ML020450390
| ML020450390 | |
| Person / Time | |
|---|---|
| Site: | Diablo Canyon  |
| Issue date: | 01/24/2002 |
| From: | Schaffer 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: ML020450390 (16) | |
Text
JAMES L. LOPES (No. 63678)
JEFFREY L. SCHAFFER (No. 91404)
SARAH M. KING (No. 189621)
HOWARD, RICE, NEMEROVSKI, CANADY, FALK & RABKIN A Professional Corporation Three Embarcadero Center, 7th Floor San Francisco, California 94111-4065 Telephone:
415/434-1600 Facsimile:
415/217-5910
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10 11 In re PACIFIC GAS AND ELECTRIC COMPANY, a California corporation, Debtor.
Federal I.D. No. 94-0742640 No. 01-30923 DM Chapter 11 Case Date:
Time:
Place:
February 8, 2002 2:30 p.m.
235 Pine Street, 22nd Floor San Francisco, California DEBTOR'S NOTICE OF MOTION AND MOTION FOR ORDER APPROVING EXPENDITURE OF FUNDS TO UPGRADE SUBSTATIONS AND, IF NECESSARY, RECONDUCTOR A 230 KV TRANSMISSION LINE TO SUPPORT THE LOS BANOS-.*
GATES 500 KV TRANSMISSION PROJECT (PATH 15 UPGRADE PROJECT);
SUPPORTING MEMORANDUM OF POINTS AND AUTHORITIES
[SUPPORTING DECLARATIONS OF KEVIN DASSO AND VALERIE 0. FONG FILED SEPARATELY]
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DEBTOR'S NOT. OF MOT., MOT. & MPA FOR ORDER APP. EXPEND. OF FUNDS TO SUPPORT PATH 15 UPGRADE PROJECT WD 012402/1-1419905/gff/968809/v8 Attorneys for Debtor and Debtor in Possession PACIFIC GAS AND ELECTRIC COMPANY UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF CALIFORNIA 12 13 RuK cm~ft' 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
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TABLE OF CONTENTS Page NOTICE OF MOTION AND MOTION MEMORANDUM OF POINTS AND AUTHORITIES I. INTRODUCTION II.
FACTUAL BACKGROUND A.
The Path 15 Upgrade Project.
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PG&E-Sponsorship Track.
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WAPA-Sponsorship Track.
B.
Expected Cost Of PG&E's Contemplated Work.
III.
THE PATH 15 UPGRADE PROJECT SHOULD BE AUTHORIZED PURSUANT TO SECTIONS 363 AND 105 OF THE BANKRUPTCY CODE CONCLUSION DEBTOR'S NOT. OF MOT., MOT. & MPA FOR ORDER APP. EXPEND. OF FUNDS TO SUPPORT PATH 15 UPGRADE PROJECT WD 012402/i-1419905/gff/968809/v8
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TABLE OF AUTHORITIES Page(s) 1 2
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9 10 11 12 HONAMD 13 RIE mANE w 14 AJq.d. 15 16 17 18 19 20 21 22 23 24 25 26 27 28 11 U.S.C.
§105
§105(a)
§363
§363(c)
Cal. Pub. Util. Code
§1001 et seq.
Cal. C. of Regs., Title 20 Rules 2-8, 15, 16, 17.1, 1, 11, 12 12, 13 1, 2,11, 12 12 2
2 17.3 and 18 Other Authorities 2 Lawrence P. King Collier on Bankruptcy ¶105.01 (15th ed. rev. 2000) 12 DEBTOR'S NOT. OF MOT., MOT. & MPA FOR ORDER APP. EXPEND. OF FUNDS TO SUPPORT PATH 15 UPGRADE PROJECT WD 012 402/!-1419905tgff/968809/v8 Statutes
1 NOTICE OF MOTION AND MOTION 2
PLEASE TAKE NOTICE that on February 8, 2002, at 2:30 p.m., or as soon 3
thereafter as the matter may be heard, in the Courtroom of the Honorable Dennis Montali, 4
located at 235 Pine Street, 22nd Floor, San Francisco, California, Pacific Gas and Electric 5
Company, the debtor and debtor in possession in the above-captioned Chapter 11 case 6
("PG&E" or the "Debtor"), will and hereby does move the Court (the "Motion") for entry of 7
an order authorizing PG&E to enter into binding agreements to modify its substations and, if 8
needed, reconductor 230 kilovolt ("kV") transmission lines in support of a project known as 9
the Los Banos-Gates 500 kV Transmission Project (the "Path 15 Upgrade Project") as more 10 particularly described in the accompanying Memorandum of Points and Authorities I I incorporated by reference herein.
