BY ELECTRONIC MAIL

June 3, 2021

The Honorable Pedro Pierluisi Urrutia Governor of Puerto Rico

The Honorable José Luis Dalmau Santiago President of the Senate of Puerto Rico

The Honorable Rafael Hernández Montañez Speaker of the House of Representatives of Puerto Rico

Dear Governor Pierluisi Urrutia, Senate President Dalmau Santiago, and Speaker Hernández Montañez:

We write with respect to Senate Bill 450 (“SB 450” or the “Bill”), which was passed by the Legislature on June 1, 2021, but has yet to be signed into law.1 The Bill, as explained below, interferes with efforts by the Government of Puerto Rico, supported by the Oversight Board and required by the 2021 Commonwealth Fiscal Plan and the 2021 PREPA Fiscal Plan (together, the “Fiscal Plans”), to modernize and transform PREPA’s facilities and operations, including the Operation and Maintenance Agreement (the “OMA”) entered into by PREPA, the P3 Authority, and LUMA Energy, LLC (“LUMA”). The Bill must not be enacted or implemented because it is preempted by PROMESA and violates PROMESA, the Bankruptcy Code, federal labor law, and the Contracts Clause of the United States Constitution. Additionally, the precedent of the Government of Puerto Rico enacting retroactive legislation impairing contracts entered into by private parties is antithetical to regaining market access because private investors will be unable to trust the Government not to do it again.

SB 450, among other things, would amend Law 130-1945 to require any business that operates assets previously managed or operated by government employees covered by a collective bargaining agreement (“CBA”) to abide by the terms of that CBA as a successor employer. The

1 These concerns also apply to House Bill 828 (“HB 828”), which is substantially similar to SB 450, but has yet to pass the Legislature.

Governor Pierluisi Urrutia Senate President Dalmau Santiago Speaker Hernández Montañez June 3, 2021 Page 2 of 4

Bill purports to make this requirement retroactive by applying it to any purchase, rental, or use of covered assets since January 1, 2017. Further, the Bill purports to nullify and void any contract that deprives public employees of any of their rights under a CBA implicated by the Bill.

Although it does not mention the OMA, SB 450 is clearly another effort by the Legislature to interfere with that consummated transaction which is critical to the Fiscal Plans’ goal of transforming PREPA’s power generation, transmission, and delivery systems. The OMA does not treat LUMA as a successor employer to PREPA, or require it to recognize and adhere to the CBA applicable to the former-PREPA employees it has hired. As such, SB 450, if enacted and implemented, would effectively alter the rights and obligations of the parties to the OMA and may result in its termination, which appears to be the Legislature’s desire. In so doing, SB 450 would violate the United States Constitution and PROMESA, as well as established principles of federal labor law.

First, SB 450 would impermissibly and substantially interfere with and impair existing and lawful government contractual obligations. The Contracts Clause of the United States Constitution dictates a state (or territory) cannot unilaterally amend or nullify a valid contract between two parties as “[n]o State shall … pass any … Law impairing the Obligation of Contracts.” U.S. Const. art. I, § 10, cl. 1. No applicable exception exists to justify SB 450’s attempted interference with the OMA. The OMA does not require LUMA to assume or perform PREPA’s obligations under its CBAs. By purporting to require LUMA to adhere to all aspects of the CBAs, SB 450 would place on LUMA substantial new obligations not provided for in the OMA, or render the contract null and void. The Commonwealth will not be able to show this substantial impairment of the OMA is reasonable and necessary to serve an important public purpose. Indeed, it is contrary to the public purposes expressed in the Fiscal Plans and the policy of the Commonwealth as expressed in Law 17-2019 of reforming Puerto Rico’ energy sector. In sum, SB 450 unilaterally amends the OMA which the Legislature has no right or power to do.

Second, SB 450 would violate various provisions of PROMESA. The Bill is significantly inconsistent with the Fiscal Plans in violation of section 204(a) of PROMESA. As set forth in the Fiscal Plans, the OMA is critical to several PREPA and Commonwealth Fiscal Plan objectives, such as modernizing the Island’s energy system by improving operational efficiencies, improving service quality, and reducing costs through better management and operational practices, to facilitate Puerto Rico’s return to fiscal stability.2 Further, SB 450 runs directly contrary to the Ease of Doing Business reforms required by the Commonwealth Fiscal Plan. The Commonwealth Fiscal Plan calls for attracting new private investment in Puerto Rico, but an investment environment permeated by government regulation of and interference with private contracts, such as SB 450, will not provide businesses with the confidence they need to invest in the Island – particularly if they believe the Government can unilaterally impose new provisions or nullify otherwise binding agreements.3 SB 450 would also run afoul of the Commonwealth Fiscal Plan’s

2 See 2021 Commonwealth Fiscal Plan at 129-30, 135; 2021 PREPA Fiscal Plan at 44, 46-47. 3 See 2021 Commonwealth Fiscal Plan at 104-05, 123.

