ML020420334

Heller Ehrman White & Mcauliffe Llp'S Second Interim Fee Application for Allowance and Payment of Compensation and Reimbursement of Expenses for the Period August 1, 2001 Through November 30, 2001

ML020420334
Person / Time
Site:	Diablo Canyon
Issue date:	01/14/2002
From:	Fiala M Heller Ehrman White & McAuliffe, LLP, Pacific Gas & Electric Co
To:	Office of Nuclear Reactor Regulation, US Federal Judiciary, Bankruptcy Court, Northern District of California
References
01-30923 DM
Download: ML020420334 (30)

Text

1 MARIE L. FIALA (No. 79676)

PETER J. BENVENUTTI (No. 60566) p '

2 ADAM M. COLE (No. 145344)

HELLER EHRMAN WHITE & McAULIFFE LLP 3 333 Bush Street San Francisco, California 94104-2878 4 Telephone: (415) 772-6000 Facsimile: (415) 772-6268 5

Special Counsel for Debtor in Possession 6 PACIFIC GAS AND ELECTRIC COMPANY 7

8 UNITED STATES BANKRUPTCY COURT 9

NORTHERN DISTRICT OF CALIFORNIA 10 SAN FRANCISCO DIVISION 11 12 In re Case No.: 0 1-30923 DM 13 Chapter 11 .Case PACIFIC GAS AND ELECTRIC 14 COMPANY, a California corporation, Judge: Hon. Dennis Montali 15 Debtor. Date: February 26, 2002 Federal I.D. No. 94-0742640 Time: 9:30 a.m.

16 17 HELLER EHRMAN WHITE & McAULIFFE LLP'S SECOND INTERIM FEE 18 APPLICATION FOR ALLOWANCE AND PAYMENT OF COMPENSATION AND REIMBURSEMENT OF EXPENSES FOR THE PERIOD 19 AUGUST 1, 2001, THROUGH NOVEMBER 30, 2001 20 Pursuant to the Order Establishing Interim Fee Application and Expense 21 Reimbursement Procedure, entered July 26, 2001, and amended November 8, 2001 ("Order 22 re Fee Applications"), Heller Ehrman White & McAuliffe LLP ("Heller Ehrman," or the 23 "Firm") files this Second Interim Fee Application (the "Application") for Allowance and 24 Payment of Compensation and Reimbursement of Expenses for the Period August 1, 2001, 25 Through December 31, 2001 (the "Application Period").

26 I. RETENTION 27 1. Heller Ehrman is Special Counsel to Pacific Gas and Electric Company, debtor Heller 28 and debtor-in-possession in the above-referenced bankruptcy case ("PG&E" or the Ehrman '/1 White &

McAuliffe LLP SECOND HELLER EHRMAN INTERIM FEE APPLICATION  ! e*(

CASE NO.: 01-30923 DM

111 "Debtor"). Heller Ehrman's retention as Special Counsel was authorized by this Court's 2 Order Authorizing Debtor in Possession to Employ Heller Ehrman White & McAuliffe LLP 3 as Special Counsel, entered June 4, 2001 (the "June 4, 2001 Order"), effective nunc pro tunc 4 to April 6, 2001.

5 II. PRIOR COMPENSATION 6 2. As of the date of filing this Application, Heller Ehrman has received 7 compensation for services rendered and reimbursement for expenses incurred since the date 8 of petition (April 6, 2001) as follows:

9 Application Period Amount Applied For Description Amount Paid 10 4/6/01 - 7/31/01 (first $2,264,794.01 100% of fees and $2,246,327.811 post-petition interim 100% of expenses 11 fee application period) 8/1/01 - 8/31/01 (Aug. $ 507,687.35 85% of fees and $ 507,687.35 12 CSA period) 100% expenses 13 $ 398,784.91 85% of fees and $ 398,814.512 9/1/01 - 9/30/01 (Sept.

CSA period) 100% expenses 14 $ 527,472.52 85% of fees and $ 542,494.903 10/1/01 - 10/31/01 15 (Oct. CSA period) 100% expenses Total $3,698,738.79 $3,695,324.57 16 17 3. On December 19, 2000, PG&E paid a retainer to Heller Ehrman in the amount of 18 19 1The amount paid reflects a disallowance of $18,466.20 in fees. See Order Approving Heller Ehrman White & McAuliffe LLP's First Interim Fee Application for 20 Allowance and Payment of Compensation and Reimbursement of Expenses for the Period 21 April 6, 2001, Through July 31, 2001 (Nov. 21, 2001); Memorandum Decision Regarding Applications for Interim Compensation of Professionals (Dec. 12, 2001).

22 2 The September Cover Sheet Application inadvertently understated the request for 23 compensation by $29.60, which PG&E paid.

24 3 In its October Cover Sheet Application pleading, the Firm inadvertently did not 25 identify in Matter No. 13779-0083 (Wayne Roberts v. PG&E), although the bill for fees and expenses incurred in that matter was attached to the October Cover Sheet Application. For 26 Matter No. 13779-0083, the fees were $17,359.80 and the expenses were $266.52, for a total 27 of $17,626.32. Accordingly, the Firm's October Cover Sheet Application pleading should have specified a request for payment of an additional $15,023.35 (85% of $17,359.80 +

Heller 28 100% of $266.52). PG&E paid that additional amount.

Ehrman White & SECOND HELLER EHRMAN INTERIM FEE APPLICATION McAuliffe LLP CASE NO.: 01-30923 DM 1 $350,000. Pursuant to written agreement between the parties dated December 19, 2000, the 2 retainer is not to apply to current billings in the ordinary course, but instead is to apply to 3 Heller Ehrman's unpaid fees and expenses in the event that PG&E fails to make payment in 4 the ordinary course. By written agreement dated April 5, 2001, the parties modified that 5 arrangement to authorize Heller Ehrman to apply the retainer to payment of unpaid pre 6 petition fees and expenses on matters that are subject to an hourly billing arrangement. The 7 foregoing arrangement was approved by this Court in its June 4, 2001 Order (approving 8 Application of Debtor in Possession for Authority to Employ Heller Ehrman White &

9 McAuliffe LLP as Special Counsel (Apr. 17, 2001)); see id. ¶¶ 9-10; Declaration of Marie 10 L. Fiala ¶ 9 (Apr. 8, 2001). As of the date of submission of this Application, Heller Ehrman 11 has applied $153,615.61 of the retainer to pay for a portion of its (i) pre-petition fees and 12 expenses on hourly rate engagements ($136,622.77) and (ii) fees and costs incurred on the 13 petition date on hourly rate engagements ($16,952.84). The current retainer balance is 14 $196,384.39.

15 4. PG&E and Heller Ehrman are parties to a contingent fee agreement (entered into 16 on January 1, 1993) (the "Contingent Fee Agreement") pertaining to Heller Ehrman's 17 representation of PG&E in pursuing insurance recoveries from a number of insurance 18 companies for losses incurred by PG&E as a result of environmental liabilities. The terms 19 of the Contingent Fee Agreement are described in the Supplemental Application of Debtor 20 in Possession for Authority to Employ Heller Ehrman White & McAuliffe LLP as Special 21 Counsel (Insurance Coverage - Contingent Fee), filed May 18, 2001, and approved by this 22 Court in its June 4, 2001 Order. Heller Ehrman does not seek in this Application 23 compensation or expenses in connection with the contingent fee matter, but instead expects 24 to seek compensation and expenses with respect to that matter by a separate fee application 25 to be filed at an appropriate time.

26 III. CASE STATUS 27 5. Heller Ehrman relies on the description of the status of the bankruptcy case Rice Nemerovski Canady Falk &

Heller 28 provided by PG&E's general bankruptcy counsel, Howard Ehrman White & SECOND HELLER EHRMAN INTERIM FEE APPLICATION McAuliffe LLP CASE NO.: 01-30923 DM I

I Rabkin.

