ML020390370

Second Interim Application of Milbank, Tweed, Hadley & Mccloy Llp for Allowance and Payment of Compensation and Reimbursement of Expenses (August 1, 2001 Through November 30, 2001)

ML020390370
Person / Time
Site:	Diablo Canyon
Issue date:	01/12/2002
From:	Moore R Milbank, Tweed, Hadley & McCloy, LLP
To:	Office of Nuclear Reactor Regulation, US Federal Judiciary, Bankruptcy Court, Northern District of California
References
SF 01-30923 DM
Download: ML020390370 (43)

Text

1 Paul S. Aronzon (#88781)

Robert Jay Moore (#77498) 2 Michael I. Sorochinsky (#166708)

MILBANK, TWEED, HADLEY & McCLOY LLP 3 601 South Figueroa Street, 30th Floor Los Angeles, California 90017

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.5" 4 Telephone: (213) 892-4000 Facsimile: (213) 629-5063 5 Counsel for Official Committee of Unsecured Creditors 6

7 8

9 UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF CALIFORNIA 10 SAN FRANCISCO DIVISION 11 12 In re Case No. SF 0 1-30923 DM 13 PACIFIC GAS AND ELECTRIC Chapter 11 14 COMPANY, a California corporation, SECOND INTERIM APPLICATION OF 15 Debtor.

MILBANK, TWEED, HADLEY & McCLOY 16 LLP FOR ALLOWANCE AND PAYMENT OF COMPENSATION AND 17 REIMBURSEMENT OF EXPENSES 18 (AUGUST 1, 2001 THROUGH NOVEMBER 30, 2001) 19 Hearing:

20 Date: February 26, 2002 21 Time: 9:30 a.m.

Place: 235 Pine Street, 22 nd Floor 22 San Francisco, CA 23 24 25 26 27 28 I/ 4c ('( e-(,je v-M ILBANK, TWEED, HADLEY & MCCLOY LLP LAI:#6226032vI8 U AnTORNEYS AT LAW LoS ANOELES Second Interim Application for Allowance and Payment of Compensation

1 TABLE OF CONTENTS 2 I. INT RO D U CT ION ...................................................................................................................... 2 3 II. B A C KGR OUND ....................................................................................................................... 3 4 A. B ackground Facts ............................................................................................... 3 5 B. Milbank's Role In The Case ............................................................................... 5 6 C. Committee Structure and Milbank's Internal Staffing ....................................... 7 7 D. Summary of Milbank's Billing Procedures ...................................................... 9 8 III.

SUMMARY

OF SERVICES RENDERED BY MILBANK DURING THE SECOND APPLICATION PERIOD ..................................................................................... 11 9

A. Overview ............................................................................................................... 11 10 B. Summary Of Exhibits Regarding Services Rendered By Milbank .................. 14 11 C. Narrative Summary Of Services Provided By Milbank ................................... 15 12 IV.

SUMMARY

OF ACTUAL AND NECESSARY EXPENSES INCURRED 13 B Y M ILB AN K ...................................................................................................................... 38 14 V. COMPENSATION REQUESTED AND RELEVANT LEGAL STANDARD ................. 39 15 V I. C O N C LU SIO N ...................................................................................................................... 40 16 17 18 19 20 21 22 23 24 25 26 27 LAI:# 28 -I 6226032vl 8MILBANK,

TWEED, HADLEY & MCCLOY LLP Second Interim Application for Allowance and Payment of Compensation

1 TO THE HONORABLE DENNIS MONTALI, UNITED STATES BANKRUPTCY JUDGE, THE OFFICE OF THE UNITED STATES TRUSTEE, THE DEBTOR, AND 2 OTHER PARTIES IN INTEREST:

3 Milbank, Tweed, Hadley & McCloy LLP ("Milbank"), counsel to the Official 4

Committee of Unsecured Creditors (the "Committee") appointed in the above-captioned chapter 5

11 case (the "Case") of Pacific Gas and Electric Company, Debtor and Debtor in Possession 6

("PG&E" or the "Debtor"), hereby submits its second interim application for allowance and 7

payment of compensation and reimbursement of costs and expenses (the "Second Interim 8

Application") covering the four-month period from August 1, 2001 through and including 9

November 30, 2001 (the "Second Application Period"). In support of the Second Interim 10 Application, Milbank respectfully represents as follows:

11 12 I.

13 INTRODUCTION 14 This is Milbank's Second Interim Application for approval of compensation and 15 reimbursement of expenses for services rendered on behalf of the Committee in connection with 16 the Case. Milbank submits this Second Interim Application in accordance with Bankruptcy 17 Code sections 330 and 331, Rule 2016 of the Federal Rules of Bankruptcy Procedure (the 18 "Bankruptcy Rules"), the Office of the United States Trustee for the Northern District of 19 California Guidelines (the "UST Guidelines"), and the United States Bankruptcy Court Northern 20 District of California Guidelines for Compensation and Expense Reimbursement of Professionals 21 and Trustees (the "Court Guidelines").

22 23 Pursuant to this Second Interim Application, Milbank seeks interim approval and 24 allowance of $1,690,874.00 in fees accrued for services rendered in connection with the Case by 25 Milbank professionals who recorded a total of 3,973.85 hours9.837963e-4 days <br />0.0236 hours <br />1.405423e-4 weeks <br />3.23425e-5 months <br /> on behalf of the Committee during 26 the Second Application Period. Milbank also seeks interim approval and allowance of 27 $116,651.11 in costs and expenses incurred by Milbank on behalf of the Committee during that LAI:# 28 6226032v 18MMLBAr.,

TWEED, HADLEY & MCCLOY LLP Second Interim Application for Allowance and Payment of Compensation

1 same period. Accordingly, pursuant to this Second Interim Application, Milbank seeks 2 allowance of a total of $1,807,525.11 for services rendered and reimbursement of costs and 3 expenses incurred. Milbank's Second Interim Application reflects voluntary reductions in fees 4 and costs totaling $102,420.57, as described in greater detail below. Milbank to date has 5 received payment of fees in the amount of $1,122,499.17 and reimbursement of expenses in the 6 amount of $99,153.57 on account of the Monthly Cover Sheet Applications covering the Second 7 Application Period, leaving a balance due of $585,872.37.1 The services performed and costs 8 and expenses incurred during the Second Application Period are summarized in Sections III and 9 IV, respectively, below, and are detailed in the exhibits filed concurrently herewith.

10 II.

11 BACKGROUND 12 13 A. Background Facts.

14 PG&E commenced the Case with the filing of a voluntarily petition under chapter 15 11 of the Bankruptcy Code on April 6, 2001 (the "Petition Date"), thereby precipitating what has 16 been characterized as among the three largest, and certainly one of the most complex, bankruptcy 17 cases in United States history. At the time of the filing, the State of California was deep in the 18 throes of an energy crisis that threatened the solvency and very viability of PG&E, as well as the 19 financial health and well-being of the State of California and its residents. PG&E had been 20 purchasing power to meet a significant portion of its load, the "net short" position, through the 21 California Power Exchange at spot prices that had escalated wildly over the prior year.

22 Moreover, California was experiencing a shortfall in generation capacity available to investor 23 owned utilities such as PG&E, exacerbated by drought conditions in the Pacific Northwest that 24 had reduced the supply of imported hydroelectric power and rising natural gas prices that had put 25 26

'$386,791.73 of this balance will be paid on or about January 15, 2002, provided that there are 27 no objections to Milbank's Cover Sheet Application covering the period of November 1, 2001 through November 30, 2001.

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1 severe pressure on wholesale electric prices and given rise to the loss of some generation 2 capacity of certain Qualifying Facilities ("QFs") that were experiencing economic hardship.

3 Indeed, PG&E had only made partial payment to such QFs for contractual obligations that had 4 arisen during the months prior to the Petition Date.

5 As a regulated utility subject to a disputed rate freeze pursuant to AB 1890, 6

PG&E's revenues from retail power sales had been subject to a rate cap that for some time had 7

left PG&E in a position where it was not able to cover its operating costs. Literally billions of 8

dollars of equity value had eroded. As PG&E's credit ratings tumbled, PG&E found itself 9

unable to purchase the power needed to cover its net short position through the California Power 10 Exchange and in jeopardy of being able to fulfill its statutory duty to serve the public. In the 11 midst of this crisis, the Governor of the State of California had issued an emergency order and 12 legislation was enacted that put the California Department of Water Resources (the "CDWR")

13 into the business of purchasing power to cover PG&E's net short position, with resulting 14 uncertainties as to the implications on PG&E and California ratepayers.

15 16 Negotiations with the Governor to address the problem through a legislative fix 17 were frustrated by the complications of competing federal and state regulatory interests, the 18 tremendous size of the economic problem, the failure of California's deregulated electric power 19 market and the California Power Exchange, and the inability to control unpredictable future 20 wholesale electricity and natural gas prices. Failing to reach what it perceived to be an 21 acceptable legislative solution, PG&E commenced the Case.

22 Recognizing the enormous complexity of the problem, the compelling public 23 interest in finding a resolution that would not jeopardize PG&E's ability to continue to serve its 24 4.5 million customers in Northern California, and the need to address satisfaction of over $13 25 billion in pre-petition debt owed to, among others, financial institutions that had provided the 26 financing for PG&E's infrastructure and operations, power generators and marketers that had 27 supplied electric energy and natural gas to PG&E, and in excess of 30,000 trade creditors, the LA I:#

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TWEED, HADLEY & MCCLoY LLP Second Interim Application for Allowance and Payment of Compensation

1 Office of the United States Trustee ("U.S. Trustee") acted quickly to appoint an official 2 committee of unsecured creditors in the Case. The Committee was formed on April 10, 2001, 3 and just six days later the Committee selected Milbank to act as its counsel after interviewing 4 several potential law firms.

