Hearing examiner rejects objections in PREPA rate case, affirms relevance of debt considerations
- The San Juan Daily Star
- 13 hours ago
- 3 min read
By THE STAR STAFF
In a significant procedural ruling, the hearing examiner overseeing the Puerto Rico Electric Power Authority (PREPA) rate review case has denied objections raised by the bankrupt electrical utility and its unsecured creditors, affirming that debt-related issues remain central to the Puerto Rico Energy Bureau’s (PREB) deliberations.
PREPA had argued that expert testimony from Dr. Susan Tierney failed to account for the utility’s “unique legal and factual circumstances,” including its ongoing Title III bankruptcy proceedings and oversight by a federally appointed board. Tierney had argued that the law requires the PREB to approve a rate sufficient to enable PREPA to pay its debt. Approving a placeholder rider structure will allow PREPA to begin collecting funds to make legacy payments. PREPA has said a legacy debt rider should not be included now.
However, the examiner, Scott Hempling, ruled that the Title III PREPA bankruptcy case does not prevent the PREB from requiring PREPA to set aside funds to address future debt obligations.
“Setting rates to include debt costs neither enters the Title III Court’s exclusive field nor conflicts with any future decision,” the ruling issued on Monday stated.
The examiner emphasized that the PREB is not determining the amount of debt, but rather deciding what PREPA should reserve to comply with eventual court orders. PREPA’s claim that the certified Fiscal Plan prohibits debt payments was also dismissed, with the examiner noting that the PREB would not be ordering payments, only considering debt in rate-setting.
PREPA’s criticism that Dr. Tierney did not offer a specific debt proposal was acknowledged as affecting the weight of her testimony, not its relevance. The examiner also rejected arguments that Tierney’s testimony ignored affordability and practicability concerns, stating that regulatory standards for just and reasonable rates apply regardless of Puerto Rico’s unique governance structure.
In a separate set of objections, Unsecured Creditors sought to strike testimony and expert reports that allegedly excluded general unsecured claims. The examiner found no evidence that the submissions recommended excluding such claims and suggested that brief clarifying questions could resolve any ambiguity. The ruling also dismissed objections to the use of “illustrative” debt figures and the omission of unsecured debt in expert analyses, noting these issues pertain to credibility, not admissibility.
Additionally, the examiner struck a portion of Dr. Tierney’s testimony referencing the “obsolescence” of the 2025 Fiscal Plan due to recent resignations from the Financial Oversight and Management Board, deeming it irrelevant to the rate-setting process.
The ruling clears the way for parties to address the inclusion of debt in rates in their post-hearing briefs, as the PREB prepares to issue a final decision that could shape PREPA’s financial future and ratepayer obligations.
PREPA has been in bankruptcy under Title III of the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) since July 2017, seeking to restructure some $9 billion in outstanding debt. The utility’s financial crisis is part of a broader fiscal emergency affecting Puerto Rico, which led Congress to enact PROMESA in 2016 to provide a legal framework for debt restructuring.
The Title III process, overseen by U.S. District Judge Laura Taylor Swain, has involved contentious litigation between PREPA, its bondholders, and other creditors. In a major development earlier this year, the U.S. Court of Appeals for the First Circuit ruled that PREPA’s bondholders hold secured claims on the utility’s net revenues, significantly increasing their leverage in negotiations over a debt adjustment plan.
The oversight board, which controls PREPA’s fiscal decisions, has proposed a Plan of Adjustment to reduce the utility’s debt burden but it remains under judicial review.