12 This Motion is made pursuant to Sections 105 and 363 of the United States 13 Bankruptcy Code (11 U.S.C. §§ 105 & 363) and is based on the facts and law set forth in the RKD N
14 attached Memorandum of Points and Authorities, the Declarations of Kevin Dasso and
,.f.....
15 Valerie 0. Fong filed concurrently herewith, the record of this case and any evidence 16 presented at or prior to the hearing on this Motion.
17 PLEASE TAKE FURTHER NOTICE that this Motion is being noticed for 18 hearing on ten (10) business days' notice pursuant to the above-captioned Court's Order Re 19 Motion For Authority To Make Capital Expenditures In The Ordinary Course of Business 20 dated June 29, 2001 (the "Omnibus Cap Ex Order"). The Omnibus Cap Ex Order does not 21 specify the time for filing any written opposition to this Motion; nonetheless, because both 22 the Court and PG&E should have the opportunity to review any written opposition to the 23 Motion prior to the hearing thereon, parties in interest are advised to file any written 24 opposition to the Motion and the relief requested therein with the Bankruptcy Court no later 25 than two business days prior to the hearing, and to serve any such written opposition upon 26 counsel for PG&E, the Office of the United States Trustee, and the Official Committee of 27 Unsecured Creditors by hand service on the same date. If there is no timely objection to the 28 requested relief, the Court may enter an order granting such relief without further hearing.
DEBTOR'S NOT. OF MOT., MOT. & MPA FOR ORDER APP. EXPEND. OF FUNDS TO SUPPORT PATH 15 UPGRADE PROJECT WD 012402/1-1419905/gff/968809/v8 1
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&R*AIN A~Oi 15 16 17 18 19 20 21 22 23 24 25 26 27 28 MEMORANDUM OF POINTS AND AUTHORITIES I.
INTRODUCTION By this Motion, Pacific Gas& and Electric Company, the debtor and debtor in possession in this Chapter 11 case ('PG&E" or the "Debtor"), seeks an order pursuant to Sections 363. and 105 of the Bankruptcy Code (1.1 U.S.C. §§363 & 105)1 authorizing PG&E to enter into binding agreements to. expend the funds necessary to design and build 500 kV and 230'kV substation equipment, and, if needed, to reconductor 230 kV transmission lines, to accommodate a new 500 kV transmission line to be constructed by the Western Area Power Administration ("WAPA"). PG&E estimates that this work, and previously incurred engineering and permitting costs, will not exceed $75 million.
Path 15 is a series of high-capacity transmission lines that connect customers in Northern and Southern California and also forms part of the Pacific AC Intertie linking the Pacific Northwest and Oregon to Southern California. The Path 15 Upgrade Project will increase the south-to-north rating of Path 15 by approximately 1500 megawatts ("MW")
through the addition of a new 500 kV line between PG&E's Los Banos and Gates substations. WAPA will construct the 500 kVline portion of the Path 15 Upgrade Project with funding from other project participants. The purpose of the Path 15 Upgrade Project is to decrease congestion. on Path 15.
Following congestion on Path 15 during various periods in 2000 and before PG&E's Chapter 11 filing, the California Public Utilities Commission ("CPUC") ordered PG&E to submit an application for a Certificate of Public Convenience and Necessity (a "CPCN") to construct the Path 15 Upgrade Project. PG&E submitted a Conditional Application to the CPUC on April 13, 2001 pursuant to the CPUC order and applicable provisions of the California Public Utilities Code.2 While that CPCN application was
'Unless otherwise indicated, all statutory references in this Motion are to the United StitesBankruptcy Code (Title. 11 of the United States Code).