5 B. Milbank's Role In The Case.

6 7 Milbank, on behalf of the Committee, and in conjunction with other advisors 8 employed by the Committee, immediately turned to the task of developing an understanding of 9 the Debtor's operations, its financial condition, its assets and liabilities, pending litigation, and 10 the complex regulatory framework that governs the Debtor. Milbank also was called upon to 11 develop the internal framework for governance of the Committee, the mechanisms for effective 12 and timely communication with the Debtor, the review of and response to the myriad of 13 contested and administrative matters that needed to be addressed in connection with the 14 administration of the Case and PG&E's estate, and the monitoring of actions by and proceedings 15 before the Federal Energy Regulatory Commission (the "FERC"), the California Public Utilities 16 Commission (the "CPUC"), the California Energy Commission (the "CEC"), the CDWR, the 17 California Legislature, the U.S. Congress, and the offices of the Governor, the Attorney General, 18 the Treasurer, and other representatives of the State of California.

19 At the outset of the case, Milbank, in conjunction with the Committee's advisors, 20 developed a comprehensive list of issues that needed to be analyzed and addressed and provided 21 the framework for Milbank's focus during the First Interim Period and much of the Second 22 Interim Period. Among the areas of focus were: (a) issues relating to the formulation of a 23 confirmable and feasible plan of reorganization in the context of an extremely complex federal 24 and state regulatory environment, the sensitive political environment, the corollary problems 25 being experienced by other investor owned utilities in the state, the dearth of historical or case 26 law precedent governing regulated utility reorganization, and the inherent economic problems 27 and uncertainties; (b) issues relating to PG&E's revenues as recovered through its retail rates, LAl:# 28 6226032v l8MItBANK,

TWEED, HADLEY & MCCLoY LLP Second Interim Application for Allowance and Payment of Compensation

1 specifically including issues relating to the California Procurement Adjustment under AB IX, 2 rates issues with respect to recovery of energy procurement costs by the CDWR, and analysis of 3 procedural and substantive aspects of PG&E's filed rate case; (c) issues with respect to 4 identification and valuation of assets of the Debtor, including operational asset rationalization, 5 implications of federal and state regulatory provisions and applicable bankruptcy law on PG&E's 6 generation, transmission and distribution assets, valuation and recovery of the Debtor's claims 7 arising from the State's commandeering of PG&E's positions with the California Power 8 Exchange in the block-forward market, tax considerations, and analysis of related party 9 transactions; (d) issues relating to PG&E's liabilities, including treatment of the net short 10 position, treatment of the power purchase agreements between PG&E and the QFs, and the status 11 of PG&E's secured financings; and (e) issues with respect to PG&E's interactions with the State 12 of California and the California Legislature, including the implications for PG&E of the 13 legislative response to the Memorandum of Understanding (the "MOU") among Southern 14 California Edison Company ("Edison"), Edison International and the CDWR executed just three 15 days following the Petition Date and, ultimately, the settlement structure adopted by the CPUC 16 in resolving Edison's "Filed Rate Case." Against this backdrop, Milbank has worked with 17 PG&E, PG&E Corp. (the "Parent'), Committee members and the other Committee professionals 18 toward the formulation of a Plan that would pay creditors in full with interest.

19 Milbank and the Committee have participated actively in all aspects of the Case 20 since its formation. The Committee has developed a positive working relationship with PG&E 21 and its various professionals. Milbank and counsel for PG&E consult on a daily basis regarding 22 various operational, strategic, and litigation issues that arise in the Case and in related fora.

23 Pursuant to the Committee's request and the consent of the Debtor, the Committee frequently is 24 given an opportunity to review and comment on draft pleadings, address Committee concerns 25 with respect to underlying business decisions, and negotiate with PG&E with respect to its 26 position and its proposals to address Committee concerns, where appropriate. This approach has 27 expedited the Debtor's reorganization efforts, reduced professional fees and other administrative LAI:# 28

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1 expenses that would arise in the context of a less constructive relationship, and reduced, and in 2 some cases eliminated, unnecessary litigation.

3 The efforts of Milbank and the Committee and its other professionals have 4

contributed towards the stabilization of PG&E's operations and the resolution or elimination of 5

significant litigation. Milbank and the Committee's other professionals have developed 6

economic and settlement models and, participating in advocacy and mediation roles, helped to 7

give direction to resolution of thorny issues. The constructive efforts of Milbank, as counsel to 8

the Committee, have contributed to the speed and relative calm with which numerous potentially 9

highly combustible issues have been resolved. Indeed, only five months into the case, the Debtor 10 has filed a Plan supported by the Committee that proposes to pay creditors in full with interest.

11 12 C. Committee Structure and Milbank's Internal Staffing.

13 Milbank was selected as counsel to the Committee not only because of its 14 expertise and experience in connection with complex bankruptcies and financial reorganizations, 15 particularly those involving significant regulatory and public financing aspects, but also by 16 reason of its expertise and depth of resources in the utility, power and energy, project finance, 17 banking and institutional investment, capital markets, securitization, taxation and litigation 18 practice areas. Because of the breadth and depth of Milbank's experience, the Committee has 19 been able to look to one law firm, Milbank, to provide it with advice, counseling and 20 representation in the wide range of areas of expertise that have been required. Conversely, given 21 the demands of the Case, PG&E naturally has had to turn to a number of law firms, including 22 those with which it had pre-Petition Date relationships, to provide the wide array of services 23 required. Additionally, the Parent, as the sole shareholder of the Debtor and as a co-proponent of 24 the Plan of Reorganization filed on September 20, 2001 (as amended, the "Plan"), has played a 25 significant role in the Case and devoted substantial resources, both internally and in the form of 26 numerous outside legal and financial advisors, to assist PG&E in connection with the Case. As 27 the Committee's sole law firm, Milbank has been able, and required, to interact on an extensive LAI:# 28

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1 basis with the numerous law firms employed by PG&E and its Parent in connection with this 2 engagement. Milbank's capacity has had the benefit of providing great efficiency and savings to 3 its client, the Committee, and to the estate generally.

4 The Committee is composed of eleven (11) individual members. In order to more 5

efficiently fulfill its fiduciary duties and facilitate its functions, the Committee established the 6

following working groups: the Litigation Subcommittee; the Finance Subcommittee; the 7

Legislative and Regulatory Subcommittee; and the Plan Working Group. Milbank has provided 8

counsel to each of the Subcommittees and the Plan Working Group through attorneys with 9

expertise and knowledge most pertinent to each working group's designated areas of 10 responsibility and the reports and action items that are agendized for their meetings. The 11 Subcommittees and Plan Working Group typically reported on their activities to the full 12 Committee at periodic meetings held by telephone conference call or in person in San Francisco, 13 frequently in conjunction with direct in-person meetings with PG&E's senior management.

14 Milbank believes that through its internal division of responsibility and the Subcommittee 15 structure, the Committee, and the estate, have received the benefit of efficient and effective 16 deliyery of legal services.

17 18 Given the broad range of responsibilities and intense time pressures imposed on 19 Milbank at the outset of the Case, Milbank determined to staff the matter in a manner that would 20 maximize its efficiency. For this reason, financial restructuring partner Paul Aronzon assumed 21 primary responsibility for intra-Committee communications and coordination of the Plan 22 negotiations process with the Committee's financial advisors and PG&E, its Parent and their 23 respective legal and financial advisors. Financial restructuring partner Robert Moore focused on 24 the Bankruptcy Court pleading and appearance process, including Disclosure Statement and Plan 25 confirmation issues, and spearheaded the interface with PG&E and its counsel regarding the 26 settlement dialogue process with respect to contested matters. Energy regulatory partner Ed Feo 27 has focused on analysis of FERC and CPUC proceedings and the California legislative process LAI:# 28 6226032v 8MILBANK,

TWEED, HADLEY & MCCLOY LLP Second Interim Application for Allowance and Payment of Compensation

1 as they relate to PG&E's operations, strategies, Plan formulation, and more recently, Plan 2 implementation. Energy finance partner Allan Marks has focused on analysis of PG&E's 3 financing structures, and more recently PG&E's exit financing as proposed under the Plan.

4 Litigation partner Michael Diamond assumed primary responsibility for Milbank's participation 5 in adversary proceedings and non-bankruptcy court litigation matters. Within this framework, 6 Milbank attempted to minimize its charges by, among other things, (a) attending Bankruptcy 7 Court hearings by telephone conference call, when appropriate, (b) monitoring proceedings 8 before the FERC, the CPUC, the California Legislature, the United States Congress, and other 9 tribunals or other agencies only when necessary to fulfill its duties and, when possible and 10 appropriate, via the Internet, and (c) generally having only those attorneys primarily responsible 11 for particular matters attend hearings or other proceedings.

12 Because the Committee has been able to rely on Milbank's breadth of expertise in 13 lieu of employing multiple law firms with different skill sets, more than one Milbank partner has 14 attended certain Committee, Subcommittee, Working Group or other meetings, as well as a small 15 number of hearings, where that partner's expertise or knowledge base provided an important 16 underpinning to the negotiation, deliberation, or advocacy process:

17 18 D. Summary of Milbank's Billing Procedures.

19 In the ordinary course of its practice, Milbank maintains records of time expended 20 by attorneys, law clerks, legal assistants, and case clerks in rendering services to its clients, 21 including the Committee. Time records are made substantially contemporaneously with the 22 rendition of these professional services and are prepared by the attorneys, law clerks, legal 23 assistants, and case clerks who have rendered the'services. Milbank attempts to minimize its 24 charges by generally having only those attorneys primarily responsible for particular matters 25 attend hearings or participate in Subcommittee or Plan Working Group meetings and conference 26 calls. In matters such as this representation, time records are kept in six minute (.1 hour1.157407e-5 days <br />2.777778e-4 hours <br />1.653439e-6 weeks <br />3.805e-7 months <br />) 27 increments. With regard to intra-office conferences, at times no attorney, or a single attorney, LAI:# 28

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TWEED, HADLEY & MCCLOY LLP Second Interim Application for Allowance and Payment of Compensation

1 may bill for the conference. It is impossible to state with precision how much time has not been 2 recorded by Milbank's professionals as a result of this practice.

