ML021500224
| ML021500224 | |
| Person / Time | |
|---|---|
| Site: | Diablo Canyon  |
| Issue date: | 05/10/2002 |
| From: | Landau J Howard, Rice, Nemerovski, Canady, Falk & Rabkin |
| To: | Office of Nuclear Reactor Regulation, US Federal Judiciary, Bankruptcy Court, Northern District of California |
| References | |
| 94-0742640, Case No. 01-30923 DM | |
| Download: ML021500224 (9) | |
Text
JAMES L. LOPES (No. 63678)
JANET A. NEXON (No. 104747)
JULIE B. LANDAU (No. 162038)
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 1
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10 11 12 13 HOW&ARD 1
R=C "CANMk'T 14
&1?AH(IN
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15 16 17 In re PACIFIC GAS AND ELECTRIC COMPANY, a California corporation, Debtor.
Federal I.D. No. 94-0742640 Case No. 01-30923 DM Chapter 11 Case Date:
May 30, 2002 Time:
1:30 p.m.
Place:
235 Pine Street, 22nd Floor San Francisco, California NOTICE OF MOTION AND MOTION FOR AUTHORIZATION TO INCUR HUMAN RESOURCES MANAGEMENT SYSTEM EXPENSES; MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF
[SUPPORTING DECLARATION OF BRUCE R. BOWEN FILED SEPARATELY]
MOTION FOR AUTHORIZATION TO INCUR HRMS EXPENSES 4.
Attorneys for Debtor and Debtor in Possession PACIFIC GAS AND ELECTRIC COMPANY UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF CALIFORNIA SAN FRANCISCO DIVISION 3*3 18 19 20 21 22 23 24 25 26 27 28
1
.NOTICE OF MOTION AND MOTION 2PLEASE TAKE NOTICE that on May 30, 2002, at 1:30 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"), will and hereby does move the Court for entry of an Order Authorizing PG&E to 7
Incur Human Resources Management System Expenses (the "Motion").
8 This Motion is based on this Notice of Motion and Motion, the accompanying 9
Memorandum of Points and Authorities, the Declaration of Bruce Bowen filed concurrently 10 herewith, the record of this case and any evidence presented at or prior to the hearing on this 11 Motion.
12 PLEASE TAKE FURTHER NOTICE that pursuant to Rule 9014-1 (c)(2) of the 13 Bankruptcy.Local Rules for the Northern District of qalifornia, any written opposition to the HOWARD 14 Motion and the relief requested herein must be filed with the Bankruptcy Court and served PAIK
&¢RAWNN 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 AUTHORIZATION TO NCUR HRMS EXPENSES
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
expenses related to the Human Resources Management System described below, outside of 5
the ordinary course of business pursuant to Bankruptcy Code Section 363(b)(1).
6 7
I. "FACTUAL BACKGROUND1 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 pursuantto Sections 1107 and& 1108 of the Bankruptcy Code.
11 PG&E is an investor-owned utility providing gas and electric services to more 12 than 4.5 million customers incentral and northern California serving a total population of HOýRD 13 about 13 million. PG&E employs ov-er 19,000 people and has in excess of 30,000 trade NaCAA 14 creditors.
IUK
&RAHCON 15 On April 19, 2002; PG&E, together with its parent corporation, PG&E 16 Corporation, filed its amended Plan of Reorganization (as amended from time to time, the 17 "Plan").' The Court approved the Disclosure -Statement for the Plan after hearing conducted 18 on April 24, 2002.
19 The Plan generally provides for the creation of three new companies, ETrans 20 LLC, GTrans LLC and Electric Generation LLC (collectively, the "New Entities"), whereby 21 PG&E will separate its operations into four lines of business based on PG&E's historical 22 functions. Accordingly, the Reorganized Debtor will continue the retail gas and electric 23 distribution business, ETrans will operate the electric transmission business, GTrans will 24 operate the interstate gas transmission business, and Electric Generation will operate the 25 electric generation business.
26 27 The evidentiary basis and support for the facts set forth in this Motion are contained 28 in the Declaration of Bruce R. Bowen filed concurrently herewith.