2 See Cal. Pub. Util. Code §1001 et seq., Rules 2-8, 15, 16, 17.1, 17.3 and 18 of the
"'IPUCmRles of Practice and Procedire (Cal. C. of Regs., Title 20), CPUC General Order 131-D.
DEBTOR'S NOT. OF MOT., MOT. & MPA FOR ORDER APP. EXPEND. OF FUNDS TO SUPPORT PATH 15 UPGRADE PROJECT WD 012402/1-1419905/gff/968809/v8 1
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a tOS<14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 pending, the United States Department of Energy directed WAPA to solicit expressions of interest in constructing the Path 15 Upgrade Project, and WAPA did so through a Federal Register Notice. On October 16, 2001, PG&E, WAPA and other participants executed a non-binding Memorandum of Understanding ("MOU") regarding construction of the Path 15 Upgrade Project. WAPA, PG&E and the other participants are now in the process of negotiating binding agreements regarding construction of the Path 15 Upgrade Project.
On November 6, 2001, in light of the MOU, PG&E filed a "Notice of Withdrawal" of its Conditional Application. In an order dated November 30, 2001 (the "CPUC Order"), the CPUC treated PG&E's notice as a motion for permission to withdraw the conditional application, denied it, and consolidated the conditional application with the CPUC's investigation, pursuant to California Assembly Bill 970, of electric transmission and distribution constraints, actions to resolve those constraints, and related matters affecting the reliability of electric supply.3 The CPUC's Administrative Law Judge has scheduled hearings on the economic benefit of the Path 15 Upgrade Project, required submission of the MOU implementation agreements to be followed by hearings thereon, and ordered briefing on whether a CPCN is required for PG&E's participation in the project.4 Because the WAPA-sponsored Path 15 Upgrade Project will increase the Path 15 electric transmission capacity to the same extent as contemplated in PG&E's Conditional Application, allow PG&E to obtain a share of such capacity commensurate with its costs incurred for the benefit of the Path 15 Upgrade Project, and require PG&E to incur costs estimated at or less than $75 million, rather than spend the estimated $325 million it will cost to construct the entire Path 15 Upgrade Project, PG&E intends to participate in the 3See CPUC Investigation No. 00-11-001. A true and correct copy of the CPUC Order is attached as Exhibit B to the Declaration of Kevin Dasso (hereinafter referred to as the "Dasso Declaration" and cited as the "Dasso Decl.") filed concurrently herewith.
4Although the Office of Ratepayer Advocates ("ORA") asserts that PG&E must have a CPCN to construct its contemplated portion of the Path 15 Upgrade Project, PG&E believes that, based on unambiguous language in General Order 13 1-D, it does not need a CPCN to perform the work that it would commit to perform in support of the Path 15 Upgrade Project.
If the CPUC finds otherwise, PG&E will determine whether it wishes to participate in the WAPA-sponsored project at that time.
DEBTOR'S NOT. OF MOT., MOT. & MPA FOR ORDER APP. EXPEND. OF FUNDS TO SUPPORT PATH 15 UPGRADE PROJECT WD 012402/1-1419905/gff/968809/v8 1
Path 15 Upgrade Project through its contemplated work in support of the WAPA-sponsored 2
project rather than pursuing its Conditional Application to construct the entire project alone.
3 PG&E brings this Motion because the requested $75 million exceeds the project
.4 limit authorized in PG&E's Motion for Authority to Make Capital Expenditures in the 5
Ordinary Course of Business filed in this case on June 6, 2001, which was approved 6
pursuant to the Court's Order thereon dated June 29, 2001 (such prior Motion and Order 7
hereinafter are collectively referred to as the "Omnibus Cap Ex Motion and Order"). In 8
-broad outline, pursuant to the Omnibus Cap Ex Motion and Order, PG&E is authorized to 9
proceed (a) without notice to or approval of the Court or the Official Committee of 10 Unsecured Creditors (the "Committee"), with any project costing less than $10 million, 11 (b) with notice to and no objection by the Committee, with any project costing more than 12
$10 million and less than $50 million, and (c) only upon a motion noticed to the Committee 13 and the United States Trustee on at least 10 business days' notice and approval of the Court, RK*
'mt' 14 with any project anticipated to cost more than $50 million.
deRANUN 15 PG&E submitted a notice and description of the Path 15 Upgrade Project to the 16 Committee on November 29, 2001. The Committee on December 12, 2001 indicated in 17 writing that it had no objection to the Debtor proceeding with the Path 15 Upgrade Project.
