March 4, 2018

Martin J. Bienenstock
Paul V. Possinger
Ehud Barak
Proskauer Rose LLP
11 Times Square
New York, NY 10036

Re: Puerto Rico Electric Power Authority (“PREPA”)

Dear Martin, Paul, and Ehud:

We write on behalf of creditors who hold or insure a significant quantity of PREPA’s

total debt, and who share an interest in Puerto Rico’s successful energy future. The
“Reorganization Plan of the Public Service Regulatory Board of Puerto Rico of 2018”—the most
recent version of which was only made public by Governor Rosselló this week—is reportedly set
to be enacted early next week without any hearings, debate, or public input. The proposed
legislation gravely threatens Puerto Rico’s future by effectively eliminating the Energy
Commission, an agency Congress explicitly recognized and empowered in PROMESA. We ask
that the Financial Oversight and Management Board for Puerto Rico (the “FOMB”) take
immediate action to ensure that PREPA continues to have independent and professional
regulatory oversight that is essential to Puerto Rico’s economic revitalization and access to the
capital markets.

For more than 70 years, PREPA was an unregulated monopoly. As creditors now
understand, during that time, it was plagued by mismanagement, corruption, and lack of
transparency. While other jurisdictions improved their energy systems over this time, PREPA
remained stagnant and inefficient. Its operational deficiencies harmed Puerto Rico’s citizens.

To remedy these problems, the Commonwealth enacted Act 57-2014. The law
established a “robust independent entity”—the Energy Commission—that now regulates and
oversees PREPA. In addition to political independence, the Commission possesses scientific
expertise. Its commissioners are required to have at least ten years of professional experience and
at least five years of energy experience. The Commission’s administrative procedures involve
rigorous fact-finding, with expert witnesses testifying under oath. Since its creation, the
Commission has pursued its mandate to set reasonable rates and promote the public interest.

Governor Rosselló now aims to abolish the Energy Commission and replace it with a
powerless “bureau” overseen by political appointees without the requisite knowledge,
experience, expertise, or political independence to competently oversee PREPA and fulfill the
purposes of Act 57-2014 or PROMESA. The proposed legislation offers sweeping and
potentially destructive changes. Title VI of the proposed law reorganizes and consolidates
multiple regulatory entities—including the Energy Commission—into a “Public Service
Regulatory Board of Puerto Rico” (the “New Board”). Title VIII vests this New Board with
broad powers to “[s]upervise, coordinate, administer, direct, and integrate all the activities that
are developed in the regulatory instrumentalities.”1 Under Title IX of the proposed law, the
individuals who exercise these expansive powers will be the Governor’s appointees. Particularly
because the proposed legislation lacks stringent eligibility requirements, the Governor can
handpick political allies to control PREPA and other instrumentalities.

If the legislation is enacted, the Commission could become a shadow of itself: an

“Energy Bureau.” It could be totally subordinate to the New Board, and thus to its political
appointees. Indeed, the New Board could have plenary authority over all regulatory activity. The
New Board could also set the Energy Bureau’s budget, allowing it to defund independent studies
that could otherwise expose corruption or bad policy. With a toothless Energy Bureau, PREPA
could become a political tool for the current and future administrations, and remain as inefficient
and poorly managed as it was prior to Act 57-2014.

The attempted justification for the new legislation is in a superficial statement that its
enactment will cut costs and allow the agencies to “share[] administrative expenses.” The
statement is unsupported and contradicted by the unavoidable fact that the new political
appointees will have to be paid salaries while only adding a layer of redundant bureaucracy.