2 IV.

SUMMARY

OF SERVICES PERFORMED

6. Heller Ehrman's services to PG&E during the Application Period are described in 4 detail 4 in the billing statements attached to the accompanying Time Records Exhibit of 5 Special Counsel Heller Ehrman White & McAuliffe LLP for the Period August 1, 2001, 30, 2001 ("Time Records Exhibit").5 6 Through November 7 7. During the Application Period, Heller Ehrman has provided legal services to continued to involve efforts 8 PG&E on a number of matters. The bulk of those services has 9 to obtain rate relief for PG&E from governmental agencies or the courts in the wake of the 10 1 In accordance with Heller Ehrman' s professional obligations to its client, Heller Ehrmnan's time records have been extensively edited and redacted to prevent disclosure of privilege 12 confidential information, including information protected by the attorney-client and the work product doctrine. Such information includes, but is not limited to, the specific 13 subject matter of confidential attorney-client or attorney work product discussions; the 14 identity and work product of nontestifying expert consultants; and the exact nature of the issues and theories that have been the subject of Heller Ehrman's legal research, analysis 15 and advice to PG&E in written or oral form. Heller Ehrman submits these time records pursuant to order of the Bankruptcy Court and without any waiver of any privilege, 16 confidentiality protection or privacy right that might apply to the information contained 17 therein.

18 5 The accompanying billing statements have been annotated to reflect fee reductions ordered by the Court in its December 12, 2001, Memorandum Decision Regarding 19 Applications for Interim Compensation of Professionals ("December 12, 2001 Order").

for:

20 Specifically, the billing statements show fee reductions 21 (a) File management activities by paralegals. See December 12, 2001 Order at 22 pp. 5-6.

M. Brett Stone. See id. at pp.

23 (b) All time billed by paralegals Nneka Nwosu and 15-16.

24 (c) Reviewing and routing of articles regarding PG&E and the California energy 25 crisis by paralegals. See id. at pp. 14-15.

26 As discussed more fully below (see infra ¶ 75), Heller Ehrman respectfully requests services in the above three 27 that the Court amend its December 12, 2001 Order to permit categories to be compensated at the Firm's full paralegal rates based on the showing made herewith.

Heller 28 in this Application and the supporting documentation filed or served Ehrman White & SECOND HELLER EHRMAN INTERIM FEE APPLICATION McAuliffe LLP CASE NO.: 01-30923 DM 1 California energy crisis that caused PG&E's financial condition to deteriorate and 2 precipitated this bankruptcy filing. Heller Ehrman's services have included advice, 3 counseling, and representation regarding regulatory, rate setting and rate refund matters, and 4 litigation related to those and related subject areas. Heller Ehrman has represented PG&E in 5 connection with proceedings before the Federal Energy Regulatory Commission ("FERC")

6 addressing the California energy market and directly affecting PG&E. Heller Ehrman has 7 provided counseling, representation and assistance to PG&E in connection with proceedings 8 at the California Public Utilities Commission ("CPUC") involving PG&E. Heller Ehrman 9 also has represented PG&E in connection with a lawsuit against the Commissioners of the 10 CPUC, which seeks to require the CPUC to comply with federal law and allow PG&E to 11 recover in its retail rates the wholesale electricity costs it incurred in meeting its state 12 imposed obligation to serve its customers. If PG&E succeeds on its claims as pleaded, that 13 lawsuit ultimately could bring billions of dollars into PG&E's bankruptcy estate through 14 increased retail rate revenues. Heller Ehrman also has provided bankruptcy-related advice services. 6 15 and services to PG&E as an adjunct to its other 16 8. Consistent with the Court's Guidelines for Compensation of Professionals (the 17 "Fee Guidelines"), Heller Ehrman's services have been recorded under 22 separate internal 18 matter numbers. Billing statements for each of those matters are attached to the 19 accompanying Time Records Exhibit. The billing statements set forth for each matter, inter 20 alia, the total number of hours of services recorded by each attorney and paralegal, that 21 person's discounted hourly billing rate to PG&E, and the fees requested for those services.

22 'A narrative description of each of those matters follows.

23 V. NARRATIVE DESCRIPTION OF SERVICES 24 9. Matter No. 21: City of Santa Cruz. Hours spent: .50; fees sought: $139.50; 25 expenses sought: $31.20. This matter is used to record time billed in providing legal 26 27 6 See June 4, 2001 Order at p. 2 (authorizing Heller Ehrman to provide "bankruptcy related legal services as an adjunct to the other legal services to be performed by Heller Heller 28 Ehrman").

Ehrman White & SECOND HELLER EHRMAN INTERIM FEE APPLICATION McAuliffe LLP CASE NO.: 01-30923 DM 1 advice to PG&E in connection with a lawsuit filed against PG&E by the City of Santa Cruz, 2 on its own behalf and on behalf of certain other municipalities, regarding PG&E's alleged 3 underpayments for "franchise" arrangements between PG&E and the municipalities. As a 4 result of the instant bankruptcy filing by PG&E, the City of Santa Cruz action has been 5 stayed, and plaintiff has not moved for relief from the stay.

6 10. The law firm of Hoge Fenton Jones & Appel, Inc. is principal outside counsel for 7 PG&E in this matter. PG&E has asked Heller Ehrman to provide occasional supplemental 8 legal advice. During the Application Period, Heller Ehrman billed only a small amount of 9 time to this matter for advice relating to plaintiff's submission of a proof of claim in the 10 bankruptcy proceeding.

11 11. Matter No. 45: Utility General Insurance Advice. Hours spent: 55.8; fees 12 sought: $18,835.80; expenses sought: $924.61. This matter is used to record time billed 13 in connection with insurance advice and services provided by Heller Ehrman to PG&E.

14 This matter is separate from and independent of the PG&E v. Lexington Insurance Company 15 et al. insurance coverage action (Matter No. 11), which is subject to a separate contingent 16 fee agreement. See supra ¶ 4.

17 12. During the Review Period, Heller Ehrman provided advice concerning PG&E's 18 self-insured workers' compensation program; assisted PG&E in responding to a demand by 19 the California Department of Toxic Substances Control ("DTSC") to meet certain insurance 20 requirements for insolvent operators of hazardous waste facilities; provided advice 21 regarding third-party surety bond issues; and assisted PG&E in responding to a claim 22 against PG&E by an employee benefit program.

23 13. We anticipate providing additional services to PG&E in response to periodic 24 requests for insurance-related advice.

25 Matter No. 54: Modesto Irrigation District v. Destec. Hours spent: 3.20; fees billed 26 sought: $1,214.10; expenses sought: $268.36. This matter is used to record time 27 in providing legal advice to PG&E in connection with a lawsuit filed against PG&E by the violated the antitrust laws by Heller 28 Modesto Irrigation District ("MID"), alleging that PG&E Ehrman White & SECOND HELLER EHRMAN INTERIM FEE APPLICATION McAuliffe LLP CASE NO.: 01-30923 DM 1 refusing to accede to MIID's request for interconnection service between PG&E's 2 transmission system and MID's facilities. The case was filed on August 3, 1998 and was 3 dismissed with prejudice on August 20, 1999. Plaintiff appealed the dismissal to the Ninth 4 Circuit Court of Appeals. Appellate briefing was concluded on March 31, 2000 and oral 5 argument was heard on the appeal on March 15, 2001. Thus, at the time that PG&E filed 6 the instant bankruptcy petition, the appeal had been fully briefed and argued and awaited 7 resolution by the Ninth Circuit. As a result of the bankruptcy filing by PG&E, the MID 8 action was initially stayed pursuant to the automatic stay provisions of Section 362(a) of the 9 Bankruptcy Code. The parties thereafter stipulated that plaintiff would seek relief from the 10 automatic stay for the limited purpose of resolving the appeal under submission in the Ninth 11 Circuit, including any rehearing requests or certiorari petitions. This Court granted 12 plaintiff s motion for relief from the stay on those terms and the Ninth Circuit ordered that 13 the case be resubmitted on August 3, 2001.

14 14. During the Application Period, PG&E asked Heller Ehrman to provide occasional 15 legal advice on issues pertaining to the legal proceedings and to PG&E's business dealings 16 in matters that relate to the legal proceedings. Heller Ehrman billed only a small amount of 17 time to this matter for such advice during the Application Period.

18 15. Matter No. 63: California Market Failures - FERC Docket ELOO-95 and 19 Related Dockets/Matters. Hours spent: 2,500.10; fees sought: $633,462.707; expenses 20 sought: $44,030.69. This matter is used to record time billed in connection with the 21 principal FERC proceeding addressing failures in the California electric market. That 22 proceeding, FERC Docket ELOO-95, was brought on August 2, 2000, by San Diego Gas and 23 Electric Company ("SDG&E") against all sellers in the California wholesale electric 24 markets, seeking FERC intervention in the markets. PG&E intervened in the proceeding, 25 seeking reform of those markets, and monetary relief and refunds based on overcharges by 26 27 7 The fees sought reflect a reduction for certain paralegal fees as directed by the Court's December 12, 2001 Order. If full paralegal fees are included, the amount of fees Heller 28 sought would be $640,437.70.