18 PG&E respectfully requests that the Motion be granted and that PG&E be authorized to 19 enter into binding agreements to expend up to $75 million for its work in support of the 20 Path 15 Upgrade Project.
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28 DEBTOR'S NOT. OF MOT., MOT. & MPA FOR ORDER APP. EXPEND. OF FUNDS TO SUPPORT PATH 15 UPGRADE PROJECT WD 012402/1 -1419905/gfl7968809/vS 1
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&RAW*N A.d, 15 16 17 18 19 20 21 22 23 24 25 26 27 28 II.
FACTUAL BACKGROUND5 A.
The Path 15 Upgrade Project.
The transmission system segment known as Path 15 is located in the southern portion of the PG&E service area and in the middle of the Independent System Operator
("ISO") Control Area.6 This path consists of the following lines:
Los Banos-Gates 500 kV Los Banos-Midway 500 kV Gates-Panoche #1 230 kV Gates-Panoche #2 230 kV Gates-Gregg 230kV Gates-McCall 230 kV These facilities are used to meet transmission capacity requirements of various parties in the Northwest, Northern California and Southern California, and for integrating generating plants within the ISO-controlled grid. Fong Decl. Ex. A at 7 (BKCC 00748)
The Path 15 Upgrade Project has been designed to increase transmission capacity and to further integrate generating plants within the ISO-controlled grid. As part of the Path 15 Upgrade Project contemplated by the MOU, certain upgrades of PG&E's existing 500 kV and 230 kV substation equipment and, if needed, reconductoring of PG&E's existing 230 kV transmission lines are necessary to accommodate the additional 500 kV transmission lines to be constructed by WAPA. As part of the Path 15 Upgrade Project, PG&E will design and construct the following facilities:
5The evidentiary basis and support for the facts set forth in this Motion are contained in the Dasso Declaration and in the Declaration of Valerie Fong (hereinafter referred to as the "Fong Declaration" and cited as the "Fong Decl."), both filed concurrently herewith. Where there is no citation supporting a particular fact, the evidentiary basis for such fact,.is contained in the Dasso Declaration. Where, on the other hand, the evidentiary basis for a particular fact is contained in the Fong Declaration, we will specifically cite to the Fong Declaration.
6See Fong Decl., Ex. A.
DEBTOR'S NOT. OF MOT., MOT. & MPA FOR ORDER APP. EXPEND. OF FUNDS TO SUPPORT PATH 15 UPGRADE PROJECT WD 012402/1-1419905/gffW968809/v8 1
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- 500 kV terminal equipment at Los Banos and Gates for the proposed Los Banos-Gates 500 kV transmission line;
- Reconfiguration of the Gates 500 kV bus from a ring-bus to a breaker-and a-half arrangement;
- Install 250 MVAR of 230 kV shunt capacitors at both Los Banos and Gates substations to provide necessary voltage support; and
- Reconductor the Gates-Midway 230 kV transmission line or provide the necessary capability by re-rating the transmission lines. (The recommended expenditure includes the more costly reconductoring option). Fong Decl. Ex. A at 10 (BKCC 00751)
Path 15 is currently constrained to a lower south-to-north transfer limit than the rest of the 500 kV system in Northern California because there are just two 500 kV lines in this area. Additionally, because the two 500 kV lines are located in a common corridor, the Western Systems Coordinating Council ("WSCC") transmission reliability criteria require that the system be operated to withstand their simultaneous loss ("Los Banos South double line outage"). Under these criteria, the present maximum south-to-north transfer limit is 3,950 MW. This limit is based on the availability of special automatic and manual operating procedures that would be initiated immediately after any Los Banos South double line outage. Id. at 7-8 (BKCC 00748-00749)
The ISO has found in recent years that Path 15 congestion has resulted in higher generating costs to Northern California consumers mainly during. off-peak periods. During such periods, the ISO has found that it has been necessary to operate higher-cost generation in Northern California, to import higher-cost power from the Northwest, or to reroute lower cost power from Southern California onto thePacific DC Intertie to meet demand in Northern California. The ISO has found thataccess to additional lower-cost generating as,* fon thtacs to res'o0urces-in the south has been-limited due to the Path 15 transfer limits. Id. at 8 (BKCC 00749).
