ML021220415
| ML021220415 | |
| Person / Time | |
|---|---|
| Site: | Diablo Canyon  |
| Issue date: | 04/19/2002 |
| From: | Landau 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: ML021220415 (10) | |
Text
1 JAMES L. LOPES (No. 63678)
JANET A. NEXON (No. 104747) 2 JULIE B. LANDAU (No. 162038) -2 HOWARD, RICE, NEMEROVSKI, CANADY, XV 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
9 UNITED STATES BANKRUPTCY COURT 10 NORTHERN DISTRICT OF CALIFORNIA SAN FRANCISCO DIVISION 11 Case No. 01-30923 DM 12 In re Chapter 1 Case 13 PACIFIC GAS AND ELECTRIC HOWARD COMPANY, a California corporation, May 9, 2002 oa *14 Date:
Time: 1:30 p.m.
FB1K 1`vEROJ~c 15 Debtor. Place: 235 Pine Street, 22nd Floor San Francisco, California Federal I.D. No. 94-0742640 16 17 AUTHORIZING NOTICE OF MOTION AND MOTION FOR ORDERFRANCHISES; 18 EXPENDITURES RELATED TO PERMITS AND IN SUPPORT THEREOF MEMORANDUM OF POINTS AND AUTHORITIES 19 Filed
[Supporting Declarations of Richard Meiss and Terry Morford 20 Concurrently Herewith]
21 22 23 24 25 26 27 28 401 EXPENDITURES MOTION FOR ORDER AUTHORIZING PERMIT AND FRANCHISE
- 0 1 NOTICE OF MOTION AND MOTION 2 PLEASE TAKE NOTICE that on May 9, 2002, at 1:30 p.m., or as soon thereafter 3 as the matter may be heard, in the Courtroom of the Honorable Dennis Montali, located at 4 235 Pine Street,.22nd Floor, San Francisco, California, Pacific Gas and Electric Company, 5 the debtor and debtor in possession in the above-captioned Chapter 11 case ("PG&E"), will 6 and hereby does move the Court for entry of an Order Authorizing Expenditures Related to 7 Permits and Franchises, (the "Motion").
8 This Motion is based on this Notice of Motion and Motion, the accompanying
- 9 Memorandum of Points and Authorities, the Declarations of Richard Meiss and Terry 10 Morford filed concurrently herewith, the record of this case and any evidence presented at or
.11 prior to the hearing on this: Motion.
12 PLEASE TAKE FURTHER NOTICE that pursuant to Rule 9014-1 (c)(2) of the HC *13 Bankruptcy Local Rules for the-Northern District of California; any written opposition to the 14 Motion and the relief requested herein must be filed with the Bankruptcy Court and'served 15 upon appropriate parties (including counsel for PG&E, the-Office of the United States 16 Trustee and the Official Committee of Unsecured Creditors) at least five (5) days prior to the 17 scheduled hearing date. If there is no timely objection to the requested relief, the Court may 18 enter an order granting such relief without further hearing.
19 20 21 22 23 24 25 26
.27 28 MOTION FOR ORDER AUTHORIZING PERMIT AND FRANCHISE EXPENDITURES 1 MEMORANDUM OF POINTS AND AUTHORITIES 2 Pacific Gas and Electric Company, the debtor and debtor in possession in the 3 above-captioned Chapter 11 case ("PG&E"), requests an order authorizing PG&E to incur 4' and pay certain permit and franchise-related expenses outside. of the ordinary course of 5 business pursuant to Bankruptcy Code Section 363(b)(1).
6 7 1. FACTUAL BACKGROUND' 8 PG&E filed a voluntary petition for relief under Chapter 11 of the Bankruptcy 9 Code on April 6, 2001. A trustee has not been appointed, and PG&E continues to function 10 as a debtor-in-possession pursuant to Sections 1107 and 1108 of the Bankruptcy Code.
ii On March 7, 2002, PG&E, together with its parent corporation, PG&E 12 Corporation, filed a proposed Second Amended Plan of Reorgahization (as amended from HCARD 13 time to time, the "Plan"). The Court tentatively. approved the Second Amended Disclosure
- EULK 14 Statement for the Plan after hearing conducted on April 11, 20,02, subject to final approval at
.YRAWH(N 15 the hearing scheduled for April 24, 2002.