Ehrman White & SECOND HELLER EHRMAN INTERIM FEE APPLICATION McAuliffe LLP CASE NO.: 01-30923 DM 1 sellers.

2 16. Heller Ehrman has been retained since prior to the petition date to provide 3 extensive legal services to PG&E in connection with this proceeding. Heller Ehrman has 4 provided legal advice, research and strategy input; prepared and filed numerous briefs and 5 other papers; and appeared at hearings on behalf of PG&E. For example, Heller Ehrman 6 prepared extensive papers and advocated on PG&E's behalf concerning prospective price 7 mitigation relief affecting PG&E which has been the subject of FERC orders issued 8 November 1, 2000, December 15, 2000, April 26, 2001, June 19, 2001, and December 19, 9 2001, and a FERC technical conference in October 2001. Heller Ehrman has likewise 10 represented PG&E in seeking refunds for overcharges by sellers, submitting numerous 11 pleadings which led to refund orders issued by the FERC on July 25, 2001, and December power 12 19, 2001. Heller Ehrman's efforts are designed to reduce costs for future wholesale 13 purchases by PG&E, and to maximize PG&E's recovery of refunds from wholesale power 14 generators and marketers. A hearing process before an administrative law judge at the 15 FERC to establish precise refund amounts is continuing, and a trial, at which Heller Ehrman 16 will appear as counsel for PG&E, is expected in the early part of 2002.

17 17. PG&E has been and will continue to be an active participant in numerous other 18 proceedings related to FERC Docket EROO-95, in which Heller Ehrman has been retained to 19 provide legal services. For example, Heller Ehrman has prepared and submitted pleadings 20 on PG&E's behalf responding to filings by the California Independent System Operator 21 Corporation ("ISO") (the entity responsible for overseeing the transmission grid in meet 22 California and procuring wholesale electricity in "real time" where necessary to 23 demand) affecting PG&E's interests. Heller Ehrman also has been retained to challenge of 24 efforts by certain sellers that serve the California markets to obtain FERC renewals such 25 authority to sell wholesale power at market-based rates or to otherwise ensure that 26 sellers are not permitted to charge unreasonable rates in the future. In addition, Heller Circuit 27 Ehrman has been retained to represent PG&E as an intervenor in a number of federal in FERC Docket ELOO-95 and Heller 28 Court of Appeals proceedings seeking review of orders Ehrman White & SECOND HELLER EHRMAN INTERIM FEE APPLICATION McAuliffe LLP CASE NO.: 01-30923 DM 1 related dockets, and anticipates representing PG&E in any federal Circuit Court of Appeals 2 petitions for review filed by PG&E concerning FERC's orders in these proceedings.

3 18. We anticipate providing extensive continuing legal services to PG&E in this 4 matter.

5 19. Matter No. 64: Federal Filed Rate Case. Hours spent: 2,112.40; fees sought:

6 $528,847.408; expenses sought: $39,668.94. This matter is used to record time billed in 7 providing legal advice and representation to PG&E in a lawsuit filed by PG&E against the 8 Commissioners of the CPUC. The lawsuit seeks to require the CPUC to comply with 9 federal law and allow PG&E to recover in its retail rates the wholesale electricity costs it 10 incurred in meeting its state-imposed obligation to serve its customers. The lawsuit stems 11 from the electricity market crisis that started in June 2000, when the wholesale cost of the 12 electricity that PG&E purchased for delivery to its retail customers experienced 13 unanticipated and massive increases. Although PG&E's wholesale costs rose dramatically, 14 PG&E's retail rate revenues were frozen pursuant to AB 1890, California's electricity 15 market restructuring statute. Between June 2000 and March 31, 2001, PG&E's wholesale by 16 costs exceeded the amounts available in PG&E's frozen retail rates to pay for such costs its 17 approximately $9.2 billion. As a result of the CPUC's refusal to allow PG&E to recover to 18 wholesale costs in retail rates, PG&E amassed crippling debt, ultimately leading PG&E 19 file the instant bankruptcy petition on April 6, 2001.

20 20. PG&E retained Heller Ehrman in the summer of 2000 to analyze the legal issues 21 and prepare litigation to challenge the CPUC's actions denying recovery to PG&E of its a

22 ever-mounting wholesale electricity costs. In November 2000, Heller Ehirman filed of 23 lawsuit on PG&E's behalf in the United States District Court for the Northern District 24 California alleging that under well-established principles of federal preemption, including 25 26 directed by the 27 8 The fees sought reflect a reduction for certain paralegal fees as Court's December 12, 2001 Order. If full paralegal fees are included, the amount of fees Helier 28 sought would be $543,259.60.

Ehrman White & SECOND HELLER EHRMAN INTERIM FEE APPLICATION McAuliffe LLP CASE NO.: 01-30923 DM 1 the "filed rate doctrine," 9 and other legal theories PG&E is entitled to recover its wholesale 2 transmission and power purchase costs in its retail rate revenues. That case, PG&E v. Lynch 3 et al., Civil Action No. C 00 4128 (SBA) (N.D. Cal.), subsequently was transferred to the 4 United States District Court for the Central District of California, where a virtually identical 5 lawsuit by Southern California Edison Company was pending. PG&E filed an amended 6 complaint in the United States District Court for the Central District of California on 7 February 15, 2001, entitled PG&E v. Lynch et al., Civil Action No. CV 01-1083-RSWL 8 (SHx) (C.D. Cal.).

9 21. Heller Ehrman provided legal representation to PG&E in prosecuting that lawsuit, 10 including consultation and advice, preparing and filing pleadings and motion papers, 11 appearances at court hearings and preparing for potential discovery.

12 22. On May 2, 2001, the court dismissed PG&E's lawsuit on ripeness grounds 13 without prejudice to refiling. On August 6, 2001, Heller Ehrman refiled PG&E's lawsuit 14 against the CPUC Commissioners in the United States District Court for the Northern 15 District of California. That lawsuit, PG&E v. Lynch, et al., Case No. C 01-03023 VRW 16 (N.D. Cal.) (the "Filed Rate Lawsuit"), currently is pending before the Hon. Vaughn R.

17 Walker.

18 23. During the Application Period, Heller Ehrman provided a wide range of legal 19 services to PG&E in its role as outside counsel representing PG&E in litigating its claims 20 against the CPUC Commissioners in the Filed Rate Lawsuit. Heller Ehrman prepared a new 21 complaint for filing in the United States District Court for the Northern District of 22 California; conducted extensive legal research and analysis regarding PG&E's claims; 23 prepared briefing in opposition to the motions to dismiss filed by the CPUC Commissioners, 24 an intervenor and two amici curiae; communicated extensively with PG&E regarding 25 26 9 Under the "filed rate doctrine," a wholesale rate paid by a utility pursuant to a retail rate-setting 27 federally-approved tariff is binding on a state utilities commission for purposes, and a state must allow a utility to recover in its retail rates the wholesale costs Heller 28 paid by the utility pursuant to the federally-approved tariff.

Ehrman White & SECOND HELLER EHRMAN INTERIM FEE APPLICATION McAuliffe LLP CASE NO.: 01-30923 DM 1 strategy issues; monitored developments in other cases and in the energy industry bearing 2 on PG&E's claims; met and conferred with counsel for the CPUC; and prepared for 3 discovery and a case management conference.

4 24. Heller Ehrman anticipates significant additional work on the Filed Rate Lawsuit 5 in the coming months, including representing PG&E in an oral argument before Judge 6 Walker (currently scheduled for January 31, 2002) on the CPUC Commissioners' and 7 intervenor's motion to dismiss; briefing other issues; case management proceedings; 8 engaging in discovery; conducting legal research and analysis; and providing advice and 9 counseling to PG&E with respect to the litigation.

10 25. Matter No. 66: Claims re Missing London Markets. Hours spent: 2.10; fees 11 sought: $831.60; expenses sought: $0. This matter is an offshoot of the PG&E v.

12 Lexington Insurance Company insurance coverage case, Matter No. 11. Matter No. 11, 13 itself, is subject to a separate contingent fee agreement. See supra ¶ 3. Matter No. 66 is 14 used to record time billed in assisting PG&E in obtaining recovery from its London broker 15 under London market insurance policies that PG&E was unable to identify. Heller Ehrman 16 coordinates with English counsel retained by PG&E.

