that	FOMB	Has	No	Authority	To	Mandate	or	

Authorize	Substantive	Electricity	Actions	Not	Authorized	by	the	Commission ...........13

I. Factual	justifications	for	the	declaratory	judgment........................................................13

A. FOMB's assertion	of	power,	to	authorize	or	mandate	substantive	electricity	

actions	not	approved	by	the	Commission, creates	a	"case	or	controversy"	

supporting	the	Court's	jurisdiction.....................................................................................13

B.	 Investor	and	customer	uncertainty	arising	from	FOMB's	imminent										

action	supports	the	Court's	exercise	of	its	discretion.......................................19

1. Fitness................................................................................................................................27

2. Hardship............................................................................................................................29

II. Declarations	sought.................................................................................................................33

A. FOMB	has	no	power	to	mandate	or	authorize	substantive	electricity	actions	

the	Commission	has	not	authorized...................................................................................33

1. Legal	analysis..................................................................................................................33

2. Declarations	sought.....................................................................................................37

B. FOMB's	directives	to	PREPA,	if	taken	within	FOMB's PROMESA	authority,	

preempt	the	Commission	only	when	it	is	not	possible	to	design	those	

directives	consistently	with	Commonwealth	law........................................................39

1. Legal	analysis..................................................................................................................39

2. Declarations	sought.....................................................................................................41

COUNT	TWO:		Preliminary	Injunction	(a)	Prohibiting	FOMB	from	Mandating	or	

Authorizing	Substantive	Electricity	Actions	the	Commission	Has	Not	Approved,	and	

(b)	Prohibiting	PREPA	from	Taking	Such	Actions Without	Commission	Approval.....42

COUNT	THREE:		Permanent	Injunction	(a)	Prohibiting	the	FOMB	from Mandating	

Substantive	Electricity	Actions	by	PREPA,	and	(b)	Prohibiting	PREPA	from	Taking	

Certain	Actions ...............................................................................................................................49

Prayer	for	Relief.............................................................................................................................49

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 2 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 3 of 66
1

Verified	Adversary	Complaint	of	the	Puerto	Rico	Energy	Commission

For	Declaratory	Judgment	and	Request	for	Injunctive	Relief

Introduction

To	the Honorable Court:

1. Plaintiff	Puerto	Rico	Energy	Commission	("PREC" or	“the	Commission”)	

brings	this	Verified	Adversary	Complaint	for	Declaratory	Judgment	and	Request	for	

Injunctive	Relief	against	the	Financial Oversight	and	Management	Board for	Puerto	Rico

("FOMB") and	the	Puerto	Rico	Electric	Power	Authority	(“PREPA”).		Our	purpose	is to	

prevent	irreparable	harm	and	eliminate	uncertainties	arising	from	imminent	ultra	vires

action by	FOMB	and	continuing	and	imminent	unlawful	actions	by	PREPA.	

2. PREPA	has	submitted	to	FOMB a	Fiscal	Plan.		On	information	and	belief,	this	

Fiscal	Plan proposes	actions	that	will	affect	Puerto	Rico’s	substantive	electricity	policy—

actions	relating	to	PREPA’s	power	supply	mix,	capital	and	operating	expenditures,	internal	

operations,	revenue	requirements	and	rate	design,	among	other	things.		All	these	subjects	

and	actions	lie	within	the	Commission’s	jurisdiction	under	Commonwealth	law.		

3. PREPA	has	submitted	this	Fiscal	Plan	to	FOMB	without	presenting	its	

substance	to	the	Commission for	its	review—a	review	necessary	to	determine	whether	the	

proposed	actions	are	consistent	with	Commonwealth	statutes, as	interpreted	and	applied	

by	the	only	agency	legally	authorized to	interpret	and	apply	those	statutes.		FOMB	has	

declined	to	provide	the	document	to	the	Commission.

4. FOMB	asserts	that	it	has	the	power,	by	mandating	or	authorizing	PREPA’s	

activities,	to	shape	the	restoration,	operation and	transformation	of	Puerto	Rico's	electric	

industry.		FOMB's	assertion	of	that	power	conflicts	with	the	Puerto	Rico	Oversight,	

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 3 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 4 of 66
2

Management,	and	Economic	Stability	Act	of	2016	(“PROMESA”),	48	U.S.C.	§§	2101-2241,

and	with	the	Commission's	powers,	duties	and	interests under	Commonwealth	law.		Both	

the	assertion	and	application	of	that	power (as	FOMB	sees	it),	and	the	resulting	legal	

uncertainty,	is	currently, and	will	continue	to	be, harmful	to	the	Commission,	PREPA’s	

electricity	customers,	existing	and	future	bondholders	and	the	public	interest.		

5. This	Complaint	therefore	asks	the	Court	to	declare that	FOMB	can	neither	

mandate	nor	authorize	PREPA	to	take	substantive	electricity	actions	that	are	subject	to	the	

Commission’s	jurisdiction	but	that	the	Commission	has	not	authorized.		Substantive	

electricity	actions	are	core	regulatory	matters	that	Puerto	Rico law	assigns	to	the	

Commission,	and	that	PROMESA	§	303	preserves for	the	Commonwealth	and	thus	for	the	

Commission.		The	requested	declaration	is	thus	necessary	to	preserve	the	Commonwealth's	

ability,	through	the	Governor,	the	Legislature,	the	current	Commission	and	any	successor	

regulatory	entity,	to	determine,	free	of	FOMB's	interference,	the	essential characteristics	of	

Puerto	Rico’s	electric	industry,	including	but	not	limited	to	resource	mix,	market	structure,	

transactional	relations,	operational	standards	and	capital	expenditure	priorities.

6. The	Commission	also	seeks	preliminary	and	permanent injunctions against	

FOMB	and	PREPA.		FOMB's	assertion	of	power	not	granted	by	Congress	is	currently	

causing,	and	will	continue	to	cause, irreparable	harm—to	the	Commission,	PREPA,	other	

electric	service	companies,	investors,	electricity	customers, the	economy	of	Puerto	Rico

and	the	public	interest.		The	requested	injunctions	would	prohibit	FOMB	from	mandating	

or	authorizing	PREPA	to	take	substantive	electricity	actions	subject	to	the	Commission’s	

jurisdiction	but	not	authorized	by	the	Commission—such	as,	but	not	limited	to,	actions

affecting	resource	mix;	asset	ownership,	operations,	maintenance	and	retirement;	market	

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 4 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 5 of 66
3

structure;	microgrids;	integrated	resource	planning;	and	rates.		To	support	the	request	for	

injunction,	i.e.,	to	show	likelihood	of	success	on	the	merits,	this	pleading	contains,	in	Parts	

II.A.1	and	II.B1	of	Count	One, a	detailed	legal	analysis of	PROMESA,	Commonwealth	law	and	

preemption	principles.

7. A	necessary	accompaniment	to	the	injunctions	against	FOMB	are	preliminary	

and	permanent	injunctions	against	PREPA.		These injunctions	would	prohibit PREPA from	

complying	with	any	FOMB	mandate or	authorization to	carry	out	substantive	electricity	

actions	that	are	subject	to	this	Commission’s	jurisdiction	but	which	the	Commission	has	not	

authorized.	

8. We	have	been	here	before.		Rejecting	FOMB's	proposal	to	take	over	PREPA's	

entire	business,	this	Court	held	that	FOMB	does	not	have	"broad	executive	and	managerial	

authority	over	PREPA's	operations,"	nor	the	power	to	"interfere	unilaterally	with	

[PREPA's]	powers	...	or	with	[its]	property	or	revenues,"	nor	the	power	to	"control	virtually	

everything	PREPA	does."1		Despite	the	Court's	clarity,	FOMB	still	acts	as	if	it	has	powers	to	

direct not	only	PREPA’s	current	activities	but	also	the	substantive	transformation	of	Puerto	

Rico's	electric	industry.		This	Complaint	asks	the	Court	to	correct	FOMB’s	

misunderstanding	by	making	clear	the	scope	of	FOMB's	powers.		Then	the	restoration	and	

transformation	of	Puerto	Rico’s electric	industry	can	occur	without	further	litigation	and	

uncertainty.		The	Court's	clarification,	we	hope	and	expect,	will	also	cause	FOMB	to	drop	its	

unexplained,	nine-months-long	resistance	to	collaborating with	the	Commission	to	create	

 

1		Opinion	and	Order	Denying	Urgent	Motion	of	FOMB	to	Confirm	Appointment	of	a	

Chief	Transformation	Officer	(Docket	Entry	No.	361,	Nov.	16,	2017)	at	10-16	(hereinafter,	

"CTO	Order").

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 5 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 6 of 66
4

sensible	decision-making	protocols	that	make	efficient	and	effective	use	of	each	entity's	

legal	powers,	all	for	the	benefit	of	the	Commonwealth’s	1.5	million	electricity	customers.		

To	advance	that	process,	we	attach	as	Appendix	A	a	draft	set	of	protocols	for	CommissionFOMB	cooperation.		We	do	so	for	two	reasons:		to	prevent	FOMB	and	PREPA	from	

mischaracterizing	our	Complaint	as	an	effort	to	“usurp”	(to	use	their	overheated	language)	

FOMB’s	powers,	and	to	take	an	unfortunately	necessary	step	toward	bringing	FOMB	into	a	

productive joint effort	to	discipline	PREPA’s	performance.	

9. The	Commission	does	not	intend, and	wishes	not	to	be	misinterpreted	or	

mischaracterized	as	intending,	to	erect	a	blockade	to,	or	create	any	delay	affecting,	the	

reasoned,	evidence-based,	expedited	consideration	of	ideas	articulated	by	FOMB,	PREPA,	

the	Governor, the	Legislature	or	anyone	else	to	restore	and	transform	Puerto	Rico's	electric	

industry.		We	intend,	rather,	to	ensure	that	decisions	on	those	matters	rest	with	the	

Commonwealth—not	with	a	federal	board	whose	duties,	as	detailed	in	this	Complaint (at	

Part	II	of	Count	One), do	not	include	shaping	the	structure	and	operations	of	Puerto	Rico’s	

electric	industry.		

“Substantive”	vs.	“fiscal”:		Separate	spheres,	overlapping	and	interacting

10. This	Complaint	uses	the	terms	“substantive”	and	“fiscal”	for	brevity.		To	avoid	

any	confusion or	mischaracterization,	we explain here	how	we	use	these	terms.		

11. When	we	say	that	FOMB's	powers	are	not	"substantive,"	we	mean	that	

PROMESA	gives	FOMB	no	authority	to	establish	Puerto	Rico’s	policies	for the structure	and	

operations	of	electric	industry,	just	as	it	gives	FOMB	no	authority	to	establish	Puerto	Rico’s	

policies	for	hazardous	waste,	law	enforcement,	or	elementary	school	curricula.		Applying	

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 6 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 7 of 66
5

this	understanding	of	“substantive”	to	the	electric	industry,	FOMB	has	no	power	to	

establish,	for	example:		

a. resource	mix	(i.e.,	the	mix	of	conventional	generation,	renewable	generation,	

demand	response	or	energy	efficiency);

b. rules	for	transmission	interconnection,	distribution	interconnection	or

microgrid	interconnection;

c. engineering	efficiency	standards	for	power	plants;

d. revenue	requirements,	rate	designs	and	rates;

e. standards	for	operations;

f. market	structure	(including	the	mix	of	monopoly	markets	and	competitive	

markets	for	various	services);

g. priorities	for	specific	capital	expenditures,	whether	for	restoration,	

maintenance	or	modernization;	or

h. priorities	for	the	acquisition,	retirement	or	sale	of	any	particular	asset.

A	comprehensive	list	of	items	falling	within	these	substantive	categories	appears	below	in	

para.	80.			Taking	any	of	these	actions—none	mentioned	by	PROMESA—would	enmesh	this	

temporary,	federally-created	agency,	one	with	no	experience	or	expertise	in	electricity	

regulation,	in	the	exercise	of	Commonwealth	governmental powers. That	was	not	

Congress's	intent.		What	this	Court	held	FOMB	cannot	due	directly	(by	imposing	on	PREPA	

a	"chief	restructuring	officer"),	FOMB	cannot	do	indirectly	(by	compelling	PREPA	to	take

substantive	electricity	actions).	

12. When	we	say	that	FOMB's	powers are	"fiscal,"	we	refer	to	its	powers	to	

address	PREPA’s	financial	condition.		Every	PROMESA	phrase	establishing	FOMB's	

purposes,	duties	and	authorities relates	to	financial	condition.		FOMB	must	"provide	a	

method	for	a	covered	territory	to	achieve	fiscal	responsibility	and	access	to	the	capital	

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 7 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 8 of 66
6

markets,"	PROMESA	§	101(a);	create	conditions	for	a	"sustainable	level	of	debt,"	§	

104(i)(1)(B);	ensure	credible	"estimates	of	revenues	and	expenditures,"	§	201(b)(1(A);	

ensure	"the	[sufficient]	funding	of	essential services,"	§	201(b)(1)(B);	eliminate	"structural	

deficits,"	§	201(b)(1)(C)	and	(D);	provide	a	"debt	burden	that	is	sustainable,"	§	

201(b)(1)(E);	"improve	fiscal	governance,	accountability,	and	internal	controls,"	§	

201(b)(1)(F);	and	"enable	the	achievement	of	fiscal	targets,"	§	201(b)(1)(G).		PROMESA’s	

grants	of	power	to	FOMB	make	no	mention	of	substantive	policy,	electricity	or	otherwise.

13. We	readily	acknowledge	that	while	the	Commission’s	and	FOMB’s	statutory	

spheres	are	separate,	they	do	interact.		As	just	detailed,	PROMESA	§	201(b)	requires	FOMB	

to	make	credible	estimates	of	revenues	and	expenditures,	eliminate	structural	deficits,	

make	the	debt	burden	sustainable,	achieve	fiscal	targets,	and	improve	fiscal	governance.		

These	FOMB	duties	under	federal	law	will	affect—they	may	even	constrain—the	

Commission’s	decisions	under	Commonwealth	law.		And	the	Commission's	decisions	about	

resource	mix,	operational	criteria,	revenue	requirements, revenue	allocation,	rate	design	

and	market	structure	all	will	have	fiscal	effects.		Thus	the	interactions	move	in	both	

directions,	FOMB	constraining	the	Commission	and	the	Commission	constraining	FOMB.		

Those	bidirectional	constraints are	precisely	what	Congress	anticipated	when	it	(a)	

instructed	FOMB	to	respect	Commonwealth	authority	(as	detailed	in	paras.	82-89 below);

and	(b)	required	preemption	when,	notwithstanding	that	instruction to	respect

Commonwealth	law,	inconsistencies	between	Commonwealth	law	and	PROMESA	are	

unavoidable.

14. Distinct	from	interactions	are	overlaps.		While	FOMB	has	no	federal	law	

authority	over	substantive	matters, the	Commission	does	have	Commonwealth	law	

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 8 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 9 of 66
7

authority	over	certain	fiscal	matters.		Each	of	FOMB's	fiscal	areas—"revenues	and	

expenditures,"	"structural	deficits,"	"debt	burdens,"	"fiscal	targets"	and	"fiscal	

governance"—are	also	areas	covered	by	Act	57-2014 (hereinafter	called	“Act	57”).		This	

statute	created,	after	70	years	of	an	unregulated	monopoly,	regulatory	oversight	of	PREPA.		

Act	57	commands	the Commission	to	"oversee	[that]	PREPA's	debt	issues	are	in	the	public	

interest."		Act	57,	§ 6.3(n).		The	Commission	also	must	"prevent[]	its	actions	from	impairing	

PREPA	to	meet	its	contractual	obligations	to	bondholders."		Act	57,	Statement	of	Motives,	

Regulations.		Commission-set	rates	must	produce	revenues	sufficient	"for	the	payment	of	

the	principal	of	and	interest	on	[PREPA's]	bonds."		Act	83,	§§ 6(l)	and	6B(b)	(as	amended	

by	Act	57	§§ 2.6	and	2.8,	respectively);	see	also Act	57	§ 6.3(m) (requiring	Commission	to	

exercise	its	authority	in	a	manner	that	ensures	"that	PREPA	meets	its	obligations	to	

bondholders”).		Act	57	grants	PREC	powers	similar	to	those	PROMESA	grants	FOMB.