MOTION FOR AUTHORIZATION TCOINCUR'HRMS EXPENSES 1
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10 11 12 HcMARD 13 RKM NCAME 14 6"RAHNN 16 17 18 1.9 20
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22 23 24 25 26 27 28 A.
PG&E's Current Human Resources and Payroll Systems and Necessity for Development of New Systems.
PG&E's human resources and payroll systems ("HR/Payroll System") process all employee-related transactions, including payroll, employee benefits, employee classifications, and compliance with laws, rules and regulations. Current and historical data on employees and former employees with vested interests are processed at all stages of the employment lifecycle. Tasks such as generating paychecks, hiring, promotions and restructurings of business units, are enabled or performed by these systems. With thousands of employees, the HR/Payroll System is essential to business operations and to PG&E's ability to effectively use its workforce.
PG&E's HR/Payroll System currently supports 33,000 current and former employees and accommodates the requirements of four collective bargaining agreements in place between PG&E and its three unions. The HRJ-ayroll System consists of over 50 different information technology systems and applications. The average age of.the core computer processes, employee file maintenance and pay calculation, is in excess of 30 years.
Over the past several years, PG&E has studied the costs of replacing its aging HR/Payroll System. In lieu of replacement, PG&E has continued to maintain these applications and to replace those elements that are most at risk; however, the applications are based on outdated technology and computer code and system and transaction failures haye occurred with increasing frequency. Another consequence of the outdated HR/Payroll System is the decreasing number of knowledgeable employees and other potential resources available to maintain the systems.
The New Entities will require human resources and payroll systems to support the payroll and related functions needed for a company employing thousands of employees with benefits comparable to PG&E's existing benefits, and the restrictions of a collective bargaining agreement, among, other complexities. Since the HR/Payroll System is in need of replacement, PG&E believes' that it would be impra tical and perhaps impossible to use versions of the existing system for the New Entities. For example, the technical MOTIQN-FOR AUTHORIZATION TO INCUR HRMS EXPENSES 1
infrastructure for the HR/Payroll System is nearing obsolescence, it is increasingly difficult 2
to find computer programmers with knowledge-about the existing systems, and the risk and 3
frequency of system failures continues to increase. Also, the HR/Payroll System is not 4
capable of processing transactions for employees of multiple companies.
5 For the New Entities, PG&E has selected an integrated, vendor-supplied human 6
resources system developed by PeopleSoft, Inc. ("PeopleSoft"), known as the Human 7
Resources Management System ("HRMS")Y. The-HRMS offers the functionality and 8
flexibility of modem software and-also avoids PG&E's current problems with system 9
failures and obsolete program code. The HRMS consists of four PeopleSoft modules:
10 Human Resources, Benefits Administration,' Payroll, and Time and Labor. For example, the 11 functions of these modules Will include: workforce administration-,and personnel records; 12 employee payroll; employee time reeporting; payroll tax reporting; employee vacation and HRD 13 leave accruals and balances; employee benefits enrollment, eligibility, and premium E
14 determination; Equal Employment Opportunity compliance and other workforce statistics; EFAl(
15 and interfaces with external medical, insurance, financial and other providers.
16 17 B.
Description-'f Work to be Completed by PeopleSoft.
18 In order to implement the HRMS for'use by the New Entities, PG&E has selected 19 PeopleSoft to provide technical and functional assistance (the "Services'.')..
PG&E does not 20 have sufficient internal resources to implement the HRMS, nor does PG&E have the 21 expertise and experience that PeopleSoft Will provide. PeopleSoft will work under the 22 direction and supervision of PG&E's project manager for the HRMS implementation.
23 PeopleSoft will provide project management support, functional leads for each module, 24 technical resources, a database administrator and a test team.
25 26 2 PG&E may require additional resources in connection with the completion of the HRMS project, such as end-user training and documentation, and technical and 27 administrative assistance. If and when PG&E decides that such assistance is required, 28 PG&E will file a subsequent motion seeking, approval, for these_ additional expenses.