Governor Pierluisi Urrutia Senate President Dalmau Santiago Speaker Hernández Montañez June 3, 2021 Page 3 of 4

focus on labor market reform. The Government has failed adequately to repeal or reform existing legislation that stifles workforce participation.4 By unilaterally imposing public sector union conditions on private enterprise, as opposed to allowing private companies and their employees address the terms and conditions of their relationship themselves without government interference, SB 450 would serve only to make the labor market less hospitable to businesses looking to expand, thereby impeding the Commonwealth’s private sector economic recovery and return to fiscal stability.

For these reasons, SB 450 is significantly inconsistent with the Fiscal Plans and must not be implemented per the requirements of PROMESA section 204(a). Even if SB 450 would not nullify the OMA, it would add substantial costs that would ultimately be borne by PREPA and the rate payers, discourage private sector investment, undermine efforts to increase workforce participation, be inconsistent with the Fiscal Plans, and detrimentally affect PREPA and the Commonwealth’s financial wellbeing.

Moreover, if enacted and implemented, SB 450 would impair and defeat the purposes of PROMESA, as determined by the Oversight Board in violation of section 108(a)(2) of PROMESA. SB 450 impairs PREPA’s and the Commonwealth’s ability to transform Puerto Rico’s electric system, a key component of the Fiscal Plans designed to help both PREPA and the Commonwealth achieve fiscal responsibility and access to capital markets. By attempting to alter the OMA and to make further privatization efforts more difficult if not impossible – including the planned transformation of PREPA’s power generation assets – the Bill also seeks to defeat and impair PROMESA’s purposes of promoting market competition, making government contracting more effective, increasing the public’s confidence in the government contracting process, and making the Commonwealth Government a facilitator and not a competitor of private enterprise. See PROMESA § 204(b)(3). Because the Bill impairs and/or defeats the purposes of PROMESA, as determined by the Oversight Board, PROMESA section 108(a)(2) enjoins the Legislature and Governor from enacting, implementing, and/or enforcing SB 450 (or any law premised on or similar to SB 450, such as HB 828).

Third, SB 450 fundamentally conflicts with established principles of federal labor law that govern LUMA’s rights and responsibilities as an employer, as well as the rights of former PREPA employees hired by LUMA. Specifically, the National Labor Relations Act (“NLRA”), as interpreted by the National Labor Relations Board and federal courts, including the U.S. Supreme Court, makes clear that LUMA has no obligation to assume the collective bargaining agreement between PREPA and any union representing PREPA’s employees. Moreover, the U.S. Supreme Court has expressly recognized that state or territorial interference with federal labor policy must be averted. Accordingly, in addition to its substantive conflict with federal labor law, SB 450’s attempt to regulate LUMA’s collective bargaining obligations is preempted by federal labor law.

4 Id. at 25, 75.

Governor Pierluisi Urrutia Senate President Dalmau Santiago Speaker Hernández Montañez June 3, 2021 Page 4 of 4

Fourth, because the implementation of SB 450 could effectively nullify the OMA, it is an attempt to exercise control over the OMA, which is PREPA’s property. PREPA is a debtor under Title III of PROMESA. The enactment of the Bill would therefore be a violation of the automatic stay provisions of section 362(a)(3) of the Bankruptcy Code, as incorporated into Title III by PROMESA section 301(a).

* * * For the reasons set forth above, enactment and implementation of the Bill is barred by the Contracts Clause of the United States Constitution, PROMESA sections 108(a)(2) and 204(a), Bankruptcy Code section 362(a), and the NLRA. If enacted, the Bill would impair and defeat the purposes of PROMESA, as determined by the Oversight Board – for the reasons detailed in this letter – and the Legislature and Governor are enjoined from enacting, implementing, and/or enforcing the Bill. If the Governor nevertheless proceeds with signing the Bill into law, the Oversight Board will be prepared to seek judicial intervention to enforce section 108(a)(2)’s injunction and the automatic stay, and to seek nullification of the law by the Title III court.

The Oversight Board urges the Governor to veto SB 450 and the Legislature to halt any efforts to pass HB 828. The Oversight Board reserves all its rights, including its rights under PROMESA sections 104(k), 108, and 204, its rights to pursue remedies for intentional violations of section 108(a)(2), the automatic stay provisions of 362(a) of the Bankruptcy Code, the NLRA, and the United States Constitution. We hope vindication of those rights will be unnecessary.

We look forward to continuing to work together for the benefit of the people of Puerto Rico.

Sincerely,

Natalie A. Jaresko

CC: Mr. Omar Marrero Díaz