16 The Plan generally provides for the creation of three new companies, ETrans 1IT LLC, GTrans LLC and Electric Generation LLC 2 (collectively, the "New Entities"),
18 whereby PG&E will separate its operations into four lines of business based on PG&E's 19 historical functions: retail gas and electric distribution, electric transmission, interstate gas 20 transmission, and electric generation. As described in more detail below, the New Entities 21 will require certain permits, licenses and franchises in order to conduct their operations in 22 full compliance with relevant laws, rules and regulations. By this Motion, PG&E seeks 23 approval for certain expenses related to obtaining the necessary permits, licenses and 24 franchises for the New Entities.
25 26 1The evidentiary basis and support for the facts set forth in this Motion are contained in the Declarations of Richard Meiss and Terry Morford filed concurrently herewith.
27 2The reference to "Electric Generation LLC" herein includes the subsidiaries and assets.
28 affiliates of Electric Generation LLC that will hold certain generation MOTION FOR ORDER AUTHORIZING PERMIT. AND FRANCHISE EXPENDITURES 1 A. Permits.
2 PG&E holds tens of thousands of operating and land occupancy permits, licenses 3 and related governmental entitlements (collectively, "Permits") from local, state and federal 4 government agencies. Approximately 12,000 of these Permits must be transferred or 5 reissued3 to the New Entities in order for the New Entities to conduct business operations in 6 accordance with the law.4 7 The Plan contemplates that PG&E will follow established application procedures 8 for the transfer of Permits under applicable local, state or federal law. Before the application 9 process can begin, however, PG&E must complete its permits inventory and database 10 development, which is currently in progress, along with the training of personnel who will 11 work on the project. Many Permit transfers will involve only ministerial review by the 12 government agency, which typically: takes several weeks to process. Other Permit transfers 13 will involve discretionary review and approval by the government agency, which typically RKE M 14 takes from one to several months to process. Some Permit applications may also trigger
&IRAH(IN 15 environmental review, in which case the application process will be more complex and 5
16 likely take additional time.
17 18 B. Franchises.
19 PG&E is a party to over 520 franchise agreements with various cities and 20 counties, which allow PG&E to install, operate and maintain its electric, gas, oil and water 21 facilities in the public streets and roads owned by local governments. In exchange for the 22 right to use public streets and roads, PG&E pays an annual fee to the cities and counties 23 24 3For ease of reference, the transfer or reissuance of permits is referred to hereafter as "transfer".
44The New Entities could begin operations 25 without a small portion of these Peirilits, 26 which involve non-essential activities.
5if any Permits are denied by government agencies or cannot be issue&on a timely 27 basis, PG&E reserves the right to seek relief from the Court pursuant to Bankruptcy Code 28 Section 1142(b) or other applicable bankruptcy law.
MOTION.FOR ORDER AUTHORIZING PERMIT AND FRANCI-SE EXPENDITURES 1 under the franchises. Franchise fees are computed according to statute depending on 2 whether the particular franchise was granted under the Broughton Act or the Franchise Act 3 of 1937 (the "Franchise Act"); provided, however, that the 38 "charter cities" can set a fee 4 rate of their own determination.
"5 Under the Plan, PG&E will retain the existing franchises, 6 and the New Entities 6 will enter into new franchises ("Franchises") where such Franchises are necessary. For 7 example, since ETrans LLC will be taking over PG&E's electric transmission business, 8 Electric Generation LLC will be taking over the electric transmission ties from the 9 hydroelectric powerhouses to the transmission grid, and GTrans LLC will be taking over 10 PG&E's gas transmission business, the New Entities -will require Franchises -in order to 11 operate where the applicable electric or gas transmission facilities are located within public 12 streets-and roads. PG&E estimates that approximately 500 Franchises will be needed.
