ML020780571

Declaration of Kent M. Harvey in Support of Motion by Pacific Gas and Electric Company for Order (a) Approving Settlement and Support Agreement by and Among Plan Proponents and Senior Debtholders, (B) Authorizing Payment of Pre- and Post- P

ML020780571
Person / Time
Site:	Diablo Canyon
Issue date:	03/05/2002
From:	Harvey K 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: ML020780571 (5)

Text

1 JAMES L. LOPES (No. 63678)

JANET A. NEXON (No. 104747) 2 GARY M. KAPLAN (No. 155530)

HOWARD, RICE, NEMEROVSKI, CANADY, 3 FALK & RABKIN A Professional Corporation 4 Three Embarcadero Center, 7th Floor San Francisco, California 94111-4065 5 Telephone: 415/434-1600 Facsimile: 415/217-5910 6

Attorneys for Debtor and Debtor in Possession 7 PACIFIC GAS AND ELECTRIC COMPANY 8 UNITED STATES BANKRUPTCY COURT 9 NORTHERN DISTRICT OF CALIFORNIA 10 SAN FRANCISCO DIVISION 11 12 In re Case No. 01-30923 DM AND ELECTRIC Chapter 11 Case 13 PACIFIC GAS March 25, 2002 k?'

3G, RD 1 COMPANY, a California corporation, Date:

& Debtor. Time: 9:30 a.m.

1 Place: 235 Pine Street, 22nd Floor San Francisco, California 16 Federal I.D. No. 94-0742640 17 18 19 20 DECLARATION OF KENT M. HARVEY IN SUPPORT OF MOTION BY PACIFIC GAS AND ELECTRIC COMPANY FOR ORDER 21 (A) APPROVING SETTLEMENT AND SUPPORT AGREEMENT BY AND AMONG PLAN PROPONENTS AND SENIOR DEBTHOLDERS, 22 (B) AUTHORIZING PAYMENT OF PRE- AND POST-PETITION INTEREST TO HOLDERS OF UNDISPUTED CLAIMS IN CERTAIN CLASSES, 23 (C) AUTHORIZING PAYMENT OF FEES AND EXPENSES OF INDENTURE TRUSTEES AND PAYING AGENTS AND 24 (D) AUTHORIZING DEBTOR TO ENTER INTO SIMILAR SETTLEMENTS 25 26 27 28 DECLARATION OF KENT HARVEY ISO SETTLEMENT

1 I, Kent M. Harvey, declare as follows:

2 1. I am the chief financial officer of Pacific Gas and Electric Company 3 ("PG&E" or the "Debtor"), the debtor and debtor-in-possession in this Chapter 11 Case.

4 This Declaration is based on my personal knowledge of PG&E's operations and financial 5 position. If called as a witness, I could and would testify competently to the facts stated 6 herein.

7 2. I make this declaration in support of PG&E's motion (the "Motion") for 8 entry of an order (a) approving that certain Settlement and Support Agreement, dated 9 February 12, 2002, by and among PG&E, PG&E Corporation and the Senior Debtholders' 10 (the "Settlement Agreement"), (b) authorizing the Debtor to make payments of Pre-Petition 11 Interest and Post-Petition Interest to the holders of undisputed Claims in certain Classes 12 during the Chapter 11 Case, (c) authorizing the Debtor to pay, on an on-going basis, the fees bank or other paying RICE 13 and expenses of any applicable indenture trustees and administrative

• . 14 agents responsible for making distributions to beneficial holders of financial debt, and EULK

&RAMýI 15 (d) authorizing the Debtor to enter into additional settlement agreements with other holders 16 of Class 5 Claims on substantially similar terms, without the need for further Court 17 approvals.

18 3. A true and correct copy of the Settlement Agreement is annexed as 19 Exhibit "A" hereto.

20 4. The Settlement Agreement reflects the Debtor's business judgment that it is 21 economically prudent and in the best interest of the estate to compromise the disputes 22 between the Debtor and the Senior Debtholders rather than engage in costly and distracting 23 litigation that could delay the administration of the estate.

24 5. PG&E also believes that sound business reasons exist for PG&E to make 25 early payments of interest during the Chapter 11 Case to the Senior Debtholders and other 26 27 1Capitalized terms not defined herein have the meanings ascribed to them in the Settlement Agreement or in the First Amended Plan of Reorganization Under Chapter 11 of the Bankruptcy Code for 28 Pacific Gas and Electric Company, dated January 10, 2002.