3 In view of the implications for the citizens of California of the California energy 4

crisis in general and the Case in particular, at the outset of this engagement, and without request 5

or demand by any party, Milbank voluntarily elected to reduce the hourly rates of its most senior 6

attorneys to $595, a reduction of up to $80 per hour from the rates normally charged by these 7

attorneys. That reduction has been in place throughout the First and Second Interim Periods. In 8

reviewing its monthly pre-bills before submission to the U.S. Trustee and PG&E, Milbank 9

further voluntarily elected not to bill for certain time recorded by various attorneys, law clerks, 10 paralegals, legal assistants and case clerks relating, among other things, to duplicative attendance 11 at hearings, certain monitoring of regulatory hearings and proceedings, document retrieval and 12 file organization. These rate and billing reductions during the Second Application Period total 13

$72,615.00. Additionally, Milbank has carefully reviewed the Court's Memorandum Decision 14 Regarding Applications for Interim Applications for Professionals filed December 12, 2001 15

("Memorandum Decision") and has made adjustments in accordance with the Memorandum 16 Decision. Consistent with the Memorandum Decision, Milbank has reduced the charges billed 17 for the PG&E Case Clerk from $100 per hour to $40 per hour, which is reflected in this Second 18 Interim Application as a reduction of $18,366.00 in fees that normally would have been billed to 19 the client. Moreover, Milbank wrote off 101.30 hours3.472222e-4 days <br />0.00833 hours <br />4.960317e-5 weeks <br />1.1415e-5 months <br /> that it spent supplementing its First 20 Interim Fee Application, which reduced fees by an additional $49,973.5 0.2 Also, consistent with 21 the Memorandum Decision, Milbank has written off 23.10 hours1.157407e-4 days <br />0.00278 hours <br />1.653439e-5 weeks <br />3.805e-6 months <br /> for non-working travel totaling 22

$11,452.50. Finally, in order to comply with the UST Guidelines and the Court Guidelines, 23 Milbank either has not sought or has reduced its request for reimbursement of expenses in the 24 total amount of $29,805.57. Accordingly, during the Second Application Period Milbank has 25 2 As fully set forth in Section IlI(C)(6) below, Milbank requests that the Court revisit this issue at 26 the hearing on the Second Interim Application to consider allowance of a portion of Milbank's fees incurred in responding to the U.S. Trustee's objections to the First Interim Fee Application.

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1 reduced the fees and costs it normally would charge its clients by $182,212.57, approximately 2 10% of the fees and costs requested.

3 III.

4

SUMMARY

OF SERVICES RENDERED BY MILBANK DURING 5

THE SECOND APPLICATION PERIOD 6

7 A. Overview.

8 Milbank's work during the Second Application Period focused heavily on Plan 9

and Disclosure Statement formulation and revision, and Plan implementation analysis. During 10 the months of August and September 2001, Milbank and the Committee's other professionals 11 devoted substantial resources to the formulation of, and negotiations with the Debtor and the 12 Parent (collectively, the "Proponents") regarding, the key economic terms of the Plan. On the 13 eve of the Proponents' filing of the Plan, these key economic terms became the subject of a Term 14 Sheet that provided the basis for a Plan Support Agreement entered into by the Committee, the 15 Debtor, and the Parent on September 20, 2001 (the "Support Agreement"). The Plan Support 16 Agreement establishes the parameters of the Committee's support for the Plan. Milbank played 17 an integral role in formulating the key economic terms of the Plan and drafting the Support 18 Agreement. The Support Agreement Term Sheet reflects economic terms substantially more 19 favorable to creditors than those originally offered by the Proponents.

20 21 After the Plan was filed on September 20, 2001, Milbank concentrated its efforts 22 on negotiating the Plan provisions that were not addressed by the Support Agreement. Various 23 creditor constituencies objected to the Plan on a number of different grounds. For example, LC 24 Pollution Control Bond Banks ("LC Banks"), certain Commercial Paper and Floating Rate Note 25 holders and QFs all objected to the interest rate proposed by the Plan. Milbank analyzed the 26 legal standards with regard to payment of interest rates by a solvent debtor, advised the 27 Committee regarding interest rate issues, and facilitated the negotiations between the objecting LAI:# 28 6226032v18MILBANK,

TWEED, HADLEY & MCCLOY LIP Second Interim Application for Allowance and Payment of Compensation

1 creditor groups and the Proponents. Milbank's analysis of the interest rate issues and 2 involvement in the negotiation process aided in the formulation of settlements between the 3 Proponents and the LC Banks and the QFs, respectively. Milbank believes that a settlement now 4 has been reached among the Proponents and the holders of Commercial Paper and Floating Rate 5 Notes that will result in further amendments to the Plan. Likewise, Milbank has worked steadily 6 to resolve the disputes between the Proponents and the various municipalities. Milbank has also 7 worked, and is continuing to work, with the other creditor constituencies to attempt to resolve all 8 remaining issues with regard to the Plan and anticipates that the Plan will be amended to reflect 9 substantial additional improvements in terms of the treatment of unsecured creditors generally.

10 Milbank has also continued to analyze the feasibility and implementation aspects 11 of the Plan. In particular, Milbank has extensively researched the preemption and sovereign 12 immunity issues raised by the Plan. Milbank has also analyzed the procedural mechanisms by 13 which the Plan may be confirmed. Indeed, Milbank prepared a brief arguing that the preemptive 14 relief sought by the Plan can be obtained through a confirmation process, rather than through 15 multiple individual adversary proceedings. The Court agreed with this position. Milbank's 16 regulatory team also has continued to analyze the regulatory aspects of the Plan as they relate to 17 Plan feasibility and implementation.

18 19 Milbank also has negotiated with the Proponents to ensure that the Disclosure 20 Statement contains adequate disclosure to creditors. Indeed, Milbank prepared and filed 21 Comments to the Disclosure Statement suggesting areas of additional disclosure, and has worked 22 with the Proponents to address its concerns. Milbank also analyzed and summarized for the 23 Committee approximately seventy (70) objections filed by creditors in connection with the 24 Disclosure Statement and has worked with the Proponents and the objecting creditors in an effort 25 to resolve these objections.

26 In addition to Plan and Disclosure Statement work, Milbank continued to track, 27 analyze and respond to the various pleadings filed in the Case. Milbank has worked directly LAI:# 28

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1 with counsel for PG&E to review and in many instances negotiate terms of pleadings and 2 stipulations prior to their filing with the Court.

3 Milbank also has continued to monitor and analyze the various regulatory 4

proceedings before the FERC and the. CPUC, as well as the settlement between the CPUC and 5

Edison. Milbank's regulatory work for this period was related primarily to Plan feasibility and 6

implementation issues. As is now well documented, PG&E's bankruptcy was precipitated by 7

one of the largest regulatory failures in United States history. The process of seeking to remedy 8

this regulatory failure and restore the health of PG&E and California's other electric utilities is 9

dependent substantially on the outcome of federal and state regulatory proceedings and 10 legislative activities. In addition, an analysis of regulatory and legislative matters was critical in 11 the development of the Proponents' Plan, while implementation and consummation of the Plan 12 will require approvals from the FERC, the NRC, and the SEC. Because numerous regulatory 13 and legislative matters are directly relevant to PG&E's bankruptcy, including the Plan, and 14 because Milbank has committed in the Support Agreement to support obtaining the regulatory 15 approvals necessary to achieve confirmation and implementation of the Plan, Milbank has 16 continued to dedicate significant time to researching, analyzing, monitoring and advising the 17 Committee on these matters.

18 19 During the Second Application Period, Milbank represented and advised the 20 Committee with respect to a wide range of issues and challenges. Due to the comprehensive 21 nature of the services rendered by Milbank during the Second Application Period, no attempt is 22 made herein to detail the totality of such services. The full scope of the services rendered by 23 Milbank is set forth in detail in the billing reports filed concurrently herewith under the caption 24 entitled "Milbank, Tweed, Hadley & McCloy LLP's Time Records Exhibit for the Period August 25 1, 2001 to November 30, 2001" (the "Billing Reports"). However, in order to assist the Court, 26 the United States Trustee, PG&E and other parties in interest in reviewing this Second Interim 27 Application, a brief summary of Milbank's billing procedures and the services rendered by 28 LAI:# -13 6226032vl 8MILBANK, TWEED.

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1 Milbank during the Second Application Period with regard to each activity code category, 2 including certain undertakings within each category, is set forth below.

3 B. Summary Of Exhibits Regarding Services Rendered By Milbank.

4 5 Attached as Exhibit "1" to the Declaration of Robert Jay Moore filed concurrently 6 herewith (the "Moore Declaration") is a summary of the total hours expended and total fees 7 incurred by each Milbank professional, as well as a categorical summary of expenses incurred, 8 during the Second Application Period.3 9

Pursuant to its normal practice when representing committees, Milbank has 10 broken down its services rendered into separate and distinct activity code categories. A 11 summary of each category of services, setting forth the name of each professional who expended 12 time in that category and the total hours and amount billed by each professional in that category 13 during the Second Application Period, is attached to the Moore Declaration as Exhibit "2." In 14 order to more accurately identify services rendered to the regulatory and legislative arenas, 15 Milbank has recategorized certain of the services reflected in its Monthly Cover Sheet 16 Applications into four new activity codes, as discussed in this Second Interim Application and as 17 broken out in the schedule attached to the Moore Declaration.

18 19 The detailed Billing Reports for each activity code category are filed concurrently 20 herewith. The Billing Reports set forth a chronological, detailed description of the services 21 rendered by Milbank professionals on behalf of the Committee during the Second Application 22 Period for each of the activity code categories described below.

23 A chart listing the hourly billing rates in effect throughout the Second Application 24 Period for Milbank professionals who rendered services to the Committee during the Second 25 Application Period is attached to the Moore Declaration as Exhibit "3." Except as otherwise 26 3 The regulatory time is further described in the Declaration of Edwin F. Feo filed concurrently 27 herewith.

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1 noted, these hourly billing rates are the rates regularly charged to clients of Milbank for similar 2 services rendered during the same time period.

3 C. Narrative Summary Of Services Provided By Milbank.

4 5 1. Asset Analysis and Recovery (Category 01).

