ML021330426
| ML021330426 | |
| Person / Time | |
|---|---|
| Site: | Diablo Canyon  |
| Issue date: | 04/30/2002 |
| 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: ML021330426 (10) | |
Text
1 JAMES L. LOPES (No. 63678)
JANET A. NEXON (No. 104747) 2 JULIE B. LANDAU (No. 162038)
INNA M. KATSEN (No. 214244) 3 HOWARD, RICE, NEMEROVSKI, CANADY, FALK & RABKIN 4
A Professional Corporation Three Embarcadero Center, 7th Floor 5
San Francisco, California 94111-4065 Telephone:
415/434-1600 6
Facsimile:
415/217-5910 7
Attorneys for Debtor and Debtor in Possession PACIFIC GAS AND ELECTRIC COMPANY 8
9 UNITED STATES BANKRUPTCY COURT 10 NORTHERN DISTRICT OF CALIFORNIA 11 SAN FRANCISCO DIVISION 12 In re Case No. 01-30923 DM 13 PACIFIC GAS AND ELECTRIC Chapter 11 Case RK14 COMPANY, a California corporation,
'24T1 Date:
May 20, 2002
&A Debtor.
Time:
1:30 p.m.
15 Place:
235 Pine Street, 22nd Floor San Francisco, California 16 Federal I.D. No. 94-0742640 17 18 NOTICE OF MOTION AND MOTION FOR AUTHORIZATION TO 19 INCUR AND PAY BENEFIT PROGRAM EXPENSES; MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF 20
[SUPPORTING DECLARATION OF VALERIE LEWIS FILED 21 SEPARATELY]
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27 28 MOTION FOR AUTHORIZATION TO INCUR AND PAY BENEFIT PROGRAM EXPENSES
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1,* 15 16 17 18 19 20 21 22 23 24 25 26 27 28 NOTICE OF MOTION AND MOTION PLEASE TAKE NOTICE that on May 20,.2002, at 1:30 p.m. or as soon thereafter. as the matter may be heard, in the Courtroom of the Honorable Dennis Montali, located at 235 Pine Street, 22nd Floor, San Francisco, California, Pacific Gas and Electric Company, the debtor and debtor in possession in the. above-captioned Chapter 11 case
("PG&E"), will and hereby does move the Court for entry of an Order Authorizing PG&E to Incur and Pay Benefit Program Expenses (the "Motion").
This Motion is based on this Notice of Motion and Motion, the accompanying Memorandum of Points and Authorities, the Declaration. of Valerie Lewis filed concurrently herewith, the record of this case and any evidence presented at or prior to the hearing on this Motion.
PLEASE TAKE FURTHER NOTICE that pursuant to Rule 9014-!(c)(2) of the Bankruptcy Local Rules for the Northern District of California, any written opposition to the Motion and the relief requested herein must be filed with the Bankruptcy Court and served upon appropriate parties (including counsel for PG&E, the Office of the United States Trustee and the Official Committee of Unsecured Creditors) at least five (5) days prior to the scheduled hearing date. If there is no timely objection to the requested relief, the Court may enter an order granting such relief without further hearing.
MOTION FOR AUTHORIZATION TO INCUR AND PAY BENEFIT PROGRAM EXPENSES 1
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&RIANON AqOQ 15 16 17 18 19 20 21 22 23 24 25 26 27 28 MEMORANDUM OF POINTS AND AUTHORITIES Pacific Gas and Electric Company, the debtor and debtor in possession in the above-captioned Chapter 11 case ("PG&E"), requests an order authorizing PG&E to incur and pay benefit program expenses outside of the ordinary course of business pursuant to Bankruptcy Code Section 363(b)(1).
L FACTUAL BACKGROUND' PG&E filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code on April 6, 2001. A trustee has not been appointed, and PG&E continues to function as a debtor-in-possession pursuant to Sections 1107 and 1108 of the Bankruptcy Code.
PG&E is an investor-owned utility providing gas and electric services to more than 4.5 million customers in central and northern California serving a total population of about 13 million. PG&E employs over 19,000 people and has in excess of 30,000 trade creditors.
On April 19, 2002, PG&E, togetherwith its parent corporation, PG&E Corporation, filed its amended Plan of Reorganization (as amended from time to time, the "Plan"). The Court approved the Disclosure Statement for the Plan after hearing conducted on April 24, 2002.
