ML020440624

Second Interim Application for Compensation & Reimbursement of Expenses by Counsel for Debtor-In-Possession (Howard, Rice, Nemerovski, Canady, Falk & Rabkin)

ML020440624
Person / Time
Site:	Diablo Canyon
Issue date:	01/14/2002
From:	Nexon J Howard, Rice, Nemerovski, Canady, Falk & Rabkin, Pacific Gas & Electric Co
To:	Office of Nuclear Reactor Regulation, US Federal Judiciary, Bankruptcy Court, Northern District of California
References
01-30923 DM, 94-0742640
Download: ML020440624 (64)

Text

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I JAMES L. LOPES (No. 63678)

JEFFREY L. SCHAFFER (No. 91404) 2 JANET A. NEXON (No. 104747)

WILLIAM J. LAFFERTY (No. 120814) 3 GARY M. KAPLAN (No. 155530)

HOWARD, RICE, NEMEROVSKI, CANADY, 4

FALK & RABKIN A Professional Corporation 5

Three Embarcadero Center, 7th Floor San Francisco, California 94111-4065 6

Telephone:

415/434-1600 Facsimile:

415/217-5910 7

Attorneys for Debtor and Debtor in Possession 8

PACIFIC GAS AND ELECTRIC COMPANY 9

UNITED STATES BANKRUPTCY COURT 10 NORTHERN DISTRICT OF CALIFORNIA 11 SAN FRANCISCO DIVISION 12 H<OWMD 13 13 In re Case No. 01-30923 DM f

14

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PACIFIC GAS AND ELECTRIC Chapter 11 Case A..d-.15 COMPANY, a California corporation, Date:

February 26, 2002 16 Debtor.

Time:

9:30 a.m.

Place:

235 Pine Street, 22nd Floor 17 San Francisco, CA Federal I.D. No. 94-0742640 18 19 20 SECOND INTERIM APPLICATION FOR COMPENSATION AND 21 REIMBURSEMENT OF EXPENSES BY COUNSEL FOR DEBTOR-IN-POSSESSION 22 (HOWARD. RICE. NEMEROVSKI, CANADY, FALK & RABKIN) 23 24 25 26 27

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28 SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

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0 0

1 TO THE HONORABLE DENNIS MONTALI, UNITED STATES BANKRUPTCY JUDGE:

2 3

Applicant is the law firm of Howard, Rice, Nemerovski, Canady, Falk & Rabkin, 4

A Professional Corporation ("Applicant" or "Howard, Rice"). Pursuant to an order of this 5

Court entered on May 26, 2001, this Court approved Applicant's employment as counsel for 6

Pacific Gas and Electric Company, the debtor and debtor-in-possession herein (the "Debtor" 7

or "PG&E"). Attached hereto as Exhibit "A" is a true and correct copy of the Order 8

Authorizing Employment of Counsel for Debtor.

9 On September 17, 2001, Howard, Rice filed its First Interim Application for 10 Compensation and Reimbursement of Expenses (the "First Interim Application"), seeking 11 interim approval of fees for services rendered and reimbursement of costs incurred for the 12 period April 6, 2001 through July 31, 2001. This is Howard, Rice's second interim RKE 13 application for compensation and reimbursement of expenses. In this Application, Applicant RICE "NEATM~

14 seeks an order pursuant to Section 331 of the Bankruptcy Code (11 U.S.C. §331)' approving

&R4NUN 15 and allowing total compensation of $3,921,634.02 for services rendered and reimbursement 16 of expenses, for the period from August 1, 2001 through November 30, 2001 (comprised of 17

$3,628,622.51 in fees and $293,011.51 in costs advanced on the Debtor's behalf).2 18 Prior to the commencement of this Chapter 11 case, Howard, Rice received 19

$1,000,000 from PG&E for services rendered and to be rendered, and costs advanced and to 20 be advanced in contemplation of or in connection with PG&E's Chapter 11 case. This 21 amount included sums advanced to Applicant on account of services rendered and costs 22 advanced and to be advanced to the Debtor during the immediate pre-Chapter 11 filing 23 period.

24 Pursuant to the Order Establishing Interim Fee Application and Expense 25

'Unless otherwise specified, all section references herein are to the United States 26 Bankruptcy Code (title 11 of the United States Code).

2As set forth in greater detail in the Summary of Fees and Expenses below, Applicant 27 has written off approximately $134,806.23 in fees and $118,737.89 in expenses, whch have 28 been deducted in calculating these total amounts.

SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

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Reimbursement Procedure entered herein on July 26, 2001 and the Amended Order 2

Establishing Interim Fee Application and Expense Reimbursement Procedure entered herein 3

on November 8, 2001 (collectively, the "Interim Compensation Order"), the Court 4

authorized procedures for the interim award of compensation and reimbursement of 5

expenses to professionals, including Howard, Rice.

6 On October 26,2001, this Court entered its Order on First Interim Application for 7

Compensation and Reimbursement of Expenses by Counsel for Debtor-In-Possession 8

(Howard, Rice, Nemerovski, Canady, Falk,& Rabkin), awarding Applicant interim 9

compensation of $4,688,468.39 for services rendered and reimbursement of expenses 10 pursuant to the First Interim Application, and authorizing the Debtor to pay the unpaid 11 portion of such compensation. The fees and expenses of Applicant allowed by such Order 12 have been paid by the Debtor.

HMAD 13 In accordance with the Interim Compensation Order, Applicant filed monthly PKE "CM'27 14 interim applications in the form of Monthly Cover Sheet Applications, seeking payment of 15 fees and reimbursement of expenses for the period covered by this Application, in the 16 following amounts, which have been paid as of the date hereof:

17 Month Fees Expenses Total 18 August

$696,677.00

$103,548.02

$800,225.02 19 September 691,009.62 57,133.55 748,143.17 20 October 874,250.93 75,233.27 949,484.20 21 November 822,391.58 57,090.17 879,481.75 22 Pursuant to the Interim Compensation Order, these amounts reflect a fifteen percent (15%)

23 holdback from the monthly fees incurred. By this Application, Howard, Rice hereby seeks 24 approval of 100% of the fees and expenses incurred for this period, in the following total 25 amounts:

26 27 28 SECOND INTERIMAPP. FOR COMPENSATION (HOWARD, RICE)

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0 1

Month Fees Expenses Total 2

August

$819,620.00

$103,548.02

$923,168.02 3

September 812,952.50 57,133.55 870,086.05 4

October 1,028,530.50 75,233.27 1,103,763.77 5

November 967,519.50 57,090.17 1,024,609.67 6

7 As required by the Interim Compensation Order, Applicant has filed its time 8

records for this period separately from this Application.

9 During the period covered by this Application, Howard, Rice has rendered 10 valuable services to the Debtor, as more specifically set forth herein.

11 INTRODUCTION AND CURRENT STATUS 12 PG&E is an investor-owned utility providing electric and gas services to mfillions 13 of California residents and businesses. Beginning in late May 2000, as a result of the partial HOWARD RIM NEAJOI 14 deregulation of the power industry, PG&E was forced to pay dramatically increased IAIK

&5RAHEM 15 wholesale prices for electricity, but has been prevented from passing these costs on to retail 16 customers, resulting in a staggering financial shortfall. In the face of the deterioration in its 17 financial condition and with little progress having been made toward a resolution of the 18 crisis by early April 2001, PG&E determined that a Chapter 11 reorganization offered the 19 best prospects for protecting the interests of its customers, creditors, employees and 20 shareholders alike. Accordingly, PG&E filed a voluntary petition under Chapter 11 of the 21 Bankruptcy Code on April 6, 2001. PG&E continues to manage and operate its business and 22 property as a debtor in possession pursuant to Sections 1107 and 1108 of the Bankruptcy 23 Code. No trustee has been appointed.

24 Howard, Rice has expended considerable time and effort during the four-month 25 period covered by this Application performing a wide variety of legal services for the estate.

26 Applicant's representation of the Debtor has been multi-faceted, and has called on extensive 27 resources of the firm due to the virtually unprecedented size and complexity of this case.

28 Howard, Rice's representation of the Debtor has also required extraordinary activity in SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

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connection with communications with creditors, governmental entities, management 2

personnel and the Official Committee of Unsecured Creditors (the "Committee"), on 3

virtually a daily basis.

4 During the time period covered by this Application, Howard, Rice expended 5

considerable time with respect to the Plan of Reorganization under Chapter 11 of the 6

Bankruptcy Code for Pacific Gas and Electric Company (the "Plan") proposed by Pacific 7

Gas and Electric Company and its parent, PG&E Corporation (the "Parent), (collectively, the 8

"Proponents") and the Disclosure Statement with respect thereto, which were filed with the 9

Court in September 2001.

10 Applicant worked~closely with the Committee in the negotiation and development 11 of the Plan, and advised and assisted PG&E in reaching (along with the Parent) a Support 12 Agreement with the Committee pursuant to which the parties agreed to take all 13 commercially reasonable actions and use their respective best efforts to achieve timely RK, mM 14 confirmation and consummation of the Plan. Among other things, the Support Agreement 15 provides for the Committee's full support of the Plan and the transactions and approvals 16 contemplated thereunder. -As consideration for the Committee's support of the Plan, the 17 Proponents agreed to include certain provisions beneficial to the unsecured creditors in the 18 Plan, including, generally speaking, payment upon Plan confirmation of accrued, unpaid pre 19 petition and post-petition interest on allowed claims through confirmation of the Plan, 20 payment of post-petition interest on a quarterly basis thereafter until the Plan's effective 21 date, and taking commercially reasonable actions to ensure that the debt securities issued or 22 sold under the Plan will trade at or above par upon issuance.

23 Howard, Rice also spent considerable time and effort in seeking to resolve the 24 approximately 70 objections submitted to the Disclosure Statement through extensive 25 negotiations and substantial modifications to the Plan and Disclosure Statement, and 26 represented the Debtor at related hearings.

27 In addition, during this Application period, Applicant expended considerable time 28 in advising and assisting PG&E in reaching settlement agreements with a number of entities SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

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1 known as qualifying facilities ("QFs"), resolving substantial disputes with respect to the 2

parties' respective rights and obligations under certain power purchase agreements. In all, 3

the Debtor reached agreements (and obtained the Bankruptcy Court's approval thereof) with 4

more than 200 QFs, representing more than $800 million of pre-petition obligations.

5 Generally speaking, such agreements provide for PG&E's assumption of these power 6

purchase agreements, stipulated amounts and dates for cure of pre-petition defaults 7

thereunder, the QFs' waiver of claims to receive the "market rate" for energy delivered and 8

for additional "pecuniary losses" and amendment of the power purchase agreements to take 9

advantage of a price modification permitted under a recent California Public Utilities 10 Commission ("CPUC") decision. These settlements provide certainty to the Debtor and its 11 customers for the delivery of energy on favorable terms, as well as favorably resolving 12 numerous contested matters.

13 Howard, Rice also advised and assisted the Debtor in reaching a comprehensive RKE N

14 settlement agreement (and seeking approval thereof by the Bankruptcy Court) with Sempra H"JJ

&IRAHON

,..dC.ý 15 Energy Trading and its affiliates (collectively, "Sempra") with respect to a number of 16 agreements relating to the sale, transmission, lending and storage of natural gas and setoff 17 claims with respect thereto arising under other transactions and agreements. That settlement 18 agreement provides, among other things, for a payment by Sempra to the Debtor of $48.5 19 million and for Sempra's waiver of any claim for payment of certain quantities of natural gas 20 delivered to the Debtor.

21 Howard, Rice also expended considerable time with respect to PG&E's appeal 22 and the CPUC's cross-appeal of the Bankruptcy Court's decision in an adversary proceeding 23 brought against the CPUC and its individual commissioners seeking to enjoin and/or stay the 24 implementation and enforcement of a pre-petition decision that adopted retroactive 25 accounting changes, which involves numerous complex issues.

26 During this Application period, Applicant successfully opposed a motion for the 27 appointment of a government creditors' committee by a group of eight California cities and 28 counties, and a motion to intervene by The Utility Reform Network ("TURN").on behalf of SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

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residential and small business ratepayers.

2 During the period covered by this Application, Howard, Rice also began assisting 3

PG&E and its consultants in reviewing and analyzing approximately 13,000 claims which 4

have been filed in this case. This work has included extensive counseling on a number of 5

issues regarding the treatment of claims in bankruptcy, including the grounds for objections 6

to claims, and has required research with respect to the myriad of legal issues relevant to 7

these claims.

8 9

SUMMARY

OF PROFESSIONAL SERVICES 10 Howard, Rice's services during the period covered by this Application can be 11 generally broken down into 50 separate categories, which are set forth below. The following 12 narrative descriptions summarize salient aspects of Applicant's representation of the D.ebtor 13 in each category:

RKE NE 14

~IK A*.I, 15

1.

Case Administration (.003 V 16 Although Howard, Rice has made every effort to record its time entries into 17 specific matters, a material amount of time is reflected in the Case Administration category.

18 This categorization is appropriate, however, since the administration of this large, complex 19 case entails a significant effort. As lead bankruptcy counsel for the Debtor, Applicant's 20 coordination with the Debtor's senior management and with the many other lawyers and law 21 firms involved in this case is time consuming, but it is essential in order to ensure that 22 matters are handled as efficiently and effectively as possible.

23 During the period covered by this Application, Applicant performed the 24 following services in this category:

25

a.

Applicant attended numerous meetings and conferences with the Debtor's 26 27 3The number in parentheses following the title of each matter is the applicable Howard, 28 Rice billing matter number that appears on each invoice.