17 26. Matter No. 67: Creditworthiness Docket - FERC Docket ER01-889. Hours 18 spent: 91.70; fees sought: $35,929.80; expenses sought: $8.08. This docket addresses, 19 among other things, the issue of whether PG&E may be held liable for electricity procured 20 for PG&E's customers after PG&E no longer had the financial resources to assure that it 21 could pay for such power. In January 2001, PG&E became uncreditworthy under existing 22 tariffs, necessitating that an alternative buyer be found to procure power for PG&E's 23 customers. At about the same time, the California Department of Water Resources 24 ("DWR") was empowered to purchase power on behalf of California's cash-deprived 25 utilities. This proceeding specifically involves a January 4, 2001, filing by the ISO to 26 amend its FERC tariff to relax the creditworthiness provisions so that certain entities, 27 including PG&E, could continue buying electric power from third parties despite the fact requirements. FERC refused to Heller 28 that those entities do not meet the tariff s creditworthiness Ehrman White & SECOND HELLER EHRMAN INTERIM FEE APPLICATION McAuliffe LLP CASE NO.: 01-30923 DM 1 amend the tariff, leaving in place a requirement that power purchases must be made by a 2 creditworthy entity. In a series of subsequent orders, culminating in an order on 3 November 7, 2001, FERC issued clarifications and ordered that DWR, not PG&E, should be 4 billed for any third-party power transactions on or after January 17, 2001.

5 27. Heller Ehrman has been retained since prior to the petition date to represent 6 PG&E in connection with the FERC creditworthiness proceedings. During the Application 7 Period, Heller Ehrman has provided legal advice and filed papers on PG&E's behalf in 8 those proceedings. Heller Ehrman's efforts are intended, inter alia, to prevent PG&E from 9 being forced to spend money that otherwise would accrue to the estate.

10 28. The California ISO has filed a petition in the United States Court of Appeals for 11 the D.C. Circuit for review of several FERC orders in this docket, and DWR has challenged 12 FERC's orders in requests for rehearing filed at FERC. Numerous other parties also have 13 challenged FERC's actions in this docket. Heller Ehrman is representing PG&E at FERC 14 and in the Court of Appeals in connection with these issues. We anticipate performing 15 additional work for PG&E as these matters proceed.

16 29. Matter No. 68: Qualifying Facility ("QF") Proceedings/Issues. Hours spent:

17 51.70; fees sought: $16,177.50; expenses sought: $60.96. PG&E obtains a certain 18 amount of its wholesale electricity from so-called qualifying facilities ("QFs"), companies 19 with which PG&E has legally-mandated and regulated long-term power purchase contracts.

20 Since December 2000, FERC has issued a number of orders relating to QF contracts in light 21 of the California electricity crisis.

22 30. Heller Ehrman has been retained since prior to the petition date to provide legal aim of 23 advice and representation to PG&E regarding QF matters pending at FERC, with the for 24 protecting PG&E's rights vis-A-vis QFs to ensure maximum availability of electricity 25 delivery to retail customers.

26 31. Heller Ehrman has provided broad assistance to PG&E on QF matters. For 27 example, Heller Ehrman has represented PG&E in connection with a FERC order granting their Heller 28 waivers to QFs, potentially affecting the operation of QFs that had contracted to sell Ehrman White & SECOND HELLER EHRMAN INTERIM FEE APPLICATION McAuliffe LLP CASE NO.: 01-30923 DM

- IL-

1 output to PG&E; filings by certain QFs for authorization to sell power to parties other than 2 PG&E in derogation of existing contracts; motions brought at FERC by QFs seeking relief 3 from California Public Utility Commission decisions concerning the rates to be paid to QFs 4 by utilities such as PG&E; a FERC Notice of Opportunity for Comment on Motions for 5 Emergency Relief and Institution of a Section 210(d) Proceeding; a FERC order granting in 6 part QFs' motions for emergency relief; and interconnection issues raised by FERC; and 7 research and advice regarding the impact of PG&E's bankruptcy case on certain of its QF 8 relationships and clients. Heller Ehrman also has been retained to represent PG&E in 9 litigation and negotiation with QFs in other fora, including the CPUC and this Court.

10 32. We anticipate providing further assistance to PG&E in the coming months in 11 connection with various proceedings involving QF issues.

12 33. Matter No. 69: CPUC v. El Paso - FERC Docket RPOO-241. Hours spent:

to 13 1,288.70; fees sought: $342,035.0010; expenses sought: $9,657.46. This matter is used by the 14 record time billed in representing PG&E in a complex FERC proceeding commenced 15 CPUC against El Paso Natural Gas Company and its affiliate, El Paso Merchant Energy, 16 alleging that their exercise of market power improperly increased natural gas prices at the 17 California border. Natural gas is used to power a significant amount of electricity 18 generation in California, and high natural gas prices were one cause of the increase in 19 wholesale electricity prices starting in the summer of 2000. As a purchaser of wholesale natural 20 electricity and as a direct purchaser of natural gas, PG&E has been affected by high 21 gas prices and therefore participates in this proceeding.

22 34. Heller Ehrman was retained before the petition date to provide a full range of the 23 legal services to PG&E in this matter, including acting as trial counsel. During FERC, 24 Application Period, Heller Ehrman represented PG&E as trial counsel in hearings at on 25 and prepared initial briefs, reply briefs and, following issuance of an Initial Decision 26 as directed by the 27 10 The fees sought reflect a reduction for certain paralegal fees Court's December 12, 2001 Order. If full paralegal fees are included, the amount of fees Heller 28 sought would be $343,010.90.

Ehrman White & SECOND HELLER EHRMAN INTERIM FEE APPLICATION McAuliffe LLP CASE NO.: 01-30923 DM 1 October 9, 2001, briefs on and opposing exceptions. Heller Ehrman also has provided legal 2 advice and prepared additional regulatory filings to protect PG&E's interests.

3 35. Pursuant to a December 19, 2001, order on remand issued by the FERC, 4 additional hearings will be held in this proceeding to develop a portion of the record further.

5 A prehearing conference will be scheduled in January 2002. We anticipate performing 6 additional services for PG&E on this matter.

7 36. Matter No. 70: El Paso Capacity-Related Complaints - FERC Dockets 8 RP01-484 & RP01-486. Hours spent: 4.60; fees sought: $1,297.80; expenses sought:

9 $17.76. Heller Ehrman has been retained to provide representation to PG&E in connection 10 with complaints filed at FERC as an outgrowth of the CPUC v. El Paso proceeding (see 11 supra, Matter No. 69). Two such complaints have been filed alleging that El Paso Natural 12 Gas Company failed to maintain capacity on its system adequate to serve its contracted firm to 13 load. The complaint in Docket No. RPO1-484 was filed by a number of shippers 14 California. PG&E is one of the complainants. The second complaint was filed by 15 customers that receive service from El Paso Gas Company in Texas, New Mexico and of 16 Arizona. PG&E filed an intervention in the second complaint and urged consolidation 17 the two proceedings.

18 37. During the Application Period, Heller Ehrman has provided legal advice with 19 respect to both proceedings (both of which commenced after the petition date). The possibly 20 complaints are pending before FERC. We anticipate additional work on these and 21 other related matters in the coming months.

22 38. Matter No. 71: Order 637 Compliance Filing and Related Complaints sought:

23 FERC Dockets RP99-507, RP0O-139, RPOO-336. Hours spent: 13.40; fees 24 $4,415.40; expenses sought: $18.00. This matter reflects legal advice to and at FERC to 25 representation of PG&E in connection with a technical conference proceeding related 26 address El Paso Natural Gas Company's Order No. 637 compliance filing and gas on its 27 complaints. El Paso's compliance filing bears on El Paso's deliveries of natural Heller 28 pipeline system and affects PG&E's interests.

Ehrman White & SECOND HELLER EHRMAN INTERIM FEE APPLICATION McAuliffe LLP CASE NO.: 01-30923 DM 1 39. During the Application Period, Heller Ehrman principally provided legal advice 2 to PG&E. Heller Ehrman was retained to represent PG&E in these proceedings prior to the 3 petition date, although our involvement became active only with the commencement of 4 technical conference proceedings in July 2001.

5 40. These proceedings remain pending at FERC. We anticipate being called on to 6 continue our work for PG&E on these proceedings in the months to come. The scope and 7 timing of any future work will depend in large part on FERC actions.

8 41. Matter No. 72: Transwestern Pipeline Co. - FERC Docket RP97-288.