15. In	these	overlapping	situations,	the	relationship	between	FOMB	and	the	

Commission	is	governed	by	PROMESA	sec.	4:		If	there	is	"inconsistency" between	an	FOMB	

directive	authorized	by	PROMESA and	a	Commission	order,	FOMB	prevails.		This	PROMESA	

provision	signals	conflict	preemption,	not	field	preemption.		Absent	unresolvable	

inconsistency,	FOMB	actions	on	fiscal	issues	do	not	preclude	Commission	actions	on	fiscal	

issues.		

16. This	existence	of	interactions and	overlaps	does	not	vest	FOMB	with	

authority	it	does	not	have.		It	means,	instead, that	FOMB	and	the	Commission	must	make

these	interactions	and overlaps work	toward	the	two	entities’	mutual	goals.		FOMB’s	

obligation	to	do	so	arises	from PROMESA’s	command	that	FOMB	respect	Commonwealth	

law (as	explained	in	Part	II.B.1	of	Count	One	below).		The	Commission’s	obligation	to	do	so	

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 9 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 10 of 66
8

arises	from	PROMESA	§	4,	which	preempts	the	Commission in	cases	of	unresolvable	

inconsistency.		The	relationship	can	work	only	if	FOMB	and	the	Commission	collaborate.		

The	relationship	cannot	work	if	FOMB	refuses	to	collaborate	and	claims	substantive	

territory	it	does	not	have.		But	that	is	what	FOMB	has	done;	that	is	why	the	Commission	has	

filed	this	Complaint.		

The	legal	effect	of	certification

17. If	FOMB	has	no	power	to	order	or	authorize	substantive	electricity	actions	

not	approved	by	the	Commission,	then	what	is	the	purpose	of	a	PREPA	fiscal	plan—and	

what	is	the	legal	effect	of	certification?		The	answer	comes	straightforwardly	from	

PROMESA.		Certification	of	a	fiscal	plan	creates	binding	parameters	on	fiscal	matters—such	

as	budgeting,	expenditures,	repayment	of	existing	debt and	issuing	of	new	debt.		Those	

fiscal	parameters	bind	PREPA	and	constrain	the	Commission.		The	basis	for	those	fiscal	

parameters	is	the	set	of	substantive	electricity	actions	described	in	the	fiscal	plan—actions	

that	PROMESA	requires	be	consistent	with	Commonwealth	law,	as	enacted	by	the	

Legislature	and	applied	by	the	Commission.		FOMB's	certification	of	a	fiscal	plan	thus	binds	

fiscally,	not	substantively.		The	certification	does	not	direct,	or	preemptively	authorize,	

PREPA	to	carry	out	substantive	electricity	actions	because	under	PROMESA	§	205(a),	

FOMB's	substantive	role	is	only	to	"recommend."

18. In	short,	FOMB's	certification	is	an	authorization,	or	mandate, to	carry	out	

fiscal	actions	whose	basis	is	the	substantive	electricity	plan.		That	substantive	electricity	

plan	must	reflect	the	judgments	of	the	Commonwealth.		That	is	how	Congress	achieved	the	

melding	of	Commonwealth	substantive	law—which	PROMESA	preserves—and	federal	

fiscal	discipline—which	Congress	directs	FOMB	to	impose.	

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 10 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 11 of 66
9

19. Given	this	legal	reasoning,	the	logical,	orderly	sequence is	for	PREPA	to	have	

its	substantive	ideas	approved	by	the	Commission	first.		Those	substantive	features	become	

the	basis	for	the	fiscal	plan	PREPA	submits	to	FOMB.		Otherwise—if	PREPA	can	submit	to	

FOMB	substantive	electricity	plans	not	approved	by	the	Commission—there	is	risk	that	the	

fiscal	constraints	and	fiscal	authorizations	approved	through	FOMB	certification	will	be	

based	on	substantive	actions	that	violate	Commonwealth	law,	resulting	in	repetitive	round	

trips	by	PREPA	to	the	Commission	and	the	FOMB	until	the	fiscal	parameters	approved	by	

the	FOMB	and the	substantive	priorities	established	by	the	Commission	are	in	synch.

20. In	no	way	does	the	Commission	intend	to	bind,	or	interfere	with, the	FOMB	

when	FOMB	carries	out	its	fiscal	duties.		If	the	Commission	approves	a	substantive	plan	

that	the	FOMB	finds	too	expensive,	FOMB	will	reject	the	accompanying	proposed	

expenditure level.		That	rejection	will	constrain	the	Commission.		It	will	force	the	PREPA,	

subject	to	Commission	review,	to	design	a	new	substantive	plan	that	honors	FOMB's	limits.		

The	Parties

21. Plaintiff	Puerto	Rico	Energy	Commission	("PREC"	or	"the	Commission")	is	an	

independent	regulatory	agency	established	by	the	Commonwealth	Legislature	in	Act	57.		

The	Commission	is	"in	charge	of	regulating, overseeing,	and	ensuring	compliance	with	the	

public	policy	on	energy	of	the	Commonwealth	of	Puerto	Rico."		It	is	"the	key	component	

for	the	faithful	and	transparent	execution	of	the	Energy	Reform."2 Act	57	commands	the	

Commission	to:

“guarantee	the	orderly	and	integrated	development	of	our	electrical	system,	thus	

ensuring	the	reliability,	efficiency,	and	transparency	thereof,	and	the	provision	of	

electric	power	services	at	reasonable	prices”;	

 

2		Act	57,	Statement	of	Motives.

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 11 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 12 of 66
10

“evaluate	[PREPA's	plans]	regarding	its	obligation	to	efficiently	generate	electric	

power,	various	operational	issues,	and	the	integration	of	renewable	energy,	among	

other	mandates”;	

“oversee	all	types	of	operations,	processes,	and	mandates	pertaining	to	the	

efficiency	of	the	energy	sector	of	the	Island”;	

“oversee	[that]	PREPA's	debt	issues	are	in	the	public	interest";	

“approve	the	electricity	rates	proposed	by	PREPA,	[so	that	those	rates	are]	just	and	

reasonable”;	and

“guarantee	that	PREPA	meets	its	obligations	to	bondholders.”3

22. Defendant	FOMB	is	an	entity	within	the	territorial	government	of	Puerto	

Rico,	as	provided	for	in	PROMESA	§ 101,	48	U.S.C.	§	2121.		Under	PROMESA	§ 201,	48	U.S.C.	

§ 2141,	FOMB	is	responsible	for	certifying	fiscal	plans	submitted	by	territorial	

instrumentalities.		

23. Defendant	PREPA	is	a	public	corporation	within	the	territorial	entity	of	

Puerto	Rico,	designated	by	FOMB	as	a	covered	territorial	instrumentality	and	represented	

in	this	Title	III	proceeding	by	FOMB.

 

3		Id.

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 12 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 13 of 66
11

Jurisdiction	and	Venue

24. This	dispute	concerns	FOMB’s	misunderstanding	of	its	powers	under	

PROMESA.		It	also	concerns	PREPA’s	decisions	to	disobey	Commission	decisions	issued	

under	Commonwealth	law	unchanged	by	PROMESA,	where	PREPA	justifies	its	behavior	by	

citing	FOMB’s	misunderstanding.	 This	Court	has	federal	question	jurisdiction	under	28	

U.S.C.	§	1331.		This	Court	also	has	jurisdiction	under	PROMESA	§ 106(a),	48	U.S.C.	§	

2126(a)	(vesting	jurisdiction	over	"any	action	against	the	Oversight	Board,	and	any	action	

otherwise	arising	out	of [PROMESA],	in	whole	or	in	part");	as	well	as under PROMESA	§

306(a)	(vesting	jurisdiction	over	"all	civil	proceedings	arising	under	this	title").

25. This	Court	has	authority	to	provide	declaratory	relief	under	the	Declaratory	

Judgment	Act,	28	U.S.C.	§§	2201-2202.		As	described	in	Part	I	of	Count	One,	there	exists	an	

actual,	justiciable	controversy	due	to	FOMB's	assertions	of	authority to	mandate	and	

authorize	PREPA	to	take	substantive	electricity	actions	that	are	subject	to	the	

Commission’s	jurisdiction	but	that	have	not	been	authorized	by	the	Commission.	 Multiple	

factors,	described	in	Part	I	of	Count	One, (a)	establish	a	"case	or	controversy"	necessary	to	

the	Court's	jurisdiction, and	(b)	support	the	Court's	discretionary	exercise	of	that	

jurisdiction.

26. The	Commission	has	standing	to	bring	this	case	because	FOMB's	intentions	

to	direct	the	substantive	shape	and	performance	of	the	Commonwealth's	electric	industry	

interfere	with	the	Commission's	exercise	of	its	powers	under	Commonwealth	law.		This	

interference	causes	PREPA	to	disregard, or	delay	compliance	with, Commission	orders.		

Together,	FOMB's	and	PREPA's	behaviors	have	caused,	and	will	continue	to	cause,	the	

Commission	to	devote	its	limited	resources,	in	terms	of	internal staff	and	Commissioner	

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 13 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 14 of 66
12

time, and	consultant	expense,	to	(a)	issue	and	enforce	its orders;	and	(b)	clarify	for	

investors	and	customers,	current	and	prospective,	the	regulatory	conditions	under	which	

the	restoration	and	transformation	of	Puerto	Rico’s	electric	industry	will	occur.		FOMB	is	

causing	confusion,	and	confusion	is	costly.		These	harms	to	the	Commission	will	be	

redressed	by	a	declaratory	judgment	defining	FOMB's	powers	to	mandate	or	authorize	

PREPA	activities	as	fiscal,	not	substantive.

27. This	Court	has	jurisdiction	to	grant	injunctive	relief	under	Rule	65	of	the	

Federal	Rules	of	Civil	Procedure	(applicable	in	Title	III	under	Rule	7065	of	the	Federal	

Rules	of	Bankruptcy	Procedure),	and	PROMESA	§	310.	

28. Venue	in	the	District	of	Puerto	Rico	is	appropriate	under	PROMESA	§§	106(a)	

and	307.	

29. PROMESA	§ 106(e)	does	not	bar	this	Complaint.	 Section	106(e)	states:		

"There	shall	be	no	jurisdiction	in	any	United	States	district	court	to	review	challenges	to	

the	Oversight	Board's	certification	determinations	under	this	Act."		The	Commission	is	not	

here	challenging	an	FOMB	certification.		The	Commission	is	challenging	FOMB’s	assertion	

of	power	to	mandate	or	authorize	substantive	electricity	actions	that	the	Commission	has	

not	authorized—a	power	not	contained	within	FOMB’s	certification	authority.		As	this	

Court	has	held,	interpreting	PROMESA	§ 108:	 "PROMESA	does	not	preclude	the	

government	from	pushing	back	and	seeking	court	determinations	regarding	the	FOMB's	

interpretations	of	PROMESA."4

 

4		Opinion	and	Order Denying	Urgent	Motion	of	FOMB	to	Confirm	Appointment	of	a	

Chief	Transformation	Officer	(Docket	Entry	No.	361,	Nov.	16,	2017)	at	20	(hereinafter,	

"CTO	Order").

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 14 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 15 of 66
13

COUNT	ONE

Declaratory	Judgment	that	FOMB	Has	No	Authority	to

Mandate	or	Authorize	Substantive	Electricity	Actions	

Not	Authorized	by	the	Commission	

(Declaratory	Judgment	Act,	28	U.S.C.	§§	2201-2202)

30. The	Commission	incorporates	by	reference	paras.	1 to	29.		

31. Declaratory	judgment	plaintiffs	must	satisfy	two	tests:		a constitutional	test	

(Is	there	a	“case	or	controversy”?);	and	a	prudential	test	(Should	the	Court	exercise	its	

statutory	discretion?).		Part	I	states	the	facts	that	satisfy	each	test.		Part	II	describes	the	

declarations	sought	and	presents	the	supporting	legal	analysis.

I. Factual	justifications	for	the	declaratory	judgment

A. FOMB's	assertion	of	power, to	authorize	or	mandate	substantive	

electricity	actions	not	approved	by	the	Commission	creates	a	"case	or	

controversy"	supporting	this Court's	jurisdiction

32. Jurisdiction	to	grant	a	declaratory	judgment	complaint	requires	"a	

substantial	controversy,	between	parties	having	adverse	legal	interests,	of	sufficient	

immediacy	and	reality	to	warrant	the	issuance	of	a	declaratory	judgment."		MedImmune,	

Inc.	v.	Genentech,	Inc.,	549	U.S.	118,	127	(2007)	(quoting	Maryland	Casualty	Co.	v.	Pacific	

Coal	&	Oil	Co.,	312	U.S.	270,	273	(1941)).		This	test	is	met	by	the	following	facts.	

33. On	December	20,	2017,	FOMB,	acting	under	PROMESA	§ 201,	directed	PREPA	

to	submit	a	Fiscal	Plan.		

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 15 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 16 of 66
14

34. On	December 20,	2017,	the	FOMB	Chairman	sent to	Puerto	Rico's	Governor	a	

letter	listing	subjects	PREPA	must	address	in	its	to-be-submitted	Fiscal	Plan.5		This	list	was

largely	substantive:		"low-cost	reliable	power,"	"investments	in	resiliency	...	at	an	

investment	level	comparable	to	mainland	utilities	following	major	storms,” "new	

technology	deployment,"	"significantly	reduced	demand	forecast,"	"revised	capital	

investment	program,"	and	operational	"targets	and	milestones	to	enable	PREPA	to	become	

a	world-class	utility."		The	letter	also	required	the Plan	to	address	fiscal	matters:		"financial	

sustainability,"	"private	investment"	and	the	use	of	federal	funding	for	reconstruction.

35. On	January	24,	2018,	PREPA	submitted	to	FOMB	a	draft	"Amended	and	

Restated	Fiscal	Plan" (the	January	24	Plan).6 This	document,	a	revision	of	the	Fiscal	Plan	

certified	by	FOMB	on	April	28,	2017, described numerous	planned	PREPA	actions	relating	

to	restoration,	operations	under	"normal	circumstances,"	rates	and	regulatory	treatment	

and	"macro	resource	planning."		The	document	included an	Appendix	describing	the	

"transformation"	of	Puerto	Rico's	electric	industry,	including	selling	off	PREPA's	generation	

assets	to	private	owners,	retaining	government	ownership	of	PREPA's	transmission	and	

distribution	assets,	and	awarding	a	concession	to	a	to-be-selected	private	provider	of	

transmission	and	distribution	services.		The	entire	document involves	substantive	industry	

matters	that,	as	we	will	explain in	Part	II	of	this	Count One,	are	outside	FOMB's	statutory	

 

5		Available	at	https://juntasupervision.pr.gov/wpcontent/uploads/wpfd/50/5a315ece7eeb2.pdf.		To	reduce	the	complexity	of	this	

submission,	the	Commission	has	provided	as	exhibits	only	those	cited	items	for	which	

there	is	no	web	site	address.		Should	the	Honorable	Judge	wish	an	electronic	copy	of	any	

other	cited	document,	we	will	supply	it.	

6		Available	at	http://www.aafaf.pr.gov/assets/prepa-revisedfiscalplan-01-24-

18.pdf.

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 16 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 17 of 66
15

domain.		Ironically,	PREPA's	draft	Fiscal	Plan	had no	"fiscal"	discussion—no	revenues,	no	

expenditures,	no	debt	projections,	no	debt	repayment	plans.		The	entire	document	was	

substantive.	