"S I ECOND INTERIM APP.:FOR COMPENSATION (HOWARD, RICE)

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1 management and in-house legal staff for purposes of communicating important aspects of 2

compliance with relevant bankruptcy law, coordination of tasks, and determination of 3

strategies. By way of example, during the period covered by this Application, Howard, Rice 4

has been involved in regular meetings with PG&E's management to review upcoming 5

matters and oversee staffing, both internal and external. In addition, Applicant has attended 6

regular meetings of a "legal integration" team which consists of various corporate and 7

outside lawyers, the purpose of which is to ensure that the Debtor's various legal experts and 8

in-house legal team are integrated and operating smoothly. Howard, Rice also has attended 9

periodic weekly meetings with the Debtor's chief counsel team to ensure that matters are 10 properly staffed and to determine priorities. Applicant's five bankruptcy partners also meet 11 regularly to communicate regarding outstanding issues, prioritize projects and determine 12 staffing. These meetings are cost beneficial in this case as they avoid duplication of efforts 13 and miscommunication.

RKE

"'mCN 14

b.

Applicant responded to numerous inquiries from creditors and counsel for 15 creditors. Howard, Rice has fielded countless inquiries from creditors and counsel regarding 16 this bankruptcy case on a daily basis. In the initial stages of the case, Applicant set up both a 17 dedicated telephone mailbox and a dedicated e-mail address to route routine inquiries. Legal 18 assistants continue to return calls or e-mails and, when appropriate, refer them to attorneys 19 for response.

20

c.

Applicant interacts on a daily basis with in-house counsel and the Debtor's 21 management representatives regarding the multitude of bankruptcy issues that continue to 22 arise in this case.

23

d.

Applicant responded to significant correspondence and e-mail traffic, much 24 of which has to fall under the category of miscellaneous and ultimately appears as an entry 25 in the case administration matter. The bankruptcy partners and other lawyers and legal 26 assistants working on this case routinely receive, review and in many cases respond to in 27 excess of 100 e-mails per day. Although each one on average may take only a few minutes 28 to review and respond to, cumulatively the time commitment to deal with this SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

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correspondence is substantial.

2

e.

Applicant has coordinated the filing and service of numerous pleadings.

3 During the period covered by this Application, the filing and service of pleadings has been a 4

significant job which is reflected in this matter. Hundreds of pleadings have been filed in 5

the case and each requires attention to ensure that citations are checked, format is 6

appropriate, declarations are signed, hearing dates are obtained and service is effected. Due, 7

in part, to the exigencies of time, in a number of instances the services of more than one 8

legal assistant 'has been required to complete a given task in a timely manner.

9 With respect to this category, the number of hours spent and the amount of 10 compensation and expenses requested are as follows:

11 Total Hours Total Fees4 Total Expenses5 12 955.6

$220,409.50

$293,005.01 13

2.

Professional Employment: (.004).

15 This -case has continued to require the efforts of a significant number of 16 professionals. During the period covered by this Application, Applicant performed the 17 following services with respect to the employment and compensation of professionals:

18

a.

Applicant continued to advise the Debtor regarding the retention and 19 compensation of numerous professionals in this case, prepared applications for employment 20 of various professionals, including special counsel, investment bankers, auctioneers, real 21 estate brokers and appraisers, and the Plan voting agent, and assisted professionals in 22 complying with the applicable provisions of the Bankruptcy Code, the Federal Rules of 23 Bankruptcy Procedure (the "Bankruptcy Rules"), the guidelines regarding the compensation 24 25 4This amount includes $1,237.50 in fees for travel time that would not be compensable pursuant to the Amended Interim Compensation Order. Applicant will credit this amount in 26 its next Cover Sheet Application.

5For ease of administration, all reimbursable expenses incurred by Applicant on behalf 27 of the Debtor in connection with this case have been billed to and appear in this category.

The amount stated reflects write-offs of $118,737.89 as described more fully below.

28 SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

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of professionals promulgated by this Court (the "Guidelines") and orders entered in this case 2

by the Court governing professionals' employment and compensation. Applicant also 3

consulted with counsel for the United States Trustee (the "UST") on various professional 4

employment issues.

5

b.

Applicant conducted extensive research and analysis regarding the 6

employment of professionals to ensure that, under applicable case law interpreting 7

Section 327 of the Bankruptcy Code, the Debtor was appropriately seeking to employ 8

persons who were performing certain services for the Debtor that could be considered 9

professional services, other than attorneys and accountants with respect to which the 10 requirements for employment are well-defined. In addition, Applicant conducted research 11 and analysis regarding the standards for employing counsel under Section 327(a) of the 12 Bankruptcy Code (matters central to the administration of the estate) versus under Section HOM~D 13 327(e) (traditional special counsel role).

RKE "CAMT 14

c.

Applicant reviewed the monthly fee applications and interim fee

&RAEMIN 15 applications filed by other professionals in this case, and consulted with the Debtor with 16 respect to such applications.

17

d.

Applicant prepared four monthly cover sheet applications and its First 18 Interim Application during this period.

19 With respect to this category, the number of hours spent and the amount of 20 compensation requested are as follows:

21 Total Hours Total Fees 22 1,248.4

$311,614.00 23 24

3.

General Operations (.005).

25 Applicant has continued to provide advice and assistance to the Debtor on a 26 variety of matters concerning its ongoing operations as debtor in possession, and has 27 counseled the Debtor concerning compliance with applicable bankruptcy law.

28 During the period covered by this Application, Howard, Rice performed the SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

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following services in connection with the Debtor's general operations:

2

a.

Applicant attended regular meetings of PG&E's board of directors for 3

purposes of advising the board regarding its duties on behalf of a debtor and debtor in 4

possession, reporting on progress and significant events in the Debtor's Chapter 11 case, 5

answering questions posed by board members, and discussing the proposed Plan with the 6

board.

7

b.

Applicant responded to numerous inquiries from creditors regarding the 8

status of the bankruptcy case and various issues regarding individual creditors' treatment in 9

the case. Applicant advised the Debtor with respect to ongoing employee communications 10 and media communications regarding the bankruptcy case..

11

c.

Applicant attendedconference calls with the investor community on a 12 regular basis and-consulted with the Debtor regarding such presentations.

RKI 13

d.

Applicant conducted extensive research and analysis and counseled the NEmaI 14 Debtor's officers and in-house counsel concerning issues regarding the treatment of PG&E's BLK 15 main line extension contracts in the context of the bankruptcy case. The Debtor is a party to 16 approximately 50,000 such contracts, and there has been an ongoing need to communicate 17 with and respond to counterparties to these contracts. Applicant has attended meetings with 18 groups of such counterparties and their counsel during the period covered by this 19 Application.,

20

e.

Applicant advised the Debtorregarding its outstanding governmental 21 licenses and permits, and began drafting a motion to address certain governmental 22 regulations related'thereto. Debtor's management ultimately decided that it did not wish to 23 file such a motion, based on its determination that such matters could be dealt with more 24 effectively through the Plan.

25

f.

Applicant continued to advise the Debtor concerning its ability to conduct 26 certain post-petition transactions in the ordinary course, of its business.

27

g.

Applicant prepared various motions to enable the Debtor to conduct its 28 business in the ordinary course, including a motion for approval of a contract for SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

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1 manufacture of a used nuclear fuel storage system.

2

h.

Applicant advised the Debtor concerning miscellaneous operational issues, 3

such as SEC filings, treatment of energy service provider ("ESP") credits, treatment of 4

certain administrative claims and property tax refund requests.

5

i.

Applicant consulted regularly with PG&E's in-house counsel and 6

management regarding compliance with the requirements of applicable bankruptcy law in 7

conducting its operations.

8 With respect to this category, the number of hours spent and the amount of 9

compensation requested are as follows:

10 Total Hours Total Fees 11 292.8

$88,673.00 12 H2%VD 13

4.

Employee Compensation (.006).

"OVXD14 Howard, Rice provided advice and assistance regarding disclosure, in filings by 15 the Debtor with the SEC, of the employee retention program previously approved by this 16 Court.

17 With respect to this category, the number of hours spent and the amount of 18 compensation requested are as follows:

19 Total Hours Total Fees 20 0.6

$267.00 21 22

5.

Regulatory Matters (.007).

23 Hearings and other proceedings before the Federal Energy Regulatory 24 Commission ("FERC") and the CPUC have continued post-petition. During the period 25 covered by this Application, Howard, Rice performed the following services in connection 26 with such regulatory matters:

27

a.

Applicant continued to advise and respond to inquiries from PG&E's 28 management and regulatory counsel regarding the intersection of bankruptcy law and state SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

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w I

and federal law regulating PG&E's operations, and to monitor legal developments in that 2

area. For example, Applicant advised PG&E about its obligations with respect to CPUC 3

licensing fees, advised PG&E representatives about issues involving an appeal from CPUC 4

proceedings that was subject to the automatic stay and advised PG&E with respect to 5

discovery propounded in a pending CPUC proceeding that concerned the Plan.

6

b.

Applicant continued to monitor and consult with management and 7

regulatory counsel concerning a wide range of activities before the FERC and the CPUC 8

concerning their regulation of PG&E'and other participants in California's energy markets, 9

including the California State Department of Water Resources (the "DWR"); in addition, 10 Applicant continued to monitor PG&E's filed rate litigation against the CPUC, and 11 consulted with PG&E about such matters.

12

c.

Applicant continued to assist the Debtor in pursuing its challenge in HVAAM 13 Bankruptcy Court to an order entered by the CPUC directing the Debtor to enter into a RKE servicing agreem ent w ith the D W R, and to advise the D ebtor w ith respect to aspects of the 15 Debtor's pursuit of various state law remedies.

16

d.

Applicant undertook extensive factual and legal analysis regarding the 17 implications of anticipated and actual appearances by various State entities in the 18 Bankruptcy Court and advised the Debtor in connection with their legal and strategic.

19 implications.

20

e.

Applicant monitored a settlement between Southern California Edison 21

("Edison") and the CPUC regarding Edison's undercollected power costs, announced in 22 October 2001.

23

f.

Applicant provided advice with respect to proposed testimony before the 24 FERC in connection with the bankruptcy case.

25 With respect to this category, the number of hours spent and the amount of 26 compensation requested are as follows:

27 28 SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

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Total Hours Total Fees 2

695.4

$198,255.50 3

4

6.

Real Property Leases (.008).

5 As explained in the First Interim Application, PG&E is the lessee under 6

approximately 250 real property leases covering a range of uses. During the period covered 7

by this Application, Applicant performed the following services in connection with this 8

matter:

9

a.

Due to the number of real estate leases involved and the complexity of this 10 case, during the period covered by the First Interim Application, Applicant sought and obtained, on Debtor's behalf, extensions of time to take action to assume, assume and assign 12 or reject its real property leases. During the period covered by this Application, Applicant J

13 RKE determined that all or substantially all assumption, assumption and assignment or rejection "C~AN 14 EUKx decisions needed to be made in connection with the Plan, and Applicant therefore prepared

• 15 an appropriate motion and supporting papers for a second extension of time for the Debtor to 16 assume, assume and assign or reject its real property leases consistent with the timetable for 17 obtaining confirmation of the Plan. Application appeared at the hearing on such motion, 18 which was granted.

19

b. Applicant continued to counsel and advise the Debtor regarding a range of 20 issues arising with respect to one or more leases in its portfolio of leases. This involved 21 numerous telephone calls, conference calls and e-mails and occasional meetings with one or 22 u

more of the Debtor's in-house counsel, special outside real estate counsel, and various 23 business persons responsible for the Debtor's leases. For example, specific questions and 24 issues arose with respect to the Debtor's real property leases commonly referred to by the 25 Debtor as the Hookston Square Lease, the 123 Mission Lease, the Rocklin Lease, the 26 Pinnacle Towers Leases, the City of San Mateo Lease and the Eureka Leases. Some of these 27 issues required the review of one or more substantial documents, and most of them entailed 28 SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

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some amount of legal research. Further, the resolution of some of these issues resulted in the 2

need for negotiated stipulations with the applicable lessor and sometimes required motions 3

seeking specified relief, which Applicant either documented or assisted the Debtor's special 4

outside real estate counsel in documenting. Finally, Applicant also performed analysis and 5

advised the Debtor with respect to issues cutting across various leases or situations, such as 6

real property lease vs. real property license characterizations and the potentially dramatically 7

different consequences following from such distinctions.

8 With respect to this category, the number of hours spent and the amount of 9

compensation requested are as follows:

10 Total Hours Total Fees 11 79.0

$19,401.00 12 HCM,,

13

7.

Personal Property Leases and Executory Contracts (.009).

RIM mAK 14 The Debtor is a party to tens of thousands of personal property leases and

&RAHON AP

".* 15 executory contracts. Applicant has continued to consult with PG&E with respect to the 16 treatment of executory contracts. During the period covered by this Application, Applicant performed the following services with respect to personal property leases and executory 18 contracts:

19

a.

Applicant researched numerous executory contract issues and consulted 20 with the Debtor regarding such issues, including the effect of rejection of contracts and the 21 types of contracts that may be considered executory.

22

b.

Applicant consulted with the Debtor regarding a software license contract 23 with SAP America that the Debtor ultimately decided to assume. Applicant has prepared a 24 motion for authority to assume such contract, which it expects will be filed shortly.

25

c.

Applicant reviewed numerous documents and consulted with the Debtor 26 regarding certain contracts with Siemens Westinghouse related to equipment used in the 27 Debtor's Diablo Canyon nuclear power plant.

28 With respect to this category, the number of hours spent and the amount of SECOND INTERIM APP.: FOR COMPENSATION (HOWARD, RICE)

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S 1

compensation requested are as follows:

2 Total Hours Total Fees 3

149.5

$34,245.00 4

5

8.

Cash Collateral (.010).

6 Substantially all of PG&E's assets have been pledged as collateral to secure its 7

obligations of approximately $3.5 billion under certain mortgage bonds. PG&E has also 8

pledged gas-related receivables and inventory to secure its obligations under agreements 9

with gas suppliers, to ensure an adequate supply of gas for PG&E's customers. The use of 10 such secured creditors' cash collateral during PG&E's bankruptcy case is necessary to 11 enable PG&E's continued operations. During the period covered by this Application, 12 Howard, Rice performed the following services with respect to cash collateral issues:

13

a.