Due to limited generation availability in Northern California during the latter part DEBTOR'S NOT. OF MOT., MOT. & MPA FOR ORDER APP. EXPEND. OF FUNDS TO SUPPORT PATH 15 UPGRADE PROJECT WD 012402/1-1419905/gff/968809/v8 1
of 2000, congestion on Path 15 began to occur much more frequently. The problem 2
escalated further in January 2001 as a shortage of generation in Northern California led to 3
rotating outages north of Path 15. While the ISO concluded that there were additional 4
generating reserves in Southern California, the ISO found that constraints on Path 15 5
prevented full access to this generation. The ISO further found that Path 15 constraints, 6
combined with generation shortages, could again contribute to rotating outages in Northern 7
California. Fong Decl. Ex. A at 8 (BKCC 00749).
8 PG&E and the ISO began analysis of Path 15, even before the rotating outages 9
occurred, with the objective of identifying alternatives to reduce off-peak generation costs.
10 Subsequent analyses conducted by the ISO following the outages described above indicated 11 that: (1) Path 15 congestion resulted in increased market costs ranging from $7 million to 12
$220 million over the 16-month period ending December 31, 2000 (depending on how the HOWA 13 market would have responded had the Path 15 upgrade been in-service); and (2) Path 15 ORE c_*U" 14 constraints could contribute to future rotating outages. Although these analyses were not MLK drRAW~gN 15 conclusive on project need, there was sufficient support to begin the work necessary to 16 undertake the permitting process so that, if further analyses showed the project was needed, 17 the potential project could be 'in operation as soon as possible. Id.
18 Therefore, subject to PG&E management's approval, PG&E requested ISO 19 approval to conduct preliminary engineering and project siting work necessary to pursue the 20 permits for the construction of a new Los Banos-Gates 500 kV project. The ISO approved 21 PG&E's request to proceed with the permitting process on February 5, 2001. Additionally, 22 before applying for the necessary permits, the PG&E and ISO agreed to perform additional 23 analyses to ascertain project need under future generation build-out scenarios. Id.
24 Thereafter, the development of a Path 15 upgrade project progressed on two 25 parallel tracks-PG&E sponsorship and WAPA sponsorship.
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PG&E-Sponsorship Track.
28 On March 29, 2001, the CPUC ordered PG&E to submit an application for a DEBTOR'S NOT. OF MOT., MOT. & MPA FOR ORDER APP. EXPEND. OF FUNDS TO SUPPORT PATH 15 UPGRADE PROJECT WD 012402/1-1419905/gff968809/v8 1
CPCN to construct the, Path 15 Upgrade Project. Pursuant to the CPUC order, PG&E 2
submitted a ConditionalApplication to the CPUC on April 13, 2001 for a CPCN authorizing 3
the construction of the Path 15 Upgrade Project. PG&E's application was conditioned upon 4
the following: (1) a PG&E and ISO determination that the Project is needed and cost 5
effective; (2) PG&E management approval; and (3) this Court's approval of the expenditure 6
of funds to construct the Path 15 Upgrade Project. Fong Decl. Ex. A at 9 (BKCC 00750).
7 PG&E and the ISO submitted opening testimony in the CPCN proceeding on 8:
September 25, 2001 regarding the conditional application. PG&E's testimony presented, 9
among other things, two service alternatives considered for upgrading Path 15, the estimated 10 cost of those alternatives, possible routes for the new line, and the estimated cost of those 11 route alternatives. The ISO's testimony addressed the economic need for the Path 15 12 Upgrade Project, and concluded that the Path 15 Upgrade Project is cost-justified. The ORA H*
13 submitted opposing testimony and the ISO submitted rebuttal testimony. No CPUC S
14 administrative hearings were or have been held on the Path 15 Upgrade Project. Id.