6 Milbank continued to investigate the validity of the liens held by PG&E's secured 7

creditors such as banks, bondholders and gas suppliers. In particular, pursuant to the Order 8

Authorizing Use of Mortgage Bondholders' Cash Collateral, the Committee was responsible for 9

evaluating the validity, priority and perfection of the first mortgage bank indebtedness and 10 security and perfection documents. During the Second Application Period, Milbank thus 11 continued its review and analysis of the first mortgage bond documents and other mortgages, 12 indentures and security agreements, supplemental indentures and amendments, UCC and real 13 estate records and public filings to evaluate the scope, creation, validity, and perfection of 14 purported liens in favor of secured creditors of PG&E, and prepared and distributed to 15 Committee members and advisors related memoranda and reports. Milbank has concluded that, 16 based on the information reviewed, the above-referenced liens appear to be valid, and institution 17 of avoidance actions is not warranted.

18 19 Milbank also conducted preliminary analysis of related party transactions, 20 including transfers to the Debtor's sole shareholder Parent. However, as noted in connection 21 with its First Interim Application, the Committee has refrained at this time from expending 22 further or extensive efforts at the expense of the estate in this regard for the following reasons, 23 among others: (a) multiple investigations of these transactions are being conducted by, among 24 others, the CPUC (though its Order Instituting Investigation dated April 4, 2001), the California 25 Attorney General (who on January 10, 2001, filed on behalf of the State of California a 26 Complaint for Restitution, etc. against the Parent, among others) and the Securities Exchange 27 Commission, and are thesubject of matters pending before other agencies and fora; (b) the LAI:# 28

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TWEED, HADLEY & MCCLOY LLP Second Interim Application for Allowance and Payment of Compensation

1 Debtor has proposed a Plan of Reorganization that proposes to pay all creditors in full with 2 interest; and (c) the Committee will not consent to a release of any party, including without 3 limitation the Parent, in connection with related party transactions unless the Plan goes effective 4 or all creditors are otherwise paid in full with interest. The Committee has reserved all of its 5 rights in connection with related party transactions.

6 During the Second Application Period, Milbank professionals spent a total of 146 7

hours rendering services in this category, for which Milbank seeks compensation of $63,345.50.

8 A summary of the Milbank professionals who rendered services in this category and the 9

corresponding amount of fees requested is included in Exhibit "2." The Billing Report for this 10 category, which sets forth a detailed description of the services rendered, is filed concurrently 11 herewith.

12 13 2. Asset Disposition/Executory Contracts (Category 02).

14 Milbank's work in this category included review, analysis, response where 15 appropriate, and appearance at hearings where appropriate in connection with various executory 16 contract matters, including:

17 18 (a) Various notices of Debtor's intent to assume Power Purchase Agreements 19 ("PPAs") with QFs such as the Oildale group, the Gaylord group, Ripon Cogeneration, and 20 Chevron.

21 (b) Motions made by QFs such as the Midset group for adequate protection 22 hardship payments.

23 24 (c) Debtor's motion to sell the Kern facility.

25 (d) Approval of Debtor's agreement with Modesto.

26 27 (e) Approval of motions related to settlements of state court condemnation 28 -16 6226032v18M LB.NK,

TWEED, HADLEY & MCCLOY LLP Second Interim Application for Allowance and Payment of Compensation

1 and reverse condemnation proceedings involving the Debtor.

2 (f) Debtor's motion to assume the Holtec contract and the nuclear fuel storage 3

system contract.

4 5 (g) Debtor's motions to extend time to assume or reject real property leases.

6 During the Second Application Period, Milbank professionals spent a total of 7

64.40 hours4.62963e-4 days <br />0.0111 hours <br />6.613757e-5 weeks <br />1.522e-5 months <br /> rendering services in this category, for which Milbank seeks compensation of 8

$32,021.00. A summary of the Milbank professionals who rendered services in this category and 9

the corresponding amount of fees requested is included in Exhibit "2." The Billing Report for 10 this category, which sets forth a detailed description of the services rendered, is filed 11 concurrently herewith.

12 13 .3. Business Operations (Category 03).

14 Milbank's work in this category included review, analysis, response where 15 appropriate, and appearance at hearings where appropriate in connection with the following:

16 17 (a) Debtor's applications to modify real property leases.

18 (b) Motion to settle certain issues in connection with letter of credit-backed 19 pollution control bonds.

20 21 (c) Debtor's motion to establish omnibus lease and sale procedures.

22 (d) Debtor's motion for authority to obtain a letter of credit in connection with 23 its participation in the Canadian Gas Supply Network.

24 25 Milbank also addressed various aspects of Debtor's business operations, such as:

26 (a) general analysis of preemption issues in light of current utility regulations; (b) review and 27 analysis of financing materials prepared by the Debtor, its professionals and Committee LA 1:# 28 6226032v 18MILnBAK,

TWEED, HADLEY & MCCLOY LLP Second Interim Application for Allowance and Payment of Compensation

1 professionals; (c) analysis of real estate issues; (d) analysis of utility deposit issues; (e) 2 discussion of PG&E business issues at financial subcommittee meetings; (f) review and analysis 3 of rate setting issues; and (g) review and analysis of the settlement between Edison and the 4 CPUC.

5 During the Second Application Period, Milbank professionals spent a total of 6

234.15 hours1.736111e-4 days <br />0.00417 hours <br />2.480159e-5 weeks <br />5.7075e-6 months <br /> rendering services in this category, for which Milbank seeks compensation of 7

$90,509.50. A summary of the Milbank professionals who rendered services in this category and 8

the corresponding amount of fees requested is included in Exhibit "2." The Billing Report for 9

this category, which sets forth a detailed description of the services rendered, is filed 10 concurrently herewith.

11 12 4. Case Administration/U.S. Trustee Compliance (Category 04).

13 Services rendered by Milbank professionals in this category included:

14 15 (a) Negotiation of Plan confidentiality agreements between PG&E and the 16 Committee and revision of Committee Bylaws, including participation in internal Committee 17 deliberations with respect thereto.

18 (b) Preparation of ex pgae pleadings to extend the protections of the 19 Securities Trading Order to new Committee member Pacific Investment Management Company 20 LLC ("PIMCO").

21 22 (c) Revision of Committee governance documents to incorporate new 23 Committee members PIMCO and Reliant Resources, Inc. ("Reliant").

24 (d) General review of incoming pleadings, calendaring, organization of 25 pleadings, and coordination of coverage for hearings and discovery matters.

26 27 (e) Response to a voluminous number of creditor inquiries regarding the LAI:# 28 6226032vl 8MILBANK, TWEED, HADLEY & MCCLOY LLP Second Interim Application for Allowance and Payment of Compensation

1 status of and developments in the Case, and creditor claims and treatment.

2 (f) Services rendered in connection with Committee, Subcommittee, and 3

Working Group composition issues, and liaison with the U.S. Trustee regarding those matters.

4 5 (g) Analysis of, and participation in internal Committee deliberations and 6 discussions with interested parties regarding, proceedings in connection with the motion of 7 certain municipalities to form an official committee of governmental entities and TURN's 8 motion to intervene, including analysis of PG&E's objections to the motions, preparation of 9 responses to the motions, and participation at the hearings thereon.

10 (h) Response to press inquiries and coordination of general public relations 11 issues.

12 13 (i) Review of PG&E's operating reports.

14 (j) Services rendered by Milbank's PG&E Case Clerk, who is in charge of 15 Milbank and Committee document control, consisting of scanning, indexing, filing, and 16 electronic dissemination of pleadings. Consistent with the Court's Memorandum Decision, the 17 billing rate for the PG&E Case Clerk was reduced from $100 per hour to $40 per hour, resulting 18 in a write-down of $18,366.00. Charges for services rendered by the PG&E Case Clerk at the 19

$40 per hour rate total $12,244.00.

20 21 During the Second Application Period, Milbank professionals spent a total of 22 579.50 hours5.787037e-4 days <br />0.0139 hours <br />8.267196e-5 weeks <br />1.9025e-5 months <br /> rendering services in this category, for which Milbank seeks compensation of 23 $132,127.00. A summary of the Milbank professionals who rendered services in this category 24 and the corresponding amount of fees requested is included in Exhibit "2." The Billing Report 25 for this category, which sets forth a detailed description of the services rendered, is filed 26 concurrently herewith.

27 28 LAI:# -19 6226032v 8MIIBANK,

TWEED, HADLEY & MCCLOy LLP Second Interim Application for Allowance and Payment of Compensation

1

5. Claims Administration and Objections (Category 05).

2 Milbank reviewed and analyzed claims, and aided various creditors with inquiries 3

regarding particular claims. The Committee, through Milbank and its other professionals, 4

provided input in connection with the claims bar date process to ensure that appropriate bar dates 5

and procedures were established. Milbank and the Committee's other professionals have also 6

been working actively with the Debtor to create a claims objection process that balances the 7

needs of the Debtor, the Committee's interest in appropriate oversight and review, and the rights 8

of the claimants.

9 10 Specific services rendered by Milbank professionals in this category included:

11 (a) Review of pleadings and notices and input regarding general claims bar 12 date procedures and notices.

13 14 (b) Review of pleadings and notices and input regarding administrative claims 15 bar date procedures and notices.

16 (c) Correspondence and conferences with the Committee and various 17 creditors regarding claims issues.

18 19 (d) Review of administrative claims.

20 (e) Meetings with PG&E and other professionals to establish a claims review 21 and objections process and input with regard to formulating such process.

22 23 (f) Review and analysis of claim settlement with Lord Electric Company.

24 (g) Meeting with PG&E and other professionals regarding framework for 25 resolution of generator claims and input with regard to formulating such framework.

26 27 During the Second Application Period, Milbank professionals spent a total of LAI:# 28 6226032v18MuBa~N,

TWEED, HADLEY& MCCLOY LLP Second Interim Application for Allowance and Payment of Compensation

1 65.50 hours5.787037e-4 days <br />0.0139 hours <br />8.267196e-5 weeks <br />1.9025e-5 months <br /> rendering services in this category, for which Milbank seeks compensation of 2 $31,531.00. A summary of the Milbank professionals who rendered services in this category and 3 the corresponding amount of fees requested is included in Exhibit "2." The Billing Report for 4 this category, which sets forth a detailed description of the services rendered, is-filed 5 concurrently herewith.