Applicant assisted in ensuring PG&E's compliance with its obligations RIKE "O

14 under the stipulation with the indenture trustee for use of the mortgage bondholders' cash M~dK 15 collateral (the "Cash Collateral Stipulation"), including review and payment of the indenture 16 trustee's fees and expenses, and procedures to provide the indenture trustee with documents 17 to which it is entitled under the Cash Collateral Stipulation. Applicant also conferred with 18 the indenture trustee's counsel regarding various relief sought by PG&E in the bankruptcy 19 case, to ensure consistency with the provisions of the Cash Collateral Stipulation.

20

b.

Applicant negotiated and participated in the drafting of a motion to replace 21 the indenture trustee as the trustee under various unsecured indentures, a related tri-party 22 agreement with the new trustee and related documents.

23 With respect to this category, the number of hours spent and the amount of 24 compensation requested are as follows:

25 Total Hours Total Fees 26 19.4

$6,820.00 27 28 SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

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9.

Post-Petition Financing (.011).

2 This category encompasses a variety of post-petition issues respecting certain of 3

the many different types of debt issuances of the Debtor outstanding as of and after the 4

Debtor's Chapter 11 filing. More specifically, during the period covered by this Application, 5

Applicant performed the following services in this category:

6

a.

As explained in Applicant's First Interim Application, among the Debtor's 7

different types of outstanding. indebtedness, extant both before and after the Debtor's Chapter 8

11 filing, are more than$1 billion:of bonds commonly known as the "Pollution Control 9

Bonds." Although technically issued: by a public instrumentality and political subdivision of 10 the State of California known as the California Pollution. Control Financing Authority (the 11 "Authority"), this $1 billion-plus of Pollution Control Bonds is effectively indebtedness of 12 the Debtor pursuant to a series of inter-related documents entered into between or among 13 various parties, including the Authority, the Debtor and a trustee under various separate trust RKlE NI(14 indentures pertaining to the Pollution ControlBonds. A substantial portion of the Pollution 15 Control Bonds are credit enhanced by outstanding letters of credit ("LCs") issued by various 16 banks or by a financial guaranty insurance policy issued by a large insurer, in each case for 17 the account of the Debtor and for the benefit of the applicable trustee (the "Credit Enhanced 18 PC Bonds"). The Credit Enhanced PC Bonds provide financing at interest rates favorable to 19 the Debtor because of their tax-exempt status. After taking into account somewhat technical 20 and arcane tax doctrines, the Debtor concluded that it was a desirable financing objective to 21 try to maintain as much of the Credit Enhanced PC Bonds outstanding as possible, and to 22 encourage the LC-issuing banks and the insurer to refrain from triggering events that would 23 cause the redemption.of the Credit Enhanced PC Bonds. Accordingly, the Debtor embarked 24 upon a multi-part action agenda respecting the Credit Enhanced PC Bonds, which included 25 first negotiating and documenting an interim deal with the LC-issuing banks (the "first phase 26 stipulation") that would preserve the status quo while the Debtor formulated its Plan and 27 continued negotiations with the LC-issuing banks and the insurer for acceptable treatment of 28 them under the Plan (the "second phase stipulation"). Although there were substantial SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

WD 01140211-1419904/Sff/955803/v7 1

negotiations and drafts regarding the first phase stipulation during the period covered by the 2

First Interim Application, material negotiations, drafting and revising of the first phase 3

stipulation continued and were concluded during the period covered by this Application, 4

requiring many hours of Applicant's attention. In addition, after obtaining the concurrence 5

of the Committee and various other interested parties regarding the first phase stipulation, 6

Applicant finalized and filed a motion and supporting papers for approval of the first phase 7

stipulation, appeared at the hearing thereon, and prepared the order granting the motion. In 8

addition, Applicant assisted the Debtor in connection with reviewing and approving various 9

related successive technical amendments to the Debtor's reimbursement agreement with the 10 lead LC-issuing bank.

11

b.

During the period covered by this Application, as the contours and 12 substance of the Debtor's Plan took shape, Applicant also devoted substantial time to HOW 13 assisting the Debtor and coordinating with counsel for the Parent (a proponent of the Plan) in RANE I 14 negotiations with the LC-issuing banks and the insurer regarding the second phase HkLK

&RqXcN 15 stipulation for acceptable treatment of them under the Plan (which has become the basis for 16 the treatment of the Class 4e creditors under the First Amended Plan), which involved many 17 conference calls and meetings, some with only the Debtor (or the Debtor and its Parent) and 18 others involving participation of one or more of the LC-issuing banks or the insurer.

19 Although not finalized during the period covered by this Application, substantial progress on 20 the second phase stipulation was made during the period covered by this Application.

21

c.

On a parallel but later track with the negotiations with the LC-issuing banks 22 and insurer for the second phase stipulation aimed at preserving the benefits of outstanding 23 Pollution Control Bonds, the Debtor also commenced negotiations with other LC-issuing 24 banks whose letters of credit backing other series of Pollution Control Bonds had not been 25 reinstated, resulting in presentment of such letters of credit and payment on the applicable 26 Pollution Control Bonds. Applicant reviewed necessary underlying documentation and 27 assisted the Debtor and the Parent's counsel in ongoing negotiations with such LC-issuing 28 banks (who are classified as Class 4f creditors under the Plan) with respect to concerns they SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

WD 01 1402/1-1419904/gff/955803/v7 1

have articulated regarding their proposed treatment under the Plan.

2

d.

Applicant also continued to field a range of questions regarding various 3

other debt issuances or institutional indebtedness of the Debtor outstanding as of the Chapter 4

11 filing, including questions pertaining to (i) the Debtor's fully drawn unsecured credit 5

facility aggregating approximately $1 billion with a syndicate of banks, (ii) the Debtor's so 6

called "Mortgage Bonds" aggregating approximately $3.5 billionwunder that certain 7

Indenture dated as of December 1', 1920, and, (iii) the Debtor's so-called "'QUIPS/QUIDS" 8

financing in the amount of approximately $300 million. In addition, with respect to the 9

QUIPS/QUIDS financing, Applicant assisted the Debtor-in negotiating and preparing an ex 10 parte application for authority to register and list the QUIDS on two securities exchanges in 11 light of the pending liquidation of the QUIPS Trust. and the mandatory distribution of the 12 QUIDS held by the QUIPS Trust upon such liquidation, in order to facilitate the liquidity of HOM 13 the QUIDS without any material cost to the Debtor.

RKE*

m" 14

e.

Applicant assisted the Debtor in negotiating a $10 million cash 15 collateralized letter of credit from Union Bank in favor of a counterparty in connection with 16 a gas exchange agreement for the Debtor's purchase of Canadian natural gas. Applicant 17 assisted the Debtor in obtaining the necessary concurrence from the trustee under the 18 Mortgage Bonds Indenture, prepared the necessary motion and supporting papers to obtain 19 Bankruptcy Court approval of such letter of credit, appeared at the hearing on the motion 20 and successfully obtained an order granting the motion.

21

f.

Applicant assisted the Debtor in negotiating a cash deposit of $2.2 million 22 with Bank One as a condition of Bank One continuing its commercial credit card 23 arrangements with the Debtor, thereby enabling certain of the Debtor's employees to 24 continue to have access to corporate credit cards for expenses incurred on behalf of the 25 Debtor in the ordinary course of business. Applicant secured the necessary concurrence of 26 the Committee and the trustee under the Mortgage Bonds Indenture to this cash deposit, 27 prepared an ex parte application for authority to post this deposit, and obtained an order 28 granting the application.

SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

WD 01 14 0 2 1I-!4 19904/gff955803/v7

g.

Applicant advised the Debtor respecting various requests and demands by trustees under various indentures for reimbursement of fees or costs.

With respect to this category, the number of hours spent and the amount of compensation requested are as follows:

Total Hours Total Fees 139.7

$51,561.50 1

2 3

4 5

6 7

8 9

10 11 12 13 HOWAM 1

CAkx.14

&RABUN 15 16 17 18 19 20 21 22 23 24 25 26 27 28

10.

Relief From Stay (.012).

Debtor has continued to encounter various issues related to the automatic stay imposed by Section 362 of the Bankruptcy Code. During the period covered by this Application, Applicant performed the following services in this category:

a.

Applicant advised the Debtor with respect to a number of motions for relief from stay that were filed in this case by litigants seeking to continue certain state and federal court litigation that was commenced prior to the filing of the bankruptcy petition. Howard, Rice negotiated with moving parties, consulted with the Debtor and the Debtor's outside litigation counsel regarding such negotiations and prepared numerous stipulations for relief from stay, as well as some motions or applications for relief from stay where such relief was desired by the Debtor, such as in connection with certain condemnation actions. In certain cases, Applicant also prepared opposition pleadings with respect to a number of motions for relief from stay; however, in most cases, the motions were resolved by stipulation prior to the hearings on such motions.

b.

Applicant conducted research and analysis of the applicability of the automatic stay to various actions taken or threatened to be taken by regulators, creditors and other parties, and met with PG&E's in-house counsel to discuss strategy with respect to various pending litigation matters.

c.

Applicant researched and prepared a motion seeking authority to hire and pay mediators in connection with attempting to settle pending pre-petition litigation claims.

With respect to this category, the number of hours spent and the amount of SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

WD 01 1402/1-1419904/gff/955803/v7 I

compensation requested are as follows:

2 Total Hours Total Fees 3

312.3

$68,769.50 4

5

11.

Claims And Objections to Claim (.013).

6 The Debtor has tens of thousands of creditors with myriad types of claims, 7

aggregating billions of dollars, many of which raise complex issues. During the period 8

covered by this Application, Howard, Rice performed the following services with respect to 9

creditor claims and objections to claims:

10

a.

Applicant responded to objections with respect to its motion to establish 11 deadlines and procedures :for the filing of certain administrative claims (the preparation and 12 filing of the motion were the subject of Applicant's First Interim Application). Howard, 13 Rice successfully argued at the hearing for approval of such motion, and prepared and RKE COMT 14 obtained entry of an order granting such relief. Applicant also prepared a form of A,,

.. dQ 15 administrative claim and a form of notice regarding such deadlines and procedures.

16 Howard, Rice negotiated the form of these documents with certain interested parties.

17

b.

Applicant extensively advised and assisted the Debtor in categorizing and 18 analyzing claims of creditors and implementing procedures for reconciling claims, 19 negotiating discrepancies and formulating objections to allowance, where appropriate.

20 Applicant also provided the Debtor with detailed guidelines for analyzing claims for 21 objection purposes.

22

c.

Howard Rice researched and prepared detailed memoranda regarding 23 procedural and substantive matters with respect to objections to claims and related strategic 24 considerations, including providing exemplars of various types of objections. Such 25 memoranda included claim estimation issues (including substantive matters such as plan 26 voting and feasibility, as well as procedural issues), bifurcation of claim objections, 27 mandatory counterclaim and resjudicata issues, burden and standard of proof issues, 28 informal proofs of claim issues and untimely proofs of claim issues.

SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

WD 01 1402I-1419904/gff/955803/v7 0

0 1

d.

Howard, Rice advised the Debtor regarding numerous issues related to 2

claim analysis and objection, including issues with respect to litigation claims (including 3

stay relief and abstention), class proofs of claim issues with respect to claims arising out of 4

main line extension contracts, and procedures for streamlining the objection process, 5

including potential appointment of persons to assist the. Applicant conducted necessary 6

related legal research and analysis.

7

e.

After advising the Debtor and consulting with the Committee, Applicant 8

prepared a motion for authority to compromise certain creditor claims without further Court 9

approval, including related legal research and factual investigation. Such motion has been 10 granted by the Court.

11

f.

Howard, Rice prepared a motion for authority to submit certain preliminary 12 omnibus objections to claims, without waiving the right to later submit specific objections if HCMAR 13 necessary, and for relief from certain aspects of Bankruptcy Rule 7026 in litigating claim RICE C

14 objections, including related analysis and legal research. Such motion has been granted by

&iRAEMU 15 the Court.

16

g.

Applicant analyzed, performed legal research and prepared objections 17 respecting several extremely large claims involving billions of dollars.

18

h.

Applicant negotiated and assisted the Debtor in negotiating the amount and 19 classification of numerous creditor claims.

20

i.

Applicant prepared generic forms of stipulation for resolving various types 21 of claim objections, including trade claims and litigation c!aims.

22

j.

Applicant prepared a generic form for withdrawal of claims.

23

k.

Applicant conducted legal research and analysis regarding various issues 24 with respect to setoffs asserted by creditors.

25

1.

After conducting appropriate legal and factual investigations, Applicant 26 negotiated and documented stipulations with various creditors asserting setoff rights, on 27 terms deemed favorable to the Debtor's estate, and obtained the Court's approval thereof.

28

m.

Applicant responded to numerous inquiries regarding creditors' claims and SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

WD 011402/i-1419904/gff/955803/v7 1

the potential treatment of their claims.

2

n.

Howard, Rice regularly advised and assisted the Debtor with respect to the 3

foregoing and related matters, including participating in regularly scheduled meetings with 4

the Debtor and other professionals regarding these matters., In some instances, two or more 5

Howard, Rice attorneys participated in such meetings. Applicant believes that the use of 6

multiple professionals in this context is appropriate, given the large number of claims 7

(approximately 13,000) in this case and the multitude of issues raised by such claims. In 8

addition, in order to support the Debtor's efforts.with respect to review and analysis of this 9

large volume of claims (and potential objections thereto), it is necessary to involve several 10 Howard, Rice attorneys. The attendance by such attorneys at certain meetings is essential to 11 achieving consistency and efficiency in this process.