9 Hours spent: 27.60; fees sought: $6,729.20"; expenses sought: $818.40. On July 26, 10 2001, FERC commenced a proceeding to determine whether rate filings by Transwestem 11 Pipeline Company violated FERC regulations and policy, contributing to high natural gas 12 prices in California. PG&E has retained Heller Ehrman to provide legal advice, submit 13 briefing as necessary, and appear at hearings in this proceeding, in which PG&E is 14 interested as a purchaser of wholesale electricity whose cost is affected by natural gas 15 prices, and as a direct purchaser of natural gas.

16 42. PG&E has assumed an inactive, monitoring role in this proceeding. During the 17 Application Period, Heller Ehrman monitored and kept PG&E apprised of developments.

18 Briefing in this proceeding has been completed. Other than providing an analysis to PG&E 19 of the final FERC action, we anticipate that there will be little additional work related to this 20 matter.

21 43. Matter No. 73: Other FERC Gas Dockets/Matters. Hours spent: .30; fees 22 sought: $99.90; expenses sought: $0. This matter is used to record time billed in 23 providing advice and assistance on natural gas-related proceedings at FERC not accounted to act 24 for in other matters. Heller Ehrman has been retained since prior to the petition date at 25 as regulatory counsel for PG&E on a range of issues relating to natural gas proceedings 26 directed by the 27 The fees sought reflect a reduction for certain paralegal fees as Court's December 12, 2001 Order. If full paralegal fees are included, the amount of fees Heller 28 sought would be $7,170.90.

Ehrman White & SECOND HELLER EHRMAN INTERIM FEE APPLICATION McAuliffe LLP CASE NO.: 01-30923 DM FERC 1 FERC. During the Application Period, Heller Ehrman provided PG&E with general or 2 related advice, including advice as to whether PG&E should intervene, comment on, 3 otherwise participate in FERC proceedings affecting its interests.

4 44. Matter No. 74: Seller/Generator Issues. Hours spent: 9.30; fees sought:

5 $3,626.90; expenses sought: $0. This matter is used to record time billed in providing market 6 advice to PG&E concerning the role of third parties in the California electricity brought 7 crisis, including potential claims for recovery of money or other relief that might be since 8 against such third parties. Heller Ehrman has been retained to provide such services 9 prior to PG&E's bankruptcy filing. This engagement arises in part in connection with the 10 instant bankruptcy case and also includes issues that currently do not pertain to any 11 particular lawsuit or regulatory docket.

12 45. Heller Ehrman's work on such matters has ranged from participation in meetings on 13 with consultants and other counsel, to providing ongoing legal advice and counseling with 14 various issues. For example, Heller Ehrman has engaged in extensive discussions might be 15 PG&E attorneys and other counsel for PG&E regarding potential claims-that market crisis.

16 brought against third parties in connection with the California electric power of such 17 Heller Ehrman also has analyzed and provided advice regarding the relationship 18 potential claims to PG&E' s Filed Rate Lawsuit (see narrative description of Matter 64, 19 supra) and to PG&E's bankruptcy case. Heller Ehrman has worked extensively with Ehrman also 20 consultants retained by PG&E in connection with such potential claims. Heller by generators 21 has assisted PG&E in its efforts to obtain discovery relating to participation 22 and marketers in California's PX and ISO markets.

on 23 46. We anticipate that PG&E will continue to rely on Heller Ehrman for advice 24 these matters, and, if appropriate, to represent it or consult with other counsel in connection 25 with lawsuits or other actions involving third parties.

sought:

26 47. Matter No. 76: CPUC Docket 01-03-082. Hours spent: 0.10; fees 27 $35.60; expenses sought: $0. This matter is used to record time billed in analyzing, and providing advice to PG&E regarding Heller 28 performing legal research, preparing memoranda, Ehrman White & SECOND HELLER EHRMAN INTERIM FEE APPLICATION McAuliffe LLP CASE NO.: 01-30923 DM

-16*-

1 Decision 01-03-082 issued by the California Public Utilities Commission on March 27, 2 2001. That decision adopted certain retroactive regulatory accounting changes proposed by 2

3 The Utility Reform Network ("TURN"), a consumer advocacy group.' PG&E filed for 4 bankruptcy protection shortly after the decision was issued.

5 48. On April 19, 2001, PG&E (through counsel Howard Rice Nemerovski Canady 6 Falk & Rabkin) filed an application in this Court for a preliminary injunction to stay 7 enforcement of Decision 01-03-082.1' PG&E and the CPUC extensively briefed issues 8 relating to Decision 01-03-082 to the Court. On June 1, 2001, the Court denied PG&E's 9 preliminary injunction application, and PG&E appealed. The appeal currently is pending 10 before the Hon. Vaughn Walker of the United States District Court for the Northern District 11 of California.

12 Transition Revenue 13 12 Specifically, the decision involves the interaction between the Account ("TRA"), which was used to account for PG&E's revenues from the provision of 14 retail electric service and associated costs, including wholesale power procurement costs as well as transmission and distribution costs, and the Transition Cost Balancing Account 15 ("TCBA"), which was used to account for so-called "stranded costs" or "transition costs,"

generation 16 which are PG&E's historic investments in generation facilities and other past related costs that might become unrecoverable as a result of the introduction of competition 17 into the California retail market.

18 Decision 01-03-082 required PG&E to restate its TRA and TCBA balances by 19 recording the net revenues from PG&E' s wholesale sales of electricity generated by PG&E's retained generation facilities in the TRA rather than in the TCBA, as had 20 previously been the case, and then transferring the net balance in PG&E's TRA to its TCBA 21 on a monthly basis. The accounting changes are retroactive to January 1, 1998. The CPUC found that, based on these accounting changes, the conditions for meeting the end of the 22 retail rate freeze had not been met, and refused to raise PG&E's retail rates sufficiently to allow PG&E to recover its undercollected wholesale costs.

23 24 13 PG&E alleged therein that the CPUC's Decision No. 01-03-082 was designed as an attempt to interfere with PG&E's preemption and other claims which are the subject of 25 the Filed Rate Lawsuit, and that the CPUC contended that Decision No. 0 1-03-082 would have the effect of preventing PG&E from recovering billions of dollars in undercollected 26 wholesale power costs. PG&E further alleged that the CPUC's Decision No. 01-03-082 was implementation 27 automatically stayed pursuant to 11 U.S.C. § 362(a)(1) and (a)(3), and that of Decision No. 01-03-082 threatened the assets of the bankruptcy estate and interfered with Heller 28 the bankruptcy court's jurisdiction and therefore should be enjoined.

Ehrman White & SECOND HELLER EHRMAN INTERIM FEE APPLICATION McAuliffe LLP CASE NO.: 01-30923 DM 1 49. CPUC Decision 01-03-082 implicates numerous technical issues involving the 2 interplay of regulatory accounts used to track PG&E's costs and revenues in buying 3 wholesale electricity for its customers, selling electricity, disposing of assets, and other 4 matters. During the prior Application Period, Heller Ehrman performed extensive legal 5 services in analyzing the implications of Decision 01-03-082. During the instant 6 Application Period, Heller Ehrman performed minimal services on this matter 7 50. Matter No. 77: CPUC 011 Proceeding. Hours spent: 125.40; fees sought:

8 $29,075.9014; expenses sought: $1,200.99. This matter is used to record time billed in 9 providing legal representation and advice to PG&E relating to an investigation commenced 10 by the CPUC regarding certain transactions between PG&E and its parent company, PG&E 11 Corporation. On April 3, 2001, the CPUC issued an "Order Instituting Investigation" 12 ("OII") directed to PG&E, PG&E Corporation, and other investor-owned utilities and their 13 holding companies, commencing an investigation to determine whether the utilities and their 14 respective holding companies "have complied with relevant statutes and Commission the 15 decisions in the management and oversight of their companies." The OIl stems from 16 fact that the utilities, as part of the deregulation of the electric industry, changed their 17 corporate forms in the latter part of the 1990s to include a CPUC-regulated utility company 18 and an unregulated holding company.

19 51. The OII purports to investigate the payment of dividends by the regulated utilities 20 to their respective corporate parents, the alleged failure of the corporate parents to extend 21 additional capital funding to their regulated utility subsidiaries, the parent corporations' be 22 funding of unregulated subsidiaries, and other corporate transactions. The OIR claims to 23 investigating whether these actions have violated CPUC orders and policies, to determine 24 whether additional rules, conditions, or changes are required in the applicable provisions 25 governing these matters.