6

6. Fee/Employment Applications (Category 07).

7 8 In a case of this size, compliance with employment and fee requirements of the 9 U.S. Trustee and the Bankruptcy Court is time consuming. To fulfill its functions, the 10 Committee was required to employ various professionals, including attorneys, accountants and 11 financial advisors, investment bankers, forward price curve consultants and legislative 12 consultants. The hiring and timely compensation of these professionals is essential to enable the 13 Committee to fulfill its statutory obligations in this Case.

14 Specific services rendered by Milbank professionals in this category included:

15 16 (a) Review of monthly pre-bills for redaction of time entries and reduction or 17 elimination of time entries and charges, where appropriate, as well as drafting the Milbank 18 monthly cover sheet applications.

19 (b) Review of and input in connection with fee applications of the 20 Committee's financial advisors, PricewaterhouseCoopers LLP ("PWC"), and the Committee's 21 investment banker, Saybrook Capital, LLC ("Saybrook").

22 23 (c) Drafting of monthly fee applications for LCG Consulting and Public 24 Policy Advocates, LLC.

25 (d) Advice to various Committee professionals regarding fee application 26 issues.

27 2

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TWEED, HADLEY & MCCLOY LLP Second Interim Application for Allowance and Payment of Compensation

1 (e) Drafting of monthly Committee member expense reimbursement 2 applications.

3 (f) Preparation of the Milbank First Interim Fee Application. However, 4

consistent with the Memorandum Decision, Milbank has eliminated time spent by attorneys 5

supplementing the First Interim Fee Application. Accordingly, 101.30 hours3.472222e-4 days <br />0.00833 hours <br />4.960317e-5 weeks <br />1.1415e-5 months <br /> have be written-off, 6

resulting in a fee reduction of $49,973.50.

7 8 While Milbank has complied with the Court's Memorandum Decision and has 9 written off more than 100 hours0.00116 days <br />0.0278 hours <br />1.653439e-4 weeks <br />3.805e-5 months <br /> that it spent responding to the U.S. Trustee's objections to the 10 First Interim Application, Milbank requests that it be allowed to address this issue with the Court 11 at the hearing on the Second Interim Fee Application. Milbank believes that a write-off of this 12 magnitude is not equitable under the circumstances. First, in an ordinary fee application 13 proceeding, Milbank would have had an opportunity to reply to the U.S. Trustee' objections prior 14 to the fee hearing. Generally, a Court would have allowed a firm to be compensated for the time 15 spent in drafting the reply. Here, because the fee application procedures order did not allow for a 4

16 reply, Milbank was required to supplement its application, rather than file a standard reply.

17 Moreover, the U.S. Trustee's objections were, for the most part, overruled, including her 18 sweeping objections to over $650,000 in fees for regulatory work and misplaced objections in 19 connection with Milbank's work on the Commodities Trading Order and employment of Rogers 20 and Associates. Milbank was forced to spend countless hours demonstrating the obvious-that 21 extensive regulatory work was required in the largest utility bankruptcy in the history of this 22 country-and was assessed a $15,000 disallowance for not additionally reallocating each of its 23 time entries and recalculating its fees by reference to its descriptive breakdown, in addition to 24 4 In remarks at the initial hearing on the First Interim Application, counsel for the U.S. Trustee appeared to argue that since the original interim fee procedures order did not contemplate a reply 25 to objections prior to the scheduled hearing, replies were not to be permitted or considered.

26 Clearly, this was not the intent of the parties or the Court. The procedures were so structured to enable the Court to hear argument and then decide on an appropriate briefing schedule focused only on those issues that the Court did not feel had been or could be addressed adequately in oral 27 argument.

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TWEED, HADLEY & MCCLOY LLP Second Interim Application for Allowance and Payment of Compensation

1 disallowance of the cost of developing its reply. Milbank requests that the Court take a second 2 look at its Memorandum Decision and allow all or a portion of Milbank's fees incurred in 3 supplementing the First Interim Fee Application.

4 The Court should note that four Milbank lawyers participated in the hearing on 5

the First Interim Fee Application. Messrs. Moore and Feo traveled to San Francisco and Messrs.

6 Aronzon and Sorochinsky participated via telephone from Los Angeles. Milbank believes that 7

the participation of each of these individuals was important because each billed a significant 8

9 amount of time to the case on different matters. Accordingly, to the extent that the Court had 10 specific questions with regard to time entries, Milbank wanted to be prepared to adequately 11 respond to the Court's inquiries.

12 During the Second Application Period, Milbank professionals spent a total of 13 282.90 hours0.00104 days <br />0.025 hours <br />1.488095e-4 weeks <br />3.4245e-5 months <br /> rendering services in this category, for which Milbank seeks compensation of 14

$102,994.50. A summary of the Milbank professionals who rendered services in this category 15 and the corresponding amount of fees requested is included in Exhibit "2." The Billing Report 16 for this category, which sets forth a detailed description of the services rendered, is filed 17 concurrently herewith.

18 19 8. Fee/Employment Objections (Category 08).

20 Like the Committee, PG&E has hired, and sought compensation for, numerous 21 professionals. Milbank has closely tracked these requests, as well as any objections thereto, to 22 ensure that PG&E's professionals have no adverse interests to the estate and are compensated in 23 a reasonable manner.

24 25 Specific services rendered by Milbank professionals in this category included:

26 (a) Review of first interim fee applications filed by the Debtor's 27 professionals, including PWC's analysis of these applications.

28 LAI:# -23 6226032vl1MILBANK,

TWEED, HADLEY & MCCLOY LLP Second Interim Application for Allowance and Payment of Compensation

1 (b) Advice to Committee professionals regarding fee applications.

2 (c) Review of Debtor's application to employ Inisfree.

3 4 During the Second Application Period, Milbank professionals spent a total of 5 46.50 hours5.787037e-4 days <br />0.0139 hours <br />8.267196e-5 weeks <br />1.9025e-5 months <br /> rendering services in this category, for which Milbank seeks compensation of 6 $20,723.00. A summary of the Milbank professionals who rendered services in this category and 7 the corresponding amount of fees requested is included in Exhibit "2." The Billing 8 Report for this category, which sets forth a detailed description of the services rendered, is filed 9 concurrently herewith.

10

9. Stay Litigation (Category 10).

11 12 Milbank's work in this category included review, analysis, response where 13 appropriate, and participation at hearings where appropriate with regard to the following 14 motions:

15 (a) Relief from stay motions filed by, among others: (1) California Power 16 Exchange; (2) Stockton; (3) Antioch; (4) United Cogen QF group; (5) Oildale QF group; (6) 17 Jackson; (7) Bowsher; (8) Pompey; (9) Enron; (10); Department of Water Resources; (11) U.S.

18 Automobile Association; (12) SAMTRANS; (13) Rahjboy; (14) Pacific Lumber; (15) Viacom; 19 (16) Duke Energy; (17) Tate/Liberty Fuller; (18) Pacific Industries; (19) Seto; (20) Emery; (21) 20 Caldeway; (22) Grimaldi; (23) Behr; (24) Big Valley; and (25) Cardinal QF group.

21 22 (b) Assumption of QF PPAs and QF settlements, including those of(1) the 23 Midset group; (2) Longerwert Dairy; and (3) the Oildale group.

24 (c) Relief from stay proceedings in connection with the BFM Contract 25 litigation.

26 27 (d) The Martinez QF group appeal.

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TWEED, HADLEY & MCCLOY LLP Second Interim Application for Allowance and Payment of Compensation

1 (e) Relief from stay motions to allow condemnation and reverse 2 condemnation actions to proceed to judgment in state court.

3 (f) Relief from stay motions to allow personal injury actions to proceed to 4

judgment in state court.

5 6 During the Second Application Period, Milbank professionals spent a total of 7 121.50 hours5.787037e-4 days <br />0.0139 hours <br />8.267196e-5 weeks <br />1.9025e-5 months <br /> rendering services in this category, for which Milbank seeks compensation of 8 $54,722.50. A summary of the Milbank professionals who rendered services in this category and 9 the corresponding amount of fees requested is included in Exhibit "2." The Billing Report for 10 this category, which sets forth a detailed description of the services rendered are filed 11 concurrently herewith.

12

10. Other Litigation (Category 12).

13 14 Milbank's work in this category included review, analysis, response where 15 appropriate, and appearances at hearings, where appropriate, in connection with the following:

16 (a) The appeal filed by Martinez Cogen of the Court's order denying its 17 motion for relief from stay and for adequate protection.

18 19 (b) Proceedings in connection with key personnel disclosures.

20 (c) Settlement of PG&E's litigation with Modesto.

21 22 (d) Sierra Pacific's motion for partial summary adjudication.

23 (e) Settlement of PG&E's claim in the King bankruptcy litigation 24 proceedings.

25 26 (f) Preparation and negotiations in connection with the Committee's Rule 27 2004 motion to obtain discovery from the CDWR.

LAI:#

28 -25 6226032v18M11BAnK,

TWEED, HADLEY & McCLoY LLP Second Interim Application for Allowance and Payment of Compensation

1 (g) Numerous meetings of the Litigation Subcommittee.

2 (h) Monitoring of the Cal ISO advisory proceedings.

3 4 During the Second Application Period, Milbank professionals spent a total of 5 87.30 hours3.472222e-4 days <br />0.00833 hours <br />4.960317e-5 weeks <br />1.1415e-5 months <br /> rendering services in this category, for which Milbank seeks compensation of 6 $41,061.00. A summary of the Milbank professionals who rendered services in this category and 7 the corresponding amount of fees requested is included in Exhibit "2." The Billing Report for 8 this category, which sets forth a detailed description of the services rendered are filed 9 concurrently herewith.

10

11. Meeting of Creditors (Category 13).

11 12 Committee members and their outside counsel and advisors, Milbank and the 13 Committee's other professionals have devoted a significant amount of time in preparing for and 14 attending meetings of the full Committee, the Litigation Subcommittee, the Finance 15 Subcommittee, the Legislative and Regulatory Subcommittee, and the Plan Working Group.