12 With respect to this category, the number of hours spent and the amount of 13 compensation requested are as follows:

RMIC CA 14 Total Hours Total Fees

&IRANUN 15 844.5

$246,951.50 16 17

12.

Asset Sales (.014).

18 The two attorney time entries in this matter, aggregating 1.3 hours3.472222e-5 days <br />8.333333e-4 hours <br />4.960317e-6 weeks <br />1.1415e-6 months <br />, were 19 erroneously recorded in this matter and should have been recorded under Real Property 20 Sales (.026). Accordingly, see Section 22 below for the relevant summary regarding the 21 time recorded in this matter.

22 With respect to this category, the number of hours spent and the amount of 23 compensation requested are as follows:,

24 Total Hours, Total Fees 25 1.3

$715.00 26 27

13.

Plan And Disclosure Statement (.015).

28 Since the earliest days of this Chapter 11 case, senior management of the Debtor SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

WD 01 1 40 V/l-1419904/gfff955803/v7 0

0 1

and of its Parent, the co-proponent of the Plan, have been focused on efforts to formulate a 2

plan, confirm a plan and emerge from Chapter 11. Applicant has participated in those 3

efforts in a significant fashion. During the period covered by this Application, these efforts 4

have become much more significant. Howard, Rice performed the following services with 5

respect to this matter:

6

a.

Applicant attended meetings, usually several times a week, with a senior 7

management group (the "plan team") to discuss tactics, strategy and substantive issues 8

regarding the restructuring plan. The work of the plan team has been supported by hundreds 9

of PG&E and PG&E Corporation employees, consultants and attorneys working on specific 10 aspects of the Plan and potential alternatives. The shorter meetings have been supplemented 11 by periodic longer meetings, including off-site meetings, where strategic and substantive 12 decisions are reached regarding the Plan and Disclosure Statement.

13

b.

Significant efforts have been expended in dealing with the myriad issues RKE "MNA"'

14 arising in conjunction with the formulation and drafting of a plan in a case of this magnitude BUK 15 and complexity. Applicant has been involved in negotiating, drafting and considering the 16 underlying legal issues with respect to all facets of the Plan. These efforts culminated in the 17 filing on September 20, 2001 of the Plan and Disclosure Statement herein.

18

c.

After the Plan was filed, Applicant participated in ongoing outreach efforts 19 to various creditor constituencies and members of the financial community. These efforts 20 included a visit to New York the week after the Plan was filed. Along with members of 21 management and other professionals, Applicant participated in several days of meetings with 22 various analysts, rating agencies and creditor representatives, explaining the economics and 23 legal underpinnings of the Plan. Numerous other groups were met with at different times to 24 explain the Plan's impact and to obtain feedback on issues of importance to the members of 25 such groups.

26

d.

During this period, Applicant undertook extensive efforts to seek the 27 approval of its Disclosure Statement and respond to objections thereto. Applicant prepared 28 for and participated in a status conference in October, 2001 at which time it made SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

WD 01 1402/1-1419904/gff/955803/v7 I

suggestions to the Court resulting in the development of a process for dealing with 2

Disclosure Statement objections. The State of California and the CPUC argued that certain 3

of the declaratory and injunctive relief being sought under the Plan required adversary 4

proceedings. As a consequence, the Court required that the parties make such contentions 5

independent of their other objections to the Disclosure Statement. Applicant reviewed and 6

responded to those pleadings an'd, thereafter, the Court rejected the position of the CPUC, 7

the State and others. Applicantalso began its review and response to the numerous other 8

objections to the Disclosure Statement'filed in late November 2001. Certain time relevant to 9

these efforts has been billed to Matter No. 068 (Plan Prosecution), at Section 48 below.

10 With respect to this category, the number of hours spent and the amount of 11 compensation requested are as follows:

12 Total Hours Total Fees RJB 13 1,073.2

$385,988.50 RIME Cm 14 RI.K 15

14.

Adversary Proceedings (.016).

16 Applicant has billed to this matter services performed-in connection with actual 17 and contemplated adversary proceedings and contested matters that were not billed to more 18 specific matters. During the period covered by this Application, Applicant performed the 19 following services with respect to such adversary proceedings and contested matters:

20

a.

Howard, Rice regularly assisted and advised PG&E regarding a variety of 21 existing and contemplated adversary proceedings, contested matters and non-Bankruptcy 22 Court proceedings, including litigation strategy and tactics., Applicant also researched and 23 advised the Debtor regarding various litigation issues, including statute of limitations and 24 tolling issues.

o 25

b.

Howard, Rice responded to objections to the Debtor's claim in another 26 bankruptcy case (Lord Electric), including related factual and legal investigation, and 27 assisted the Debtor in negotiating a settlement of such claim. Applicant participated in the 28 drafting of the settlement agreement and prepared a motion for approval of such settlement SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

WD 01 1402/I-1419904/gWff955803/v7 1

2 3

4 5

6 7

8 9

10 11 12 Hc'WRD 13 RKE

"_ýANE 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 0

in PG&E's bwn bankruptcy case, including a proposed order thereon.

c.

Howard, Rice assisted the Debtor in coordinating its discovery responses in the myriad of legal and administrative proceedings in which it is involved.

With respect to this category, the number of hours spent and the amount of compensation requested are as follows:

Total Hours Total Fees 45.1

$14,215.50

15.

CPUC & FERC (.017).

Amounts billed to this matter are described in Matter No. 007 above. (Future time records will consolidate these matters.)

With respect to this category, the number of hours spent and the amount of compensation requested are as follows:

Total Hours 16.4 Total Fees

$5,628.00

16.

Litigation-California PX (.018).

During the period covered by this Application, Applicant performed the following services with respect to litigation matters involving the California Power Exchange (the "PX"), including matters in the PX's pending bankruptcy case in the United States Bankruptcy Court for the Central District of California:

a.

Howard, Rice advised and assisted the Debtor in pursuing claims before the California Victim Compensation Board based on the Governor of California's commandeering of PG&E's block forward contracts (which the PX had threatened to liquidate), valued at hundreds of millions of dollars.

b.

Applicant advised and assisted the Debtor in its inverse condemnation action brought in the San Francisco Superior Court against the State of California with respect to the commandeering of such block forward contracts. This included issues SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

WD 01 1402/-1419904/gff/955803/v7 0

0 1

regarding coordination with other inverse condemnation actions filed against the State by the 2

PX and its individual participants, and other strategic issues.

3

c.

Howard, Rice prepared opposition to the State's motion for relief from stay 4

to pursue a declaratory relief action against PG&E, the PX and individual PX participants in 5

the Sacramento Superior Court with respect to the block forward contracts, and certain 6

unrelated counterclaims against the Debtor (to recover amounts expended by the State's 7

Department of Water Resources to purchase power for PG&E's customers), including 8

related factual investigation and legal research. In addition to these issues, PG&E's 9

opposition addressed complex sovereign immunity issues raised by the Motion. Applicant 10 advised and assisted the Debtor in extensive negotiations with the State resulting in a 11 settlement resolving such motion, providing for the alternative relief proposed in the 12 Debtor's opposition to the Motion, including a prohibition against the State's pursuit of HCVOM 13 counterclaims against PG&E. Howard, Rice participated in the drafting of that settlement

'TAMP' 14 agreement and obtaining Court approval thereof.

&~RANUN 15

d.

Applicant monitored developments in the PX's bankruptcy case and before 16 the FERC, and advised and assisted the Debtor with respect to matters that could implicate 17 the Debtor or its bankruptcy estate, including the methodology for allocating the claims of I 8 participants in the PX markets against PG&E and other utilities and distributions on account 19 of such claims, and the treatment of fundsheld in escrow by the PX with respect to such 20 obligations. Howard, Rice analyzed the Chapter 11 plan and disclosure statement for the PX 21 submitted by the PX's participants committee ("PX Participants Committee") and advised 22 the Debtor regarding its strategy with respect thereto.

23

e.

Applicant advised andassisted the Debtor regarding litigation with respect 24 to a surety bond securing the performance by PG&E (and other utilities) of certain 25 obligations in the PX markets.

26

f.

Applicant advised and assisted the Debtor regarding the treatment of 27 various contracts' between PG&E and the PX in their respective bankruptcy cases.

28 With respect to this category, the number of hours spent and the amount of SECOND INTERM APP, FOR COMPENSATION (HOWARD, RICE)

WD 01 14021-1419904/gff1955803/y 7

1 compensation requested are as follows:

2 Total Hours Total Fees 3

204.5

$55,230.50 4

5

17.

Litigation-Generators (.020).

6 During the period covered by this Application, Applicant has continued to assist 7

PG&E with a number of matters concerning its relations with approximately 330 of its gas 8

suppliers, power generators and QFs.

9 During the period covered by this Application, Applicant performed the 10 following services with respect to this matter:

11

a. During the period covered in Applicant's First Interim Application, Applicant 12 assisted PG&E in reaching agreements and documenting stipulations (the "Stipulations")

R1AI 13 with certain QFs for the assumption of the power purchase agreements ("PPAs") between RICE 14 PG&E and such QFs. Among other things, the Stipulations provide for the Debtor to cure EAMK

&RA.RUN A,**

C

_15 arrearages under the PPAs by the Effective Date of the Plan. The assumption agreements 16 left the issue of the interest rate to be applied to the pre-petition payables to be resolved 17 either through additional negotiation by the Debtor and the QFs or, if no agreement could be 18 reached, through the Plan confirmation process.

19

b. During the period covered by this Application, Applicant assisted the Debtor 20 in concluding negotiations with several of its larger QFs, including the Calpine QFs and the 21 GWF Group, resolving those issues. Applicant prepared supplemental agreements between 22 PG&E and these QFs, which modified the assumption agreements by setting the interest rate 23 for pre-petition payables at five percent (5%) per annum; providing for a "catch-up" 24 payment to be paid on December 31, 2001, and providing for an accelerated payment of the 25 principal amount of pre-petition arrearages (and interest thereon) in installments 26 commencing on December 31, 2001.

27

c. Applicant prepared a Motion to approve these supplemental agreements, 28 which was granted by the Bankruptcy Court. Pursuant to the Motion, the Court approved SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

WD 01 1402/I -1419904/gff/955803/v7 1

the supplemental agreements not only with the Calpine QFs and the GWF Group, but also 2

numerous other QFs, and established a procedure for the Debtor to seek approval of similar 3

supplemental agreements by stipulation rather than by noticed motion.

4 With respect to this category, the number of hours spent and the amount of 5

compensation requested are as follows:

6 Total Hours Total Fees 7

979.7

.$212,080.00 8

9

18.

Creditor And Committee Matters (.022).

10 This matter is designed-to capture issues related to dealing with creditors 11 generally, and specifically, with the Committee. Time spent in connection with opposing the 12 appointment of a governmental creditors', committee was also included within this matter.

13 During the period covered by this Application, Applicant performed the following services

'CO' 14 with respect to this matter:

IWK

&RAEMI 15

a.

Creditors. The Debtor has tens of thousands of creditors. The bankruptcy 16 filing has raised many questions and issues that require the ongoing attention of Howard, 17 Rice. Applicant attempted to be responsive in the most cost-effective manner. As described 18 in connection with Matter No. 003 above, during the initial days of the case, Applicant set 19 up a dedicated voice mailbox and e-mail address for creditor inquiries, to which Applicant 20 has continued to respond during this period.

21 Additionally, Howard, Rice has spent considerable time dealing with various 22 creditors and creditor constituencies. There are several ad hoc groups that Applicant 23 communicates with on a regular basis. Further, the Debtor conducts periodic conference 24 calls at which any interested creditor can participate. Howard, Rice assisted the Debtor in 25 preparing for these calls and participated in such calls with the Debtor.

26

b.

Creditors' Committee. Shortly after the commencement of this case, the 27 Committee was appointed and since that time Applicant has advised the Debtor regarding its 28 relationship with the Committee as well as working directly with the Committee and its SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

WD 01 1402/1-1419904/gff/955803/v7 1

professionals. There have been numerous meetings and telephone calls with the Committee 2

(or special committees or sub-groups of the Committee) and the necessary preparation for 3

these meetings. Applicant believes that it has been instrumental in establishing a good 4

working relationship with the Committee. Howard, Rice and PG&E have attempted to seek 5

the input of the Committee prior to taking any material actions in this case and to seek its 6

support on significant matters.

7 With respect to this category, the number of hours spent and the amount of 8

compensation requested are as follows:

9 Total Hours Total Fees 10 474.2

$172,186.50 11 12

19.

DWR (.023).

HORD 13 As discussed in Applicant's First Interim Fee Application, in the summer of RKEE 14 2001, the Debtor entered into negotiations regarding a "servicing agreement" with the DWR 15 under which the Debtor would provide, pursuant to California Assembly Bill I X-1 (adopted 16 on February 1, 2001), billing and collection services for electric power that the DWR 17 provides to electric power customers of the Debtor. When the negotiations between the 18 Debtor and the DWR concerning the form of the servicing agreement reached an impasse, 19 the DWR filed an application with the CPUC, enclosing a draft of the servicing agreement 20 which contained provisions to which the Debtor had not agreed (the "Disputed Draft 21 Agreement"), and requesting that the CPUC order the Debtor to execute the Disputed Draft 22 Agreement. In response to the DWR's application, the CPUC issued a draft order (the 23 "CPUC Order") ordering the Debtor to execute the Disputed Draft Agreement, and perform 24 according to the terms thereof.