36. On	January	31,	2018,	the	Commission	issued	an	order	(the	January	31	Order)	

directing	PREPA	to	submit	its	Fiscal	Plan	to	the	Commission,	along	with	a	list	of	witnesses	

able	to	answer	the	Commission’s	questions	about	the	Plan.

7		PREPA	has	not	complied	with	

this	Order.	

37. On	February	5,	2018,	FOMB	sent	the	Governor a	letter	critiquing	PREPA’s	

January	24 Plan.8		FOMB	identified	multiple	deficiencies	and	instructed	PREPA	to	correct	

them.		In	the	fiscal	area,	FOMB	required	more	detail	on	financial	projections,	estimates	of	

federal	funding,	revenue	and	expense	measures, and	cash	management	controls; as	well	as	

a	debt	sustainability	analysis.		In	the	substantive	area,	FOMB	required	a	“path	to	a	new	

integrated	resource	plan,”	including	“generation	portfolio	targets,	with	the	goal	of	

decreasing	fuel	and	purchased	power	costs	by	at	least	5	cents	per	kWh”;	and	more	details	

on	operational	savings.		FOMB	also	required	more	detail	on	PREPA’s	proposal	(set	forth	in	

the	Appendix	to	the	January	24	draft	Fiscal	Plan)	to	“privatize”	generation	and	award	a	

concession	for	transmission	and	distribution service.		FOMB	required PREPA	to	submit	a	

revised	fiscal	plan	by	February	12,	2018.

 

7		In	Re:	Puerto	Rico	Electric	Power	Authority’s	Fiscal	Plan,	Case	No.	CEPR-IN-2018-

0001	(available	at	http://energia.pr.gov/wp-content/uploads/2018/01/Resolution-andOrder-PREPAs-Fiscal-Plan-CEPR-IN-2018-0001.pdf).

8

 Available	at	https://juntasupervision.pr.gov/wpcontent/uploads/wpfd/50/5a78d5cd6b7de.pdf.

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 17 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 18 of 66
16

38. On	February	12,	2018, PREPA	submitted	to	FOMB	a	revised	Fiscal	Plan	(the	

February	12	Plan).		PREPA	did	not	submit	the	February	12	Plan	to	the	Commission,	and	

FOMB	has	not	made	it	public. The	Commission	has	not	seen	the	February	12	Plan.

39. 		On	February	14,	2018,	the Commission	received	a	letter	from the	Puerto	

Rico	Fiscal	Agency	and	Financial	Advisory	Authority	(AAFAF),	acting	on	behalf	of	PREPA.9		

That	letter	states	a	refusal	to	comply	with	the	January	31	Order.			

40. On	information	or	belief,	FOMB	intends	to	order	or	authorize	PREPA	to	carry	

out	substantive	electricity	actions	described	in	PREPA’s	February	12	Fiscal	Plan	(or	a	

subsequent	revision),	without	the	Commission	having	authorized,	or	even	reviewed,	those	

actions.

41. Prior	communications	to	the	Commission	by	PREPA	and	its	agent	AAFAF	

make	clear	that	both	entities	incorrectly	assume	that	FOMB	can	mandate	or	authorize	

PREPA’s	substantive	electricity	actions, and	that	those	mandates	or	authorizations	preempt	

the	Commission’s jurisdiction.		Consequently,	PREPA	will	take	the	substantive electricity	

actions	specified	in	its	Fiscal	Plan	without	Commission	approval.		When	taking	those	

actions,	PREPA	will	incur	costs.		The	Commission	then	will	have	no	choice	but	to	make

ratepayers pay	for	those	costs, regardless	of	their	reasonableness.		Because	PREPA	has	no	

private	shareholders, the	only	possible	cost-bearers are	its	ratepayers.		(A	more	detailed	

explanation	of	this	point	appears	in	para.	54 below.)

42. On	information	and	belief,	there	are	multiple	conflicts	between	the	

substantive	electricity	actions	described	in	PREPA’s	February	12	Plan	and	prior	

 

9			Exhibit	A.

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 18 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 19 of 66
17

Commission	orders.		The	evidentiary	basis	for	this	belief	is	that	such	conflicts	appeared	in	

the	January	24	Plan,	but	FOMB’s	February	5	critique	of	that	January	24	Plan	nowhere	

mentioned	those	conflicts,	let	alone	required	their	elimination.		Those	conflicts	create	

uncertainty for	the	Commission,	investors	and	customers	large	and	small,	over	whether	

PREPA	will	obey	or	disobey	those	prior	Commission	orders.		Discussed	next	are	two areas	

of	conflict:		integrated	resource	plan,	and	revenue	allocation	and	rate	design.	

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 19 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 20 of 66
18

Integrated	resource	planning

43. Section	6.23	of	Act	57	requires	PREPA	to	have	an	“integrated	resource	plan”	

(IRP).10		An	IRP	guides	the	procurement	of	all	resources	necessary	to	ensure	a	costeffective,	reliable	electric	system.		The	Commission’s	rules	and	procedures	addressing	the	

IRP	constitute the	central	means	of	disciplining	expenditures	by this	multi-billion-dollar	

monopoly.		

44. As	detailed	in	the	Commission’s	September	2016	order	approving	a	Modified	

Integrated	Resource	Plan,	PREPA’s	efforts	to	submit	an	appropriate	IRP,	during	2015	and	

2016,	fell	far below	statutory	and	industry	standards.11		Numerous	revisions,	directed	by	

the	Commission, were	necessary	to	correct	deficiencies	in	PREPA’s	various	drafts.		

45. PREPA’s	January	24	Plan	reveals	that	PREPA	learned	little	from	this	

experience.		Here	are	two	examples.		First,	the January	24 Plan	(at	40-41)	presents	an

“illustrative”	capacity	expansion	plan.12		That	illustrative	plan	is	“based	on	the	results	of	

 

10		An	“integrated	resource	plan”	is:	

a	plan	that	considers	all	reasonable	resources	to	satisfy	the	demand	for	

electric	power	services	during	a	specific	period	of	time,	including	those	

related	to	the	offering	of	electric	power,	whether	existing,	traditional,	or	new	

resources,	and	those	related	to	energy	demand,	such	as	energy	conservation	

and	efficiency,	or	demand	response	and	localized	energy	generation	by	the	

customer.

Act	57,	Art.	1.3(ee).

11		Final	Resolution	and	Order,	CEPR-AP-2015-0002	(Sept.	2016)	(hereinafter,	

“September	2016	IRP	Order”),	available	at	http://energia.pr.gov/wpcontent/uploads/2016/09/23-sept-2016-Final-Resolution-and-Order-IRP-CEPR-AP-2015-

0002.pdf.

12		A	capacity	expansion	plan	is	the	portion	of	a	capital	expenditure	plan	relating	to	

the	addition	and	retirement	of	generation	capacity.

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 20 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 21 of 66
19

system	and	production	cost	modeling	in	PROMOD	and	PSS®E.”		But	the	Commission’s	

September	2016	IRP	Order	expressly	rejected	the	use	of	PROMOD	and	PSS®E,	because	

neither	tool	is	a	“capacity	expansion	model”13—the	standard	model-type	used	by	IRP	

professionals.		The	Commission	ordered	PREPA	to	use	capacity	expansion	modeling	in	its	

next	IRP.14		The	January	24	Plan	ignores	this	requirement.

46. Second,	the	specific	capacity	options	listed	in	the	January	24	Plan	(at	41)	

conflict	with	the	Commission’s	approved	Modified	IRP	(September	2016	IRP	Order	at	88)	

in	at	least	seven	ways,	as	displayed in	the	following	table:

 

13		As	the	Commission	stated	(September	2016	IRP	Order	at	93):	

In	developing	resource	options,	PREPA	did	not	use	a	capacity	expansion	model.		A	

capacity	expansion	model	is	designed	to	find	optimal	(that	is,	least-cost)	resource	

combinations	objectively.		It	considers	such	factors	as	demand,	unit	prices	and	fuel	

prices	under	specific	constraints	such	as	reliability,	emissions	and	capital	limits....	

Instead,	PREPA	developed	resource	portfolios	by	"manually,"	i.e.,	subjectively,	

selecting	units	to	be	added	to	one	of	its	main	three	generation	sites	(Aguirre,	Costa	

Sur	and	Palo	Seco/North	Metro).

The	Commission	added:		“PROMOD	is	a	production	cost	model....The	production	cost	model	

used	by	PREPA	has	no	capability	to	determine	a	long-term,	least-cost	resource	mix	by	

selecting	new	resources	and	retiring	existing	resources....”

14		See	September	2016	IRP	Order	at	p.	91	(requiring	a	“description	of	the	modeling	

framework	PREPA	will	use	in	the	next	IRP,	including	a	discussion	of	how	PREPA	will	use	

capacity	expansion	modeling	capabilities”).		See also	the	IRP	Rule,	§	3.04(A)(6).		

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 21 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 22 of 66
20

Resource Modified	Action	Plan	

in	IRP	Order

Illustrative	

Capacity	Expansion	

Plan	from	PREPA	

Fiscal	Plan

Consistent	with	

IRP	Order?

AOGP Pursue	permitting; no	

order	to construct.15

Assumes	

construction

No

New	Aguirre	CC Pursue	permitting No	mention No

Aguirre	CC	1	and	2	 Pursue	permitting.	

Start	competitive	

bidding	process; no	

order	to	construct	

Assumes	

construction

Possibly16

Palo	Seco	Three	Small	CCs	 Pursue	permitting	 No	mention No

Palo	Seco	One	Small	CC	 Start	competitive	

bidding	process,	but	no	

order	to	construct	

Assumes	

construction

Possibly

Palo	Seco	1	and 2	 Retire	 No	mention No

Costa	Sur	3	and	4	 Retire	 No	mention No

San	Juan	7	and	8	 Retire	 No	mention No

San	Juan	9	and	10	 Designate	"limited	use"	 Retire No

Palo	Seco	3	and	4 No	mention “Limited	Use” Possibly17

Aguirre	1	and	2	Steam	

Unit	Replacement

Outside	5-year	Plan	

period18

Assumes	

construction

Possibly19

 

15		The	Commission	has	opened	Docket	No.	CEPR-AP-2017-0001	to	investigate	the	

economics	of	AOGP.		In	its	Order	opening	that	investigation,	the	Commission	stated:		

“Although	the	Commission’s	Final	Resolution	[in	the	IRP	proceeding	CEPR-AP-2015-0002]	

provided	PREPA	with	the	procedural	mechanism	for	filing	a	sound	economic	analysis	of	

AOGP,	PREPA	has	not	done	so.		Given	PREPA’s	inaction,	the	Commission	has	taken	the	

initiative	in	moving	forward	with	a	comprehensive	and	reliable	evaluation	of	AOGP.”

16		It	is	reasonable	for	PREPA	to	plan	as	though	generators	for	which	the	

Commission	ordered	a	competitive	bidding	process	following	permitting	will	be	

constructed.		However,	the	IRP	Order	stopped	short	of	approving	construction.

17		The	need	for	Palo	Seco	3	and	4	would	be	reduced	by	the	commissioning	of	new	

generation	at	Palo	Seco.		It	is	reasonable,	therefore,	for	PREPA	to	assume	these	units	could	

transition	to	Limited	Use	status	when	that	new	generation	is	operational.		Consistency	

between	the	draft	Fiscal	Plan	and	the	Commission’s	September	2016	IRP	Order	is	thus	

contingent	on	the	fate	of	other	generation	at	Palo	Seco.

19		It	is	consistent	with	the	IRP	Order	for	PREPA	to	plan	for	replacement	of	steam	

units	at	Aguirre	and	Costa	Sur	if	the	date	of	construction	is	more	than	five	years	in	the	

future	and	subsequent	IRP	evaluation	would	intervene.		The	lack	of	dates	in	the	January	24	

Plan	means	that	the	Commission	cannot	verify	this	timeline.

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 22 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 23 of 66
21

47. As	this	table	shows,	PREPA’s	illustrative	capacity	expansion	plan	omits	the	

retirement	of	Costa	Sur	Units	3	and	4, Palo	Seco	Units	1	and	2, and	San	Juan	Units	7	and	8,

even	though	the	Commission	specifically	ordered these retirements to	occur	as	soon	as	

feasible,	subject	to	maintaining	system	stability.		

48. The	hurricanes	surely	will	cause	PREPA	and	the	Commission	to	revisit	the	

Modified	IRP	(which	the	Commission	will	do,	per	Act	57,	during	2018).		But	until	then,	

PREPA	remains	bound	by	the	Commission’s	September	2016	Order	approving	the	Modified	

IRP.	

49. In	sum,	FOMB assertion	of	power	over	electricity	substance	would	include	

authorizing	PREPA	to	disregard	the	Commission’s	directives to	base	resource portfolios	on	

a	capacity	expansion	model	and	to	take	specific	actions	(or	not)	on	specific	generation	

resources.		PREPA’s	actions	will	lead	to	PREPA	incurring	unreasonable	costs—costs	which,	

once	incurred, ratepayers	will	have	to	bear.

Revenue	allocation	and	rate	design

50. PREPA’s	January	24	Plan	(at	35-38)	raised legitimate	questions	about	

efficient	price	signals,	inter-class	revenue	allocation	of	revenue	responsibility,	class	

subsidies,	uneconomic	bypass,	economic	development	rates	and “stranded	cost” recovery.

Deciding	these	questions	correctly	is	essential	to	making	rates	just	and	reasonable	and	not	

unduly	discriminatory,	as	required	by	Act	57.		But	the	Jan.	24	Plan	nowhere	acknowledged,	

 

19		It	is	consistent	with	the	IRP	Order	for	PREPA	to	plan	for	replacement	of	steam	

units	at	Aguirre	and	Costa	Sur	if	the	date	of	construction	is	more	than	five	years	in	the	

future	and	subsequent	IRP	evaluation	would	intervene.		The	lack	of	dates	in	the	January	24	

Plan	means	that	the	Commission	cannot	verify	this	timeline.

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 23 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 24 of 66
22

let	alone	corrected,	PREPA’s	deficiencies	in	those	areas,	as	detailed	in	the	Commission’s

Rate	Order	of	January	10,	2017.

20 Specifically:

1. PREPA	proposed (January	24	Plan	at	37)	to	move	rates	for	each	customer	

class	closer	to	the	cost	of	serving	each	customer	class.		But	the	document	

ignores	the	Commission’s	finding	that	PREPA’s	cost	of	service	study	(COSS)	

had	too	many	deficiencies	to	be	used	as	a	basis	for	allocating	revenue	

responsibility.	 (Jan.	2017	Rate	Order	at	paras.	325,	331)

2. PREPA asserted (id.	at	37)	that	there	is	“heavy	subsidization	of	certain	

PREPA	residential	classes,	which	discourages	energy	conservation	and	

efficiency.”		But	the	document ignores	the	Commission’s	finding	that	most	of	

the	subsidies	are	required	by	statute	(Jan.	2017	Rate	Order	at	para.	252).		

And	nowhere	in	the	January	24 Plan	is	there	any	mention	of	plans	to	invest	in	

“energy	conservation	and	efficiency,”	although	there	is	plenty	mention	of	

restoring	and	adding	generating	plants.		(January	24	Plan	at	40-42)

3. About	rate	design,	PREPA	proposes	(id. at	38)	to	move	more	costs	from	

volumetric	charges	(i.e.,	per-kWh)	to	fixed	charges (i.e.,	per-customer).		This	

change,	PREPA asserts,	will	“reduce	volatility	[in	recovery of	fixed	costs]	and	

discourage	inefficient	bypass.”		But	based	on	the	Commission’s	evaluation	of	

PREPA’s	marginal	cost signals and price	signals,	the	January	2017 Rate	Order	

rejected	some	of	PREPA’s	proposals	and	accepted	others	 (paras.	347,	356-

357;	Directives	74,	80). 		In	denying	much	of	PREPA	proposed	increase	to	

fixed	charges,	the	Commission	also	found	that	the	Company	“provided	no	

evidence	about	the	magnitude	of	the	risk	[of	not	recovering	its	fixed	costs].”	