IRAWN 15 As set forth below, while PG&E's Conditional Application was pending before 16 the CPUC, the United States Department of Energy and WAPA solicited interest in a public 17 private partnership to construct the Path 15 Upgrade Project. Following execution of the 18 MOU regarding the WAPA-sponsored Path 15 Upgrade Project, PG&E withdrew its 19 Conditional Application on November 6, 2001 and its opening testimony on November 13,
- 20 2001. Although the CPUC declined to allowPG&E to withdraw its Conditional 21 Application, it dropped scheduled hearings on the PG&E-sponsored Path 15 Upgrade Project 22 and consolidated the Conditional Application proceeding with the CPUC's ongoing 23 investigation pursuant to California Assembly Bill 970 of electric transmission and 24 distribution constraints. Thereafter, the CPUC's Administrative Law Judge set hearings in 25 late February 2002 to consider the economic need for the Path 15 Upgrade Project, required 26 PG&E to submit the MOU implementation agreements, and scheduled briefing on the 27 ORA's claim that PG&E needed a CPCN to perform its contemplated portion of the WAPA S28 sponsored Path 15 Upgrade Project.
DEBTOR'S NOT. OF MOT., MOT. & MPA FOR ORDER APP. EXPEND. OF FUNDS TO SUPPORT PATH 15 UPGRADE PROJECT WD 01240211-1419905/gff/968809/v8 1
There is no CPUC order directing PG&E to construct the entire Path 15 Upgrade 2
Project, forbidding PG&E from participating in the WAPA-sponsored Path 15 Upgrade 3
Project, or requiring PG&E to obtain a CPCN to participate in the WAPA-sponsored Path 15 4
Upgrade Project as contemplated by the MOU. 7 5
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WAPA-Sponsorship Track.
7 In May 2001, the United States Secretary of Energy, prompted by a Presidential 8
directive incorporated in the National Energy Policy report, directed WAPA to complete 9
planning for an upgrade to Path 15 and to solicit financing and ownership interest in the 10 project. In June 2001, WAPA posted a notice in the Federal Register to solicit financing and 11 ownership interest in a project to upgrade Path 15 based on the proposed Path 15 Upgrade 12 Project set forth in PG&E's Conditional Application. Following its solicitation, WAPA met HAR 13 with a number of public and private entities to discuss the possibility of constructing the 14 Path 15 Upgrade Project. Fong Decl. Ex. A at 9 (BKCC 00750).
APA,6.0 15 These discussions led to the development of a non-binding MOU executed on 16 October 16, 2001.8 The MOU outlines, on a preliminary basis, the responsibilities, financial 17 contributions, ownership rights and operational details of the Project and requires the parties 18 to agree on "an aggressive schedule to define the Project and the work to be done at each 19 facility" by January 16,,2002. Dasso Decl. Ex. A at 6. The MOU contemplates that the 20 increased transmission capacity arising from the Path 15 Upgrade Project will be shared 21 among the public and private entities commensurate with each entity's contributions to the 22 Path 15 Upgrade Project. PG&E's proposed contributions would include:
23 (1) environmental and engineering satudies and design work performed to date; and 24 (2) detailed design and construction work for the 500 kV and 230 kV substation and 230 kV 25 26 7 Should any such order issue, PG&E will evaluate its effect on PG&E's planned participation in the Path 15 Upgrade Project and return to this Court for further approvals of 27 expenditures as necessary.
28 8A true and correct copy of the MOU is attached as Exhibit A to the Dasso Declaration.