25 The Debtor objected to the form of the Disputed Draft Agreement, because it 26 contained provisions to which the Debtor had not agreed (and which appeared to be 27 detrimental to the Debtor and its estate); the Debtor also objected to the CPUC Order, 28 because the Debtor believed that it was premature to order the Debtor to enter into any form SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

WD 011402/1-1419904/gff/955S03/v7 1

of servicing agreement prior to the CPUC's determination of issues related to the Debtor's 2

performance under such an agreement (e.g.,,the determination of the DWR's revenue 3

requirement). Over the Debtor's objections, the CPUC subsequently finalized the CPUC 4

Order; however, the CPUC Order also-provided that if the Debtor believed that entering into 5

a form of servicing agreement required approval by the Bankruptcy Court, the Debtor was 6

directed to seek such approval by a motion to be filed within a specified period 7

During the period covered by this Application, Applicant assisted the Debtor in 8

motion practice before the CPUC objecting to both the draft and final versions of the CPUC 9

Order. Applicant also assisted the Debtor in evaluating its rights and obligations as a debtor 10 in-possession with regard to the Disputed Draft Agreement and the CPUC Order. This 11 analysis was complex, because it required Applicant to balance the Debtor's duty to respond 12 to the CPUC Order in an appropriate and timely manner, with the Debtor's duty to preserve RKI 13 the assets of the estate. Ultimately, Applicant prepared a motion that was submitted to the "ECtK 14 Court which, while responding to the directive of the CPUC Order that the Debtor promptly 15 file a motion bringing the Disputed Draft Agreement before the Bankruptcy Court, took the 16 relatively unusual position of arguing that the motion was not a proper motion under section 17 363 of the Bankruptcy Code (use of property of the estate) because (a) the Debtor did not 18 believe that the Disputed Draft Agreement was beneficial to the estate, and (b) for all of the 19 reasons that the Debtor had disputed entry of the CPUC Order, the Debtor would not have 20 brought the Disputed Draft Agreement to the Court, absent the directive in the CPUC Order 21 that it do so. The Motion remains pending before this Court, and is set for hearing on 22 February 26, 2001, (having been continued twice at the request of the State of California and 23 the CPUC).

24 In addition, Applicant provided advice to the Debtor regarding negotiation of a 25 DWR-proposed agreement between. the DWR and the Debtor regarding real-time electric 26 energy purchases by the DWR for the Debtor's electric power customers (and numerous 27 revisions thereof), and the Debtor's ongoing interactions with the DWR generally.

28 With respect to this category, the number of hours spent and the amount of SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

WD 011402/1-1419904/gff/

9 5580 3 /v7 1

2 3

4 5

6 7

8 9

10 11 12 13 RKE N A 14 rEUK

&RUMcIN AJ.ob, 15 16 17 18 19 20 21 22 23 24 25 26 27 28 compensation requested are as follows:

Total Hours 240.5 Total Fees

$70,394.00

20.

TURN Accounting Adversary Proceeding (.024).

As more particularly described in Applicant's First Interim Application, shortly after the Debtor's Chapter 11 case commenced, Howard, Rice initiated an adversary proceeding on behalf of PG&E against the CPUC and its individual commissioners seeking to enjoin and/or stay the implementation and enforcement of a pre-petition decision that adopted retroactive accounting changes, which raised numerous complex issues. During the period covered by this Application, Howard, Rice continued to pursue PG&E's appeal of the Bankruptcy Court's adverse decision in this matter, and performed the following particular services:

a.

Monitored the Bankruptcy Court's preparation of the appellate record and the District Court's initiation of a briefing schedule.

b.

Prepared PG&E's opening brief on appeal and its excerpts of the appellate record.

c.

Advised PG&E and coordinated with counsel in PG&E's pending filed rate case with respect to a request by United States District Court Judge Vaughn Walker for briefing as to whether PG&E's appeal in this matter is related to, and should be heard by the same District Court judge as PG&E's pending filed rate case.

d.

Analyzed the appellate brief filed by the CPUC in opposition to PG&E's appeal and in support of its cross-appeal of the Bankruptcy Court's decision, which raised a number of legal issues not addressed in PG&E's opening brief; conducted additional legal research; and prepared a combined brief in opposition to the CPUC's opening brief in its cross-appeal and reply brief in support of PG&E's appeal. PG&E's reply brief raised as an issue the State's waiver of its Eleventh Amendment sovereign immunity, based principally on appearances and actions taken in the Bankruptcy Court since the filing of its opening SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

WrD011402/-l1419904/gff/955803/v 7

1 2

3 4

5 6

7 8

9 10 11 12 13 RKE

&RAMON S15 16 17 18 19 20 21 22 23 24 25 26 27 28 brief (on October 1, 2001); in connection with this argument, Applicant was required to assemble and put into the record voluminous evidence of the State's actions.

With respect to this category, the number of hours spent and the amount of compensation requested are as follows:

Total Hours Total Fees 732.7

$206,186.00.

21.

Environmental Issues (.025)

As noted in Howard, Ri'ce's, First Interim Application, the Debtor's operations have included manufactured gas plant sites, natural gas gathering system sites, natural gas compressor station sites, electric transmission and distribution facilities, steam-electric power plant sites, hydroelectric power plant sites, nuclear power plant sites and service centers. The Debtor owns numerous separate parcels of real property and is a tenant under approximately 250 leases. As a necessary part of its business, the Debtor has used and continues to use a variety of different hazardous materials at a number of its sites. Given the size and nature of its business operations, its long operating history, and the many properties that the Debtor owns and leases, the cleanup and remediation of sites containing hazardous substances is an ordinary and recurring part of the Debtor's business and will be for many years to come. In addition, the Debtor, by virtue of its business and activities, is subject to numerous non-bankruptcy federal and state laws governing the management and cleanup of hazardous wastes and substances. Against this backdrop, Applicant rendered the following services in this category during the period covered by this Application:

a.

Applicant has continued to assist the Debtor in addressing and dealing with a wide range of bankruptcy-related issues pertaining to environmental matters. Assisting the Debtor in dealing-with environmental issues in the bankruptcy context has involved studying specific laws, regulations and documents and conferring with a range of employees familiar with various aspects of the issues presented, as well as communicating with governmental agencies and regulators and, on occasion, private parties with whom the Debtor has entered SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

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i,.,, 15 16 17 18 19 20 21 22 23 24 25 26 27 28 into "Principal Responsible Party" agreements for monitoring and/or remediation of contaminated or potentially contaminated property. In addition, in light of the fact that the claims bar date occurred during the period covered by this Application, and the Debtor during such period undertook its first review of environmental claims that were timely filed, Applicant consulted with the Debtor and responded to numerous questions of the Debtor regarding positions taken in or documents attached to the environmental claims filed by many different governmental and private parties.

b.

Applicant consulted with the Debtor and its special outside insurance counsel for environmental matters regarding a range of insurance issues pertaining to environmental damages. In addition to analyzing a number of insurance-related issues, this entailed discussing and documenting relief-from-stay stipulations to the extent necessary to enable suits to be filed to trigger insurance coverage under applicable non-bankruptcy law.

With respect to this category, the number of hours spent and the amount of compensation requested are as follows:

Total Hours Total Fees 26.4

$10,700.00

22.

Real Property Sales (.026).

As summarized in the First Interim Application, in connection with its operations, the Debtor owns many pieces of property, both improved and unimproved, and the Debtor each year routinely sells various properties that have been identified as "surplus" property that it no longer needs to use for utility purposes. The sale of surplus property allows PG&E to avoid carrying costs associated with land and buildings that it no longer needs to own. In light of the Debtor's substantial land holdings, certain of the Debtor's sales are the direct or indirect result of actual or threatened eminent domain proceedings. PG&E also from time to time engages in sales of operating property for specific purposes that are consonant with PG&E's business needs. In addition, each year PG&E engages in a variety of sales or transfers involving real estate-related rights, such as easements, rights of way, and the like.

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Howard, Rice has continued to provide advice and assistance to the Debtor on an ongoing 2

basis in connection with the Bankruptcy Code overlay on many real estate transactions.

3 More specifically, during the period covered by this Application, Applicant has 4

performed the following services in connection with real estate-related. sales matters:

5

a.

Applicant has continued to counsel the Debtor in connection with a range of 6

specific real property sale transactions being negotiated or pending at the time of the Chapter 7

11 filing. This has included the review of proposed.post-petition contracts for proper 8

bankruptcy authorization/approval provisions as a condition to the Debtor being bound, as 9

well as determining whether such approval or notice and an opportunity for hearing was 10 necessary for certain transactions..n addition, Applicant has analyzed a wide range of 11 diverse -and unique contract-specific issues for the Debtor, such as, for example, the effect of 12 a pre-petition option agreement for the sale of real property that is sought to be exercised HOWARD 13 post-petition.

RKE wx14

b.

Applicant also has continued to counsel the Debtor in connection with 15 actual or threatened eminent domain proceedings and determining what Bankruptcy Court 16 approvals, if any, are necessary under Section 363 of the Bankruptcy Code and/or 17 Bankruptcy Rule 9019 for a sale to a condemning agency based on a stipulated judgment in 18 an eminent domain proceeding. Applicant assisted the Debtor in documenting stipulations 19 for some such transactions and in obtaining Bankruptcy Court approval therefor.

20

c.

In light of the numerous real property-related sales transactions that the 21 Debtor routinely undertakes, the difficulty of being able to determine in every instance 22 whether a proposed sale is or is not-in the "ordinary course of business" for purposes of 23 Section363 of the Bankruptcy Code,; and the title policy issues that often arise when a 24 debtor tries -to consummate a sale of real property withouta bankruptcy court order, 25 Applicant, during the period covered by the First Interim Application, started assisting the 26 Debtor in preparing an "omnibus" motion for the sale of real property (among other things) 27 within specified dollar parameters, such that the motion covers all real property sales below 28 a threshold dollar amount, and all sales below a higher specified amount so long as any such SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

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15 16 17 18 19 20 21 22 23 24 25 26 27 28 proposed sale is noticed to the Committee and the Committee does not object to the proposed sale within a specified number of days. This labor-intensive project continued for the first two months of the period covered by this Application, resulting in a very detailed omnibus motion that was finalized, heard and approved during the period covered by this Application. Applicant also assisted the Debtor in discussions with the Committee and the Mortgage Bond Indenture Trustee to obtain their concurrence with the motion. In connection with obtaining the Mortgage Bond Indenture Trustee's consent, extensive discussions and negotiations regarding the aspects of the motion under Section 363(f) of the Bankruptcy Code and the resulting order were necessary.

d.

Applicant also devoted considerable time to assisting the Debtor in preparing a motion for sale free and clear of liens of the Debtor's so-called "Kern Facility,"

a former generation site that has been shut down for a substantial time. The Kern Facility was the subject of pending issues with the CPUC, inasmuch as the Debtor already had contracted for sale of the facility to a credible purchaser who intended to restart the facility as a generation plant, had applied to the CPUC for permission to consummate such sale, had been denied such permission for reasons the Debtor strongly disagreed with, and had applied for reconsideration by the CPUC. Against this backdrop, the Governor of California, by a special Executive Order, appeared to have overridden the CPUC's denial and had effectively instructed the Debtor to proceed to seek Bankruptcy Court approval of the sale pursuant to Section 363 of the Bankruptcy Code. Nonetheless, the precise effect of the Executive Order was not entirely clear under existing law. The motion required extensive negotiations with the prospective purchaser regarding the form of motion and order, as well as negotiations with the Mortgage Bond Indenture Trustee regarding the form of motion and order, because the property needed to be sold free and clear of the Trustee's lien. The motion also required extensive factual and legal discussion about the convoluted background. Prior to the hearing on the motion, the Debtor's intent was to proceed with the sale if it obtained permission from the Bankruptcy Court under Section 363 of the Bankruptcy Code, on the supposition that the CPUC would recognize the supremacy of the Governor's Executive Order and SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

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would no longer stand in the way of the sale. However, near the eve of the hearing on the 2

motion, the CPUC issued a decision/order requiring the Debtor to submit a revised 3

application in light of the Governor's Executive Order, and with such an unexpected 4

decision having been issued, the Debtor and the purchaser were no longer willing to take the 5

risk of proceeding with the saleý without an express ruling from the Bankruptcy Court that 6

the Executive Order "trumped" the CPUC action. At the hearing on the motion, the 7

Bankruptcy Court granted the Debtor's motion under Section 363 but declined to make any 8

ruling respecting the effect of the CPUC's action and the Governor's Executive Order.

9 Considerable discussions were then required among the interested parties regarding revisions 10 to the form of the order-granting the motion to be presented to the Bankruptcy Court.

11 Subsequently, Applicant consulted with the Debtor regarding further discussions and 12 negotiations with the purchaser over what course of action to take once the Bankruptcy 13 Court's order granting the motion was entered. Based on those discussions, the Debtor RKE 14 determined to proceed to file the additional application ordered by the CPUC, and Applicant BLK A

V 15 assisted the Debtor in connection with certain aspects of that application. The matter 16 remains pending.

17 With respect to this category, the number of hours spent and the amount of 18 compensation requested are as follows:

19 Total Hours Total Fees 20 230.6

$79,252.50 21 22

23.

Reclamation Issues and Disputes (.027).

23 Applicant has continued to spend time during the period covered by this 24 Application addressing reclamation claims made by creditors who have sent notices to the 25 Debtor purporting to reserve their rights under Section 2702 of the California Commercial 26 Code and Section 546(c) of the Bankruptcy Code. During the period covered by this 27 Application, Applicant performed the following services with respect to this matter:

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a.

Applicant consulted with the Debtor's representatives concerning reclamation claims, and responded to inquiries from creditors regarding their reclamation claims.

b.

Applicant, in consultation with PG&E, prepared summaries of reclamation claims to facilitate review and analysis of such claims and development of strategies for dealing with reclamation claims.

c.

Applicant prepared a form letter for use in corresponding with creditors who have asserted reclamation claims.

With respect to this category, the number of hours spent and the amount of compensation requested are as follows:

Total Hours Total Fees 56.2

$11,031.50

24.

California Independent System Operator (.028).