(para.	347)

4. PREPA’s	proposal	to	“unbundle”	delivery	and	supply	rates	and	costs	(January	

24	Plan	at	38)	ignores	the	Commission’s rejection	of	this	rate	structure	as	

providing	information	irrelevant	to	consumers. (January	2017	Rate	Order,	

Finding	372)

5. Of	the	targeted	“economic	development”	rate	tools	PREPA	proposes,	the	

Commission	has	approved	a	load-retention	tariff, but	only	where	necessary	

to	retain	load	and	only	subject	to	Commission	advance	approval. The	

purpose	of	the	Commission’s	advance	review	is	to	ensure	that	the	discount	

“shall...not	produce	rates	below	marginal	cost,	shall	be	no	greater	than	

necessary,	shall	not	encourage	wasteful	consumption,	and	shall	not	pose	an

obstacle	to	the	development	of	economical	renewable	energy.”	(Directive	85)

 

20 Final	Resolution	and	Order	in	Docket	CEPR-AP-2015-0001	(January	10,	2017),	

available at	http://energia.pr.gov/wp-content/uploads/2017/01/Final-Resolution-andOrder.pdf.

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 24 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 25 of 66
23

6. PREPA’s	proposal	to	initiate	economic	development	rates	ignores	the	

Commission’s	rejection	of	this	proposal,	due	to	lack	of	specificity, in	its	

January	10,	2017	Rate	Order. The	Commission	found	that	while	it	considers	

stimulating economic	development	to	be	a	worthy	goal,	PREPA had	not	

“address[ed],	among	other	things,	the	types	of	jobs	or	their	longevity...or	the	

Commission’s	ability	to	enforce	job	creation	requirement	against	a	customer	

that	fails	to	achieve	that	requirement.”	(Directive	84)

51. PREPA	and	AAFAF	base	their	disregard	for	the	Commission’s	orders	on	

FOMB’s	assertion	of	power	to	declare,	and	intent	to	declare,	substantive	policies	for	

Puerto	Rico’s	electric	industry.		This intent	is	evidenced	in	at	least	four	distinct	ways,	

discussed	next.

52. First,	on	January	24,	2018,	the	Commission	published a	Policy	Statement—a	

detailed	legal	analysis explaining	why	the	FOMB	has	no	“authority	to	impose	substantive	

electricity	obligations	on	PREPA	or	Puerto	Rico."21		This	document,	much	of	which	is	

restated	in	the	legal	analysis	contained	Part	II.A	of	Count	One,	explains	that	the	FOMB's	

powers	do	not	include	controlling	the	substantive	features	of	Puerto	Rico’s	electric	

industry.		By	letter	of	February	3,	2018,	signed	by	Mr.	Jaime	El	Koury,	FOMB	stated	that	it	

“vehemently	rejected	the	Commission’s	legal	position.”		Although	the	vehemence	was	

unsupported	by	any	legal	analysis,	this	letter establishes	sufficient	disagreement	among	

the	parties	to create	a	“case	or	controversy.”22

53. Second,	FOMB’s	Executive	Director,	by	email	of November	2,	2017, chose	not	

to	have	executed a	simple	two-page	memorandum	of	understanding,	prepared	by	the	

 

21		Available	at	http://energia.pr.gov/wp-content/uploads/2018/01/PolicyStatement-CEPR-MI-2018-0003.pdf.

22 Exhibit	B.

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 25 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 26 of 66
24

Commission,	by	which	each	entity’s	Chairman	would	direct	his	lawyers	to	conceive	and	

prepare,	by	a	date	specified	by	the	Chairmen,	a	protocol	that	meshes	the	two	entities’	legal	

duties.23		The	Executive	Director’s	email	said the	lawyers	from	each	entity	could	talk.		But	

at no	point	before	and	after	that	email,	at	no	point	in	the	past	ten months	(the	Commission	

first	reached	out to FOMB’s	counsel	at	Proskauer last	May),	have FOMB’s	representatives	

responded	substantively,	or	positively, to	Commission	efforts	to	create	protocols	that	

mesh	our	respective	duties.		Mr.	El	Koury’s	November	3	statement, that	FOMB	“has	

engaged	[the	Commission]	for	many	months	in	an	effort	to	develop	a	collaborative	

relationship,”	is	not	consistent	with	the	facts—not	if	one	defines	“collaborative	

relationship” to	mean	coordinating	their	legal	authorities.		As	already	stated,	the	

Commission	has	prepared	a	draft set	of	protocols,	attached	as	Appendix	A,	and	remains	

ready	to	start	and	complete	this	essential	task once	FOMB	realizes	the	limits	on	its	

jurisdiction	and	the	necessity	of	cooperation.

54. Third,	FOMB	intends	to	preempt,	and	prevent, the	Commission's	expert	

review	of	PREPA's	budgets.		Already	FOMB	has	supported	PREPA’s	resistance	to	that	

review.		This	situation	renders	the	Commission	unable	to	protect	PREPA	ratepayers	from	

imprudent	PREPA	costs.		We mean	this	statement	literally.		Here	is	the	background:		In	its	

January	2017	Rate	Order, the	Commission	required	PREPA	to	receive	Commission	

approval	of	its	budgets	before	incurring	costs	under	those	budgets.

24		The	Commission	

explained	that	because	PREPA	was	a	non-profit	entity,	the	conventional	regulatory	

 

23		Exhibit	C.

24		January	2017	Rate	Order	at	paras.	427-444.

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 26 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 27 of 66
25

treatment	of	imprudent	costs—requiring	their	absorption	by	shareholders—is	

unavailable	because	a	non-profit	company	has	no	private	shareholders.		In	the	non-profit	

context,	unless	all	costs	are	recovered from	ratepayers	the	utility	will	have	insufficient	

revenues	to	operate;	so	disallowing	costs	from	rates	is	cutting	off	one's	nose	to	spite	one's	

face.		Given	this	constraint,	the	only	way	to	protect	ratepayers	from	imprudent	costs	is	to	

prevent	PREPA	from incurring	them	to	begin	with.		The	Commission	therefore	required	

PREPA	to	submit	an	annual	budget	before	spending	its	money.		(PREPA	had	proposed	a	

"true-up"	process	that	amounted	to	"We	spend	it,	we	tell	you	about	it,	you	make	

ratepayers	pay	it"—the	very absence	of	accountability	that	Act	57	was	enacted	to	fix.)25		

When	PREPA	challenged	this	feature	of	the	Commission's	rate	order	in	the	

Commonwealth	court	system,	FOMB	in	September	2017	supported	AFFAF’s Notice	of	

Removal	of	the	challenge	to	this	Court,	the removal	notice	being	based	on	preemption.26		

As	detailed	in	our	response to	the	removal	notice,

27 the	preemption	argument	is	wrong	

because	(a)	PROMESA's	preemption	provision	(§ 4)	requires	only	conflict	preemption,	not	

field	preemption;	and	(b)	there	is	no	reason	why	PREPA	cannot	comply	with	both	sets	of	

requirements.		Until	this	Court	(or	a	Commonwealth	Court,	if	this	Court	remands	the	

 

25		A	comparison	of	the	Commission’s	18-paragraph	discussion	(January	2017	Rate	

Order	at	paras.	427-444)	with	PREPA’s	6-bullet-point	characterization	(January	24	Plan	at	

36)	will	leave	any	objective	person	dazed	by	the	disfigurement.		Only	a	company	confident	

of	its	imminent	release	from	Commission	regulation—thanks	to	FOMB’s	overreach—would	

so	distort	an	order’s	intent.	

26 The Notice of Removal is Doc#1 in Case No. 17-00256-LTS, filed and entered 

September 5, 2017.

27 The Commission’s Response is Doc#29 in Case No. 17-00256-LTS, filed and entered 

December 19, 2017.

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 27 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 28 of 66
26

appeal)	makes	plain	that the	Commission’s	budget-review	authority is	not	preempted,	

PREPA	is	able	to	incur	expenses,	which	ratepayers	will	have	to	bear,	without	the	

Commission	reviewing	those	expenses	first.		For	this	situation,	the	term	“unregulated	

monopoly”	is	not	hyperbole.	

55. Fourth,	FOMB	is	impeding the	Commission’s	efforts	to	review	PREPA’s	

contracts.		As	just	explained	in	para.	54,	once	PREPA	incurs	costs,	the	Commission	has	

little	choice	but	to	set	rates	that	force	PREPA’s	customers	to	bear	those	costs.		To	ensure	

that	rates	are	“just	and	reasonable”	(as	Act	57	requires),	the	Commission	therefore	must	

review	PREPA’s	contracts	before	PREPA	commits	to	them. 28 		We readily	acknowledge

that FOMB	has	authority	under	PROMESA	to	review	PREPA’s	contracts,	just	as	the	

Commission	has	that	duty	under	Act	57.		Because	PROMESA	signals	conflict	preemption	

rather	than	field	preemption,	the	Commission	reached	out	to	FOMB	to	determine	ways	to	

coordinate	contract	review	so	that	PREPA	could	comply	with	both	agencies’	requirements	

without	conflict.		FOMB's	Executive	Director	sent	the	Commission	in	mid-January	a	draft	

letter	effectively	declining	to	share	PREPA	contracts	with	the	Commission	unless	the	

Commission "suspend[ed] review	of	PREPA's	contracts	under	[the	Commission's]	

regulations."29		FOMB's	response	is,	of	course,	the	definition	of	non-cooperation because	it	

 

28		The	Commission	issued	Order	on	November	17,	2017,	requiring	advance	

Commission	approval	of	contracts	exceeding	$10	million	for	energy,	grid	services	and	fuel	

procurement,	$1	million	for	infrastructure	development;	and	$250,000	for	professional	

services.		In	re	Temporary	Oversight	Measures	Relating	to	the	Procurement	and	Management	

of	Restoration	Services	by	PREPA,	Docket	No.	CEPR-MI-2017-0008 (Nov.	17,	2017),	

available	at	http://energia.pr.gov/wp-content/uploads/2017/11/Order-TemporaryOversight-Measures-CEPR-MI-2017-0008-1.pdf Appendix: http://energia.pr.gov/wpcontent/uploads/2017/11/Appendix-I-Order-CEPR-MI-2017-0008.pdf.		PREPA	has	failed	

to	comply,	and	FOMB	has	not	directed	PREPA	to	comply.	

29			Exhibit	D.

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 28 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 29 of 66
27

would	require	the	Commission	to	act	unlawfully—to	abandon	its	own	statutory	duties in	

order	to	gain	information	necessary	to	carry	out	its	statutory	duties.

56. The	sum	of	FOMB	two	central	positions—that	its	authority	covers	

substantive	electricity	matters	and	that	this	Commission	is	preempted	from	controlling	

PREPA's	costs by	preventing	imprudent	costs	before	they	occur—creates	an	immediate	

and	continuing	risk	of	irreparable	damage,	since	all	costs	incurred	by	PREPA	must	be	

recovered	in	rates	charged	by	PREPA.			The	situation	leaves	the	Commission	no	choice	but	

to	seek	this	Court’s	assistance	in	clarifying	the	law	so	that	PREPA	can no	longer	cite	FOMB	

as	the	reason	for	disobeying the	Commission.		

B. Investor	and	customer	uncertainty	arising	from	FOMB's	imminent	

action	supports	the	Court's exercise	of	its	discretion	

57. Even	with	a	"case	or	controversy,"	granting	a	declaratory	judgment	is	a	

matter	of	discretion.		Brillhart	v.	Excess	Ins.	Co.	of	America,	316	U.S.	491(1942).		In	deciding	

whether	to	exercise	that	discretion,	courts	consider	"the fitness	of	the	matter	for	judicial	

decision	and	the	hardship	to	the	parties	of	withholding	court	consideration."		In	re	

Combustion	Equipment	Associates,	Inc.,	835	F.2d	35,	37	(2d	Cir.	1988)	(citing	Abbott	

Laboratories	v.	Gardner,	387	U.S.	136,	149	(1967)).

1. Fitness

58. To	determine	fitness,	courts	consider	"(1)	whether	the	agency	action	is	'final'	

and	(2)	whether	the	issue	is	purely	legal	or	whether	'consideration	of	the	underlying	legal	

issues	would	necessarily	be	facilitated	if	they	were	raised	in	the	context	of	a	specific	

attempt	to	enforce	the	regulations.'"		Combustion	Equipment,	supra at	37-38	(quoting

Gardner	v.	Toilet	Goods	Association,	387	U.S.	167,	171	(1967)).	

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 29 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 30 of 66
28

59. The	finality	requirement	does	not	apply	here	because	the	Commission	is	not,	

and	will	not	be,	a	party	in	any	FOMB	proceeding	whose	outcome	the	Commission	would	

then	challenge.		The	same	reason	makes	inapplicable	any	requirement	to	exhaust	

administrative	remedies.

30		In	any	event,	FOMB’s actions as	described	in	this	Complaint	 are	

actions sufficiently	“final”	to	support	this	Court’s	discretion.		From	these	FOMB	actions,	

industry	actors	will	necessarily	infer	that	that	the	Commission	has	no	authority	to	reject,	

modify	or	condition	PREPA's	actions	under	the	Plan,	thus	causing	the	harm	we	discuss	in	

Count	Two.

60. There	is	nothing	"tentative"	about	)(a)	FOMB's	intention	to	mandate	or	

authorize	substantive	electricity	actions	that	are	within	the	Commission’s	jurisdiction	but	

that	the	Commission	has	not	approved,	and	(b)	PREPA’s	intent	to	follow	FOMB’s	directives	

without	getting	Commission	permission	first.

31

61. Nor	will	this	problem	will	“disappear	by	[it]self.”32 Nine	months	of	

Commission	effort	to	engage	FOMB	has	not	made	the	problem	disappear.

 30 Cf.	Cadillac	Publishing	Co.	v.	Summerfield,	227	F.2d	29,	30	(D.C.	Cir.	1955)	

(upholding	district	court’s	dismissal	of	publisher’s	complaint	for	failure	to	exhaust	

remedies	before	the	U.S.	Postal	Service).		

31 Compare	Combustion	Equipment,	supra,	835	F.2d	at	38	(dismissing	complaint	for	

declaratory	judgment	as	“unripe”;	among	other	reasons,	"the	tentative	nature	of	the	EPA's	

action	is	still	relevant	because	it	indicates	why	the	substantive	issues	[declaratory	

judgment	plaintiff]	Carter	Day	seeks	to	raise	might	never	have	to	be	decided");	with	Evers	v.	

Dwyer,	358	U.S.	202	(1958)	(upholding	grant	of	declaratory	judgment	complaint	brought	

by	African	American	citizen	seeking	adjudication	of	his	right	to	ride	in	a	segregated	bus;	

though	he	had	not	yet	been	arrested,	it	was	clear	that	local	authorities	would	enforce	the

segregation	law.

32 Cf.	Combustion	Equipment,	supra,	838	F.2d	at	37	(stating	that	"accelerated	judicial	

intervention	[through	declaratory	judgment]	creates	the	risk	of	burdening	the	courts	and	

the	litigants	with	disputes	that	were	otherwise	destined	to	disappear	by	themselves).

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 30 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 31 of 66
29

62. The	issues	are	purely	legal.		They	require	only	an	interpretation	of	PROMESA

(provided in	Parts II.A.1	and	II.B.1 of	this	Count	1).	 There	is	no	factual	dispute	over	either	

FOMB's	intent	to	mandate	or	authorize	substantive	elements	of	Puerto	Rico's	electric	

industry	without	Commission	approval, or	PREPA’s	intent	to	propose	them	in	a	fiscal	plan

and	then	on	certification	of	that	plan	implement	them	without	Commission	approval.	