The Plan generally provides for the creation of three new companies, ETrans LLC, GTrans LLC and Electric Generation LLC (collectively, the "New Entities"), whereby PG&E will separate its operations into four lines of business based on PG&E's historical functions. Accordingly, the Reorganized Debtor will continue the retail gas and electric distribution biWsiness, ETrans will operate the electric transmission business, GTrans will operate the interstate gas transmission business, and Electric Generation will operate the electric generation business.
1The evidentiary basis and support for the facts set forth in this Motion are contained in the Declaration of Valerie Lewis filed concurrently herewith.
MOTION FOR AUTHORIZATION TO INCUR AND PAY BENEFIT PROGRAM EXPENSES 1
A.
PG&E's Current Benefit Programs 2
and Necessity for Development oflNew Benefit Pro2rams.
3 PG&E offers a wide array of health, welfare and retirement benefit programs to 4
employees and their dependents and domestic partners. These programs include the 5
following types of health benefits: medical, dental, vision, prescription drug, mental health, 6
alcohol and drug care, health care reimbursement accounts and dependent care 7
reimbursement accounts. In addition, PG&E offers the following benefits to its employees:
8 (i) time-off programs, including vacation, holiday and leave of absence; (ii) sick leave and 9
disability programs; (iii) life insurance; and (iv) retirement benefits, including pension plans 10 and retirement plans.
11 In addition to complying with applicable employment laws and also providing 12 competitive benefits in order to attract and retain employees, PG&E is under contractual I
13 obligations to provide certain types and levels of benefits to thousands of employees under RICE S
- 14 the collective bargaining agreement (the "Collective Bargaining Agreement") between
&RA13IN 15 PG&E and the International Brotherhood of Electrical Workers, Local 1245 (the "IBEW").2 16 In order for-the New Entities to hire the thousands of employees that will be 17 needed, new benefit programs -must first be developed. The Plan provides that the benefit 18 programs to be offered by the New Entities will be comparable to the benefit programs 19 currently in place for PG&E's employees. In addition, for the approximately 2,000 20 employees who are covered by the Collective Bargaining Agreement and are expected to 21 transfer to one of the New Entities, PG&E is obligated to negotiate with the IBEW regarding 22 the benefits to be provided to these employees or to provide the same benefits as are 23 currently required under the Collective Bargaining Agreement. This is due to a successor 24 provision in the Collective Bargaining Agreement requiring that the New Entities assume the 25 existing agreement and recognize the IBEW as the employee's exclusive bargaining 26 27 2The Court approved PG&E's assumption of the Collective Bargaining Agreement by 28 order entered on or about June 18, 2001..
MOTION FOR AUTHORIZATION TO INCUR AND PAY BENEFIT PROGRAM EXPENSES 1
representative.
2 Development of c6iiparable benefit programs for the New Entities will require 3
benefit program providers to customize their benefit programs to meet PG&E's needs and 4
requirements. Due to the different number of employees at each New Entity (compared to 5
PG&E's existing workforce) and other factors, PG&E anticipates that the process of 6
developing comparable benefit programs for the New Entities will be complex and time 7
consuming. At a minimum, the process will involve an assessment of current benefit levels, 8
comparison of current benefits with those available in the marketplace for the New Entities, 9
and extensive negotiations with both the IBEW and benefit program providers.
10 11 B.
Description of Benefit Proaram Work to be Completed by Consultants.
12 The consultants described below (the "Consultants") will assist PG&E with the ROO 13 process of developing new benefit programs for the New Entities as well as any related RKIC l
14 benefit program work for the Reorganized Debtor 3 (collectively, the "Benefit Program
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.15' Work"). The Consultants will work under the, direction and supervision of PG&E's Benefits 16 Manager. While PG&E has in-house expertise in this area, PG&E requires substantial 17 outside assistance as a result of the volume of work to be completed and time period for 18 completion of'the work.
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Smith-Jennings., Inc. Smith-Jennings is a benefits consulting firm and will 20 assist PG&E in (i) assessing the comparability of existing benefit programs with potential 21 new benefit programs, (ii) establishing the benefit program provider selection criteria, and 22 (iii) assisting with negotiations with the IBEW under the Collective Bargaining Agreement 23 and negotiations with benefit program providers.
24 PG&E requests approval to incur approximately $650,000 in expenses to be paid 25 26 3PG&E intends to maintain its existing benefit programs without any substantial changes. However, it is anticipated that existing benefit programs may require certain 27 modifications due to the anticipated reduction in PG&E's workforce that will result from 28 transferring employees to the New Entities.