The adversary proceeding that Howard, Rice initiated on behalf of PG&E against the California Independent System Operator ("ISO") on May 2, 2001 remains pending, and is described more particularly in Howard, Rice's First Interim Application. In addition to attending to matters associated with ongoing case management, Howard, Rice performed the following services with respect to this matter during the period covered by this Application:

a.

Applicant prepared an answer on behalf of PG&E to the cross-complaint filed by intervenors Reliant Energy, Inc. and Reliant Energy Services, Inc. ("Reliant"), and in connection therewith, negotiated a stipulation with Reliant concerning the scope of issues potentially in dispute with them in the action.

b.

Applicant has been involved in negotiations with the ISO and the other parties to the action concerning a possible stay of the litigation in light of the preliminary injunction entered by this Court at PG&E's request and ongoing developments at the FERC.

In connection with these negotiations, Howard, Rice also performed related legal research.

Following issuance of the preliminary injunction, PG&E and the ISO entered discussions SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

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which contemplated a negotiated stay upon terms that would adequately protect PG&E's 2

interests.; However, in approximately late August 2001, evidence came to light that 3

prompted some concern on the part of various generators as to whether the ISO was 4

complying with its obligations regarding payment for DWR power purchases; this concern 5

prompted several of the generators to file a motion before the FERC seeking an order 6

directing the ISO to comply with its payment obligations. At Reliant's request, the parties 7

reached a stipulation enabling Reliant to depose the ISO in this action, which deposition 8

took place in October 2001. Thereafter, FERC entered an order requiring payment by the 9

DWR of outstanding invoices and directing the ISO to bill the DWR directly for its power 10 purchases. (DWR subsequently filed for rehearing of this order, after the period covered by 11 this Application.) Following FERC's most recent order, the parties have sought to enter into 12 discussions regarding a stipulated disposition of this action.

13

c.

Discovery in this matter has continued. Howard, Rice's efforts were RKE 14 principally devoted to gathering and preparing documents for possible production to the ISO 15 and preparing discovery responses; preparing for and attending the ISO's deposition; 16 attending to third-party discovery propounded to the DWR by PG&E and Reliant;6 and 17 monitoring developments in the Chapter 11 case with respect to PG&E's Bankruptcy Rule 18 2004 request to the ISO (discussed in connection with Matter No. 048).

19 With respect to this category, the number of hours spent and the amount of

,20 compensation requested are as follows:

21 22 6Both PG&E and Reliant served third-party subpoenas on the DWR, which served 23 objections and filed a motion to quash both subpoenas (in the United States District Court for the Eastern District of California) principally on Eleventh Amendment immunity 24 grounds. Howard, Rice commenced meeting and conferring with the DWR, and the parties negotiated and entered into a stipulation to coordinate a hearing on DWR's two motions to 25 quash. Shortly after Howard Rice filed' its opposition to the DWR's motion, the DWR withdrew its motions at approximately the same time that it moved for relief from the 26 automatic stay in'the Banptcy Court with respect to a unrelated matter. Howard Rice has obtained documents from theDWR pursuant to the third party subpoena, and has been 27 advising and conferring with PG&E with respect to discovery strategy in light of ongoing FERC developments and other considerations.

28 SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

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S Total Hours Total Fees 2

404.9

$122,027.50 3

4

25.

Sierra Pacific Litigation (.029).

5 This matter number was created for a discrete piece of QF litigation that was 6

commenced in state court shortly before PG&E's Chapter 11 filing by Sierra Pacific 7

Industries, Inc. ("SP"), a QF under contract with PG&E. During the period covered by the 8

First Interim Application, Applicant was materially involved with the initial bankruptcy 9

related issues raised by this litigation. Subsequently, one of the Debtor's outside special 1 0 litigation counsel took primary responsibility for this litigation, since it is a contract dispute 11 based primarily on non-bankruptcy law. During the period covered by this Application, 12 Applicant from time to time conferred with outside special litigation counsel and/or the 13 RH*

Debtor's in-house counsel monitoring this litigation, and reviewed select pleadings at their

"'ýCAX 14 BUX request, in connection with bankruptcy-related issues.

. 15 With respect to this category, the number of hours spent and the amount of 16 compensation requested are as follows:

17 18 Total Hours Total Fees 19 11.8

$4,221.50 20 21

26.

DWR Payment Action (.030).

22 As explained in greater detail in the First Interim Application, the risk that a 23 portion of PG&E's revenues could be allocated to the DWR to cover all, or some portion, of 24 the DWR's revenue needs for the power that the DWR has been procuring under AB1X 25 remains a matter of critical importance to PG&E. Howard, Rice has continued to assist 26 PG&E in analyzing potential actions that might be taken to prevent PG&E's revenues from 27 being misappropriated by the DWR. In connection with these services, Howard, Rice has 28 continued to monitor developments with respect to the DWR's power procurement activities, SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

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,..*M,,- 15 16 17 18 19 20 21 22 23 24 25 26 27 28 perform legal research and analysis with respect to possible legal actions, and assess the possible commencement of additional adversary proceedings.

With respect to this category, the number of hours spent and the amount of compensation requested are as follows:

Total Hours Total Fees 637.3

$179,704.00

27.

Schedules and Statement of Affairs (.031).

During the period covered by this Application, Applicant conferred with and assisted the Debtor and certain consultants utilized by the Debtor in connection with inquiries concerning the Debtor's Schedules and Statement of Affairs.

With respect to this category, the number of hours spent and the amount of compensation requested are as follows:

Total Hours Total Fees 0.7

$164.50

28.

Intellectual Property-General (.032).

This work is a continuation of general counseling work that was commenced prior to the bankruptcy filing regarding the protection of the Debtor's intellectual property.

With respect to this category, the number of hours spent and the amount of compensation requested are as follows:

Total Hours Total Fees 8.7

$2,669.00

29.

Energy EfficiencyDept. (.034)

This work also involves protection of the Debtor's intellectual property in connection with a particular department of the Debtor.

With respect to this category, the number of hours spent and the amount of SECOND INTERIM APP..FOR COMPENSATION (HOWARD, RICE)

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Total Hours 6.4 Total Fees

$1,475.50

29.

Website (.37).

During the period covered by this Application, Applicant performed the following services in this category:

a.

Applicant established and maintained a central repository of pleadings and hearing transcripts online to prevent inefficiencies and duplication of effort in the retrieval of documents by Howard, Rice and PG&E's in-house counsel.

b.

Applicant created a detailed index of documents to be uploaded to the online repository of pleadings and hearing transcripts.

c.

Applicant consulted with PG&E's in-house counsel regarding the maintenance of the website.

d.

Applicant maintained an online calendar to coordinate and manage case scheduling.

e.

Applicant scanned documents for circulation in electronic form.

With respect to this category, the number of hours spent and the amount of compensation requested are as follows:

Total Hours Total Fees 963.8

$87,600.50

30.

E-Commerce (.042).

This work is a continuation of the work that Applicant did prior to the bankruptcy and during the period covered by the First Interim Application, advising PG&E on its website and the various contracts and legal issues that arise in providing service to customers SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

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~ 14 APa., 15 16 17 18 19 20 21 22 23 24 25 26 27 28 "on-line."

With respect to this category, the number of hours spent and the amount of compensation requested are as follows:

Total Hours Total Fees 15.6

$4,975.00

31.

Modesto Irrigation District:(.046).

This matter concerns an appeal by the Modesto Irrigation District ("MID") of an order upholding PG&E's contention that a California statute required approval of the expansion of MID's operations to the; generation and sale of power outside its district boundaries. During the period covered by this Application, Applicant assisted PG&E in connection with the appeal, which is still pending, by reviewing and editing the appeal brief (which was prepared by PG&E's in-house counsel), and conducting research on issues related to the appeal.

With respect to this category, the number of hours spent and the amount of compensation requested are as follows:

Total Hours Total Fees 38.5

$15,207.50

32.

POSDEF (.047).

This matter was created for a discrete piece of litigation commenced in California state court shortly after PG&E's Chapter 11 filing by a QF known as POSDEF. As with the Sierra Pacific Litigation described in Matter No. 026 above, one of the Debtor's outside special litigation counsel subsequently took primary responsibility for the POSDEF litigation, since it was a contract dispute based primarily on non-bankruptcy law. During the period covered by this Application, Applicant also recorded time in this matter for separate but related issues with POSDEF regarding a stipulation with POSDEF for preserving POSDEF's setoff rights.

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0 0

1 With respect to this category, the number of hours spent and the amount of 2

compensation requested are as follows:

3 Total Hours Total Fees 4

7.1

$1,369.00 5

6

33.

Rule 2004 Exam Requests (.048).

7 PG&E has engaged in extensive efforts to obtain information pursuant to 8

Bankruptcy Rule 2004 regarding, inter alia, transactions involving billions of dollars in the 9

wholesale electricity markets maintained or operated by the ISO and the PX. Among other 10 things, PG&E seeks to evaluate and analyze billions of dollars of claims against it by 11 electricity sellers, who acted as "participants" and/or "scheduling coordinators" in the 12 markets operated by the PX and the ISO (collectively, "Participants") and potential setoffs or 13 counterclaims with respect to such claims. Based on the sheer magnitude and complexity of 14 the claims involved, as well as certain Participants' attempts to prevent disclosure or

&RAWIN 15 dissemination of such information, PG&E's efforts to obtain this information have been 16 quite costly and time-consuming. During the period covered by this Application, Applicant 17 performed the following services with respect to Bankruptcy Rule 2004 examination issues:

18

a.

Applicant extensively "met and conferred' with counsel for the ISO and 19 Participants regarding the ISO's failure to produce to PG&E and Participants all documents 20 ordered to be produced by this Court's orders issued on July 11, 2001. At a hearing on 21 PG&E's motion to compel such compliance, Howard, Rice argued for the Court to overrule 22 the ISO's asserted bases for failure to produce certain documentation and to compel the 23 ISO's production. Such efforts resulted in the ISO producing to PG&E a substantial amount 24 of information previously withheld from production. In addition, Applicant analyzed the 25 ISO's motion to modify the Court's July 11, 2001 order regarding production of documents 26 to Participants and represented the Debtor at a hearing with respect thereto.

27

b.

Howard, Rice prepared a motion for authority to disclose responsive 28 information produced by the PX and the ISO under a stringent protective order, to certain SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

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S15 16 17 18 19 20 21 22 23 24 25 26 27 28 specified "key personnel" of PG&E and its Parent, including extensive factual investigation and legal research. Howard, Rice reviewed and analyzed the ISO's objections to that motion and "met and conferred" with the ISO in an attempt to resolve such objections. Applicant also addressed numerous objections to such motion raised by Participants at the hearing thereon. Howard, Rice revised PG&E's proposed order on that motion and a related nondisclosure agreement, to address concerns raised by such parties. Applicant represented the Debtor at a lengthy hearing with respect to that motion, as well as a number of similar motions submitted by Participants, after analyzing and consulting with PG&E regarding such motions. The papers prepared by Howard, Rice contained extensive procedures designed to protect the responsive information from improper dissemination and use, which procedures were utilized as a framework for the Participants' motions.

c.

Applicant advised and assisted PG&E with respect to filings with the FERC, potentially including conclusions based on review of the information provided by the ISO and PX pursuant to the Court's July 11, 2001 Order. Howard, Rice also prepared notices to Participants regarding such proposed disclosure in accordance with the Court's July 11,2001 order.

d.

Applicant prepared a Bankruptcy Rule 2004 motion seeking documents from the PX with respect to certain block forward transactions, including related factual investigation. Howard, Rice prepared a related proposed order and nondisclosure agreement. Applicant revised such documents after meeting and conferring with objecting parties (including the PXj the PX Participants Committee and individual Participants),

thereby resolving such objections.

e.

Applicant regularly advised and assisted PG&E with respect to the foregoing matters.,

With respect to this category, the number of hours spent and the amount of compensation requested are as follows:

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$54,939.50

34.

Sempra Disputes and Litigation (.049).

As described in the First Interim Application, PG&E has been involved with numerous disputes with Sempra Energy Trading ("Sempra") arising from various agreements and transactions between the parties aggregating hundreds of millions of dollars, including those involving gas lending and storage, gas purchases and "swap" transactions, electricity sold through the ISO and PX, and asserted setoff rights with respect thereto.

During the period covered by this Application, Applicant continued to advise and assist PG&E with settlement negotiations with Sempra, including reviewing and revising a settlement agreement, participating in calls with Sempra's counsel regarding settlement issues, and conferring with in-house counsel. In November, 2001, the Debtor entered into a final, written settlement agreement with Sempra which, subject to Bankruptcy Court approval, settled all outstanding disputes with Sempra under the Sempra gas agreements and certain orders of the Department of Energy, and reserved resolution of certain disputes regarding electricity services between Sempra and the Debtor. Applicant drafted a motion seeking Bankruptcy Court approval of the settlement agreement, which was granted.

With respect to this category, the number of hours spent and the amount of compensation requested are as follows:

Total Hours Total Fees 132.6

$30,377.00

35.

E-Meter (.051).

As described in the First Interim Application, as a result of a California legislative mandate, PG&E, along with other utilities, was required to place, and allow on line access to, so-called "interval meters" by certain large customers (defined as those who SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

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10 11 12 HOWARD 13 NOxa 14 Ad-15 16 17 18 19 20 21 22 23 24 25 26 27 28 use over 200 kw of electricity). Pursuant to such legislation, funding for installation of the interval meters is administered by the California Energy Commission (the "CEC").

However, due to the CEC's reluctance to contract directly with PG&E as a debtor-in possession, eMeter Corporation ("eMeter") was brought in as an intermediary. The result was that separate contracts were negotiated between the CEC and eMeter, on the one hand, and eMeter and PG&E, on the other hand. During the period covered by this Application, Applicant drafted a license agreement covering the use of PG&E trademarks and logos by eMeter in connection with a website hosting software tools available to customers using interval meters, a privacy policy for the eMeter website, and a "conditions of use" for the eMeter website.