63. As	mentioned	(in	para. 54),	this	Court	has	pending	a	separate	dispute	on	

whether	the	Commission's	action	requiring	PREPA	to	submit	budgets	for	approval	is	

preempted	by	PROMESA.33 That	preemption	question	is	legally	distinct	from	whether	

FOMB is	exceeding	its	authority.		The	Commission	acknowledges	that	budget	review	is	

outside	FOMB's	authority.		The	question	in	the	removed case	is	whether	the	Commission's	

budget	review	is	preempted.		As	we	have	argued	there,	(a)	PROMESA	signals	conflict	

preemption,	not	field	preemption;	and	(b)	there	is	no	conflict	because	PREPA	faces	no	

impossibility	of	complying	with	requirements	of	both	the	Commission	and	the	FOMB.		

2. Hardship

64. Without	judicial	clarification,	there	is	risk	of	customers	paying	for	

unreasonable	costs.		Here's	why:		To	prepare	for	the	Commonwealth's	electricity	needs,	

PREPA	must	take	actions	now.		The	Commission	must	guide	and	discipline	those	actions,

approving	those	that	are	prudent	and	preventing	those	that	are	imprudent.		Otherwise	

customers	will	end	up	paying	for	the	imprudence (as	explained	in	para.	54).		Yet	PREPA	has	

resisted	Commission	orders	aimed	at	curbing	its	imprudence,	on	the	grounds	that FOMB	is	

 

33 Adv.	Proc.	No.	17-256-LTS	in	Case	No.	17	BK-04780-LTS.		That	matter	is	before	

this	Court	because	AFFAF	removed	to	federal	court	PREPA's	Commonwealth	court	

challenge	(along	with	another	appellant’s	challenge)	to	the	Commission’s	January	2017	

Rate	Order.		AFFAF’s	pleading	states	(at	n.5)	that	FOMB	authorized	the	filing.

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 31 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 32 of 66
30

the	primary,	preemptive	forum.		We	have	already	explained	PREPA’s	preemption-related	

resistance	to	the	Commission's	January	2017	Rate	Order,	requiring	advance	review	of	

budgets	and	costs,	as	discussed	at	para.	54.		PREPA	also	is	resisting	the	Commission’s	

November	17,	2017	Order	requiring	advance	Commission	approval	of	contracts,	as	

explained	in	para.	55 above.		Since	all	costs must	be	recovered	in	customers'	rates,	there	is	

immediate	and	continuing	risk	of	irreparable	damage	as	long	as	PREPA	continues	insisting	

on	incurring	costs	undisciplined	by	Commission	action.		That	insistence	is	directly	

attributable	to,	and	supported	by,	FOMB's	intent,	unauthorized	by	PROMESA, to	occupy	the	

field	of	all	substantive	electricity	matters.	

65. A	distinct	customer	risk	exists	if	the	Commission,	acting	as	required	by	Act	

57,	approves	third-party	investments	in	projects	that	are	later	blocked	by	FOMB	acting	

ultra	vires.		High	on	the	list	of	any	utility's	cost-effective	investments	are	investments	in	

energy	efficiency.	 The	more	energy	efficiency,	the	less	need	for	expensive,	risky	physical	

projects	that	could	become	excess	due	to	declining	demand.		Suppose	the	Commission	

selects	a	provider	of	energy	efficiency	services	and	approves	its	costs;	but	then	FOMB

certifies	a	fiscal	plan	with	a	physical	project	that	renders	the	energy	efficiency	investment	

uneconomic—and	then	PREPA	views that	certification	as	a	preemptive	directive	or	

authorization	to	proceed.		The	risk	of	such	conflicting	decisions	will	both	deter	investors	

and raise	their	capital	costs,	to	the	detriment	of	Puerto	Rico	consumers.		But	worse,	if	a	

private	investment	is	made	based	on	a	Commission	decision	that	is	later	superseded	by	a	

FOMB	action,	the	already	incurred	costs	will	have	to	be	covered	by	customers,	since	the	

policy	reversal	would	not	have	been	the	investors'	fault.

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 32 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 33 of 66
31

66. Without	judicial	clarification,	there	will	be	a	long,	continuous	series	of	

preemption	disputes before	this	Court—over	who	has	authority	to	mandate	or	approve	

capital	expenditures,	operational	expenditures,	power	supply	mix,	transmission	and	

distribution	modernization,	cost	recovery	procedures,	revenue	requirement,	rate	design	

and	any	other	matter	that	lies	within	the	Commission’s	Commonwealth	law	jurisdiction.	

The	Commission,	acting	as	required	under	Act	57,	will	be	making	decisions	in	each	of	those	

areas.		PREPA,	when	aggrieved,	will	challenge	these decisions as	preempted	by	FOMB's	

actions—even	though	FOMB’s	powers	do	not	extend	to	those	substantive	matters.		Each	of	

these	disputes,	brought	to	an	already	busy	Court,	will	cause	uncertainty	and	delay	in	

matters	essential	to	Puerto	Rico's	recovery:		power	supply	investments,	third	party	

contracts,	rates,	energy	efficiency	initiatives	and	others.			

67. Without	judicial	clarification,	there	will	remain	uncertainty	and	confusion

over	which entity	has	authority	over	which	PREPA	actions	and	inactions. 		That	uncertainty	

and	confusion	adversely	affects	the	Commission	and	consumers.			Under	Act	57,	the	

Commission	must	establish	standards	for	PREPA's	performance.		It	must	determine	the	

resource	mix	for	Puerto	Rico's	electricity	customers.		It	must	establish	the	market	

structures	and	other	policies	that	attract	the	suppliers	most	likely	to	provide	those	

resources	cost-effectively.		It	must	set	ratemaking	policies	that	attract	investors	and	

conservation	policies	that	educate	customers.		The	Commission	cannot	accomplish	these	

things	in	a	legal	fog—a	fog	created	by	FOMB's	insistence	on	mandating	or	authorizing	

actions	outside	its	authority.	

68. With judicial	clarification,	most	of	these	disputes	will	disappear—along	with	

their	associated	hardships.		With	FOMB	properly	placed	in	its	fiscal	domain,	the	

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 33 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 34 of 66
32

Commission	can	proceed	with	the	complex	restorative	and	transformative	work	that	Act	57	

requires.		The	Commission	then will use	the	professional	expertise	and	procedural	

discipline	demonstrated	in	its	prior	proceedings—professional	expertise	FOMB's	part-time	

members	do	not	have	and	procedural	discipline	FOMB	does	not	use.		The	Commission	

examines	proposals	using	administrative	law	principles—transparent	processes,	witness	

statements	under	oath,	professional	questioning	by	experienced	practitioners	and	attentive	

Commissioners,	with	all	interested	parties	having	comparable	opportunities	to	present	and	

test	the	evidence.		FOMB	does	none	of	this.

69. Prior	to	PROMESA	and	prior	to	federal	involvement	in	the	hurricane	

aftermath,	the	statutory	responsibility	for	the	Puerto	Rico's	electric	industry's	performance	

rested	with	the	Commission.		Once	federal	involvement	ends,	that	same	legal	responsibility	

will	rest	with	the	Commission or	its	successor.		During	this	interim	period	of	federal	

involvement,	it	is	both	logical	and	necessary	for	the	Commission	to	continue	playing	a	

central	role.		

70. A declaratory	judgment	will	cause	no	hardship	to	FOMB.		If	the	Court	agrees	

with	the	Commission,	FOMB's	workload	will	be	reduced.		If	the	Court	disagrees	with	the	

Commission,	FOMB	will	proceed	as	it	intends	currently.		Clarity	benefits	both	parties.		But	

more	importantly,	clarity	benefits	the	entire	Commonwealth:		the	state	and	local	

governments,	electricity	customers,	electricity	entrepreneurs	seeing	opportunities	to	bring	

modern	technology	to	electric	infrastructure,	existing	and	prospective	bondholders,	

businesses	contemplating	a	move	to	or	from	Puerto Rico,	PREPA	employees	and	retirees—

everyone.	

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 34 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 35 of 66
33

II. Declarations	sought

A. FOMB	has	no	power to	mandate	or	authorize	substantive	electricity	

actions	the	Commission	has	not	authorized

1. Legal	analysis

71. Multiple	PROMESA	provisions	make	clear	that	FOMB's	powers	are	largely	

fiscal,	not	substantive.

72. The	list	begins	with	§ 101(a):		"The	purpose	of	the	Oversight	Board	is	to	

provide	a	method	for	a	covered	territory	to	achieve	fiscal	responsibility	and	access	to	the	

capital	markets."		The	subjects	of	“fiscal	responsibility” and	“access	to	the	capital	markets”

do not	include	transforming	electric	industry	structure,	selecting	power	supply	mix,	or	

determining	market	structures	or	asset	ownership.

73. This	distinction	between	fiscal	and	substantive	matters	is	repeated	in	

PROMESA’s provisions	on	the	purposes	and	elements	of	on	Fiscal	Plans.		

Purposes: The	purpose	of	a	Fiscal	Plan	is	to	create	conditions	for	a	"sustainable	

level	of	debt";34 and	to	"provide	a	method	to	achieve	fiscal	responsibility	and	access	

to	the	capital	markets...."35		This	Court	sees	purposes	similarly:		PROMESAmandated fiscal	plans	and	budgets	"provide	blueprints	for	revenues,	expenses,	debt,	

and	capital	resources,	and	they	are	used	to	substantiate	methods	for	responsible	

financial	management."36

 

34		Section	104(i)(1)(B).

35 Section	201(b)(1).

36		CTO	Order	at	12.

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 35 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 36 of 66
34

Elements:		A	Fiscal	Plan	must	provide	for	credible “estimates of	revenues	and	

expenditures";37 "ensure	the	[sufficient]	funding	of	essential	services";38 provide	

"adequate	funding	for	public	pension	systems"	and	for	the	"elimination	of	structural	

deficits";39 provide	for	a	"debt	burden	that	is	sustainable";40 "improve	fiscal	

governance,	accountability,	and	internal	controls";41 "enable	the	achievement	of	

fiscal	targets";42 include	"independent	forecasts	of	revenue";43 and	include	a	"debt	

sustainability	analysis."44

All	these	purposes	and	elements	are	fiscal.		They	give	the	FOMB	no	authority	to	control,	

through	fiscal	plans,	substantive	decisions	about	Puerto	Rico's	electric	industry.

74. More	confirmation	of	the	fiscal-substantive	distinction	appears	in	§ 203.		

That	provision	requires	the	Commonwealth	to	submit	periodic	reports	comparing	actual	

revenues	and	expenditures	to	budgets.		It	does	not	require—indeed	no	PROMESA	provision	

requires—reports	on	substantive	actions	(e.g.,	transmission	lines	constructed,	competitive	

markets	created,	power	supply	plans	implemented).		And	if	there	is	an	"inconsistency"	

between	approved	and	actual	budget	figures,	FOMB	can	only	"make	reductions	in	nondebt	

expenditures,"	"institute	hiring	freezes,"	or	prohibit	certain	contracts	or	transactions,	§

203(d)(2)(A).		Those	are	the	FOMB's	only	tools;	it	has	no	authority	to	mandate	particular	

 

37 Section	201(b)(1)(A).

38		Section	201(b)(1)(B).

39		Section	201(b)(1)(C)	and	(D).

40		Section	201(b)(1)(E).

41		Section	201(b)(1)(F).

42		Section	201(b)(1)(G).

43		Section	201(b)(1)(H).

44		Section	201(b)(1)(I).	

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 36 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 37 of 66
35

activities,	like	power	supply	mix,	new	ownership	arrangements	or	new	market	structures.		

FOMB	can	cancel	the	actions	it	took	under	§ 203(d)(2)(A)	if	the	instrumentality	at issue	has	

"initiated	appropriate	measures	to	reduce	expenditures	or	increase	revenues,"	§ 203(e);	

but	again,	FOMB	has	no	power	to	order	the	instrumentality	to	conform	its	actions	to	any	

FOMB	substantive	vision.		The	FOMB's	powers	are	fiscal,	not	substantive.

75. It	is	unsurprising	that	the	Fiscal	Plan	must	"provide	for	capital	expenditures	

and	investments	necessary	to	promote	economic	growth,"	§ 201(b)(1)(J).		Without	

"expenditures	and	investments,"	there	would	be	no	need	to	address	revenues,	debt,	

funding,	targets	and	all	the	other	items	listed	in	§ 201(b)(1).		But	the	legal	source	of	the	

"expenditures	and	investments"	is	not	FOMB's	substantive	preferences,	because	PROMESA	

gives	FOMB	no	power	over	electricity	industry	substance; the	legal	source	of	"expenditures	

and	investments"	is	Commonwealth	law—specifically,	Act	57	as	applied	by	the	

Commission,	or	other	statutes	the	Legislature	might	enact.		This	reasoning	finds	explicit	

support	in	§ 201(b)(1)(N),	which	establishes	FOMB’s	key	constraint:		A	plan	certified	by	

the	FOMB	must	"respect	the	relative	lawful	priorities	...	in	...	other	laws	...	of	a	covered	

territory	...	in	effect	prior	to	the	date	of	enactment	of	this	Act."

76. Any	remaining	doubt	is	removed	by	§ 205(a).		It	authorizes	FOMB	to	make	

recommendations about,	among	other	things,	"the	modification	of	existing	revenue	

structures,	or	the	establishment	of	additional	revenue	structures,"	§ 205(a)(3);	

"modifications	or	transfers	of	the	types	of	services	that	are	the	responsibility	of,	and	are	

delivered	by	the	territorial	government,"	§ 205(a)(5);	"modifications	of	the	types	of	

services	that	are	delivered	by	entities	other	than	the	territorial	government	under	

alternative	service	delivery	mechanisms,"	§ 205(a)(6);	and	"the	privatization	and	

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 37 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 38 of 66
36

commercialization	of	entities	within	the	territorial	government,"	§ 205(a)(10).		The	

territorial	government	must	consider	these	recommendations	and	explain	any	rejection,	

but	it	has	no	obligation	to	accept	them,	§.	205(b).		If	these	substantive	matters	were	within	

the	FOMB's	mandatory	authority, the	recommendatory	provisions	of § 205(a)	and	(b)	

would	be	surplusage.		The	FOMB's	mandatory	authority	is	fiscal,	not	substantive.

77. There	is	more.		Section	209	requires	FOMB	to	terminate	when	the	territorial	

government	(a)	has "adequate	access	to	short-term	and	long-term	credit	markets	at	

reasonable	interest	rates";	(b)	has,	for	four	consecutive	fiscal	years,	developed	its	budgets	

consistent	with	"modified	accrual	accounting	standards";	and	(c)	has	lived	within	those	

budgets.		FOMB's	termination	has	no	substantive	precondition.		FOMB's	purpose	is	fiscal,	

not	substantive.

78. Real	substantive	authority	for	FOMB	appears	in	only	two	situations.		The	first	

is	§ 204(b)(2),	authorizing FOMB	to	establish	policies	"to	ensure	that	proposed	contracts	

promote	market	competition...."		In	PREPA’s	context,	it	is	not	clear	whether	this	provision	

refers	to	competition	among	prospective	contractors	to	PREPA,	or	instead	refers	to	

competition	to	provide	electric	services (e.g..,	generation,	transmission,	distribution,	

storage,	microgrids,	demand	response	and	energy	efficiency).		Regardless,	neither	of	those	

goals	conflicts	with	Commission	policies.		Furthermore,	neither	purpose	authorizes	FOMB

to	issue	mandates	about	the	subjects	that	fall	within	the	Commission’s	Act	57	jurisdiction.