All of this is antithetical to PROMESA’s goals and objectives. In its legislative findings,
Congress identified a lack of financial transparency, management inefficiencies, and excessive
borrowing as sources of the fiscal emergency in Puerto Rico. The FOMB must target those ills. It
must offer “[a] comprehensive approach to fiscal, management, and structural problems and
adjustments that exempts no part of the Government of Puerto Rico.”2 Moreover, a
comprehensive approach must emphasize “independent oversight.”3 To that end, Congress made
certain the Energy Commission played an important role. For example, in certifying proposed
“critical projects” intended to revitalize Puerto Rico, the FOMB can require sponsors to
demonstrate how a project would “support the Energy Commission of Puerto Rico in
achievement of its goal of reducing energy costs and ensuring affordable energy rates for
consumers and business.”4 If the Commission finds that a critical project will adversely affect its
Integrated Resource Plan, then the Commission can render the project ineligible for critical
project designation.5 Under PROMESA, the fiscal plan and restructuring process was intended to
be collaborative, with creditor input and interaction. An attempt to preemptively pass legislation
on such a critical issue in isolation and without discussion is extremely concerning.

We note that the FOMB has publicly stated that improving corporate governance and
fortifying the regulatory environment are the cornerstones of an effective restructuring for
PREPA, and that a “Fiscal Plan should include a best-practice regulatory framework and
proposed rate structure to facilitate private investment, drive demand growth, and support

1
Because of the Governor’s rush to enact this legislation, the undersigned must refer to an unofficial translation.
2
PROMESA § 405(m)(4) (emphasis added).
3
Id. (emphasis added).
4
Id. § 503(a)(1)(F)(vi).
5
Id. § 503(b)(1)(C).

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distributed power development.”6 In a February 5, 2018 letter rejecting the proposed fiscal plan,
the FOMB reminded the Governor that “[a] strong and independent regulator is crucial to a
successful transformation of the power sector, which itself is critical to the Island’s economic
recovery.”7

We therefore urge the FOMB to act immediately to preserve the Energy Commission and
the independent, professional oversight it provides to PREPA under Act 57-2014. The FOMB
has the power to do just that. PROMESA empowers the FOMB to review and reject proposed
budgets and fiscal plans;8 to participate actively in the Commonwealth’s legislative process; to
require that the Governor submit enacted legislation to the FOMB to review for compliance with
a fiscal plan;9 and to direct the legislature to correct or eliminate aspects of any law inconsistent
with such plan.10 If the government fails to comply, the FOMB “may take such actions as it
considers necessary, consistent with this Act, to ensure that the enactment or enforcement of the
law will not adversely affect the territorial government’s compliance with the Fiscal Plan,
including preventing the enforcement or application of the law.”11

We are available to discuss any questions that you might have. In the meantime, all rights
are reserved.

Sincerely,

/s/ Robert S. Berezin /s/ Mark C. Ellenberg

Weil, Gotshal & Manges LLP Cadwalader, Wickersham & Taft LLP
767 Fifth Avenue 200 Liberty Street
New York, New York 10153 New York, New York 10281
Attn: Robert S. Berezin Attn: Mark C. Ellenberg
Phone: 212-310-8884 Phone: 212-504-6000
Fax: 212-310-8007 Fax: 212-504-6666
robert.berezin@weil.com mark.ellenberg@cwt.com

Counsel to National Public Finance Counsel to Assured Guaranty Corp. and

Guarantee Corp. Assured Guaranty Municipal Corp.

6
Letter to Ricardo A. Rosselló Nevares, Governor of Puerto Rico (Dec. 12, 2017), available at
https://juntasupervision.pr.gov/wp-content/uploads/wpfd/50/5a315ece7eeb2.pdf.
7
Letter to Ricardo A. Rosselló Nevares, Governor of Puerto Rico (Feb. 5, 2018), available at
https://juntasupervision.pr.gov/wp-content/uploads/wpfd/50/5a78d5cde918c.pdf.
8
See generally PROMESA §§ 201-02.
9
Id. § 204(a).
10
Id. § 204(a)(4)(B)(i).
11
Id. § 204(a)(5) (emphasis added); see also id. § 104(k) (outlining the power and authority to petition for judicial
relief).

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cc:
• Natalie Jaresko
• Oversight Board Members
• John Rapisardi and Suzzanne Uhland,
of O’Melveny & Myers LLP,
attorneys to the Puerto Rico Fiscal
Agency and Financial Advisory
Authority