With respect to this category, the number of hours spent and the amount of compensation requested, are as follows:

Total Hours Total Fees 90.2

$27,895.00

36.

Mirant Litigation (.053).

During the period covered by this Application, Applicant prepared for and met with Mirant's representatives in an effort to resolve Mirant's claims against the Debtor's estate arising from various agreements and transactions between the parties.

With respect to this category, the number of hours spent and the amount of compensation requested are as follows:

Total Hours Total Fees 1.5

$825.00

37.

Enron Disputes and Litigation (.054).

PG&E has been involved with numerous disputes with Enron Corporation and a number of its affiliates (collectively, "Enron") arising from various agreements and transactions between the parties aggregating hundreds of millions of dollars, including those SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

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14 6"RAmIoN S15 16 17 18 19 20 21 22 23 24 25 26 27 28 involving electricity and gas purchases and "swap" transactions, electricity sold through the ISO and the PX, and asserted setoff rights with respect thereto. During the period covered by this Application, Applicant performed the following services with respect to disputes and litigation with Enron:

a.

Applicant advised and assisted PG&E in analyzing the claims and defenses against Enron. Howard, Rice researched and prepared a detailed memorandum regarding a number of setoff issues, including mutuality and agency issues.

b.

Applicant advised and assisted PG&E in negotiations with Enron regarding Enron' s attempt to recoup or offset hundreds of millions of dollars of "ESP credits" allegedly owed pre-petition by PG&E to Enron against Enron's post-petition obligations to PG&E, and Enron's subsequent motion for relief from stay seeking to obtain such relief from the CPUC. Howard, Rice conducted extensive factual investigation and legal research and began preparing an opposition to such motion. Based on the parties' ongoing global settlement discussions (discussed below), the hearing on such motion has been continued several times, and PG&E's opposition to the motion has not been finalized.

c.

Applicant advised and assisted PG&E in global settlement discussions with Enron in an effort to resolve numerous disputed issues between the parties.

d.

Howard, Rice advised and assisted the Debtor in protecting the estate's interests with respect to its transactions with and credit exposure from Enron's deteriorating financial condition in late November 2001.

With respect to this category, the number of hours spent and the amount of compensation requested are as follows:

Total Hours Total Fees 143.2

$49,227.50

38.

Oildale Energy (.055).

During the period covered by this Application, Applicant has continued to monitor the proceedings in the Chapter 11 bankruptcy case filed by Oildale Energy (a QF SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

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that is a party to a PPA with PG&E).

2 With respect to this category, the number of hours spent and the amount of 3

compensation requested are as follows::

4.

Total Hours Total Fees 5

0.9

$322.00 6

7

39.

PSE Appeal (.056).

8 During the'period covered by this Application, Applicant performed the 9

following services with respect to this matter:.

10

a. As' stated in the First 'Interim Application, Puget Sound Energy ("PSE")

11 appealed this Court's ruling denying PSE's, motion seeking relief from stay (and other 12 relief). The appeal was fully'briefed, and was argued before the Honorable Marilyn Hall 13 Patel, United States District Judge, on July 31, 2001. At the conclusion of the hearing, RKE C

14 Judge Patel requested that the parties submit additional evidence (in the form of exhibits) 15 pertaining to certain issues. During the period covered by this Application, Applicant 16 assisted in preparing and submitting these additional exhibits. On January 7, 2002, Judge 17 Patel issued an order affinring this Court's ruling on PSE's Motion..

18 With respect to this category, the number of hours spent and the amount of 19 compensation requested are as follows:

a 20 Total Hours Total Fees 21

.74

$1,233.50 22 23

40.

Three Mountain Power (.057).

24 During the period covered by this Application, Applicant continued to advise the 25 Debtor, including reviewing and revising a construction contract, specifications and other 26 documents, with respect to the proposed construction by Three Mountain Power, LLC of 27 new transmission lines and a substation. As described in the'First Interim Application, in 28 this transaction, Three Mountain Power proposes to build the improvements to support a SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

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10 11 12 HWM13 HOWA&RD 1 RICE 14 EaIK S15 16 17 18 19 20 21 22 23 24 25 26 27 28 new generation facility, subject to PG&E's specifications and review.

With respect to this matter, the number of hours spent and the amount of compensation requested are as follows:

Total Hours Total Fees 11.9

$4,760.00

41.

Oildale Appeal (.058).

During the period covered by this Application, Applicant monitored an appeal taken by Oildale Energy from this Court's June 1, 2001 order (described in the First Interim Application) on the motions filed by certain QFs seeking, inter alia, relief from stay.

With respect to this category, the number of hours spent and the amount of compensation requested are as follows:

Total Hours Total Fees 1.0

$360.00

42.

Martinez Appeal (.059)

In addition to Oildale, Martinez Cogen ("Martinez") was a QF that appealed this Court's June 1, 2001 order described in the First Interim Application on the motions filed by certain QFs seeking, inter alia, relief from stay. Prior to the period covered by this Application, PG&E moved to assume Martinez's PPA (as described in Matter No. 020 above), which motion was granted by this Court. The assumption agreement permitted Martinez to "opt-out" of the agreement in the event that certain conditions subsequent were not satisfied by certain dates set forth in the agreement. All such conditions having been satisfied, the assumption is final for all purposes, and this appeal accordingly has become moot. During this Application period, Applicant performed minimal work monitoring the course of the appeal and reviewing stipulations regarding a briefing schedule in the appeal.

With respect to this category, the number of hours spent and the amount of compensation requested are as follows:

SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

WD 01 1402/l-1419904/gff/95580 3/v7 Total Hours Total Fees 2

1.2

$239.00 3

4

43.

Plan of Reorganization Defensive Litigation (.060)

Various aspects of PG&E's retail electric rates are the subject of pending 6

proceedings before the CPUC. As with the DWR's power procurement activities, the 7

manner in which PG&E's electric retail rates are set is a matter of critical importance to 8

PG&E's continued viability, its Plan and the success of this reorganization. Howard, Rice 9

has assisted PG&E in analyzing potential actions that might be taken to protect PG&E's 10 interests as a result of decisions by the CPUC affecting PG&E's electric retail rates. In 11 connection with this work, Howard, Rice has devoted significant resources to analyzing a 12 number of complex substantive and procedural legal issues, assessing the pertinent HOWAM 13 R.E regulatory background and monitoring proceedings before the CPUC, and coordinating

'cRP 14 BUX strategy with other outside counsel for PG&E, as appropriate.

AR*,_

15 With regard to this category, the number of hours spend and the amount of 16 compensation requested are as follows:

17 Total Hours Total Fees 18 18 568.9

$159,784 19 20

44.

Generator Claims (.061) 21 Approximately 200 claims aggregating billions of dollars have been filed against 22 the Debtor's estate by generators and other electricity sellers, in addition to several hundred 23 claims aggregating over $1 billion by QFs. During the period covered by this Application, 24 Applicant performed the following services with respect to such "generator" claims:

25

a.

Applicant reviewed and analyzed numerous complex generator claims and 26 various summaries and analyses prepared with respect thereto. Howard, Rice attended 27 periodic meetings with PG&E and its professionals regarding such claims and strategies for 28 SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

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&RAEMc 15 16 17 18 19 20 21 22 23 24 25 26 27 28 resolving them, including negotiation, objection and estimation.

b.

Applicant advised and assisted the Debtor regarding various generator claims objection and estimation issues, including duplication and/or overlap of claims filed by the PX and the ISO and their respective Participants and sovereign immunity issues, conducted related legal research and factual investigation, and prepared memoranda with respect thereto.

c.

Howard, Rice advised and assisted PG&E in evaluating a settlement proposal submitted to the FERC by the PX Participants Committee, and participated in meetings with the PX Participant Committee and individual generators regarding resolution of their claims.

With respect to this category, the number of hours spent and the amount of compensation requested are as follows:

Total Hours Total Fees 124.5

$47,799.50

45.

Claim of Baldwin Associates, Inc. (.062)

Baldwin Associates, Inc. filed a claim, in the total amount of "at least

$5,000,000,000," the single largest claim against the Debtor's estate. During the period covered by this Application, Applicant reviewed and evaluated the claim, conducted legal and factual research concerning the basis for the claim and PG&E's response thereto (including research into the corporate status of the claimant entity), and drafted an objection to the claim. The Court sustained PG&E's objection and disallowed the claim, granting the claimant leave until January 4, 2002 to file an amended proof of claim.

With respect to this category, the number of hours spent and the amount of compensation requested are as follows:

Total Hours Total Fees 50.0

$12,674.00 SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

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46.

Grynberg Litigation (.064) 2 Jack J. Grynberg ("Grynberg") filed a claim in the amount of $2.48 billion based 3

on qui tam litigation pending in the United States District Court for the District of Wyoming, 4

in which the Debtor is a named defendant. That case has been consolidated in the District of 5

Wyoming with approximately 70 other cases brought by the same plaintiff pursuant to 6

Multi-District Litigation procedures. The complaints in those cases challenge alleged 7

mismeasurement by defendants of the volume and wrongful analysis of the heating content 8

of natural gas, causing. substantial underpayments of royalties to the United States, in 9

violation of the Federal False Claims Act, 31 U.S.C. §3729 et seM. During the period 10 covered by this Application, Applicant assisted PG&E in its initial review and evaluation of 11 the claim, including preliminary, factual investigation and legal research. Howard Rice also 12 prepared an ex parte application under Bankruptcy Rule 2004 for an order compelling 13 Grynberg to produce documents relating to the claim.

HOWAID RKE NE3.T 14 With respect to this category, the number of hours spent and the amount of Fix

.. *._,c 15 compensation requested are as follows:

16 Total Hours Total Fees 17 61.8

$19,105.00 18 19

47.

Claim of Wayne Roberts (.067) 20 Wayne Roberts filed a claim in the.amount of $4 billion, the second largest claim 21 against the Debtor's estate. The claim purports to be brought as an individual and class 22 claim on behalf of all PG&E residential and small commercial ratepayers, who have paid 23 increased electricity rates to PG&E since January 1, 2001, and focuses on three alleged 24 transactions between PG&E and the Parent, dating to the formation of that holding company 25 on January 1, 1997. The claim alleges that the subject transactions violated numerous CPUC 26 provisions and other state statutes, CPUC decisions, and common-law doctrines. During the 27 period covered by this Application, Applicant assisted PG&E in reviewing and evaluating 28 the claim, analyzing the complex transactions on which it is based and conducting legal SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

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0 research regarding the basis for the claim and PG&E's response thereto.

With respect to this category, the number of hours spent and the amount of compensation requested are as follows:

Total Hours Total Fees 186.6

$54,357.50

48.

Plan Prosecution (.068)

As described in Matter No. 015, above, Applicant has been actively engaged in formulating and drafting the Plan and Disclosure Statement, which were initially filed on September 20, 2001 and the First Amended Plan and First Amended Disclosure Statement, that were filed on December 19, 2001. This matter includes time expended by Applicant in connection with supporting PG&E's efforts to obtain approval of the Disclosure Statement and, ultimately, confirmation of the Plan. Over 70 objections were filed with respect to PG&E's Disclosure Statement, and Applicant's efforts in this matter required a team of attorneys to research and analyze the multitude of complex issues raised by such objections, to meet and confer with the objecting parties filing the objections to attempt to resolve them, and to strategize with PG&E regarding responding to these objections.

The efforts of Applicant in connection with this matter are also described in Matter No. 015 above. As with other substantial matters in this case, the Plan Prosecution matter has required a team of attorneys and legal assistants from Howard, Rice to research and analyze the complex issues raised by the objections to the Disclosure Statement, to meet and confer with the multitude of objectors, and to attempt to respond to those objections which could be addressed through amendments to the Disclosure Statement. Applicant worked to avoid duplication of effort in connection with this matter, but there were a number of meetings and conferences which required the attendance of some or all of the attorneys working on this matter. Applicant believes that these meetings, and the use of numerous professionals, were necessary in connection with this complex matter that involved issues that are central to the Debtor's ultimate ability to achieve a confirmed reorganization plan.

SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

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4 5

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8 9

10 11 12 13 RkI 6M14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 During the period covered by this Application, Applicant performed the following services with respect to this matter:

a. Applicant reviewed objections filed to the approval of the Disclosure Statement, and conducted extensive research regarding various issues raised by the objectors, including standards for approval of disclosure statements generally, preemption of state law pursuant to Section 1 123(a)(5) of the Bankruptcy Code, the propriety of asserting objections to the Disclosure Statement that address what essentially are plan confirmation issues, and appropriate interest rates on claims under chapter 11 plans.

b. In response to the Court's determination that it would separately consider whether it was necessary for adversary proceedings to be filed with respect to certain relief sought pursuant to the Nlan, Applicant conducted substantial research and legal briefing on thisquestion.

c. Applicant researched the applicability to this case of certain amendments to the Bankruptcy Rules.

d. Applicant prepared and served notice of a status conference with respect to approval of the Disclosure Statement, and prepared for and attended this status conference, which was a key hearing with respect to the entire Plan confirmation process.

e. Applicant analyzed and research issues concerning preservation of confidentiality with respect to communications regarding the Plan and Disclosure Statement.

With respect to this category, the number of hours spent and the amount of compensation requested are as follows:

Total Hours Total Fees 821.6

$236,549.50

49.

Patent Matters (.069)

During the period covered by this Application, Howard, Rice reviewed a potential claim against PG&E raised by an employee, in the form of a draft complaint, SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

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10 11 12 HcO&.D 13 RKE NEAI 14 EUKX 15 16 17 18 19 20 21 22 23 24 25 26 27 28 concerning a patent owned by the employee. Applicant is assisting PG&E in reviewing the patent and investigating the claims and defenses of PG&E with respect to the claims asserted by the employee, which include, among other things, unfair competition and patent infringement.