79. The	second	exception	is	in	Title	V,	which	creates	a	path	by	which	FOMB	can	

approve	a	"Critical	Project."		Title	V	makes	Congress’s	intent	clear:		FOMB's	authority	over	

Critical	Projects	must	support	the	Commission,	not	preempt	it.		Specifically,	§ 503(b)(1)(D)	

requires	that	any	project	connecting	to	PREPA's	transmission	or	distribution	facilities	

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 38 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 39 of 66
37

"shall	be	ineligible	for	Critical	Project	designation"	if	the	Commission	timely	determines	the	

project will	"adversely	affect	an	approved	Integrated	Resource	Plan."	 Note	also	that	Title	V,	

which	creates	the	Revitalization	Coordinator	role,	confines	that	role	to	making	

recommendations to	the	FOMB	about	Critical	Projects.		The	Revitalization	Coordinator has	

no	other	role.		It	certainly	is	legitimate	for	the	Coordinator	to	have	a	vision	for	Puerto	Rico's	

electric	industry that	guides	his	recommendations	on	particular	projects.		But	PROMESA	

gives	neither	him	nor	the	FOMB	any	substantive	authority	to	mandate	that	vision.		As this	

Court	held:

Although	the FOMB's	fiscal	plan	and	budgeting	powers	give	it	a	strong	and	

substantially	determinative	voice	in	overall	strategy	regarding	the	

Commonwealth's	revenues,	expenses,	and	general	direction	for	responsible	

financial	management,	they	do	not	imply	that	the	FOMB's	role	includes	

detailed	operational	planning	or	direct	executive	authority	over	the	

implementation	of	those	plans	and	budgets.45

The	FOMB's	powers	are	fiscal,	not	substantive.

2. Declarations	sought

80. Because	PROMESA	does	not	authorize	FOMB to	mandate	or	authorize	

substantive	electricity	actions	that	the	Commission	has	not	authorized,	FOMB	has	no	power	

to	address actions	in	the	following	areas,	among	others:		

Market	transformation

Current	and	future	market	structures	(monopoly	vs.	competition)	for	various	

products	and	services

Whether	and	to	what	extent	PREPA	should	continue	as	a	provider	of	electricity	

services

Whether	and	in	what	roles	there	should	be	new	provider(s)	of	electricity	services

 

45		CTO	Order	at	12.

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 39 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 40 of 66
38

Divestitures	of	PREPA	assets	or	business	functions

Acquisitions	by	PREPA	of	assets	or	business	functions

The	mix	of	government	and	non-government	ownership	of	electricity	assets

The	mix	of	government	and	non-government	provision	of	electricity	services

Whether	there	should	be	"wheeling"	service,	and	on	what	terms

Whether	there	should	be	microgrids,	and	on	what	terms

Terms	of	interconnections	between	PREPA	and	power	producers

Resource	mix

Mix	of	power	supply,	energy	efficiency	and	demand	resources

Integrated	resource	plan	

Determine	future	percentage	mix	of	renewable	and	non-renewable,	and	types	of	each

Establish	framework	for	determining	need	and	value	of	ancillary	services

Establish	framework	for	determining	need	and	value	of	resource	flexibility

Approve	near-term	IRP	action	plans

Siting	of	power	supply	resources

Electricity	rates

Caps	or	floors	on	PREPA's	rates	(including	any	adjustment	clauses)

Procedures	by	which	PREPA's	rates	(including	any	adjustment	clauses)	are	adjusted

Terms	for	net-metering	

Terms	for	demand	response	or	energy	efficiency	

Operations

Reliability	parameters	for	Puerto	Rico's	electric	industry

Performance	metrics,	reporting	procedure	and	enforcement	methods

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 40 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 41 of 66
39

Restoration	plans,	priorities	and	expenditures	

Maintenance	plans,	priorities	and	expenditures

Generating	plant	efficiency	standards

Criteria	and	decisions	on	hiring	contractors

Criteria	and	decisions	on	hiring,	laying	off	or	buying	out	employees	

81. All	these	features	of	Puerto	Rico's	electric	industry	are	decisions	to	be	made	

by	the	Commonwealth.46

B. FOMB’s directives	to	PREPA,	if	taken	within	FOMB’s	PROMESA	

authority,	preempt	the	Commission	only	when	it	is	not	possible	to	

design	those	directives	consistently	with	Commonwealth	law	

1. Legal	analysis

82. Repeatedly	and	explicitly,	PROMESA	directs	FOMB	to	act	consistently	with	

Commonwealth	law.		

83. Section	201(b)(1)(A)(i)	provides	that	a	Fiscal	Plan	shall	"provide	for	

estimates	of	revenues	and	expenditures	in	conformance	with	agreed	accounting	standards	

and	be	based	on ... applicable	law..."	(emphasis	added).		Act	57	is	"applicable"	here	because	

it	directs	the	Commission	to	ensure	that	rates	are	"just	and	reasonable."		Thus, FOMB	may	

not	approve	budgets	or	prescribe	actions	that	lead	to	rates	that	are	not	just	and	reasonable.		

The	legal	duty	to	determine	what	is	just	and	reasonable lies exclusively	with	the	

Commission.

 

46		On	this	point,	PREPA	appears	to	agree:		"The	Government	of	Puerto	Rico	reserves	

all	rights	under	Section	303	of	PROMESA	and	otherwise	to	determine	the	future	of	the	

electric	sector	in	Puerto	Rico	as	a	matter	of	public	policy."		January	24	Fiscal	Plan	at	4.

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 41 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 42 of 66
40

84. Section	201(b)(1)(B)	requires	the	Fiscal	Plan	to	"ensure	the	funding	of	

essential	services."		The	legal	duty	to	determine	what	services	are	essential,	given	the	prior	

reference	to	"applicable	law,"	lies	exclusively	with	the	Commission.

85. Section	201(b)(1)(J)	requires	the	Fiscal	Plan	to	"provide	for	capital	

expenditures	and	investments	necessary	to	promote	economic	growth...."		That	provision	

does	not	mean	that	the	FOMB	determines	what expenditures	and	investments	are	

necessary; it	means	only	that	for the	expenditures	and	investments	that	are	necessary,	the	

Fiscal	Plan	must	show	the	funding	sources.		Under	Commonwealth	law,	the	legal	duty	to	

determine	what	capital	expenditures	and	investments	are	necessary	for	electric	service	lies	

exclusively	with	the	Commission.		That	Commission	role	is	confirmed	by	Section	

503(b)(1)(D)	which,	as	explained	in	para.	79 above,	preserves	the	Commission's	power	to	

prevent	Energy	Projects	that	"adversely	affect	an	approved	Integrated	Resource	Plan."

86. Section	201(b)(1)(N)	requires	the	FOMB-certified	Fiscal	Plan	to	"respect	the	

relative	lawful	priorities	...	in	the	...	other	laws ... of	a	covered	territory	...	in	effect	prior	to	

the	date	of	enactment	of	this	Act."		Those	laws	include	Act	57,	as	applied	by	the	

Commission	created	by	Act	57.	

87. Separately	and	together,	the above-mentioned	PROMESA	provisions	obligate	

FOMB	to	act	consistently	with	Commission	authority,	unless	doing	so	would	undermine	

PROMESA	goals.		To	satisfy	PROMESA,	FOMB	must	shape	its	decisions	to	avoid	

undermining	Commonwealth policy.		Only	when	such	shaping	is	impossible,	only	when	

FOMB	cannot	achieve	a	PROMESA	objective	without	preempting	Commonwealth	law,	may	

preemption	occur.	 FOMB	cannot	be	a	bull	in	the	Commonwealth’s china	closet.		As	this	

Court	stated:	 “The	primary	mechanism	through	which	fiscal	plans	and	instrumentality	

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 42 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 43 of 66
41

budgets	are	developed	under	PROMESA	sections	201	and	202	looks	first	to	the	territorial	

government,	not	the	FOMB,	for	origination	and	refinement.		While	the	FOMB	can	certify	its	

own	fiscal	plan	and	budget	under	certain	circumstances,	it	may	only	do	so	after	an	

interactive	process	with	the	territorial	government	does	not	yield	a	plan	or	budget	that	is	

acceptable	to	the	FOMB.”47

88. Under	PROMESA	§ 4,	the Commission's	decisions	under	Commonwealth	law	

cannot	conflict	with	the	FOMB's	requirements.		But	that	provision	limits	Commission	

actions	only	where	FORM	is	acting	within	its	authority.

89. PROMESA	thus	addresses	Commonwealth	law	in	terms	of	preservation	and	

preemption.		The	necessary	logical	combination	of	those	two	principles	is	this:		If	in	solving	

a	problem	within	its	statutory	scope,	FOMB	has	a	choice	between	an	action	that	

undermines	Commonwealth	law	and	an	action	that	does	not,	FOMB	must	choose	the	latter.		

Where	inconsistency	is	unavoidable,	FOMB	prevails.		Finding	inconsistencies	and	designing	

ways	to	avoid	them	requires	coordination.		As	this	Court	held,	PROMESA	"requires	the	

FOMB	and	the	territorial	government	to	work	together	to	establish	a	fiscally	responsible	

path	forward	that	is	acceptable	to	the	FOMB."48

2. Declarations	sought

90. FOMB’s	certification	of	a	PREPA-proposed	Fiscal	Plan	may	bind	PREPA	only	

on	matters	that	lie	within	FOMB’s	jurisdiction.		That	a	Fiscal	Plan	describes	substantive	

electric	actions	as	bases	for	fiscal	actions	does	not	give	FOMB	powers	it	does	not	have—

 

47		CTO	Order	at	10.

48		CTO	Order	at	19.

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 43 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 44 of 66
42

such	as	powers	to	mandate	or	authorize	PREPA	to	take	substantive	electric	actions	that	are	

subject	to	Commission	jurisdiction	but	which	the	Commission	has	not	approved.		The	fiscal	

subject	areas or	actions	over	which	FOMB	has	power	are	PREPA's	budgets,	PREPA's	

spending,	and		PREPA	debt	issuances	and	debt	restructuring.

91. FOMB’s	directives	to	PREPA,	if	taken	within	FOMB’s	PROMESA	authority,	

preempt	the	Commission	only	when	it	is	not	possible	to	design	those	directives	

consistently	with	Commonwealth	law.

COUNT	TWO

Preliminary	Injunction	(a)	Prohibiting	FOMB	From	

Mandating	or	Authorizing	Substantive	Electricity	Actions	Without	

Commission	Approval,	 and	(b)	Prohibiting	PREPA	From	Taking	Such	

Actions Without	Commission	Approval

(Rule	65	of	the	Federal	Rules	of	Civil	Procedure;	Rule	7065	of	the	

Federal	Rules	of	Bankruptcy	Procedure;	PROMESA	§	310)

92. The	Commission	incorporates	by	reference	paragraphs	1	to	91.

93. This	pleading	has	explained	that	FOMB	has	no legal	authority	to	impose	

substantive	electricity	obligations	on	PREPA,	and	that	FOMB	intends	to	do	so	imminently.		

Any	FOMB	action	mandating	or	authorizing	PREPA	to	take	substantive	actions	that	the	

Commission	has	not	approved	would	be	ultra	vires.		

94. Such an ultra	vires order	would	violate	PROMESA	§ 303, which	reserves	

“political	or	governmental	powers,”	including substantive	electricity	regulation, to	the	

Commission.			

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 44 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 45 of 66
43

95. The	Commission	therefore	seeks	a	preliminary	injunction	prohibiting	FOMB	

from	issuing ultra	vires	orders	governing	substantive	electricity	actions	that	the	

Commission	has	not	approved.

96. In	considering	a	request	for	preliminary	injunction,	a	court	weighs	four	

factors:	 “(1)	the	plaintiff's	likelihood	of	success	on	the	merits;	(2)	the	potential	for	

irreparable	harm	in	the	absence	of	an	injunction;	(3)	whether	issuing	the	injunction	will	

burden	the	defendants	less	than	denying	an	injunction	would	burden	the	plaintiffs	and	(4)	

the	effect,	if	any,	on	the	public	interest.”49 As	discussed	next,	this	request	for	preliminary	

injunction	complies	with	all	four	factors.

Likelihood	of	success on	the	merits

97. “The	sine	qua	non of	this	four-part	inquiry	is	likelihood	of	success	on	the	

merits:	if	the	moving	party	cannot	demonstrate	that	he	is	likely	to	succeed in	his	quest,	the	

remaining	factors	become	matters	of	idle	curiosity.”50		The	Commission’s strong	likelihood	

of	success	is	demonstrated	by	the	legal	arguments	appearing	in paras.	71to	79	and	82	to	

89. As	a	matter	of	law,	FOMB	has	no	legal	authority	to	impose	substantive	electricity	

obligations	on	PREPA	or	Puerto	Rico.		That	authority	lies	exclusively	with	the	Governor,	the	

Commonwealth	Legislature, and	the	Commission	or	any	successor	regulatory	agency.		

 49 Sindicato	Puertorriqueño	de	Trabajadores,	699	F.3d	1,	10	(1st	Cir.	2012)	(quoting

Jean	v.	Mass.	State	Police,	492	F.3d	24,	26-27	(1st	Cir.	2007));	Rhode	Island	Dept.	of	

Environmental	Management	v.	U.S.,	304	F.3d	31	(1st	Cir.	2002).		

50 Sindicato	Puertorriqueño	de	Trabajadores,	supra, 699	F.3d	at	10	(quoting New	

Comm	Wireless	Servs.,	Inc.	v.	SprintCom,	Inc.,	287	F.3d	1,	9	(1st Cir.	2002)).		

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 45 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 46 of 66
44

Irreparable	harm	to	plaintiff	Commission

98. Act	57	requires	the	Commission	to	establish	standards	for	PREPA's	

performance,	so	that	customers	will	receive	reliable	electric	service	at	reasonable	cost.	

Elements	of	performance	include,	without	limitation,	determining	the	resource	mix	for	

Puerto	Rico's	electricity customers;	establishing	the	market	structures	and	other	policies	

that	attract	the	suppliers	most	likely	to	provide	those	resources	cost-effectively;	setting	

pricing	policies	that	attract	investors	while	protecting	customers	from	abuse;	and	

designing	rate	structures	that	allocate	costs	to	those	who	cause	them,	so	as	to	induce	

efficient	consumption	behavior.	

99. FOMB's	insistence	on	dictating	the	substantive	shape	of	Puerto	Rico’s	electric	

industry	makes	it	impossible	for	the	Commission	to	achieve	these	ends.		By	combining	its	

technical	expertise	with	transparent	procedures, and	by	applying	principles	from	the	

disciplines	of	engineering,	accounting,	economics,	finance and management, the	

Commission	has	issued	rules,	orders	and	guides	to	PREPA	on	resource	planning,	rates,	

capital	expenditures,	operations,	customer	billing,	distributed	generation and	contracting,	

among	other	things.		PREPA	has	resisted,	or	delayed	complying	with,	a	number	of	these	

orders,	citing	in	some	instances	its	incorrect	legal	view	that	on	matters	of	electricity	

substance	its	master	is	FOMB,	not	the	Commission.51		PREPA’s	persistence	reappears	in	its	

 51 For	example:		In	May	2017,	PREPA	sought	a	stay	in	three	separate	Commission	

proceedings,	on	grounds	(among	others)	that	FOMB	had	required	revisions	to	PREPA’s	

Fiscal	Plan. 		See “Puerto	Rico	Electric	Power	Authority’s	Verified	Motion	to	Stay	

Proceedings	and	Budget	Filing	Requirements”	in	Docket	No.	CEPR-AP-2015-0001	(May	19,	

2017)	(seeking	stay	of	the	budget	review	and	reconciliation	process	required	by	

Commission’s	rate	order	of	Jan.	10,	2017);	“The	Puerto	Rico	Electric	Power	Authority’s	

Verified	Motion	to	Stay	Proceeding”	in	Docket	No.	CEPR-IN-2016-0002	(May	19,	2017)	

(seeking	stay	of	Commission	investigation	into	PREPA’s	overall	performance);	and	“The	

Puerto	Rico	Electric	Power	Authority’s	Verified	Motion	to	Stay	Proceeding”	in	Docket	No.	