26 directed by the 27 14 The fees sought reflect a reduction for certain paralegal fees as Court's December 12, 2001 Order. If full paralegal fees are included, the amount of fees Heller 28 sought would be $29,835.90.

Ehrman White & SECOND HELLER EHRMAN INTERIM FEE APPLICATION McAuliffe LLP CASE NO.: 01-30923 DM 1 52. During the Application Period, Heller Ehrman has provided advice and 2 consultation to PG&E, performed legal research, and assisted in PG&E's response to 3 demands for production of documents and testimony. Significant specific projects have 4 included preparing an opposition to a motion to compel by the CPUC's Office of Ratepayer 5 Advocates ("ORA"); conducting an extensive document review project; and assisting in 6 preparing objections to a proposed draft decision by an Administrative Law Judge. We 7 anticipate that the 011 will include an evidentiary hearing before the CPUC sometime within 8 the next six to nine months, and that Heller Ehrman will assume a larger role as the time for 9 hearing nears.

10 53. Matter No. 78: Other CPUC and California State Law Matters. Hours 11 spent: 248.30; fees sought: $74,351.00; expenses sought: $3,441.16. This matter 12 records services in providing legal advice to PG&E in connection with CPUC regulatory 13 proceedings and orders other than those specified above, and California legislation affecting 14 PG&E's interests. Heller Ehrman has been retained to provide such services since prior to and 15 PG&E's bankruptcy filing. This matter pertains to a number of specific CPUC dockets, 16 also includes advice that does not correspond to any particular lawsuit or regulatory docket.

17 54. Heller Ehrman's work on such matters has encompassed legal advice and and 18 counseling on a wide range of issues, most of which are ongoing; consulting on tactical 19 strategic approaches in proceedings before the CPUC; and providing revisions and 20 comments on court and CPUC pleadings and other documents. For example, Heller Ehrman the 21 was asked to prepare an extensive analysis of ABX-6, a California statute that affects 22 regulatory and rate treatment of the electric generation assets owned by PG&E. Heller 23 Ehrman also was asked to review and comment on a number of draft regulatory and judicial 24 filings that in part address ABX-6 and its potential impact on PG&E. On other occasions, 25 Heller Ehrman has been asked to provide advice related to CPUC regulatory proceedings 26 involving the so-called California Procurement Adjustment ("CPA"). In general terms, the to the 27 CPA is a component of PG&E's rates added by the California Legislature in response of power on behalf of PG&E's Heller 28 energy crisis to recover the costs of the State's purchases Ehrman White & SECOND HELLER EHRMAN INTERIM FEE APPLICATION McAuliffe LLP CASE NO.: 01-30923 DM 1 customers. As with ABX-6, Heller Ehrman has been asked to review and comment on a 2 number of draft regulatory and judicial filings that in part address CPA. Heller Ehrman also 3 has been asked to provide advice and to review and comment on draft regulatory filings 4 regarding the CPUC's ratemaking for PG&E's Utility Retained Generation ("URG") assets.

5 From time to time, Heller Ehrman also has assisted PG&E with regard to other state 6 legislative and regulatory issues, including: CPUC proceedings pertaining to the planned 7 construction of proposed new transmission facilities by PG&E; DWR's procurement of 8 electric power on behalf of PG&E's retail customers; and CPUC proceedings pertaining to 9 the mechanisms by which DWR's costs are quantified and recovered through PG&E's 10 billings to its retail customers.

11 55. We anticipate that PG&E will continue to call on Heller Ehrman for advice in 12 connection with the foregoing matters, as well as future regulatory or legislative actions, 13 although we cannot predict in advance the nature or extent of such future matters or 14 services.

15 56. Matter No. 79: Other Advice, Consultation, Research re Energy Issues.

16 Hours spent: 18.60; fees sought: $8,003.10; expenses sought: $0.36. This matter is 17 used to record time billed for advice, consultation and research on energy issues not covered 18 by other matters. Prior to the Application Period, for example, Heller Ehrman's work on 19 this matter included consulting with PG&E regarding preparation of responses to requests 20 for information from California legislators. Heller Ehrman recorded minimal time to this 21 matter during the Application Period. We anticipate periodically being called upon to 22 continue to provide ongoing advice and consultation to PG&E on various energy-related 23 issues.

24 57. Matter No. 80: CPUC Prudence Review. Hours spent: 515.30; fees sought:

25 $150,694.3 015; expenses sought: $3,114.33. This matter is used to record time billed in 26 directed by the 27 15 The fees sought reflect a reduction for certain paralegal fees as Court's December 12, 2001 Order. If full paralegal fees are included, the amount of fees Heller 28 sought would be $152,264.30.

Ehrman White & SECOND HELLER EHRMAN INTERIM FEE APPLICATION McAuliffe LLP CASE NO.: 01-30923 DM 1 providing legal services to PG&E in connection PG&E's 2001 Annual Transition Cost 2 Proceeding ("ATCP") currently ongoing before the CPUC, as well as other anticipated 3 future CPUC proceedings, which address the reasonableness of PG&E's generation and 4 procurement practices and PG&E's recovery of billions of dollars in procurement and 5 generation-related costs.

6 58. During the Application Period, PG&E has provided oral and written advice to 7 PG&E regarding the factual and legal issues that have arisen in the CPUC proceedings 8 described above; has assisted with development of evidence relevant to such proceedings; 9 and has assisted with the preparation of written testimony, motions and other pleadings filed 10 with the CPUC in the ATCP proceeding.

11 59. The ATCP proceeding is scheduled for additional presentation of testimony, 12 hearing and briefing in 2002, and Heller Ehrman will continue to assist PG&E in those 13 activities. We thus anticipate providing extensive ongoing services to PG&E in connection 14 with the foregoing proceedings.

15 60. Matter No. 81: Ancillary Bankruptcy Services Related to Other Matters, 16 and Administration. Hours spent: 168.50; fees sought: $58,045.3016; expenses sought:

17 $1,636.86. The fees reflected in this matter encompass services relating to PG&E's Chapter 18 11 case, typically involving the interrelationship between the bankruptcy case or bankruptcy 19 law and Heller Ehrman's services or expertise in the primary areas for which it was engaged 20 as Special Counsel. More specifically, services recorded in this matter include:

21 a. Advice and consultation with PG&E or its other counsel pursuant to 22 specific request by PG&E regarding pending or contemplated litigation in the Chapter 11 23 case, particularly litigation involving claims or subject matters related to the other matters 24 for which Heller Ehrman is or may be retained; 25 b. Advice and consultation with PG&E or its other counsel pursuant to 26 by the 27 16 The fees sought reflect a reduction for certain paralegal fees as directed Court's December 12, 2001 Order. If full paralegal fees are included, the amount of fees Heller 28 sought would be $59,245.30.

Ehrman White & SECOND HELLER EHRMAN INTERIM FEE APPLICATION McAuliffe LLP CASE NO.: 01-30923 DM 1 specific request by PG&E regarding litigation or bankruptcy strategy affecting other matters 2 for which Heller Ehrman is or may be retained, or as to which Heller Ehrman's litigation, 3 regulatory or transactional expertise enables it to provide added value to the exercise, 4 particularly including advice on such matters bearing on the formulation of PG&E's plan of 5 reorganization or the content of the disclosure statement; 6 c. Advice to PG&E or internally within Heller Ehrman regarding the effect of 7 the bankruptcy filing and bankruptcy law on pending or contemplated litigation, transactions 8 or relationships within the scope of Heller Ehrman's engagement as Special Counsel; 9 d. Research, analysis and advice to PG&E regarding various bankruptcy law 10 issues or matters arising out of or related to litigation, regulatory or transactional matters for 11 which Heller Ehrman was retained as Special Counsel; 12 e. Monitoring developments in the Chapter 11 case and providing internal 13 communication and advice to Heller Ehrman's litigation, regulatory and transactional 14 lawyers regarding the bankruptcy case to facilitate their performance of their services as 15 Special Counsel in their non-bankruptcy areas of responsibility; and 16 f. Research, analysis and advice to PG&E on certain bankruptcy law issues 17 as a backup or second opinion to advice provided by PG&E's other counsel.

18 61. We anticipate being called upon to continue to provide ongoing advice and 19 consultation to PG&E on various matters, issues and questions in this area, but are unable to 20 predict the nature or scope of future services.