16 These meetings form the core activities of the Committee in developing its positions on all 17 significant issues that arise in the Case. Such meetings occurred on a weekly and sometimes 18 daily basis by telephone conference call and in person. Face-to-face meetings typically were in 19 San Francisco to facilitate in-person dialogue with PG&E's senior management and the counsel 20 and advisors to PG&E and at times its Parent. Such meetings often were conducted at the 21 request of PG&E. These meetings mark the heart of a well-functioning and meaningful 22 Committee process.

23 Services rendered by Milbank professionals in this category included:

24 25 (a) Preparation for and attendance at numerous meetings of the full 26 Committee, the Litigation Subcommittee, the Finance Subcommittee, the Legislative and 27 Regulatory Subcommittee, and the Plan Working Group, at times involving in-person or LAI :# 28 6226032v 18MtLBAN.,

TWEED, HADLEY & MCCLOY LLP Second Interim Application for Allowance and Payment of Compensation

1 telephonic participation by the senior management of PG&E, its Parent PG&E Corp., and the 2 numerous bankruptcy, regulatory and other counsel and financial advisors and investment 3 bankers of each of them.

4 (b) Preparation for and attendance at numerous meetings, frequently by 5

telephone conference call, among Committee, Subcommittee and Working Group members and 6

PG&E regarding general case administration issues.

7 8 (c) Preparation for and attendance at numerous meetings, frequently by 9 telephone conference call, among Committee, Subcommittee and Working Group members and 10 PG&E, regarding various motions brought by PG&E.

11 During the Second Application Period, Milbank professionals spent a total of 12 66.90 hours0.00104 days <br />0.025 hours <br />1.488095e-4 weeks <br />3.4245e-5 months <br /> rendering services in this category, for which Milbank seeks compensation of 13

$38,215.50. A summary of the Milbank professionals who rendered services in this category and 14 the corresponding amount of fees requested is included in Exhibit "2." The Billing Report for 15 this category, which sets forth a detailed description of the services rendered is filed concurrently 16 herewith.

17 18 12. Plan and Disclosure Statement (Category 14).

19 One of the key functions of a committee is to provide input on a debtor's plan of 20 reorganization. Since an early point in the case, the Committee has been engaged in intensive 21 and continuous discussions with PG&E regarding Plan issues. A Plan Working Group, 22 consisting of a smaller representative subset of five (5) of the Committee's eleven (11) members, 23 was formed to facilitate the Plan analysis and formulation process. Weekly, and at times more 24 frequent, in-person meetings have been held between the full Committee, the Plan Working 25 Group or individual Committee members, on the one hand, and representatives of PG&E and at 26 times its Parent, on the other hand, to discuss various Plan issues. Milbank professionals have 27 been actively involved in shaping and orchestrating this Plan dialogue and coordinating with the LAI :# 28

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TWEED, HADLEY & MCCLoY LLP Second Interim Application for Allowance and Payment of Compensation

1 Committee's financial advisors and investment bankers. These discussions intensified as the 2 Plan process became more mature.

3 The Committee's extensive Plan negotiations spearheaded by Milbank, PWC and 4

Saybrook led to the formulation of a Plan term sheet which was embodied in the Plan Support 5

Agreement entered into by and between the Committee, PG&E and its Parent. The Support 6

Agreement term sheet served as a basis for the formulation of the Plan that was filed on 7

September 20, 2001. The Plan provides for payment to all creditors in full with interest.

8 9 Since the filing of the Disclosure Statement and the Plan, the Committee and its 10 professionals have worked daily to refine the Disclosure Statement to ensure that all appropriate 11 disclosures are made. The Committee and its professionals also have been negotiating with the 12 Debtor daily with regard to terms of the Plan that were not addressed by the Support Agreement, 13 such as interest rate calculation, payment, and distribution issues, classification issues, executory 14 contract issues (particularly those involving the municipalities), LC Bank issues, release issues, 15 issues related to the marketability of the new debt securities at par, disputed claim issues, 16 conditions to Plan effectiveness, provisions of the new long-term notes, and a host of other issues 17 not covered by the Support Agreement. The Committee and its professionals have worked with 18 the various creditor constituencies to resolve the outstanding disputes between them and the 19 Debtor. This effort has led to a number of settlements, including Debtor's settlements with the 20 LC Banks and the QFs.

21 Specific services rendered by Milbank professionals in this category included:

22 23 (a) Numerous meetings involving the Committee or the Plan Working Group 24 and the Committee's professionals, on the one hand, and PG&E and its sole shareholder Parent, 25 and their respective counsel, accountants, financial advisors, investment bankers, and other 26 advisors, on the other hand, regarding Plan and Disclosure Statement issues.

27 (b) Extensive research and analysis of Plan issues.

LAI:# 28 6226032v 1SMILANK,

TWEED, HADLEY & MCCLOY LLP Second Interim Application for Allowance and Payment of Compensation

1 (c) Formulation of Plan principles.

2 (d) Extensive Plan feasibility analysis.

3 4 (e) Extensive negotiations with PG&E with regard to treatment of creditors 5 under the Plan.

6 (f) Drafting and extensive negotiation of Support Agreement.

7 8 (g) Extensive review and revisions of the Disclosure Statement and Plan.

9 (h) Extensive negotiations with PG&E and the Parent in connection with the 10 disclosure made in the Disclosure Statement and the terms of the Plan that were not covered by 11 the Support Agreement.

12 13 (i) Preparation of Comments on the Disclosure Statement and attendance at 14 hearings on the adequacy of the Disclosure Statement.

15 (j) Extensive analysis of the preemption and sovereign immunity issues 16 raised by the Plan.

17 18 (k) Extensive analysis of the procedural mechanisms required for Plan 19 confirmation (i.e. whether an adversary proceeding was required to obtain the injunctive, 20 declaratory and preemptive relief sought by the Plan), preparation of an extensive brief on this 21 issue, and attendance at the hearing.

22 (1) Extensive review and analysis of approximately seventy (70) objections 23 filed in connection with the Disclosure Statement and negotiations with the Debtor and the 24 objecting parties to help resolve these objections.

25 26 (m) Analysis of interest rate issues presented by the Plan.

27 (n) Negotiation of exclusivity issues.

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TWEED, HADLEY & MCCLOY LLP Second Interim Application for Allowance and Payment of Compensation

1 (o) Analysis of issues relating to new debt securities trading at par.

2 Formal Plan presentation or negotiating meetings, as well as certain other full 3

Committee or Plan Working Group meetings described in ¶11 (Category 18), were often 4

attended by more than one Milbank attorney. Such meetings frequently involved numerous 5

attorneys from multiple firms representing the Debtor and representing the Parent. Moreover, 6

Committee members frequently included their internal and/or external legal counsel. Each 7

Milbank attorney played a distinct and necessary role at each meeting. Participation of each 8

attorney with a specific knowledge base in the Case or area of expertise was required in order to 9

enable Milbank to provide specific answers or guidance, or to lead a specific negotiation or 10 discussion, in the context of these large meetings. Paul Aronzon was in charge of the overall 11 Plan preparation, negotiation and revision process. Robert Moore was responsible for addressing 12 claims and general litigation issues, as well as Plan feasibility issues, preemption, Disclosure 13 Statement objections and revisions, and the procedural mechanisms for Plan confirmation and 14 Disclosure Statement approval. Ed Feo was responsible for addressing the regulatory aspects of 15 the Plan. Allan Marks was responsible for Plan finance issues. Tax partner Simon Friedman 16 was responsible for addressing the tax consequences of the Plan. Accordingly, the attendance of 17 more than one of these attorneys at many of the meetings was critical to enable the meetings to 18 proceed in a productive manner. Each of these attorneys appeared by telephone as much as 19 possible where in-person participation was not necessary.

20 21 Three Milbank lawyers (Mr. Moore in Court and Messrs. Aronzon and 22 Sorochinsky via telephone) participated in the initial Disclosure Statement status conference and 23 the subsequent hearing on the procedural mechanisms for Plan confirmation. Since Messrs.

24 Aronzon and Sorochinsky are both integrally involved in the Disclosure Statement and Plan 25 process and worked on the papers presented to the Court, Milbank believes that their 26 participation via telephone was warranted and reasonable, particularly given the magnitude of 27 the hearings. Milbank has made a concerted effort to have one lawyer cover the vast majority of LA 1:# 28

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TWEED, HADLEY & MCCLOY LLP Second Interim Application for Allowance and Payment of Compensation

1 hearings and to appear by telephone at most hearings. However, in a case of this magnitude, 2 appearance at certain key hearings by more than one attorney is reasonable and efficient to 3 promote continuity for the attorneys principally involved in the case.

4 During the Second Application Period, Milbank professionals spent a total of 5

1,276.20 hours2.314815e-4 days <br />0.00556 hours <br />3.306878e-5 weeks <br />7.61e-6 months <br /> rendering services in this category, for which Milbank seeks compensation of 6

$652,684.50. A summary of the Milbank professionals who rendered services in this category 7

and the corresponding amount of fees requested is included in Exhibit "2." The Billing Report 8

for this category, which sets forth a detailed description of the services rendered, is filed 9

concurrently herewith.

10 11 13. Business Analysis (Category 16) 12 The work performed by Milbank in this category included:

13 (a) Review and analysis of price forward curve models.

14 (b) Review and analysis of DWR Revenue Requirements.

15 (c) Review and analysis of creditor recoveries under prospective Plan models.

16 (d) Review and analysis of financial aspects of key draft Plan terms.

17 During the Second Application Period, Milbank professionals spent a total of 18 15.70 hours8.101852e-4 days <br />0.0194 hours <br />1.157407e-4 weeks <br />2.6635e-5 months <br /> rendering services in this category, for which Milbank seeks compensation of 19 $8,879.00. A summary of the Milbank professionals who rendered services in this category and 20 the corresponding amount of fees requested is included in Exhibit "2." The Billing Report for 21 this category, which sets forth a detailed description of the services rendered, is filed 22 concurrently herewith.