DEBTOR'S NOT. OF MOT., MOT. & MPA FOR ORDER APP. EXPEND. OF FUNDS TO SUPPORT PATH 15 UPGRADE PROJECT WD 012402/1-1419905/gff/968809/v8 1
reconductoring work necessary to accommodate the additional 500 kV transmission lines to 2
be constructed by WAPA, which PG&E believes will be consistent with PG&E's Plan of 3
Service Alternative 2 outlined in its since-withdrawn opening testimony submitted in the 4
CPUC Conditional Application proceeding. The total cost for this work is estimated not to 5
exceed $75 million. Based on the ratio of PG&E's contribution to the anticipated total 6
project cost ($325 million, although certain aspects of the project may change under WAPA 7
sponsorship), PG&E would be allocated about 345 MW of the 1500 MW incremental 8
transfer capability. Fong Decl. Ex. A at 10 (BKCC 00751).
9 PG&E's design and construction of the substation modifications is contingent 10 upon enabling agreements for the Path 15 Upgrade Project being developed and executed.
11 12 B.
Expected Cost Of PG&E's Contemplated Work.
S 13 On December 19, 2001, PG&E's Board of Directors approved a capital RKE "DCWK14 expenditure of $75 million for PG&E's work in support of the Path 15 Upgrade Project.9
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These funds are expected to cover PG&E's anticipated work supporting the Path 15 Upgrade 16 Project and the work which, with Bankruptcy Court approval, PG&E intends to commit to 17 perform in binding agreements for the Path 15 Upgrade Project.
18 Based on preliminary design estimates prepared for the Conditional Application 19 Project, Alternative 2, Western Corridor Route, and including previously-incurred 20-engineering and permitting costs, PG&E estimates that its work in support of the WAPA 21
- sponsored Path 15 Upgrade Project will cost approximately $75 million, with $4 million to 22 be included in the,2002 budget and the balance presently anticipated to be incurred in the 23 next few-years consistent with the Path 15 Upgrade Project's current targeted completion 24 date in,2004.
25 The cost of PG&E's work in support of the Path 15 Upgrade Project is expected 26:
1 2.The'
$75 million includes $9.5 million previously approved by the Board of Directors 27 on May 8, 2001 for environmental, engineering and permitting work related to the Path 15 28 Upgrade, Project.
DEBTOR'S NOT. OF MOT., MOT. & MPA FOR ORDER APP. EXPEND. OF FUNDS TO SUPPORT PATH 15 UPGRADE PROJECT WD 012402/1-1419905/gff/968809/v8 1
to be included in PG&E's base revenue requirement to be recovered through the FERC Rate 2
Case, earning the authorized return established in that proceeding. The Path 15 Upgrade 3
Project participants were advised by FERC staff that the Path 15 Upgrade Project may be 4
eligible for pre-construction approval, accelerated depreciation, and a 200 basis points 5
premium on return on equity. PG&E's contribution of approximately $75 million in work to 6
support the Path 15 Upgrade Project translates to an increase in PG&E's present value of 7
revenue requirement of $95 million based on standard depreciation and return on equity.
8 Fong Decl. Ex. A at 10 (BKCC 00751).
9 10 III.
11 THE PATH 15 UPGRADE PROJECT SHOULD BE AUTHORIZED PURSUANT TO SECTIONS 363 AND 105 OF THE 12 BANKRUPTCY CODE HOWAR 13 As set forth at some length in the Omnibus Cap Ex Motion, PG&E on an annual RICE MAmtUT 14 basis makes approximately $1.5 billion in capital expenditures in the ordinary course of its 15 business of providing gas and electric service to its customers. These capital expenditures 16 cut across the utility functions of the company (including electric distribution, gas 17 distribution, electric transmission, gas transmission and electric generation) and generally 18 fall into one or more of three broad categories: (1) emergency/safety projects; (2) projects 19 that are mandated by regulatory or legal orders (including projects undertaken to remain in 20 compliance with regulatory and legal requirements); and (3) other projects, such as projects 21 designed to improve the reliability of PG&E's distribution or transmission system which 22 may not be mandated by specific performance requirements. See Omnibus Cap Ex Motion 23 at 3:19-4:4.
24 The Path 15 Upgrade Project has elements of all three expenditure categories, in 25 that the completion of the Project may help avoid emergency shortages in Northern 26 California and the Project was designed in response to regulatory directives.