HOWA 13 Pursuant to either the Franchise Act-or applicable charter city provisions, local 14 governments grant public utility fran-chises as-ordinances upon the filing and consideration
&RAMN
&PtANON 15 of an application. Pursuant to the Franchise Act, the California Govermenf Code and, in 16 some cases, charter city procedures, there are minimum -timetablesbetween the filing of the 17 application and the adoption of the franchise .ordinance. Local government must hold public 18 hearings before it may grant a franchise ordinance..iThe California'Constitution requires that 19 all franchise ordinances be subject to a voters' referethdum, and, in some cases, charter cities 20 may only grant franchises by popularvote at a city-wide election.-- While the timing varies 21 depending on whether.the general law or mote specific charter city provisions govern, it can 22 exceed six months from the time an application is submitted to the granting of the franchise 23 ordinance.
24 25 26 6There are two exceptions: PG&E's gas franchises with Modoc County and San Bernardino County will be assumed and assigned to GTrans LLC because PG&E does not 27 have any distribution facilities within either county and therefore does not need to retain 28 these two franchises. .
MOTION FOR ORDER AUTHORIZING PERMIT AND FRANCHISE EXPENDITURES 1 C. Description of Permit and Franchise Work to be Completed by Contractors.
2 The contractors described below will assist PG&E in the process of transferring 3
Permits and acquiring Franchises for the New Entities (the "Permit and Franchise Work").
4 While PG&E has in-house expertise in this area, the volume of Permit and Franchise Work 5
and time period for completion of the work requires substantial outside assistance. The 6
contractors described below" will perform their portion of the Permit and Franchise Work at 7
the direction of and under the supervision of PG&E.
8 1. Transcon Infrastructure, Inc.
9 Transcon Infrastructure, Inc. ("Transcon") is experienced with managing and
.10 codrdinating permitting, licensing and siting efforts on a broad range of utility infrastructure projects, including coordination efforts with local, state and federal agencies. Transcon will 12 perform the following types of services with respect to the Permit and Franchise Work:
HCWAM' 13 (i) project management; (ii) planning and training assistance for all PG&E team members CAN<X 14
__U_
&fRAWN< including the Entitlement Agents described below; (iii) assistance with the transfer of the Permits and the acquisition of Franchises, including documentation; and (iv) evaluation of 16 the procedural requirements underlying PG&E's existing permits and licenses.
17 PG&E requests approval to pay Transcon approximately $950,000 (the "Transcon 18 7 Budget"), over a period beginning in February 2002 and continuing to the Effective Date 19 (as defined in the Plan) or such earlier date on which the Permit and Franchise Work has 20 been completed. PG&E would pay Transcon on a monthly basis as work is completed, 21 based on monthly billings by Transcon.
.22 2. Entitlement Agents.
23 PG&E will also be utilizing 11 individuals who are employed by Corestaff 24 Services, Inc., a staffing agency, for assistance with the Permit and Franchise Work (the 25 "Entitlement Agents"). The Entitlement Agents will be responsible for the acquisition of 26 27 7Transcpon began limited work in February 2002 to assist PG&E in determining the project staffing needs.
28 scope and timing of the work to be completed and "MOTIONFOR ORDER AUTHORIZING PERMIT AND FRANCHISE EXPENDITURES 1 Franchises and assisting with the transfer of Permits,8 including (i) developing a strategy and 2 plan for the timely acquisition of Franchises; (ii) conducting negotiations with the cities, 3 counties and districts as necessary; and (iii) working with the cities, counties and districts in 4 transferring the Permits. Each Entitlement Agent will be assigned to a group of 10 to 20 5 cities, counties and districts within a given geographical location. PG&E has chosen the 6 Entitlement Agents based on their abilityto work effectively with local governments; some 7 have experience working in regulated industries and others have experience working in 8 technical marketing.