23

14. Tax Issues (Category 21).

24 25 Services rendered by Milbank professionals listed in this category included:

26 (a) Research and analysis of tax issues related to confirmation of the Plan, 27 including tax structure, issuance of securities, exchange of indebtedness, and IRS approvals.

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TWEED, HADLEY & MCCLOY LLP Second Interim Application for Allowance and Payment of Compensation

1 (b) Conferences with PG&E and its tax professionals regarding tax issues in 2 connection with confirmation and implementation of the Plan.

3 During the Second Application Period, Milbank professionals spent a total of 6.30 4

hours rendering services in this category, for which Milbank seeks compensation of $3,622.50.

5 A summary of the Milbank professionals who rendered services in this category and the 6

corresponding amount of fees requested is included in Exhibit "2." The Billing Report for this 7

category, which sets forth a detailed description of the services rendered, is filed concurrently 8

herewith.

9 10 15. Non-Working Travel (Category 24).

11 Services rendered by Milbank professionals listed in this category included travel 12 to and from San Francisco for meetings of the Committee and the Plan Working Group, meetings 13 with PG&E and its counsel and other professionals, meetings with the Committee's financial 14 advisor, PricewaterhouseCoopers LLP, and in connection with Court appearances. All 15 reasonable efforts were made to appear at Court hearings and at meetings telephonically.

16 17 Notwithstanding the foregoing, in accordance with the Memorandum Decision, 18 Milbank has written off all non-working travel time incurred prior to September 11, 2001.

19 Thereafter, Milbank has written off all non-working travel time exceeding two (2) hours each 20 way. These write-offs have resulted in a decrease in Milbank's fees in the amount of 21 $11,452.50.

22 During the Second Application Period, Milbank professionals recorded a total of 23 8.40 hours4.62963e-4 days <br />0.0111 hours <br />6.613757e-5 weeks <br />1.522e-5 months <br /> in this category, for which Milbank seeks compensation of $4,203.00. This time 24 frequently involved travel delays and other necessary travel time that precluded Milbank 25 professionals from providing services to other clients of the firm. A summary of the Milbank 26 professionals who rendered services in this category and the corresponding amount of fees 27 requested is included in Exhibit "2." The Billing Report for this category, which sets forth a LAI :# 28

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TWEED, HADLEY & MCCLOY LLP Second Interim Application for Allowance and Payment of Compensation

1 detailed description of the services rendered, is filed concurrently herewith.

2

16. Federal Regulatory/FERC (Category 26) 3 4 Milbank continued to conduct analysis and advise the Committee on developments at the 5 FERC relevant to PG&E. The pertinent FERC proceedings primarily involved the payment of 6 refunds for wholesale sales of electricity in California, creditworthiness issues with respect to 7 electricity sales in California, whether the DWR would be responsible for payment of wholesale 8 electric power purchases made on behalf of PG&E and SCE, and ongoing developments 9 regarding the DWR wholesale purchase contracts, including the CPUC's challenges at FERC 10 pertaining to those contracts. Milbank's professionals analyzed filings made at FERC and 11 FERC's orders, attended hearings, and provided reports to the Committee on these matters. It is 12 essential that Milbank continue to track relevant FERC matters given the direct bearing of these 13 proceedings on PG&E's cash flow and assets, feasibility of the Plan, and the extent of PG&E 14 liability for claims asserted by the generators. Such services were performed at the direction of 15 the Legislative and Regulatory Subcommittee of the Committee or of the Committee itself.

16 During the Second Application Period, Milbank professionals recorded a total of 17 135.90 hours0.00104 days <br />0.025 hours <br />1.488095e-4 weeks <br />3.4245e-5 months <br /> in this category, for which Milbank seeks compensation of $55,366.50. A 18 summary of the Milbank professionals who rendered services in this category and the 19 corresponding amount of fees requested is included in Exhibit "2." The Billing Report for this 20 category, which sets forth a detailed description of the services rendered, is filed concurrently 21 herewith.

22 23 17. State Regulatory/CPUC (Category 27) 24 Milbank also continued analyze and provide reports to the Committee on relevant 25 matters before the CPUC. Milbank primarily focused on CPUC proceedings concerning the 26 allocation of DWR's revenue requirement to PG&E, Utility Retained Generation ("URG")

27 revenue requirements, the DWR/CPUC rate agreement, the investigation into whether PG&E LAI:# 28 6226032vl 8MILBAIJK,

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TWEED, HADLEY & MCCLOY LLP Second Interim Application for Allowance and Payment of Compensation

1 violated the conditions imposed by the CPUC in its orders authorizing the formation of PG&E 2 Corp., the repayment of amounts owed to QFs, the procurement obligations of PG&E, the 3 approval of a servicing agreement between PG&E and DWR, and the proceedings related to 4 direct access. Milbank reviewed and analyzed filings submitted by PG&E and other parties with 5 respect to these matters, held meetings with the company to discuss the proceedings, and 6 analyzed the draft orders, final decisions, and rulings of the CPUC. Milbank also tracked and 7 conducted analysis of PG&E's complaint proceeding against the CPUC, which alleged that the 8 CPUC's decision to deny PG&E's recovery of wholesale power costs from retail customers 9 violated the filed rate doctrine, as well as the CPUC's decision and settlement with respect to 10 SCE's filed rate doctrine complaint proceeding. All of these CPUC matters were pertinent to 11 evaluating PG&E's cash flows, both pre-and post-petition, and the value of PG&E's assets, 12 which are heavily dependent on their regulatory treatment by the CPUC. Such services were 13 performed at the direction of the Legislative and Regulatory Subcommittee of the Committee or 14 of the Committee itself.

15 During the Second Application Period, Milbank professionals recorded a total of 16 355.10 hours1.157407e-4 days <br />0.00278 hours <br />1.653439e-5 weeks <br />3.805e-6 months <br /> in this category, for which Milbank seeks compensation of $142,707.50. This time 17 frequently involved travel delays and other necessary travel time that precluded Milbank 18 professionals from providing services to other clients of the firm. A summary of the Milbank 19 professionals who rendered services in this category and the corresponding amount of fees 20 requested is included in Exhibit "2." The Billing Report for this category, which sets forth a 21 detailed description of the services rendered, is filed concurrently herewith.

22 23 18. Regulatory Plan Implementation/Consummation (Category 28) 24 If implemented, the Plan will have a profound impact on the manner in which 25 PG&E and its assets are regulated. Indeed, federal and state regulatory implications were among 26 the central concerns in development of the Plan and are critical in obtaining the numerous 27 regulatory approvals necessary for Plan implementation.

LAI :# 28 6226032v 18MIBANK,

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TWEED, HADLEY & MCCLOY LLP Second-Interim Application for Allowance and Payment of Compensation

1 In general, PG&E's Plan provides for the disaggregation of PG&E's business into 2 four companies: (a) an electric generation company that will make wholesale sales of electricity; 3 (b) an electric transmission company; (c) a natural gas transmission company; and (d) a retail 4 natural gas and electric distribution company. The Plan also provides that the electric 5 generation company and the retail distribution company will enter into a bilateral power sales 6 agreement that is based on a novel pricing structure that must be approved by FERC. In 7 addition, the Plan contemplates that PG&E's electric transmission facilities will ultimately be 8 transferred to a Regional Transmission Organization ("RTO") approved by FERC.

9 Under PG&E's current structure, its electric generation, electric distribution, and 10 all its natural gas facilities are subject to extensive regulation by the CPUC, while only the rates 11 and services provided via its electric transmission facilities are regulated by FERC. With the 12 disaggregation of these businesses under the Plan, however, the rates and services of each of the 13 businesses, with the exception of the retail natural gas and electric business, will become 14 regulated by FERC exclusively.

15 16 Milbank has devoted considerable time to addressing the myriad of regulatory 17 issues related to Plan implementation and consummation. Milbank analyzed a variety of 18 regulatory issues stemming from the Plan as proposed to the Bankruptcy Court, as well as the 19 regulatory implications of alternative approaches that were explored by PG&E. Milbank held a 20 number of discussions with PG&E and its regulatory counsel regarding the Plan, conducted 21 research and analysis with respect to pertinent regulatory decisions and filings, and provided 22 reports to, and held discussions with, Committee members to explain the complicated regulatory 23 issues.

24 In addition, the Support Agreement between the Committee and the Plan 25 Proponents provides that the Committee shall advocate and support all approvals and required 26 orders concerning the Plan. In this regard, PG&E has requested that the Committee become a 27 party to and participate directly in the regulatory proceedings initiated to implement the Plan.

28 LAI:# -35 6226032v 18MILBA2NK,

TWEED, HADLEY & MCCLOY LLP Second Interim Application for Allowance and Payment of Compensation

1 Regulatory approvals must be obtained from FERC, the Nuclear Regulatory Commission, and 2 the Securities and Exchange Commission.

3 PG&E has submitted numerous applications to FERC for purposes of seeking 4

regulatory authorizations required for Plan implementation and consummation. PG&E has also 5

filed applications with the Nuclear Regulatory Commission seeking authorizations necessary for 6

Plan implementation, and will soon be submitting an application for authorization from the 7

Securities and Exchange Commission. The Plan is opposed by the CPUC, which has vigorously 8

challenged the implementation of the Plan in proceedings before the CPUC, the FERC, and this 9

Court. Milbank spent considerable time analyzing, providing reports, and advising the 10 Committee on early drafts and revised versions of these voluminous and complicated regulatory 11 filings. Milbank has also spent considerable time responding to the challenges made to the Plan 12 by the CPUC. Milbank also provided comments to PG&E with regard to these. filings to help 13 anticipate regulatory concerns and facilitate approval.

14 15 DWR objected to providing the Committee with access to its model for allocating 16 its revenue requirements to PG&E. Milbank was forced to seek a motion to compel the 17 production of the model and other relevant documents. Milbank spent time preparing the 18 motion, consulting with the Committee's other professionals, and negotiating with the California 19 Attorney General's office.

20 Milbank's considerable work on regulatory issues concerning Plan 21 implementation and consummation was essential to evaluate the feasibility of the Plan and to 22 advise the Committee with respect to Plan implications.