21 62. Matter No. 82: Bankruptcy-Employment and Fee Applications. Hours 22 spent: 653.20; fees sought: $184,400.0017; expenses sought: $3,574.08. During the 23 Application Period, the services and fees in this matter related primarily to Heller Ehrman's 24 preparation of its First Interim Fee Application and four monthly Cover Sheet Applications.

25 Extensive work was required in connection with the First Interim Fee Application, in which 26 by the 27 17 The fees sought reflect a reduction for certain paralegal fees as directed Court's December 12, 2001 Order. If full paralegal fees are included, the amount of fees Heller 28 sought would be $184,606.10.

Ehrman White & SECOND HELLER EHRMAN INTERIM FEE APPLICATION McAuliffe LLP CASE NO.: 01-30923 DM 1 approximately $2.3 million in fees and expenses were at issue. The Application involved 2 assembling and filing hundreds of pages of timesheets and other exhibits, preparing detailed 3 narrative descriptions of work performed, preparing for and participating in the hearing, and 4 responding to numerous objections by the United States Trustee through supplemental 5 filings and declarations. Preparation of Heller Ehrman's monthly Cover Sheet Applications 6 also has involved substantial time and effort.

7 63. A substantial portion of the time recorded in this category has been required by 8 the need to modify the manner in which Heller Ehrman non-bankruptcy professionals record 9 and categorize time entries, and to edit a number time entries initially made without 10 following the appropriate formats. In addition, in response to comments from the United 11 States Trustee in or about July 2001, Heller Ehrman agreed to establish a substantial number 12 of billing categories as separate billing "matters" among which services would be allocated.

13 Because those matters were not established at the outset of PG&E's Chapter 11 case, it was 14 necessary to reallocate time entries among the newly-established categories, a process which 15 occurred in the main during August and September 2001. As the time entries for November 16 2001 indicate, this editing and reallocation process should not recur as all timekeepers have 17 become more familiar and comfortable with the billing protocols required by the Court's fee 18 guidelines. Accordingly, though the fee amount sought in this category is substantial, it 19 reflects significant one-time transitional costs which should not be repeated in future 20 applications. Further, because this period included the first formal interim fee application, 21 there were substantial "start-up" costs associated with its preparation, and it is reasonable to 22 expect that future interim fee applications will involve less time and expense.

23 64. The majority of the fees recorded in Matter 82 during the Application period were 24 for services performed by Adam Cole and David Luster: Mr. Cole recorded 270.3 hours3.472222e-5 days <br />8.333333e-4 hours <br />4.960317e-6 weeks <br />1.1415e-6 months <br /> 25 with a time value of $92,443, and Mr. Luster recorded 178.3 hours3.472222e-5 days <br />8.333333e-4 hours <br />4.960317e-6 weeks <br />1.1415e-6 months <br /> with a time value of 26 $24,962. Mr. Cole, a shareholder, was assigned responsibility for managing the fee 27 application process, in large part because he has the lowest billing rate of all Heller Ehrman senior paralegal, was assigned to Heller 28 shareholders working on the engagement. Mr. Luster, a Ehrman White & SECOND HELLER EHRMAN INTERIM FEE APPLICATION McAuliffe LLP CASE NO.: 01-30923 DM 1 this task based on his comprehensive overall knowledge of the PG&E Matters, enabling him 2 to provide the most efficient support and assistance.

3 65. The fees sought in this category represent approximately 8.7% of the total fees 4 requested during the current application period. The fees sought in this category since the 5 inception of the case (i.e., including for services in this category during the first fee 6 application period, from April 6 through July 31, 2001), represent approximately 5.2% of 7 the total fees sought by Heller Ehrman for services during the Chapter 11 case.

8 66. Matter No. 83: Wayne Roberts v. PG&E. Hours spent: 82.80; fees 9 sought: $26,077.80 18; expenses sought: $267.24. This matter is used to record time billed 10 in representing PG&E with respect to a $4 billion bankruptcy claim filed by Wayne Roberts 11 on behalf of himself and a purported class of electricity ratepayers. The Roberts claim, like 12 Richard D. Wilson v. Pacific Gas and Electric Company and PG&E Corporation (Matter 13 No. 65; no time billed during the Application Period), involves claims brought against 14 PG&E under California Business & Professions Code Sections 17200, et seq., as a result of 15 certain inter-corporate actions, including dividend payments and an inter-company tax 16 agreement. Similar issues also are raised in the OIl matter (Matter No. 77), discussed 17 above.

18 67. Heller Ehrman is coordinating with the Howard Rice firm, which also is 19 representing PG&E in this matter. We have been instructed to coordinate our respective 20 activities in order to provide PG&E with an effective joint representation with minimal 21 duplication of work. During the Application Period, Heller Ehrman conducted limited legal 22 research and analysis; commented and advised on drafts prepared by Howard Rice; and 23 assisting on strategy.

24 VI.

SUMMARY

OF FEES AND EXPENSES REQUESTED 25 68. The Firm billed a total of $2,225,910.98 in fees and expenses during the 26 by the 27 18 The fees sought reflect a reduction for certain paralegal fees as directed Court's December 12, 2001 Order. If full paralegal fees are included, the amount of fees Heller 28 sought would be $26,092.80.

Ehrman White & SECOND HELLER EHRMAN INTERIM FEE APPLICATION McAuliffe LLP CASE NO.: 01-30923 DM 1 Application Period. 19 The total fees represent 7,973.60 hours6.944444e-4 days <br />0.0167 hours <br />9.920635e-5 weeks <br />2.283e-5 months <br /> expended during the 2 Application Period. Those fees and expenses break down as follows:

3 Period Fees Expenses Total

$2,116,324.602u $109,586.38 $2,225,910.9821 8/1/01-11/30/01 4

5 69. Pursuant to the Order re Fee Applications ¶ 6, Heller Ehrman seeks allowance of 6

interim compensation in the total amount of $2,225,910.98 ($2,250,826.98 if full paralegal 7 rates are allowed).

8 70. To date, the Firm is not owed any amounts except those identified in the two 9 immediately preceding paragraphs.

10 VII. REQUIRED DISCLOSURES AND CERTIFICATION 11 71. In this case, Heller Ehrman has not charged for expenses for: (a) office overhead; 12 (b) secretarial overtime; (c) charges for after-hours and weekend air conditioning and other 13 utilities; (d) cost of meals or transportation provided to attorneys and staff who work late; 14 (e) word processing and similar clerical functions; and (f) amenities such as newspapers, 15 shoe shines, dry cleaning, etc., and the cost of lunches while Heller Ehrman personnel are 16 away from the office.

17 72. By agreement with PG&E, Heller Ehrman's in-house photocopy charges 18 (regularly charged to other clients of the firm at 22¢ per page) have been reduced to 12¢ per 19 page, and facsimiles have been charged at 75¢ per page for outgoing transmissions 20 (regularly charged at $1.50), with no charge for incoming transmissions.

21

73. Computerized legal research is billed at the standard Westlaw and LEXIS rates 22 without markup or discount. Heller Ehrman receives a volume discount from Westlaw and 23 LEXIS which is not allocable to any particular matter, and which Heller Ehrman does not 24 25 26 19 $2,250,826.98 if full paralegal rates are used.

20 $2,142,087.50 if full paralegal rates are used.

27 21 $2,250,826.98 if full paralegal rates are used.

Heller 28 Ehrman White & SECOND HELLER EHRMAN INTERIM FEE APPLICATION McAuliffe LLP CASE NO.: 01-30923 DM 1 attribute to any particular client, including PG&E.

2 74. Heller Ehrman believes that the regular hourly rates of the attorneys and 3 paralegals employed by Heller Ehrman for similar services of lawyers and paralegals of 4 reasonably comparable skill and reputation are consistent with those prevailing in the 5 various legal communities in which Heller Ehrman's attorneys and paralegals practice.

6 Heller Ehrman's compensation and expense reimbursement requested in this Application 7 have been billed at rates, in accordance with practices, more favorable than those 8 customarily employed by Heller Ehrman and generally accepted by Heller Ehrman's clients.

9 Pursuant to a Master Fee Agreement with PG&E, Heller Ehrman has agreed to apply a 10%

10 discount from regular hourly rates to the fees of all timekeepers working on the matters for 11 which compensation is sought herein, and to provide a significant additional billing 12 accommodation as described in the following paragraph.