27 As previously noted in the Cap Ex Omnibux Motion, PG&E believes that the 28 expenditures on virtually all of its capital projects as described above are within the ordinary DEBTOR'S NOT. OF MOT., MOT. & MPA FOR ORDER APP. EXPEND. OF FUNDS TO SUPPORT PATH 15 UPGRADE PROJECT WD012402/1-1419905/gff7968809/v8
1 course of its business. As such, PG&E appreciates that such expenditures should be 2
permitted without notice or hearing or any Bankruptcy Court approval pursuant to 11 U.S.C.
3 Section 363(c) as a useý sale or lease of estate property in the ordinary course of business.
4 However, recognizing that few are the cases in which a debtor in possession must make well 5
over $1 billion in capital expenditures per year due to the unique nature of its business and 6
the complex regulatory environment in which it operates, PG&E already has agreed that the 7
Committee and the Court should be apprised of and/or asked to approve PG&E's capital 8
expenditures at certain substantial materiality thresholds as established in the Omnibus Cap 9
Ex Motion and Order. See generally Omnibus Cap Ex Motion at 15:23-16:20. Thus, 10 although the Path 15 Upgrade Project will be undertaken in the ordinary course of PG&E's 11 business, PG&E seeks this Court's authority to proceed with the Path 15 Upgrade Project 12 because the anticipated cost of the Project exceeds $50 million, and a motion and Court 13 approval therefore are required pursuant to the Omnibus Cap Ex Motion and Order.
RXE "CAMt" 14 PG&E has demonstrated in Part II above that the Path 15 Upgrade Project is EqRAEIKN 15 perceived to be an important one by PG&E' s regulators, and that the proposed maximum 16
$75 million expenditure for such Project pursuant to the Motion will attain the 17 implementation and completion of the Project at a materially reduced overall cost to the 18 Debtor and its ratepayers. Accordingly, this Court plainly can and should utilize its
.19 authority under Section 363 of the Bankruptcy Code to approve the capital expenditure 20 authorization for PG&E's work in support of the Path. 15 Upgrade Project as requested by 21
'the Motion.
22 Additionally, Section 105(a) of the Bankruptcy Code authorizes this Court to 23 "issue any order, process, or judgment that is necessary or appropriate to carry out the 24 provisions of this title." The purpose of Section 105 is "to assure the bankruptcy courts' 25 power to iake whatever action is appropriate or necessary in aid of the exercise of their 26 jurisdiction.?' 2 Lawrence P. King Collier on, Bankruptcy ¶105.01 at 105-6 (15th ed. rev.
27' 2000). FTr the reasons set forth. above* the capital expenditure authorization for PG&E's 28 work in support of the Path 15 Upgrade Project requested by the Motion plainly will best DEBTOR'S NOT. OF MOT., MOT. & MPA FOR ORDER APP. EXPEND. OF FUNDS TO SUPPORT PATH 15 UPGRADE PROJECT WD 012402/1-1419905/gff/968809fv8 1
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10 11 12 HCWARD 13 NEG 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 serve the interests of the Debtor, its creditors and its customers alike, and will not violate any principle or precept of the Bankruptcy Code. Accordingly, pursuant to the Court's authority and discretion under Section 105(a) of the Bankruptcy Code, the Court can and should grant the Motion.
CONCLUSION For all of the foregoing reasons, PG&E respectfully requests that this Court make and enter an order granting the Motion, thus authorizing PG&E to enter into contractual commitments for, and incur the expenditure of funds up to, a maximum of $75 million for PG&E's work in support of the Path 15 Upgrade Project pursuant to the MOU.
DATED: January2-2002 Respectfully submitted, HOWARD, RICE, NEMEROVSKI, CANADY, FALK & RABKIN A Professional Corporation or:i By0E L. SCHWFER Attorneys for Debtor and Debtor in Possession PACIFIC GAS AND ELECTRIC COMPANY DEBTOR'S NOT. OF MOT., MOT. & MPA FOR ORDER APP. EXPEND. OF FUNDS TO SUPPORT PATH 15 UPGRADE PROJECT WD 012402/1-1419905/gff/968809/v8