23 24 During the Second Application Period, Milbank professionals recorded a total of 25 384.40 hours4.62963e-4 days <br />0.0111 hours <br />6.613757e-5 weeks <br />1.522e-5 months <br /> in this category, for which Milbank seeks compensation of $179,944.00. A 26 summary of the Milbank professionals who rendered services in this category and the 27 corresponding amount of fees requested is included in Exhibit "2." The Billing Report for this LAI:# 28

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TWEED, HADLEY & MCCLOy LLP Second Interim Application for Allowance and Payment of Compensation

1 category, which sets forth a detailed description of the services rendered, is filed concurrently 2 herewith.

3

19. Legislative (Category 29) 4 5 Milbank continued to analyze and provide reports to the Committee on State 6 legislative matters related to PG&E and other electric utilities in California. Milbank tracked 7 hearings, reviewed legislative proposals, and participated in discussions with legislators and 8 staff. The legislative proposals addressed such matters as the State's memoranda of 9 understanding with SCE, which was still very much under legislative consideration during the 10 Second Application Period, and San Diego Gas & Electric Company to resolve the severe 11 financial issues facing those companies, DWR matters, retail competition and rates, and various 12 alternatives for addressing the financial crisis of the California electric utilities. Analyzing 13 California legislative developments remains critical to the Committee, given that legislative 14 actions could affect the options available to PG&E in offering proposals to repay creditors and 15 reorganize its business.

16 Additionally, to a more limited extent, Milbank analyzed and provided reports to 17 the Committee on energy legislation before the U.S. Congress that could have a direct bearing 18 upon PG&E and the other California utilities. For example, legislative proposals under 19 consideration addressed the California energy crisis, the repeal of laws governing the regulation 20 of public utility holding companies, development of RTOs, regulation of wholesale electric 21 power markets, and FERC's authority with respect to the ordering of refunds. It was important 22 that Milbank report to the Committee on these legislative initiatives given that they could 23 directly impact PG&E's business, its assets and the Plan. Such services were performed at the 24 direction of the Legislative and Regulatory Subcommittee of the Committee or of the Committee 25 itself.

26 27 During the Second Application Period, Milbank professionals recorded a total of 28 LAI:# -37 6226032v 18MtLBANK,

TWEED, HADLEY & MCCLOY LLU Second Interim Application for Allowance and Payment of Compensation

1 97.20 hours2.314815e-4 days <br />0.00556 hours <br />3.306878e-5 weeks <br />7.61e-6 months <br /> in this category, for which Milbank seeks compensation of $36,216.50. A summary 2 of the Milbank professionals who rendered services in this category and the corresponding 3 amount of fees requested is included in Exhibit "2." The Billing Report for this category, which 4 sets forth a detailed description of the services rendered, is filed concurrently herewith.

5 IV.

6

SUMMARY

OF ACTUAL AND NECESSARY EXPENSES INCURRED BY MILBANK 7

8 Milbank maintains records of all actual and necessary out-of-pocket expenses 9 incurred and typically charged in connection with rendering professional services to its clients in 10 the ordinary course of its business practice. As is typical of Milbank's practice when 11 representing creditors' committees, Milbank has reduced to cost or not charged certain of these 12 out-of-pocket expenses to the estate in accordance with the UST Guidelines and the Court 13 Guidelines and to ensure the reasonableness of Milbank's fee and expense request. Specifically, 14 Milbank has voluntarily reduced its expenses by a total of $29,805.57. A brief explanation of 15 certain costs incurred and charged to the estate is set forth below:

16 (a) Milbank charges its clients for photocopying done in-house at the rate of 17

$0.20 per page; copying done by outside services is charged at cost.

18 19 (b) Milbank charges its clients for document retrieval services, computer 20 research and other specialized searches and services, such as messengers and library retrievals at 21 cost.

22 (c) Milbank charges its clients for mileage if submitted for reimbursement by 23 an employee ($0.345 per mile, if sought) and parking costs incurred by its attorneys and legal 24 assistants in connection with services rendered at cost.

25 26 (d) Milbank charges its clients for cab fares or other transportation costs 27 incurred by its attorneys when working on specific client matters at cost.

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TWEED, HADLEY & MCCLOy LLP Second Interim Application for Allowance and Payment of Compensation

1 (e) Milbank normally charges its clients for word processing services 2 rendered by a specialized operator and by the secretary assigned to each lawyer. Milbank also 3 charges for the use of its computer system based on the amount of time utilized to prepare 4 documents. In order to comply with the UST Guidelines and the Court Guidelines, however, no 5 such charges are included in this Second Interim Application.

6 (f) Milbank normally charges its clients for the cost of overtime and weekend 7

meals when pressing client matters require the attorney to work during the meal. In accordance 8

with the UST Guidelines and the Court Guidelines, however, no such charges are included in this 9

Second Interim Application.

10 11 (g) In accordance with the UST Guidelines and the Court Guidelines, Milbank 12 is seeking reimbursement for outgoing facsimile transmissions at the rate of $.20 per page plus 13 actual costs of the connection.

14 (h) In accordance with the UST Guidelines and the Court Guidelines, Milbank 15 is seeking reimbursement for telephone calls at cost.

16 17 V.

18 COMPENSATION REQUESTED AND RELEVANT LEGAL STANDARD 19 To grant a request for compensation pursuant to Bankruptcy Code section 330, 20 the Court must find that such request is reasonable. The reasonableness of a compensation 21 request is determined by the "lodestar" method. See In re Yermakov, 718 F.2d 1465, 1471 ( 9 th 22 Cir. 1983). Under the lodestar approach, "reasonable" compensation is calculated by 23 multiplying the number of hours reasonably expended by the hourly rate of the professional. In 24 re Rheuban, 121 B.R. 368, 383 (Bankr. C.D. Cal. 1990). There is a strong presumption that the 25 lodestar product is reasonable under Bankruptcy Code section 330. See In re Drexel Burnham 26 Lambert Group, Inc., 133 B.R. 13, 22 (Bankr. S.D.N.Y. 1991).

27 LA :# 28

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TWEED, HADLEY & MCCLOY LLP Second Interim Application for Allowance and Payment of Compensation

1 The reasonableness of a professional's hourly rate is based on the cost for 2 comparable services charged in the area, in non-bankruptcy matters. See In re Yermakov, 718 3 F.2d at 1471. The reasonableness of the hours expended on a task is based on whether the 4 services provided were actual and necessary. See In re Nucorp Energy, Inc., 764 F.2d 655, 658 (9 th Cir. 1985).

5 6

Milbank's fees are reasonable given the size and complexity of the bankruptcy 7

case and are commensurate with the fees that Milbank has been awarded in comparable chapter 8

11 cases and that counsel of comparable experience and expertise charge on a regular basis to 9

represent creditor committees in comparable chapter 11 cases. Accordingly, utilizing the 10 lodestar method, Milbank's fee and expense request is reasonable and should be allowed and 11 paid pursuant to Bankruptcy Code section 330. See Drexel, 133 B.R. at 22.

12 13 VI.

14 CONCLUSION 15 For the reasons set forth above and pursuant to Bankruptcy Code sections 330 and 16 331, Bankruptcy Rule 2016, the Court Guidelines, the UST Guidelines and the standards adopted 17 by courts in awarding attorneys' fees and costs, Milbank submits that the fees for services 18 rendered and costs and expenses incurred on behalf of the Committee during the Second 19 Application Period in the total amount of $1,807,525.11 are reasonable and should be allowed on 20 an interim basis and paid in full.

21 22 No agreement or understanding of any kind or nature exists between Milbank and 23 any other person or entity for the sharing, division, or payment of any portion of the 24 compensation awarded to Milbank for services rendered or expenses incurred in connection with 25 Milbank's representation of the Committee in the bankruptcy case, except as among the partners, 26 associates and employees of Milbank.

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TWEED, HADLEY & MCCLOy LLP Second Interim Application for Allowance and Payment of Compensation

1 WHEREFORE, Milbank respectfully requests that this Court enter an order:

2 3 1. Approving this Second Interim Application in its entirety.

4

2. Approving an interim award of compensation in the amount of 5

$1,690,874.00 for professional services rendered and in the amount of $116,651.11 as 6

reimbursement of costs and expenses incurred, for a total award of $1,807,525.11.

7 8 3. Authorizing and directing PG&E to immediately pay to Milbank the 9 allowed amounts, less any such amounts already paid pursuant to the Order Establishing Interim 10 Fee Application and Expense Reimbursement Procedure.

11

4. Granting such other and further relief as the Court deems just and proper.

12 13 DATED: January 12, 2002 Respectfully submitted.

14 MILBANK, TWEED, HADLEY & McCLOY LLP 15 By:_ _ __-O-ý 16 Paul S. Arorizan 17 Robert Jay Moore Michael I. Sorochinsky 18 19 Counsel to Official Committee of Unsecured Creditors 20 21 22 23 24 25 26 27 LAI:# 28 6226032vi18MWLR,.

TWEED, HADLEY & MCCLOY LLP Second Interim Application for Allowance and Payment of Compensation

1 CERTIFICATION 2

3 I, Robert Jay Moore, am the professional designated by Milbank to ensure 4 compliance with the United States Bankruptcy Court Northern District of California Guidelines 5 for Compensation and Expense Reimbursement of Professionals and Trustee ("Court 6 Guidelines"). I certify that (a) I have read the Second Interim Application; (b) to the best of my 7 knowledge, information and belief, formed after reasonable inquiry, the compensation and 8 expense reimbursement sought is in conformity with the Court Guidelines, except as specifically 9 noted in the Application; and (c) the compensation and expense reimbursement requested are 10 billed at rates, in accordance with the firm's practice, no less favorable than those customarily 11 employed by Milbank and generally accepted by Milbank's clients.

12 13 DATED: January 12, 2002 RobeiyJfy Mloore 14 15 16 17 18 19 20 21 22 23 24 25 26 27 LA I:# 228 6226032v 18MLBANK,

TWEED, HADLEY & MCCLoY LLP Second Interim. Application for Allowance and Payment of Compensation