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 46 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 47 of 66
45

proposed	Fiscal	Plan,	which	(as	discussed	in	paras.	42	to	50	above)	conflicts	with	

Commission	guidance	on integrated	resource	planning	and	revenue allocation	and	rate	

design.		PREPA	sees	in	FOMB’s	actions	an	opportunity	to	avoid	accountability	to	the	

Commission.		If	FOMB	mandates	or	authorizes PREPA	to	take	substantive	electricity	

actions,	indeed	if	FOMB	continues	to	assert	its	control	over	electricity	policy,	PREPA	will	

cite	FOMB’s	actions	to	resist	the	Commission’s	current	and	future	orders.

100. Worsening	this	harm	to	the	Commission’s	authority	is	the	pressure on	its	

limited	resources.		PREPA’s	resistance	to	Commission	regulation,	a	direct	result	of	FOMB’s	

assertions	of	control	over the	Commonwealth’s	electricity	policy,	causes	the	Commission	to	

spend	extra	resources,	in	terms	of	staff	time,	Commissioner	time	and	consultant	time—all	

resources	that	citizens	expect,	and	need,	to	be	spent	on	Commission	efforts	to	guide	and	

discipline	PREPA’s	actions	to	restore	and	improve	Puerto	Rico’s	electricity	infrastructure.

Irreparable	harm	to	consumers	and	to	the	public

101. Act	57 aims	to	“improve	the	quality	of	life	of	all	Puerto	Ricans.”52		By	avoiding	

the	Commission’s orders	and	regulations,	PREPA	can	continue	with	the operational	

inefficiencies,	poor	performance	practices	and	lack	of	transparency described	in	Act	57’s	

Preamble,	then	detailed	in	the	Commission’s	September	2016	order	on	integrated	resource	

planning	and	its	January	2017	Rate	Order.		That	PREPA	behavior	stems	directly	from	

 

CEPR-IN-2017-0001	(seeking	stay	of	Commission	proceeding	on	rate	design	and	cost	

allocation	issues).		

52		See	Act	57,	Statement	of	Motives:		“The	high	cost	of	energy	limits	our	ability	to	

stimulate	the	economy,	strengthen	small- and	medium-sized	business,	as	well	as	to	attract	

private	investors	from	abroad,	develop	commercial,	industrial	and	manufacturing	

activities,	and	improve	the	quality	of	life	of	all	Puerto	Ricans.”

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 47 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 48 of 66
46

FOMB’s ultra	vires	actions.		If	PREPA	can	disregard	the	Commission’s	decisions	on	future	

resources,	PREPA	will	incur	more	unreasonable	costs	that	will	necessarily	fall	on	its	

customers.

102. As	noted	in	para.	65,	investments	in	energy	efficiency	will	avoid	excess	

investment	in	risky,	fossil-burning	generating	units.		Once	PREPA	invests	in	new	units,	or	in	

expensive	reworking	of	existing	units,	those	costs	become	“sunk”;	meaning customers	have	

to	bear	the	costs,	thus	reducing	the	potential	savings	from,	and	attractiveness	of,	energy	

efficiency	investments.		The	Commission	must	retain	its	power	to	require	a	study	of	energy	

efficiency	investments	before	PREPA	sinks	new	dollars	into	major	physical	infrastructure.		

Only	the	requested	injunction	will	prevent	FOMB	and	PREPA	from	acting	contrary	to	

customers’	interests	before	the	Commission	does	its	work.

103. The uncertainties	created	by	FOMB’s	assertions	of	substantive	power	will	

deter	outside	investors	and	raise	their	capital	costs.		Capital	scarcity	and	increased	capital	

costs increase	electricity	rates,	thus	harming	Puerto	Rico	consumers	and	the	

Commonwealth’s	economy.		

104. This	legal	uncertainty will	reduce	PREPA’s	(and	any	successor’s)	ability	to	

attract	the	new	capital	necessary	to	restore	and	modernize	its	infrastructure.		No	

reasonable	investor,	eyeing	the	uncertainty	over	who	has	what	regulatory	powers,	will	

want	to	lend,	at	a	reasonable	interest	rate,	the	billions	PREPA	needs.		Absent	new	sources	

of	capital,	PREPA	will	have	to	limp	along	with	its	current	infrastructure—a	deteriorating	

infrastructure	consisting,	as	detailed	in	the	Commission’s	orders	on	rates	and	on	integrated	

resource	planning,	of	obsolete,	inefficient,	barely-working	and	air-polluting units.		The	

harms to	the	citizens	from	high	rates,	pollution	(including	the	risk	of	penalties	from	

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 48 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 49 of 66
47

environmental	regulators—which	are	ultimately	paid	by	customers	or	taxpayers	because	

PREPA	is	a	non-profit	company)	and	unreliable	service,	are	tangible	and immediate.		These	

harms are	being	caused	now.

Irreparable	harm	to	Puerto	Rico’s	energy	sector

105. Although	the	central	beneficiaries	of	the	Commission’s	powers	are	

consumers,	another	category	of	beneficiaries	are	the non-PREPA companies	that	hope	to

bring	their	technology,	labor	and	expertise	to	Puerto	Rico’s	energy	sector.		Their	

participation	in	the	Commission’s	proceedings	on	rates,	integrated	resource	planning,	

microgrids	and	other	subjects demonstrates	their	trust	in	the	Commission’s	neutrality	and	

expertise.		That	trust	breeds optimism	that	after	70	years	of	an	unregulated	monopoly	

subject	to	political	interference,	opportunities	to	supply	electricity-related	services	will	be	

based	on	merit.		FOMB’s	assertions	of	control	over	electric	policy,	by	making	the	

Commission’s	authority uncertain,	risks	reducing	this	optimism—a	prerequisite	to	any	

serious	new	investment in	Puerto	Rico’s	electric	industry.		

106. The	same	concerns	apply	to	non-electric	businesses	hoping	to	remain	in,	

expand	in,	or	move	to,	Puerto	Rico.	 Absent	the	declarations	and	injunction	sought	here,	the	

regulatory	uncertainty	caused	by	FOMB’s	position	makes business	planning	and	

development	infeasible—again	to	the	detriment	of	Puerto	Rico’s	economy.	

Benefits	of	the	injunction	to	FOMB	and	others

107. An injunction	will	relieve	FOMB	of	its	self-assigned	(but	not	statute-assigned)	

responsibility	to	shape	Puerto	Rico’s	electric	industry.		FOMB	can	cease	spending	taxpayer	

money	on	lawyers	who	fight	the	Commission, and	on	consultants	who	unnecessarily	

duplicate	the	Commission.		Instead,	FOMB	will	have	the	benefit	of	an	unobstructed	

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 49 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 50 of 66
48

Commission	performing	its	Act	57	duties,	transparently	and	with	the	necessary	

professional	expertise.		Then,	when	FOMB	reviews PREPA’s	fiscal	projections	and	plans,	

FOMB	can	more	reliably	assess	whether	those	projections	and	plans	make	sense	in	light	of	

the	substantive	vetting	by	the	Commission.		FOMB	will	save	money	and	gain	insights—all	

things	it	could	have	had	for	the	last	nine	months	had	it	cooperated with	the	Commission.		

108. For	all	the	reasons	stated	above,	the	Commission	is	entitled	to	equitable	

relief	in	the	form	of	a	preliminary	injunction.		We ask this Court to enjoin FOMB from 

mandating that PREPA take substantive electricity actions without Commission approval.

109. The	Commission	recognizes	that	its	timely	action	on	PREPA’s	Fiscal	Plan	is	

essential	to	FOMB’s	efforts	to	resolve	PREPA’s	debt.		The	Commission	therefore	commits	to	

working	cooperatively	with	FOMB	on	a	schedule	that	accommodates	both	entities’	needs.	

110. A	necessary	accompaniment	to	the	preliminary	injunction	against	FOMB	is	a	

preliminary	injunction	against	PREPA,	prohibiting PREPA from	taking	substantive	

electricity	actions	mandated	or	authorized	by	FOMB,	if	those	actions	are	jurisdictional to	

the Commission but	not	authorized	by	the	Commission. Absent	a preliminary	injunction,	

PREPA	could	cause	irreparable	harm	by	taking	actions	that	cause	costs,	which	costs	

ratepayers then	would	have	to	bear	(as	explained	in	para.	54),	even	if	the	Court	later	held	

the	FOMB	mandate	or	authorization	ultra	vires.	

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 50 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 51 of 66
49

COUNT	THREE

Permanent	Injunction	(a)	Prohibiting	FOMB	from	

Mandating	Substantive	Electricity	Actions	by	PREPA,	and	

(b)Prohibiting	PREPA	From	Taking	Certain	Actions

(Rule	65	of	the	Federal	Rules	of	Civil	Procedure;	Rule	7065	of	the	

Federal	Rules	of	Bankruptcy	Procedure;	PROMESA	§	310)

111. Plaintiff	incorporates	by	reference	paragraphs	1 to	110.

112. For	all	the	reasons	stated	in	Count	Two,	the	Commission	is	entitled	to	

equitable	relief	in	the	form	of	a	permanent	injunction	prohibiting FOMB	from	mandating	

substantive	electricity	actions	by	PREPA.

113. A	necessary	accompaniment	to	the	permanent	injunction	against	FOMB	is	a	

permanent	injunction	against	PREPA.		The	permanent	injunction	would	prohibit	PREPA	

from	taking	substantive	electricity	actions	mandated	or	authorized	by	the	FOMB,	if	those	

actions	are	subject	to	this	Commission’s	jurisdiction	but	the	Commission	has	not	

authorized	them.

Prayer	for	Relief

WHEREFORE, the	Commission	requests	the	following	judgments	for	Plaintiff	

Commission	and	against	Defendants	FOMB	and	PREPA:

A	Declaration	that	FOMB	may	not	mandate	or	authorize	substantive	electricity	

actions	that	are	within	the	Commission’s	jurisdiction	but	that	the	Commission	has	not	

approved,	including	but	not	limited	to	the	following:		actions	affecting	resource	mix;	asset	

ownership,	operations,	maintenance	and	retirement;	market	structure;	integrated	resource	

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 51 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 52 of 66
50

planning;	and	rates	(including	but	not	limited	to	revenue	requirement,	revenue	allocation,	

cost	allocation	and	rate	design).

A	Declaration	that	when	FOMB	exercises	its	fiscal	powers	over	PREPA,	it	shall	do	so	

consistently	with	Commission	actions,	orders	and	regulations	on	substantive	electricity	

matters,	and	on	fiscal	matters	unless	inconsistency	is	unavoidable.	

A	Declaration	that	whenever	a	proposed	PREPA	Fiscal	Plan	would	impact	

substantive	electric	industry	matters,	the	Commission’s	timely	assessment	and	approval	is	

a	prerequisite	for	FOMB’s	certification	of	such	Fiscal	Plan.

Preliminary	and	permanent	injunctions against	FOMB,	prohibiting	FOMB	from

mandating	or	authorizing	PREPA	to	take	substantive	electricity	actions	if	those	actions	are	

jurisdictional	to	the	Commission	but	not	authorized	by	the	Commission.	

Preliminary	and	permanent	injunctions against	PREPA,	prohibiting	PREPA	from	

taking	substantive	electricity	actions	mandated	or	authorized	by	the	FOMB,	if	those	actions	

are	jurisdictional	to	the	Commission	but	not	authorized	by	the	Commission.

Such	further	relief,	in	law	and/or	equity,	as	the	Court	deems	just	and	proper.

Dated:		March 4,	2018 Respectfully	submitted,

San	Juan,	Puerto	Rico PUERTO	RICO	ENERGY	COMMISSION

By	its	attorneys:

/s/ Alejandro	J.	Figueroa-Ramírez

USDC	No.	305603

Alejandro	J.	Figueroa-Ramírez,

General	Counsel

Puerto	Rico	Energy	Commission

268	Muñoz	Rivera	Ave.,	Suite	702

San	Juan,	PR	00918

Tel:		(787)	523-6262

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 52 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 53 of 66
51

Email:		afigueroa@energia.pr.gov

/s/	Scott	Hempling	

Admitted	pro	hac	vice

Scott	Hempling

Scott	Hempling,	Attorney at	Law,	LLC

417	St.	Lawrence	Dr.

Silver	Spring,	MD	20901

Tel:		(301)	754-3869

Email:		shempling@scotthemplinglaw.com

/s/	Mariana	I.	Hernández	Gutiérrez

USDC	No.	229102

Mariana	I.	Hernández	Gutiérrez

Hernández-Gutiérrez	Law,	PSC

1519	Ponce	de	León	Ave.

First	Federal	Bldg.	Suites	713-715

San	Juan,	PR	00909

Tel:		(787)	460-5715

Email:		mhernandez@mihglaw.com

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 53 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 54 of 66
Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 54 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 55 of 66
53

Appendix A

Commission-FOMB Cooperation: Essential Protocols

This document describes procedures by which the Commission and FOMB can 

coordinate their decisions affecting PREPA. The bold headings identify each subject or action 

over which the Commission has authority under Commonwealth law. The italicized material has 

two purposes. First, it describes, where relevant and necessary, the policy reasons for the 

Commission’s obligations, so that FOMB—which is not experienced in utility regulation—

understands why Puerto Rico’s welfare depends on the Commission carrying out its duties. 

Second, it presents a proposed procedure by which the two agencies would make decisions. 

Underlying each of the draft ideas are the following legal or policy principles:

a. The Commission has been, since 2014, the statutory agency responsible for ensuring 

that PREPA’s performance serves the Commonwealth’s public interest, as that public 

interest is defined by Act 57-2014 and other statutes. The Commission, or any 

successor, will continue in that role after FOMB exits Puerto Rico.

b. PROMESA does not make FOMB Puerto Rico’s utility regulator. FOMB does not 

have authority to mandate or authorize substantive electricity actions that are within the 

Commission’s jurisdiction but have not been approved by the Commission. For a 

detailed explanation, see the Commission’s Policy Statement issued January 23, 2018

and the Complaint against FOMB and PREPA filed with the federal Court on March 4, 

2018.

c. The preemption provision of PROMESA § 4 signals “conflict preemption,” not 

“occupation of the field” preemption. See the Policy Statement. At the same time, 

PROMESA requires FOMB to act consistently with Commonwealth law. The 

combination of these two PROMESA features yields this result: FOMB’s directives to 

PREPA, when taken within FOMB’s PROMESA authority, preempt the Commission 

only when it is not possible to design those directives consistently with Commonwealth 

law, as applied by the Commission. 

d. PREPA, supported by AFFAF, routinely disobeys or ignores Commission orders, 

usually citing as a reason FOMB’s presence and its asserted powers. FOMB has not 

directed PREPA to obey the Commission’s orders; nor has FOMB issued any orders 

that would achieve what the Commission must achieve under Act 57. The result, wellknown to FOMB, is that PREPA is acting as an unregulated monopoly, contrary to the 

letter of Act 57 and the intent of PROMESA. 

e. There is no benefit, only harm, from a series of lawsuits in which FOMB challenges 

Commission actions, the Commission challenges FOMB actions, PREPA resists 

Commission orders and/or the Commission sues PREPA for failure to heed 

Commission orders.

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 55 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 56 of 66
54

f. There is, for each area listed below, some solution that makes the best use of the 

Commission’s and FOMB’s powers, so as to end PREPA’s practice of noncompliance. 

With this document, the Commission intends to display the type of thoughtfulness and 

advance thinking that are necessary to serve its constituents. With reciprocation by FOMB, the 

public will be served.