MOTION FOR AUTHORIZATION TO INCUR AND PAY BENEFIT PROGRAM EXPENSES 1
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,,,* 15 16 17 18 19 20 21 22 23 24 25 26 27 28 to Smith-Jennings for the period beginning January 20024 and continuing to the Effective Date (as defined in the Plan), or such earlier date on which the Benefit Program Work has been completed. PG&E will pay Smith-Jennings on a monthly basis, based on monthly billings by Smith-Jennings.
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Towers Perrin. Towers Perrin is a benefits consulting and actuarial firm.
Towers Perrin has provided benefit consulting and actuarial services to PG&E for approximately 20 years and retains PG&E's health claims history and actuarial information.
This information will be required for program providers to determine program pricing and options for the New Entities. Towers Perrin will also perform actuarial work that will be necessary in order to separate the various pension and retirement trusts currently in place at PG&E. Finally, Towers Perrin will advise PG&E with respect to the design of all new benefit programs.
PG&E requests approval to incur approximately $550,000 in expenses to be paid to Towers Perrin for the period beginning January 20025 and continuing to the Effective Date (as defined in the Plan), or such earlier date on which the Benefit Program Work has been completed. PG&E will pay Towers Perrin on a -monthly basis, based on monthly billings by Towers Perrin.
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William M. Mercer, Incorporated ("Mercer"). Mercer is a benefits consulting firm and will assist PG&E in all phases of the development of short term and long term disability benefit programs for the New Entities, including analysis of PG&E's existing disability benefits, new program design, identification of disability benefit program providers, assisting with the bidding process and negotiations with providers.
PG&E requests approval to incur approximately $170,000 in expenses to be paid Smith-Jennings began limited work in January 2002 for the purpose of assisting PG&E in determining the scope and timing of the Benefit Program Work to be completed by Smith-Jennings.
5Towers Perrin began limited work in January 2002 for the purpose of assisting PG&E in determining the scope and timing of the Benefit Program Work to be completed by Towers Perrin.
MOTION FOR AUTHORIZATION TO INCUR AND PAY BENEFIT PROGRAM EXPENSES 1
to Mercer for the period beginning May 2002 and continuing to the Effective Date (as 2
defined in the Plan), or such earlier date on which the Benefit Program Work has been 3
completed. PG&E will pay Mercer on a monthly basis, based on monthly billings by 4
Mercer.
5 PG&E believes that the Consultants do not rise to the level of "professionals" 6
under the Bankruptcy Code due both to the nature of the services provided and the 7
Consultants' limited role in connection with PG&E's reorganization proceeding. See In re 8
That's Entertainment Mktg. Group, Inc., 168 B.R. 226, 230 (N.D. Cal. 1994); see also In re 9
Saybrook Mfg. Co., Inc., 108 B.R. 366, 368-369 (Bankr. M.D. Ga. 1989) (in determining 10 whether a person is a professional for purposes of Section 327, courts consider not only the 11 nature of the services provided but also how central the services are to the reorganization 12 proceeding). Although the Benefit Program Work is related to implementation of the Plan, 13 PG&E believes that the Consultants' services should not be considered "central" to the N
14 Chapter 11 case.
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Current Need for Approval of the Benefit Program Work.
17 A substantial amount of the Benefit Program Work must begin immediately in 18 order for Plan implementation to occur on a timely basis. As with any business entity 19 employing thousands of employees, the development of comprehensive benefit programs is 20 a critical first step in establishing the foundation for the New Entities to begin business 21 operations. Until such benefit programs are developed, critical implementation tasks leading 22 to the transfer of existing employees and the recruitment of new employees cannot proceed.
23 The anticipated complexities and time period required for completion of negotiations related 24 to development of large-scale benefit programs for the New Entities, along with the 25 negotiation requirements of the Collective Bargaining Agreement with the IBEW, require 26 that the Benefit Program Work begin well in advance of Plan confirmation in order to assure 27 timely implementation of the Plan.
28 To the extent that subsequent events demonstrate that the Benefit Program Work MOTION FOR AUTHORIZATION TO INCUR AND PAY BENEFIT PROGRAM EXPENSES 1
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C 15 16 17 18 19 20 21 22 23 24 25 26 27 28 is unnecessary, PG&E retains the right to terminate the Consultants' contracts at any time.
PG&E's standard contractual provisions in place with the Consultants do not guarantee future work or any minimum amount of revenue. PG&E also maintains the right to terminate the contracts at any time without cause, in which case PG&E is liable only for work performed to the date of termination plus costs reasonably incurred by the Consultants in terminating any work in progress.
II.