DECLARATION OF KENT HARVEY ISO SETTLEMENT 1 holders of undisputed Claims in certain Classes. It is my understanding that, as a solvent 2 debtor, PG&E will be required to pay interest to the holders of certain Claims 2 under a plan 3 of reorganization. Thus, PG&E's payment of Pre-Petition Interest and Post-Petition Interest 4 to these creditors is inevitable. Because PG&E has not been able to make interest payments 5 during the Chapter 11 Case, however, it is forced to compound accrued interest on Claims at 6 rates that are significantly higher than the rates its cash investments earn in today's financial 7 markets-thus creating a negative arbitrage to PG&E.

8 6. The Debtor's inability to make current interest payments has resulted (and 9 will continue to result) in the estate incurring unnecessary interest expenses. The average 10 interest rate earned on PG&E's unpaid financial debt (the "Financial Debt") is 11 approximately 7.9%, and the average interest rate on PG&E's unpaid non-financial debt (the 12 "Non-Financial Debt") is 5.5%. This interest is compounded, in most cases, on a quarterly HCV;AR 13 or semi-annual basis. At the same time, the returns earned on PG&E's existing cash are CA 14 suffering from the current low interest rate environment. PG&E's cash ($4.22 billion as of 15 December 31, 2001) is primarily invested in money market funds, which experienced an 16 average annual return of 2.15% during the month of December, 2001 and an average annual 17 return of 2.00% during the month of January, 2002.

18 7. As of March 31, 2002, PG&E estimates that it will have accrued 19 approximately $477 million in interest on Financial Debt alone. Because of the 20 compounding of interest, a nine month delay in the payment of interest (i.e., to 21 December 31, 2002) on the Financial Debt will increase PG&E's interest payments by 22 approximately $35 million. At the same time, the interest PG&E will likely earn on its 23 investment of the cash that would be used to pay accrued interest, during the period from 24 March 31, 2002 through December 31, 2002, would offset these increased interest expenses 25 by only an estimated $6 million. Thus, PG&E will enjoy a net savings of $29 million if it is 26 27 2 Under the Plan, certain Claims-Administrative Expense Claims, Environmental, Fire Suppression and Tort Claims and Chromium Litigation Claims--do not earn interest. Accordingly, these Claims are not 28 included in the Classes of Claims for which PG&E seeks authorization to pay interest.

DECLARATION OF KENT HARVEY ISO SETTLEMENT 1 allowed to make interest payments on its Financial Debt during the period from March 31, 2 2002 through December 31, 2002. In addition, PG&E will similarly save approximately $2 3 million by making interest payments to the holders of Non-Financial Debt during the six 4 month period from July 1. 2002 through December 31, 2002.3 Accordingly, if PG&E is 5 permitted to make interest payments as contemplated by the Motion, PG&E will save 6 approximately $31 million during the nine-month period ending December 31, 2002.

7 8. PG&E has sufficient cash stores on hand to make these interest payments.

8 The initial interest payments on Financial Debt are estimated to aggregate approximately 9 $477 million and projected subsequent quarterly interest payments on such Financial Debt 10 through December 31, 2002 are estimated to aggregate approximately $313 million. The 11 initial interest payments on Non-Financial Debt are estimated to aggregate approximately 12 $157 million and projected subsequent quarterly interest payments on such Non-Financial HOWARD 13 Debt through December 31, 2002 are estimated to aggregate approximately $57 million.

RKI C 14 I declare under penalty of perjury under the laws of the United States of America

&¢RM.(IN

• A d* 15 and the State of California that the foregoing is true and correct. Executed this 5 day of 16 March, 2002 at San Francisco, California.

17 18 DATED: March 5, 2002.

19 20 21 22 23 24 25 26

'As set forth in more detail in the Motion, PG&E proposes to commence interest payments on Non 27 Financial Debt no later than July 30, 2002. PG&E requires this additional time to reconcile and determine which Claims based on Non-Financial Debt are disputed before commencing interest payments on these 28 Claims. Interest would continue to accrue on these Claims until paid.

DECLARATION OF KENT HARVEY ISO SETTLEMENT WTD 030402/1-1419913/120/977962/v2 Exhibits are not attached to the service copies of this document.

You may obtain copies of the Exhibits 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: Racquel Lopez, Three Embarcadero Center, 7th Floor, San Francisco, California 94111-4065 WD 07180H/1-14199O1,gff/932202/vl