9 PG&E requests approval to pay the Entitlement Agents approximately $3 million 10 (the "Agent Budget"), beginning April 2002 and continuing to the Effective Date (as defined 11 in the Plan) or such earlier date on which the Permit and Franchise Work has been 12 completed. PG&E would pay the Entitlement Agents through Corestaff Services, Inc. on a HOVý.D 13 monthly basis as work is completed, based on monthly billings by the Entitlement Agents.
c 14 PG&E believes that Transcon and the Entitlement Agents do not rise to the level 15 of "professionals" under the Bankruptcy Code, due both to the nature of the services to- be 16 provided and to their limited role in connection with PG&E's reorganization proceeding.
17 See In re That's Entertainment Mktg. Group. Inc., 168 B.R. 226, 230 (N.D. Cal. 1994); see 18 also In re Savbrook Mfg. Co.. Inc., 108 B.R. 366 (Bankr. M.D. Ga. 1989) (in determining 19 whether a person is a professional for purposes of Section 327, courts consider not only the 20 nature of the services provided but also how central the services are to the reorganization 21 proceeding). Although the work is related to implementation of the Plan, PG&E believes 22 that it should not be considered "central" to the Chapter 11 case or the Plan proceedings.
23 24 25 26 8The Entitlement Agents will assist with the Permits to be transferred by local 27 government (including cities, counties and districts),- which comprise the majority of the 28 issuing agencies.
MOTION FOR ORDER AUTHORIZING PERMIT AND FRANCHISE EXPENDITURES 1 D. Current Need for Approval of Budgets for Permit and Franchise Work.
2 The Permit and Franchise Work is essential to the implementation of the Plan.
3 Although the Plan is not yet confirmed, PG&E estimates that it could take up to 12 months 9 4 to complete the Permit and Franchise Work necessary to enable the New Entities to operate 5 their respective businesses.- Therefore, given the volume of work and the time required for 6 completion, the Permit and Franchise Work must be accelerated well in advance of 7 confirmation of the Plan in .order to assure a timely Plan consummation.
8 PG&E is mindful of the fact that some government agencies will be receiving an 9 influx of Permit and/or Franchise applications, which may stretch agency resources. Thus, 10 in assessing the need to complete the Permit and Franchise Work, PG&E is assuming that 11 typical time periods for processing applications may be extended, particularly for agencies 12' receiving multiple applications.
HCkAZ 13 Finally, to the extent that subsequent events demonstrate that the Permit and uj.. 14 Franchise Work will not be necessary, the work can be terminated immediately. PG&E's 15 standard contractual provisions in place with Transcon and the Entitlement Agents (through 16 Corestaff Services, Inc.) do not guarantee future work or any minimum amount of revenue.
17 PG&E also maintains the right to terminate the contracts at any time without cause, in which 18 case PG&E is liable only for work performed to the date of termination plus costs
.19 reasonably incurred by the contractor in terminating any work in progress.
20 21 II.
22 THE BUDGETS FOR THE PERMIT AND FRANCHISE WORK' SHOULD BE APPROVED PURSUANT TO-SECTION 363(b)(1)
- 23. OF THE BANKRUPTCY CODE 24 PG&E seeks approval for the.Transcon and Agent Budgets (collectively; the 25 "Budgets") as a use of estate property that is outside of the ordinary course of business under 2 6.. . ...
9In some instances, the timing may vary due to factors over which PG&E has no 27 control, such as electoral approval required for a Franchise ordinance, or exercise of an 28 agency's discretion in processing a Permit transfer application.
"MOTIONFOR ORDER.AUTHORIZING PERMIT AND FRANCHISE EXPENDITURES 1 Bankruptcy Code Section 363(b)(1). Sincedthe PetmitahdFranchise Work is related to 2 implementation of the Plan, PG&E believes that the purpose and scope of this expenditure 3 may be characterized as outside of the ordinary course of-business and therefore requires "4 Court approval.