With respect to this category, the number of hours spent and the amount of compensation requested are as follows:

Total Hours Total Fees 10.5

$4,882.50

50.

Rotor Contract (.070)

During the period covered by this Application, Applicant has assisted PG&E in negotiating and documenting a contract for the purchase by PG&E of replacement steam turbines for its Diablo Canyon nuclear power plant. It is estimated that the design, manufacture and installation of the turbines will take approximately two years and cost approximately $100 million.

With respect to this category, the number of hours spent and the amount of compensation requested are as follows:

Total Hours Total Fees 97.0

$33,302.50

SUMMARY

OF FEES AND EXPENSES Between August 1, 2001 and November 30, 2001, Applicant has expended 13,407.8 hours9.259259e-5 days <br />0.00222 hours <br />1.322751e-5 weeks <br />3.044e-6 months <br /> in the performance of the services described above. The following summarizes Howard, Rice's attorney, legal assistant and other professional time and their respective standard hourly billing rates for the period from August 1, 2001 through November 30, 2001:

SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

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2 3

4 5

6 7

8 9

10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Attorney7 Directors:

Barry A. Abbott Ben Berk Jennifer L. Blackman Bernard A. Burk Pauline E. Calande Jerome B. Falk Susan Heller Joseph B. Hershenson Gary M. Kaplan Gary P. Kaplan William J. Lafferty Stuart S. Lipton James L. Lopes Steven L. Mayer Timothy S. McCann Kenneth A. Neale Janet A. Nexon Jeffrey L. Schaffer Steven E. Schon Ethan P. Schulman Total Hours 63.4 1.0 0.3 1.0 113.9 51.9 2.9 44.7 664.8 0.7 723.9 1.7 882.2 9.8 4.0 65.3 582.0 538.4 241.0 208.0 Hourly Rate 465.00 435.00 340.00 385.00 385.00 550.00 400.00 375.00 340.00 435.00 360.00 550.00 550.00 475.00 410.00 375.00 385.00 415.00 430.00 385.00 7 The resume of each professional person is attached as Exhibit "B" to this Application.

(This exhibit is not attached to the service copies of this document. You may obtain copies of this exhibit in one of the following ways: through the "Pacific Gas & Electric Company Chapter 11 Case" link accessible through the Bankruptcy Court's website (www.canb.uscourts.gov), or by written request to Howard, Rice, Nemerovski, Canady, Falk & Rabkin, Attn: Jerome Ferrer, Three lEmbarcadero Center, 7th Floor, San Francisco, California 94111-4065.)

SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

WD 01 1402/1-1419904/gff/955803/v7 HOWMD RI(

NEAEOM Total Fees

$ 29,481.00 435.00 102.00 385.00 43,851.50 28,545.00 1,160.00 16,762.50 225,430.26 304.50 260,010.03 935.00 483,111.00 4,655.00 1,640.00 24,488.00 223,623.00 223,057.00 103,974.00 80,080.00

1 2

3 4

5 6

7 8

9 10 11 12 HOWARD 13 RIKE 14

&RAEM AP4-.*.-

15 16 17 18 19 20 21 22 23 24 25 26 27 28 Neil Smith Therese M. Stewart Associates:

Sachin Adarkar Kimberly A. Bliss Amy Bomse Susy Chen Shelli Ching Marty Courson Juliet E. Dawsari Peter J. Drobac Cara Frey Tyler J. Fuller Oksana Jaffe Inna M. Katsen Keith Kessler Jin Kim Sarah M. King Julie Landau David Lawson Tracey M. Luttrell Thomas Magnani Amy E. Margolin Scott D. Minden J. Alexander Moore Jeff Norberg Joseph Quinn, III 10.5 181.7 44.6 446.5 287.5 19.6 9.0 17.3 18.6 130.9 7.9 142.4 2.7 130.2 32.9 160.3 176.7 411.2 45.6 44.3 27.3 791.4 7.0 80.9 26.9 243.3 465.00 395.00 290.00 240.00 190.00 190.00 290.00 280.00 215.00 265.00 190.00 255.00 245.00 240.00 255.00 240.00 280.00 300.00 255.00 255.00 190.00 310.00 290.00 280.00 180.00 290.00 4,882.50 71,771.50 12,934.00 103,012.50 52,737.00 3,724.00 2,610.00 4,844.00 3,999.00 34,097.50 1,501.00 34,861.50 661.50 31,243.00 8,389.50 38,472.00 48,112.50 123,307.00 11,628.00 11,376.11 5,187.00 241,347.00 2,008.50 22,095.50 4,842.00 70,878.00 SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

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1 2

3 4

5 6

7 8

9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 20.6 0.2 493.8

.31.5 103.6 270.8 209.6 577.7 215.00 255.00 255.00 255.00 215.00 255.00 190.00 255.00 4,429.00 51.00 122,960.00 8,030.82 21,004.00 69,318.00 38,538.10 142,963.74 Legal Assistants/Legal Assistant Clerks Julie Barley Josh Bennett Kathleen A. Boyl John C. Carrillo Jerome E. Ferrer Michael Ginsborg Bryan J. Gresham, Jeanette Haggas Virginia Hancock Ligeia Heagy Frank Henry Nathaniel H. Hunt Ann Candler King Terri Li Racquel N. Lopez Jason Nahm Padraig J. O'Connor 5.0 391.9 541.6 24.7 429.4 0.7 361.9 2.0 4.2 77.7 0.4 485.7 2.5 5.0 161.8 25.3 492.4 185.00 100.00 185.00 170.00 170.00 110.00 175.00 100.00 100.00 65.00 50.00 95.00 100.00 185.00 130.00 125.00 130.00 925.00 39,101.00 100,196.00 4,199.00 72,643.53 77.00 63,291.76 200.00 426.80 5,039.78 20.00 45,786.36 255.74 925.00 20,817.38 3,162.50 63,288.00 SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

WD 01 1402/I-1419904/gff955803/v7 HOWARD Rk2 CANMf WKv Shaban Shakoori Alison B. Shames Clara J. Shin Erik M. Silber John 0. Sutton Lisa Turbis Jenna Whitman Ceide Zapparoni

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15 16 17 18 19 20 21 22 23 24 25 26 27 28 Phyllis O'Dea Cindy Powers Dawn Marie Taylor Linda K. Vallin Kinson Yee Marlowe Griffiths (Librarian)

Steven P. Mackin (Librarian)

Litigation Support/Info. Services Sharon B. Brown Ipsita Chatterjee Marilyn Christopher Kevin Easton Alex Glick Anna Karasek Mohamed Osman Cheryl Valenzuela Karla Webbe 67.5 1.2 1.4 6.6 1.8 0.5 6.7 21.5 67.0 284.0 250.0 81.0 0.2 159.4 14.6 26.3 180.00 150.00 175.00 150.00 130.00 150.00 110.00 170.00 65.00 65.00 65.00 140.00 50.00 150.00 65.00 185.00 12,242.27 180.00 245.00 986.04 234.00 75.00 737.00 3,655.00 4,355.00 18,397.85 16,250.00 11,340.00 9.68 23,910.00 949.00 4856.96 Based on these hours and rates, the value of the legal services rendered by Applicant during the period covered by this Application is $3,628,622.51 in legal services.8 Applicant has also incurred and advanced costs in the sum of $293,011.51 on PG&E's behalf for which Howard, Rice requests reimbursement as follows:

8Applicant has written off $134,806.23 in fees during the period covered by this Application. This write-off was taken by Applicant in the exercise of its billing discretion to ensure that PG&E was not charged, among other things, for amounts attributable to duplication of effort, and to comply with the Court's orders regarding compensation in this case.

SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

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9 10 11 12 HOMAR 13 S

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15 16 17 18 19 20 21 22 23 24 25 26 27 28 Document Copying Meeting Expense Messenger and Delivery Expense Recording or Filing Fees Telecommunications Travel Expenses Reporter's Transcripts Postage Computerized Research Outgoing Facsimile

$99,357.66 1,833.27 10,558.33 207.85 7,415.48 9,044.78 5,732.00 9,349.31 129,467.65 20,045.18

$293,011.51 Attached as Exhibit "C" is a description of Howard, Rice's expense policies which, except as discussed below, are consistent with the Guidelines. Applicant has written off $118,737.89 in expenses incurred in order to be in compliance with the Guidelines.9 Applicant customarily charges its clients $1.00 per page for outgoing facsimiles but does not charge for incoming facsimiles. Applicant's accounting and billing systems are set up accordingly. Applicant seeks recovery of its outgoing facsimile charges at the rate of

$0.20 per page for the period covered by this Application, but seeks no recovery for incoming facsimile charges. Applicant believes that such compensation is appropriate in view of its customary accounting and billing practices. Otherwise, if Applicant were unable to recover any compensation for its outgoing facsimile charges (while not obtaining any compensation for incoming facsimile charges), it would be unfairly penalized because of its customary accounting and billing practices. Such a result would be particularly unfair in view of the relatively large amount of faxing which was mandated by (1) the exigencies of several matters included in this Application (e.g., the notices regarding many QF matters were required to be done by facsimile), and (2) the need to serve by facsimile a large volume of relevant documents on a group of creditors (primarily QFs) who were actively involved in 9Applicant does not seek reimbursement for costs incurred for word processing services, clerical and secretarial overtime expenses, certain fax charges (as explained in more detail in the text), meals and various "extraordinary expenses'" not permitted by the Guidelines, which together aggregate $118,737.89. Accordingly, Applicant has Written off

$118,737.89 in expenses incurred by Applicant on behalf of the Debtor during this period.

SECOND*NTERIM APP. FOR COMPENSATION (HOWARD, RICE)

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such matters. Although, for similar reasons, Applicant also received a large amount of 2

facsimiles during the period covered by this Application, because Applicant's accounting 3

and billing systems are not set up to capture such charges, Applicant does not seek recovery 4

for incoming facsimile charges. Accordingly, Applicant requests that the Court approve 5

recovery for outgoing facsimile charges, calculated at the rate of $0.20 per page (consistent 6

with the amount allowed for incoming facsimiles under the Guidelines), an 80% reduction 7

from the rate Applicant customarily charges its clients for outgoing facsimiles.

8 Accordingly, the aggregate value of services rendered and costs advanced during 9

the period covered by this Application (net of write-offs) is $3,921,634.02.

10 No agreement or understanding exists between Howard, Rice and any other 11 person or entity for a division of the compensation sought herein.

12 The Certification/Declaration of an attorney designated by Applicant pursuant to 13 Guideline No. 8 is attached.

"R I

14 WHEREFORE, Howard, Rice requests that it be allowed total compensation of

&RAt.NGN 15

$3,921,634.02 for services rendered and reimbursement of expenses for the period of August 16 1, 2001 through November 30, 2001 (comprised of $3,628,622.51 in fees for services 17 rendered and $293,011.51 in costs advanced on behalf of the Debtor).

18 DATED: January 14, 2002.

19 Respectfully, 20 HOWARD, RICE, NEMEROVSKI, CANADY, FALK & RABKIN 21 A Professional Corporation 22 B

A-. t&44-6_,

23 JANET A. NEXON 24 Attorneys for Debtor and Debtor in Possession PACIFIC GAS AND ELECTRIC COMPANY 25 26 27 28 SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

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10 11 12' 13 PIEE cowt 14

&ANI

. 15 16 17 18 19 20 21 22 23 24 25 26 27 28 CERTIFICATION

1.

I am an attorney duly licensed to practice in the State of California and before this Court. I am a director and shareholder at the law firm of Howard, Rice.

Nemerovski, Canady, Falk &.Rabkin, A Professional Corporation (the "Howard, Rice firm"), counsel to Pacific Gas and Electric Company, the debtor in the above-captioned bankruptcy case (the "Debtor"). I make this declaration from personal knowledge (except as to any matters stated as to information and belief, and as to such matters, I am informed and believe they are true) andcould, if called as a witness, competently testify to the matters set forth herein.

2.e By this declaration, ILsubmit in declaration form the information required pursuant to Guideline No..8 of the Guidelines for Compensation and Expense Reimbursement of Professionals and Trustees issued by the United States Bankruptcy Court for the Northern District of California (the "Guidelines").

3.

I am an attorney designated by Applicant to sign this Application on its behalf. I have read and reviewed the Application, including without limitation the Introduction, Summary of Professional Services, Summary of Fees and Expenses and the invoices/billing statements filed separately, and, to the best of my knowledge, information and belief, the fees and expenses requested in said Introduction, Summaries and invoices/billing statements are true and correct and accurate for professional services rendered and costs advanced by the Howard, Rice firm on behalf of the Debtor.

4.

To the best of my knowledge, information and belief formed after reasonable inquiry, the compensation and expense reimbursement sought in the Application are in conformity with the Guidelines and the Interim Compensation Order (as defined in the Application), except for the request for recovery of outgoing facsimile charges as discussed in the Summary of Fees and Expenses section of the Application.

5.

The compensation and expense reimbursement requested in the Application are billed at rates, and in accordance with practices, no less favorable than those customarily employed by the Howard, Rice firm, and generally accepted by the Howard, Rice firm's SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

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6.

No agreement or understanding exists between Applicant and any other person or entity for a division of the compensation sought herein.

7.

Attached to the Application as Exhibit D is a true and correct copy of a letter dated January 14, 2002 from the Howard, Rice firm (under my signature) to the Debtor's designated responsible individual for this Chapter 11 case, advising the Debtor of its review and objection rights and responsibilities pursuant to the Guidelines. To the best of my knowledge, information and belief, such letter was transmitted by hand delivery on January 14, 2002.

I declare under penalty of perjury under the laws of the United States of America that the foregoing is true and correct. This declaration was executed in San Francisco, California on January 14, 2002.

Dated: January 14, 2002.

JANET A. NEXON SECOND INTERIM APP. FOR COMPENSATION (HOWARD, RICE)

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