The document addresses the following seven subject areas:

1. Spending, cost recovery and rate-setting

2. Contracts

3. Customer relations

4. Supply and demand resources

5. Internal PREPA operations

6. Finance

7. Market structure transformation

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 56 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 57 of 66
55

1. Spending, cost recovery and rate-setting

1.1. Approve budgets

1.1.1. Purpose

1.1.1.1. In a nonprofit utility, all costs, once incurred, must be reflected in rates. But 

for rates to be just and reasonable, they must reflect only prudent costs. The 

Commission thus can ensure just and reasonable rates only by preventing 

imprudent costs before they are incurred. The only way to do so is by establishing 

advance caps on spending, through procedures that (a) review and approve (or 

modify) budgets before they go into effect and (b) audit PREPA to ensure to that its 

spending does not exceed the approved budgets.

1.1.1.2. Separate from establishing caps on spending is ensuring sufficient spending. 

Approving budgets, then setting rates consistent with those budgets, ensures that 

sufficient funds are available to (a) carry out PREPA’s obligation to serve, as that 

obligation is defined by an approved Integrated Resource Plan (IRP) and other 

projects ordered or approved by the Commission or mandated by Commonwealth 

law; and (b) comply with obligations to bondholders.

1.1.2. Procedure

1.1.2.1. (a) PREPA submits its annual budget simultaneously to the Commission and 

FOMB, under a schedule that the Commission and FOMB develop jointly in 

consultation with PREPA. The proposed budget would conform to advance 

guidelines prepared jointly by the Commission and FOMB. There should be 

separate budgets for (i) capital projects and (ii) operations and maintenance.

(b) The Commission would hold an official proceeding under Act 57 to review, 

modify as necessary, then approve a budget. FOMB can participate in this 

proceeding to avoid duplicative or serial processes. The Commission would play 

this role because (a) it has that duty under Act 57 and (b) it has the technical 

expertise and administrative procedures that ensure a rigorous and efficient 

investigation. Rigor is especially important given PREPA’s history of 

undisciplined spending and inadequate recordkeeping, as detailed in the 

Commission’s Rate Order of January 10, 2017. 

1.1.2.2 The total budget approved by the Commission must be consistent with any 

FOMB-approved Fiscal Plan (assuming such FOMB-approved Plan does not 

contain details outside the FOMB's authority to mandate—as explained in the 

Commission’s Policy Statement). “Consistent” means that PREPA can 

simultaneously operate within the budget and carry out all Fiscal Plan activities. 

“Consistent” means the budget does not leave PREPA with insufficient funds to 

carry out the Plan; nor does the budget include projects not within the Fiscal Plan, 

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 57 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 58 of 66
56

unless such projects are required by a Commission-approved IRP (which the 

Fiscal Plan must accommodate anyway, per PROMESA’s requirement that the 

Fiscal Plan be consistent with Commonwealth law).

1.1.2.3 For this joint effort to work, (a) FOMB will need to direct PREPA and AFFAF 

to drop its appeal of the Commission’s Jan. 2017 Rate Order establishing 

Commission review of PREPA’s budgets, which is pending in federal court due to 

AFFAF’s Notice of Removal (which FOMB authorized). The Notice of Removal 

implicitly misinterprets PROMESA section 4 as establishing “occupation of the 

field” preemption, whereas section 4 establishes only “conflict” preemption. 

There is no conflict today; and if the Commission and FOMB work out a 

coordinated procedure schedule for budget review, there will be no conflict. It is 

illogical for FOMB to assert conflict when it has not participated in coordination 

efforts aimed at avoiding conflict.

1.1.2.4. The FOMB has authority to modify a Commission-approved budget, to the 

extent required for consistency with an FOMB-approved Fiscal Plan. The FOMB 

does not have authority to approve a budget, or a Fiscal Plan, that is inconsistent 

with a Commission-approved IRP.

1.1.2.5. If PREPA refuses or fails to comply with a Commission-approved budget, the 

FOMB and the Commission shall execute one or more joint strategies to produce 

compliance, using both Commonwealth law and PROMESA. FOMB and the 

Commission should design those strategies now, then ensure that PREPA 

understands them. Such design and notice will, we hope, make these strategies

unnecessary. 

1.2. Establish revenue requirement

1.2.1. The Commission will establish PREPA's revenue requirement, as required by Act 

57, according to its normal procedures. The revenue requirement in total must be 

consistent with the approved budgets and thus with any FOMB-approved Fiscal Plan. 

For example, if the Fiscal Plan calls for a particular level of payments for debt 

service, the Commission-set revenue requirement must include a line item for that 

debt service. It is possible, however, that some or all of the debt service associated 

with existing debt will be addressed outside of the normal revenue requirement 

through a special charge, similar to that approved by the Commission in its 

Resolution of June 21, 2016.

1.2.2. Questions for the Commission and FOMB to address together, to avoid 

inconsistencies among the revenue requirement, the Fiscal Plan and any approved 

budgets. 

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 58 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 59 of 66
57

1.2.2.1. Given the Judge’s CTO Order, does PROMESA allow FOMB's Fiscal Plan 

to specify individual projects, and costs for those projects? What is the 

appropriate level of detail for an FOMB-approved PREPA Fiscal Plan?

1.2.2.2. If an FOMB Fiscal Plan mandates or approves specific projects, should that 

FOMB Fiscal Plan have project cost caps? If not, what is the means of ensuring 

project budget compliance? 

1.2.2.3. What are the best procedures for ensuring that the Fiscal Plan does not 

include projects the Commission deems inconsistent with an approved IRP, given 

that PROMESA sec. 503(b)(1)(D) renders such projects ineligible for Critical 

Project status?

1.2.2.4. Where the FOMB Fiscal Plan identifies a particular project and cost level, 

the Commission has the legal authority, for rate purposes, and in advance of 

spending, to reduce the allowable cost of a particular item from the FOMBapproved level if the Commission finds a lower cost is reasonable. By what 

procedure do we ensure that PREPA understands this point, so that PREPA does 

not lobby FOMB—which lacks the Commission’s expertise and its procedures for 

truth-seeking—for an excessive project budget and then assert that the 

Commission is preempted from requiring a lower budget? Under preemption 

precedent a lower Commission budget for a given project does not cause a conflict 

with FOMB because PREPA can comply simultaneously with a low budget and a 

higher budget; by not exceeding the lower ceiling it is not violating the higher 

ceiling. A difference is not a conflict; a conflict exists only if compliance with both 

orders is impossible. (We recognize that this reasoning does not work in the other 

direction; the Commission cannot authorize PREPA to spend more money than a 

Fiscal Plan has allowed—again assuming the FOMB requirements in the Fiscal 

Plan do not exceed FOMB’s PROMESA authority.)

1.3. Establish revenue allocation and rate design

1.3.1. The Commission would establish revenue allocation and rate designs in PREPA 

rate cases. 

1.3.2. There is no FOMB authority to establish or modify revenue allocation or rate 

designs. 

1.3.3. Question: Revenue allocation involves allocating costs among customer groups. 

To protect and promote economic development, the Commission has statutory 

authority to under-allocate fixed costs to commercial and industrial customers (thus 

necessarily over-allocating costs to residential customers). How may, or should, or 

must, the Commission take into account FOMB policies on economic development 

when the Commission makes revenue allocation decisions?

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 59 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 60 of 66
58

1.3.4. Question: PREPA’s revenue projections are based on assumed elasticities of 

demand. Those elasticities vary by customer class. Revenue therefore may vary 

depending on cost allocation. What procedures are necessary to ensure that revenue 

projections in an FOMB-approved Fiscal Plan are consistent with revenue allocation 

and rate designs established by the Commission?

1.4. Establish procedure for updating revenue requirement and rates

There are no incremental issues here relative to those raised in other sections under 

spending, cost recovery and rate-setting.

2. Contracts

2.1. Substance

2.1.1. Consistent with the Commission's obligation to prevent imprudent costs before 

they are incurred, the Commission will review and approve contracts. Act 57 

imposes that duty. Also, Act 57 as well as the Commission IRP Order impose an 

obligation that PREPA competitively bid specific generation-related projects as a 

means of securing the best cost for these projects. The Commission’s duties include 

overseeing that process. Act 4-2016 has some variations on this point for publicprivate partnership projects but the Commission duty to prevent imprudent costs 

remains.

2.1.2. A conflict could arise if the FOMB and the Commission have different views 

about any feature of a contract—its purpose, its cost, its allocation of risk, the 

appropriate counter-party, the process of selecting the counter-party, or the manner 

of implementation. However, such difference of opinion would create a preemptive 

conflict only if FOMB ordered PREPA not to execute a particular contract, while the 

Commission ordered PREPA to execute that contract, assuming FOMB was acting 

within the limited scope of its authority (e.g., its reason for rejecting a contract was 

fiscal rather than substantive, as explained in the Commission’s Policy Statement). 

A difference of opinion also would arise if FOMB ordered PREPA to enter a 

particular contract, while the Commission ordered PREPA not to enter that contract. 

But that difference of opinion would not trigger preemption because, as explained in 

the Commission’s Policy Statement, FOMB has no authority to order PREPA to enter 

particular contracts where the effect is to determine substantive electricity policies.

2.1.4. FOMB's policy on contracts says that to the extent FOMB says so, contracts must 

be the "result of a competitive and transparent procurement and tender process...." If 

FOMB says a particular contract need not be the result of a competitive bidding 

process, that statement does not prevent the Commission from requiring a competitive 

process. The situation would represent a difference of opinion but not a conflict, 

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 60 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 61 of 66
59

because PREPA will be able to comply simultaneously with the FOMB and the 

Commission orders. There would be a conflict only in the unlikely case that the 

FOMB mandated that there not be a competitive procurement. Such a mandate 

would be beyond the FOMB’s statutory authority. The Commission with its 

continuing expertise is in the better position to determine when conditions justify a 

waiver of or adjustment to competitive bidding. 

2.2. Procedures

2.2.1. PREPA would submit each proposed contract to the Commission and the FOMB 

simultaneously. On receiving the contract, FOMB and the Commission would 

determine a review schedule.

2.2.2. Per that schedule, each agency would act, giving its reasons. Before actions 

become formally issued, informal collaboration between the two entities would be 

useful. For example, the Commission would assess the contract and its associated 

scope of work in terms of prudent practices, consistency with the approved budget 

and consistency with the IRP (where the IRP is relevant).

2.2.3. Commission and FOMB should identify now the scheduling plan, and also the 

criteria each will apply, so that each entity's scrutiny is supportive of the other's. 

2.2.5 In addressing contracts, the Commission will consider the resource needs 

identified in the IRP, as informed by the Commonwealth's situation. The IRP, for 

example, provides a list of specific transmission projects related to expansion. Any 

proposal for a transmission project deviating from this list must be accompanied by a 

justification of its necessity and cost-effectiveness.

2.2.6. PREPA needs to notify the Commission of all contracts, even those under the 

stated cap, so we can keep an eye out for patterns, like contracts just slightly under 

the approval cap amount.

3. Customer relations

3.1. Approve bill format.

3.2. Establish customer complaint procedures.

3.3. Design and implement customer education.

 There is no FOMB authority in this area; therefore no potential for conflict and 

therefore no need for protocol.

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 61 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 62 of 66
60

4. Supply and demand resources

4.1. Establish and enforce reliability parameters

4.1.1. Establish customer- and system-level reliability standards (including whether 

NERC standards apply).

4.1.2. Establish and enforce planning reserve margin level (target and operational).

4.1.3. Determine equivalent load carrying capability for renewable resources.

The FOMB has no authority in the reliability space; therefore, there is no potential 

for Commission-FOMB conflict.

4.2. Create IRP

4.2.1. Establish load forecast and capacity requirements for the forecast period.

4.2.2. Determine composition of optimal future resource portfolio, subject to load and 

resource balance, renewable portfolio standard requirements, resource costs and 

availabilities, and other statutory considerations. Resource portfolio includes 

generation retirement schedule and additions of appropriate types of future resources 

(generation, T&D, storage, and other) in appropriate sizes and at appropriate 

locations.

4.2.3. Establish framework for determining need and value of ancillary services.

4.2.4. Establish framework for determining need and value of resource flexibility.

4.2.5. Determine need for additional major transmission projects.

4.2.6. Approve near-term IRP action plans.

Under Act 57, the Commission will carry out all six of these steps.

The Fiscal Plan must carry out, and therefore be consistent with, the IRP; not the 

other way around. See PROMESA Section 503(b)(1)(D). There is no authority in 

FOMB to impose an IRP or any particular mix of resources. The FOMB can of 

course inform the Commission of its views on industry structure and resource mix, 

and recommend scenarios to be evaluated. But the statutory authority to approve the 

resulting resources, and the rates necessary to pay for such resources, lies exclusively 

with the Commission. 

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 62 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 63 of 66
61

4.3. Establish RFPs and competitive bidding procedures for power supply, energy 

efficiency and demand resources 

There is no statutory FOMB role in establishing RFPs or competitive bidding 

procedures. Those are internal PREPA operations over which the Commission 

has statutory authority.

4.4. Approve sites for power supply resources

FOMB has no authority in this area. While the Commission does not have direct 

authority over siting, it can approve or deny projects based on cost, which is itself 

affected by siting.

5. Internal PREPA operations

5.1. Establish performance metrics, reporting procedure and enforcement methods.

5.2. Appoint independent monitors to oversee restoration contracting and work.

5.3. Establish standards for, and approve, restoration plan.

5.4. Establish standards for, and approve, maintenance plan.

5.5. Establish power plant efficiency standards.

5.6. Establish criteria for, and approve, hiring of contractors.

5.7. Approve disaster preparation and restoration plan (for future events).

5.8. Approve plans for workforce recruitment, development and compensation.

Other than contracting, FOMB has no authority over these areas. Therefore there is 

no possibility of conflict, provided the Commission's decisions in these areas are 

consistent with the Fiscal Plan.

6. Finance

6.1. Approve financing plans.

6.2. Approve issuance of debt.

6.3. Approve restructuring of debt.

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 63 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 64 of 66
62

Under Section 6.3(n) of Act 57, the Commission has obligation to “oversee PREPA’s 

debt issues.” But its approvals must be consistent with FOMB decisions about debt 

restructuring and with any appropriate FOMB-approved Fiscal Plan. 

The Commission must reflect the FOMB's debt restructuring decisions in its decisions 

on revenue requirement.

Question: For the Commission’s review of debt issuances, what is appropriate 

information-sharing and sequencing between Commission and FOMB?

7. Market structure transformation

7.1. Determine current and future market structures (monopoly vs. competition) for 

various products and services.

7.2. Appoint provider(s) of monopoly services.

7.3. Implement competition for competitive services.

7.4. Approve any transfer of PREPA assets or business functions.

7.5. Determine appropriateness, and terms and conditions, of "wheeling."

7.6. Distributed generation, community solar and microgrids by third-parties to end-use 

customers: Determine interconnection terms, compensation, payments for 

transportation, locational choices and other parameters .

7.7. Determine net-metering terms.

7.8. Establish remaining plans for distribution system.

7.9. Determine energy efficiency policy and providers.

The FOMB has no authority over these decisions. Decisions by the Commission, or by 

any successor agency or by the Legislature, decisions must be consistent with an 

FOMB-approved Fiscal Plan. But that Fiscal Plan does not restructure markets; its 

focus is debt and solvency, all as explained in the Policy Statement.

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 64 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 65 of 66
List of Exhibits

EXHIBIT A: AAFAF letter to Commission (February 14, 2018)

EXHIBIT B: FOMB letter to Commission (February 3, 2018)

EXHIBIT C: Commission Draft MOU and FOMB Executive Director's Response (November 2, 

2017)

EXHIBIT D: FOMB Executive Director draft letter to Commission re contract review (midJanuary 2018)

Case:18-00021-LTS Doc#:1 Filed:03/04/18 Entered:03/04/18 21:44:06 Desc: Main

 Document Page 65 of 65

Case:17-03283-LTS Doc#:4014-17 Filed:10/04/18 Entered:10/04/18 16:51:23 Desc:

Exhibit 21 Page 66 of 66