THE BENEFIT PROGRAM EXPENSES SHOULD BE APPROVED PURSUANT TO SECTION 363(b)(1) OF THE BANKRUPTCY CODE PG&E seeks approval for the Benefit Program Work to be performed by the Consultants as set forth above (the "Benefit Program Expenses") as a use of estate property that is outside of the ordinary course of business under Bankruptcy Code Section 363(b)(1).
Since the Benefit Program Work relates to implementation of the Plan, PG&E believes that the purpose and scope of the expenditure may be characterized as outside of the ordinary course of business and therefore requires Court approval.
The Court has considerable discretion in approving a request pursuant to Section 363(b)(1) of the Bankruptcy Code ("[t]he trustee, after, notice and a hearing, may use, sell or lease, other than in the ordinary course of business, property of the estate"). See In re Montgomery Ward Holding Corp., 242 B.R. 147, 153 (D. Del. 1999) (affirming the bankruptcy court's decision to approve expenditure for employee incentive programs, noting that bankruptcy court has considerable discretion in approving a Section 363(b) motion).
In determining whether to authorize a transaction under Section 363(b)(1), courts require a debtor to show that a sound business purpose justifies such actions, applying the business judgment test. See, e._., Stephens Indus.., Inc. v. McClung, 789 F.2d 386, 389-90 (6th Cir. 1986); Committee of Equity Sec. Holders v. Lionel Corp. (In re Lionel Corp.), 722 F.2d 1063, 1071 (2d Cir. 1983); see also 3 Lawrence P. King, Collier on Bankruptcy
¶363.02[1][g] (15th ed. rev. 1998).
Once the debtor has articulated a rational business justification, a presumption MOTION FOR AUTHORIZATION TO INCUR AND PAY BENEFIT PROGRAM EXPENSES 1
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15 16 17 18 19 20 21 22 23 24 25 26 27 28 attaches that the decision was made "on an informed basis, in good faith and in the honest belief that the action taken was in the best interest of the [debtor]." See, e.g., Official Comm. of Subordinated Bondholders v. Integrated Res., Inc. (In re Integrated Res., Inc.),
147 B.R. 650, 656 (S.D.N.Y. 1992) (citing Smith v. Van Gorkom, 488 A.2d 858, 872 (Del.
1985)).
Here, sound business justifications exist for approval of the Benefit Program Expenses. As noted above, the development of benefit programs will be a critical first step in the Plan implementation process. The New Entities will require comprehensive benefit programs that are comparable to PG&E's existing, benefit programs, meet legal requirements and are acceptable to the' IBEW. PG&E has concluded that working with the Consultants will be the best means of accomplishing the myriad development tasks in the time frame required. Since the New Entities cannot begin operations unless employees can be hired, the Benefit Program Work must begin well in advance of any anticipated implementation of the Plan.
Also, PG&E is solvent and has sufficient cash to pay the Benefit Program Expenses without causing any detriment to its creditors.6 Thus, while there is the possibility that the Plan will not-be confirmed and therefore the Benefit Program Work will become unnecessary, this does not justify denial of the expenditure. See Montgomery War, 242 B.R. at 154 (no requirement for debtor to show a successful prospect of reorganization in order to justify expenditure request under Section 365(b)(1)). It is sufficient that PG&E currently has sound business reasons for the expenditure. In a case of this size and complexity, it is simply not possible to wait until Plan confirmation to begin all of the work necessary to implement the Plano Therefore, in requesting approval for the Benefit Program Expenses, PG&E has attempted to strike a balance between being prepared to implement the Plan on a timely basis and being prepared to terminate the Consultants' contracts should the 6As reflected in PG&E's February 2002 Monthly Operating Report, PG&E held more than $4.8 billion in cash reserves as of February 28, 2002.
MOTION FOR AUTHORIZATION TO INCUR AND PAY BENEFIT PROGRAM EXPENSES Benefit Program Work prove unnecessary.
CONCLUSION For all of the foregoing reasons, PG&E respectfully requests that the Court approve the Benefit Program Expenses described herein and grant such other and further relief as may be just and appropriate.
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9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Respectfully, HOWARD, RICE, NEMEROVSKI, CANADY, FALK & RABKIN A Professional Corporation V JULIE B. LANDAU Attorneys for Debtor and Debtor in Possession PACIFIC GAS AND ELECTRIC COMPANY MOTION FOR AUTHORIZATION TO INCUR AND PAY BENEFIT PROGRAM EXPENSES HcOVAMRD RKIE FJLI(
&¢RAflIN DATED: April 30, 2002 WD 042902/1-1419905/988676/v3