13 75. Specifically, pursuant to the Master Fee Agreement between PG&E and Heller 14 Ehrman, Heller Ehrman has agreed to freeze for the first two years in the lifetime of a matter 15 the billing rates of shareholders working on that given matter at 90% of the shareholder's 16 rate in place when that matter is commenced. The rates of associates and paralegals are not 17 frozen at any time, but are charged at 90% of the rate in place when the work is performed.

18 76. Heller Ehrman has neither received nor been promised any compensation from 19 any source in connection with this case or its services to be performed herein, except 20 compensation and reimbursement of expenses to be allowed by this Court and paid from the 21 estate, pursuant to the applicable provisions of the Bankruptcy Code and Rules. To date, 22 Heller Ehrman has received no payments from any source for its fees and expenses in this 23 case, other than (a) those described in paragraph 2 above ($3,695,324.57); (b) those 24 described in paragraph 3 above ($153,615.61, applied to retainer); and (c) a refund of 25 $7,395 and cancellation of a $9,825.26 charge in connection with its contingent fee 26 engagement relating to insurance coverage matters (which are not the subject of this 27 Application).

any fees or Heller 28 77. Heller Ehrman has no agreement or understanding for sharing Ehrman White & SECOND HELLER EHRMAN INTERIM FEE APPLICATION McAuliffe LLP CASE NO.: 01-30923 DM 1 expenses which Heller Ehrman may receive in this case with any person other than members 2 and associates of Heller Ehrman.

3 VIII. REQUEST FOR COMPENSATION 4 78. Heller Ehrman respectfully requests that the Court amend its December 12, 2001 5 Order to permit full compensation to Heller Ehrman for certain paralegal services in the 6 Application Period and thereafter, as follows:

7 a. Services performed by paralegals Nneka Nwosu and M. Brett Stone. In 8 the December 12, 2001 Order, the Court found that the resume of paralegal M. Brett Stone 9 "does not establish his credentials or professional experience sufficiently to convince the 10 court that his work should be billed at $90 per hour." Order at p. 15, lines 9-12. Similarly, 11 the Court found that the resume of paralegal Nneka Nwosu "does not establish that she is 12 entitled to [be] billed as a paralegal." Id. at p. 16, lines 8-9. The Court reduced the allowed 13 compensation for services by Mr. Stone (normal billing rate: $90 per hour) and Ms. Nwosu 14 (normal billing rate: $113 per hour) to $40 an hour. Attached in Exhibit B to the 15 accompanying Certification of Peter J. Benvenutti are revised resumes of Mr. Stone and Ms.

16 Nwosu providing additional detail establishing their qualifications as paralegals at Heller 17 Ehrman. We respectfully request that the Court amend its prior ruling regarding Mr. Stone 18 and Ms. Nwosu's compensable rates based on the qualifications shown in their 19 accompanying resumes, and authorize compensation at their full rates.

20 b. Compensation for File Management Services at Full Paralegal Rates. The 21 accompanying Certification of Peter J. Benvenutti (¶¶ 5-11) and Declaration of David R.

22 Luster (¶¶ 7-17) explain in detail the importance of file management in the 22 PG&E 23 matters that Heller Ehrman is handling for PG&E, and why, practicably, only paralegals, 24 rather than secretaries or other clerical staff, can perform file management functions.

25 Heller Ehrman further respectfully submits that compensation for file management 26 activities should be at full paralegal rates, rather than at the reduced rate of $40 per hour 27 specified in the December 12, 2001 Order (p. 6). In the December 12, 2001 Order, the Heller 28 Court authorized professionals retained by PG&E to request more than $40 per hour in Ehrman White & SECOND HELLER EHt.MAN INTERIM FEE APPLICATION McAuliffe LLP CASE NO.: 01-30923 DM 1 compensation for personnel performing file management services if the professionals costs of 2 "demonstrate[] to the satisfaction of the UST that the actual direct and indirect 3 employing the personnel handling file management exceed $40 an hour." December 12, regarding 4 2001 Order at p. 6, lines 10-12. This Court further ordered that such submissions 5 personnel costs were to be made with the United States Trustee, not filed with the Court, Id. at lines 6 and the professional was to certify to the Court that it has made such a showing.

7 12-22.

Ehrman 8 As certified in the accompanying Certification of Peter J. Benvenutti, Heller 9 has submitted to the United States Trustee the Declaration of John R. Rich, Heller Ehrman' s 10 Controller, and accompanying exhibits, which show that the actual costs to Heller Ehrman 11 of the paralegals performing work on PG&E matters approximate the actual billing rates of requests 12 those paralegals, and are well in excess of $40 an hour. Heller Ehrman therefore performing file 13 that compensation be authorized for the full billing rates of its paralegals 14 management (and all other) services on PG&E matters.

and 15 c. Compensation for Reviewing and Routing Articles Regarding PG&E disallows any 16 the California Energy Crisis. The December 12, 2001 Order (pp. 14-15)

David Luster, in 17 compensation to Heller Ehrman for the time spent by its lead paralegal, crisis to lawyers 18 reviewing and routing articles regarding PG&E and the California energy R. Luster (¶¶ 18-21) 19 working on PG&E matters. The accompanying Declaration of David it is necessary for 20 explains in detail the complexity of this news gathering process and why is now being 21 trained personnel, such as a paralegal, to perform that task. (This function than Mr. Luster.)

22 performed by Mr. Stone, who has a significantly lower hourly billing rate 12, 2001 Order to 23 Heller Ehrman respectfully requests that the Court amend its December in reviewing and 24 authorize compensation to Heller Ehrman for time spent by its paralegals working on 25 routing articles regarding PG&E and the California energy crisis to lawyers 26 PG&E matters.

27 79. Based on the foregoing, Heller Ehrman requests the Court to approve this amounts of Heller 28. Application; to allow it fees and expenses on an interim basis in the respective Ehrman White & SECOND HELLER EHRMAN INTERIM FEE APPLICATION McAuliffe LLP CASE NO.: 01-30923 DM 1 $2,116,324.60 ($2,142,087.50 if full paralegal rates are allowed) and $109,586.38; and to 2 authorize PG&E to pay the allowed amounts forthwith.

and as Exhibit 3 80. Attached behind Tab 1 to the accompanying Time Records Exhibit is the name of each 4 A to the Certification of Peter J. Benvenutti ("Benvenutti Certification")

described 5 professional who performed services in connection with the various matters for each such 6 herein during the period covered by this Application and the hourly rates Records Exhibit is a 7 professional on such matters; (b) attached behind Tab 2 to the Time matter; (c) attached 8 summary of the fees and expenses, and additional information, for each 9 behind Tabs 5-26 to the Time Records Exhibit are the detailed time and expense statements 10 for the Application Period that comply with all Northern District of California Bankruptcy of the United States 11 Local Rules and Compensation Guidelines, the Guidelines of the Office Regarding 12 Trustee, and the Court's December 12, 2001, Memorandum Decision B to the Benvenutti 13 Applications for Interim Compensation of Professionals; and (d) Exhibit for whom 14 Certification sets forth the qualifications and experience of all timekeepers 15 compensation is sought.

on the Special 16 81. The Firm has served a copy of this Application (without Exhibits) 17 Notice List in this case.

sought in this 18 82. The interim compensation and reimbursement of expenses the Firm will 19 Application is on account and is not final. Upon the conclusion of this case, of the services 20 seek fees and reimbursement of the expenses incurred for the totality approved by this 21 rendered in the case. Any interim fees or reimbursement of expenses fees and expenses as may 22 Court and received by the Firm will be credited against such final 23 be allowed by this Court.

24 25 26 27 Heller 28 Ehrman White & SECOND HELLER EHRMAN INTERIM FEE APPLICATION McAuliffe LLP CASE NO.: 01-30923 DM 1 83. The Firm represents and warrants that its billing practices comply with all 2 Northern District of California Bankruptcy Local Rules and Compensation Guidelines and 3 the Guidelines of the Office of the United States Trustee, except as otherwise stated in the 4 Benvenutti Certification.

5 6 Dated: January 14, 2002 Respectfully submitted, 7 HELLER EHRMAN WHITE & McAULIFFE LLP 8

9 By: (f/aI 1 A4LL& I 10 Marie L. Fiala Special Counsel for Debtor in Possession 11 PACIFIC GAS AND ELECTRIC COMPANY 12 13 14 15 16 17 18 19 20 21, 22 23 24 25 26 27 Heller 28 Ehrman White & SECOND HELLER EHRMAN INTERIM FEE APPLICATION McAuliffe LLP CASE NO.: 01-30923 DM