5 The Court has considerable discretion in'appr-*ing a'request pursuant to Section 6 363(b)(1) of the Bankruptcy Code ("'[t]he trustee, after notice and a hearing, may use, sell, 7 or lease, other than in the'ordinary course. of business, property of the estate"). See In re 8 Montgomeri Ward Holdin Corp., 242 B.R. 1547, 53 .(D. Del. 1999) (affirming: the 9 bankruptcy court's decision to approve expenditdt-&Tfor-emplo~ee incentive programs, noting
.10 that bankruptcy court has considerable discretion ifi apprGvingla- Section .- 363(b) motion).
11 In determining whether to authorimeda trangadiion u*ifdenrSetiOn 363(b)(1), courts 12 require a debtor to show that a sound business purpos-ejistifiet 'uch afions,, applying the HkAMRICE 13- --business judgment test. See, e.g*, Stephens Ind:s..-Ine v.'McClung, 789 F.2d 386, 389-90 Nm" 1-4 (6th Cir. 1986); Comm.- of Equity See. Holders ioil Corpy.(In re-Lionel Corp.), 722 EýLX 15 F.2d 1063, 1071 (2d Cir. 1983); see also 3*L.-,ývenee P. KiCig-1iier lo Bank-ruptcy 16 ¶363.02[1][g] (15th ed. rev. 1998)..
1.7 Once the debtor has articulated a rational bfiUin.ss jjuýtificationJiý;a- presumption 18 attaches that the decision was made "on an informfed basis,-it good faith and:'in the? honest 19 belief that the action taken was in the best iriterest bf the. [debltb]." See, e.g, Official 20 Comm. of Subordinated Bondholders v. Integrated Res., Inc. (In re Integrated Res., Inc.),
21 147 B.R. 650, 656 (S.D.N.Y. 1992) (citing Smith v. Van Gorkom, 488 A.2d 858, 872 (Del.
22 1985)). ;;4 1H 23 Here, sound business justifications exist for approval of the Budgets. The Permit 24 and Franchise Work is necessary, PG&E does not have'sWfficient capacity in-house to 25- handle the Permit and Franchise Work without the-assistance-of Transcon and the 26 Entitlement Agents, and delaying the work could jeop--dize PG&E's-ability-to timely 27 implementthe Plan.
28 Also, PG&E is solvent and has sufficient cash to pay the Budgets withotft causing MOTION FOR ORDER AUTHORIZING PERMIT AýiND-PFRANCHISE E)XPENDITURES 1 any detriment to its creditors.10 Thus, while there is the possibility that the Plan will not be 2 confirmed and therefore the Permit and Franchise Work will become unnecessary, this does 3 not justify denial of the expenditure. See Montgomery Ward, 242 B.R. at 154 (no 4 requirement for debtor to show a successful prospect of reorganization in order to justify 5 expenditure request under Section 365(b)(1)). It is sufficient that PG&E currently has sound 6 business reasons for the expenditure. In a case of this size and complexity, it is simply not 7 possible to wait until Plan confirmation to begin all of the work necessary to implement the 8 Plan. Therefore, in requesting approval for the Budgets, PG&E has attempted to strike a 9 balance between being prepared to implement the Plan and being in a position to terminate 10 the Permit and Franchise Work at any time.
112 12 CONCLUSION 13 For all of the foregoing reasons, PG&E respectfully requests that the Court RICE omw 14 approve the Budgets for the Permit and Franchise Work as set forth herein and grant such BJJ(
&RAR<N
. 15 other and further-relief as may be just and appropriate.
16 17 DATED: April 19, 2002 18 Respectfully, HOWARD, RICE, NEMEROVSKI, CANADY, 19 FALK & RABKIN A Professional Corporation 20 1 Y:`JULIEB. LANDAU 22 Attorneys for Debtor and Debtor in Possession 23 PACIFIC GAS AND ELECTRIC COMPANY 24 WD 041902/1-1419905/987106/v2 25 26 27 '0 As reflected in PG&E's February 2002 Monthly Operating Report, PG&E held more 28, 2002.
28 than $4.8 billion in cash reserves as of February MOTION FOR ORDER AUTHORIZING PERMIT AND FRANCHISE EXPENDITURES