MOTION FOR AUTHORIZATION TOWIN*UR0HRMS EXPENSES 1
Specifically, the Services to be provided by PeopleSoft will include: (i) 2 implementation of the HRMS through the four modules, including configuration and set-up 3
of the software to match the New Entities' specific business processes and requirements, in 4
addition to system testing and system deployment; (ii)- designing, building and testing of 5
interfaces between the HRMS and internal (such as accounting) and external (such as payroll 6
direct deposit) systems; (iii) programming changes or customizations required by the New 7
Entities' business requirements that cannot be supported by the standard design of the 8
HRMS; (iv) development of controls, procedures and authorizations to be configured into 9
'the software to control access to confidential or other private information within the system; 10 (v) designing and building the tools needed to extract and deliver system data to end users; 11 and (vi) configurations needed to control the flow of authorizations and signoffs involved in, 12 for example, hiring a new employee or authorizing a::payroll change.
H 13 PG&Erequests approval to incur approxiMnately $2.2 million jn consulting fees to RICE 14 be paid to PeopleSoft for the period beginning April 20023 and continuing to the Effective
?FArKN
&RANCIN 15 Date (as defined in the Plan). PG&E will pay PeoploSoft on a monthly basis, based on 16 monthly billings by PeopleSoft.
17 PG&E believes that PeopleSoft is not a "professional person" under the 18 Bankruptcy Code due both to the nature of the Services to be provided and PeopleSoft's 19 limited role in connection with PG&E's reorganization proceeding. See In re That's 20 Entertainment Mktg. Group, Inc., 168 B.R. 226, 230 (N.D. Cal. 1994); see also In re
.21 Saybrook Mfg. Co., Inc., 108 B.R. 366, 368-369 (Bankr. M.D. Ga. 1989) (in determining 22 whether a person is a professional for purposes of Section 327,. courts consider not only the 23 nature of the services provided but also how central the services are to the reorganization 24 proceeding). Although the Services are related to implementation of the Plan, PG&E 25 believes thatý these Services should not be considered "central" to the Chapter 11 case.
26 27 3 PeopleSoft began limited work in April 2002 in order to determine the scope and 28 timing of the HRMS project.
MOTiON FOR AUTHORIZATION TO *NCUR HRMS EXPENSES 4
1
ýC.
Current Need for, Approval of the HRMS Project.
2 The implementation of the HRMS for the New Entities must begin immediately 3
in order for Plan implementation to occur on a timely basis. As with any business entity employing thousands of employees, the development of a comprehensive computer system 5
for tracking employees, payroll and related functions is one of the critical first steps in 6
establishing the foundation for the New Entities to begin business operations.
7 Although the Plan isý not yet confirmed, PG&E estimates that the process for 8
development of the HRMS could take a minimum of 7 months and up to 12 months and 9
therefore must begin prior to confirmation. The project is designed to deliver basic 10 functionality of the HRMS by the Effective Date in order for the New Entities to begin 11 operations. However, it is difficult to estimate the actual time period required for the HRMS 12 to reach functionality. PG&E intends to keep customization of the HRMS to a minimum 13 and to take advantage of PeopleSoft's expertise and experience. However, a certain level of HOWARD RX 14 customization will be required, given the complexities of the payroll processes as well as A-.-
15 union requirements. Also, PG&E's previous experience with system replacements has 16 shown that this type of project can take longer than estimated due to unanticipated 17 contingencies.
18 To the extent that subsequent events demonstrate that the HRMS is unnecessary, 19 PG&E retains the right to terminate PeopleSoft's contract. The contract between PG&E and 20 PeopleSoft does not guarante tfuture work or any minimum amount of revenue. PG&E also 21 maintains the right to terminate the contract at any time upon 14 days written notice, without 22 cause, in which case PG&E is-liable only for services performed to the date of termination.
23 24 II.
THE HRMS EXPENSES SHOULD BE APPROVED 25 PURSUANT TO SECTION363(b)(1) OF THE BANKRUPTCY.CODE 26 PG&E seeks approval for the expenses described above (the "HRMS Expenses")
27 as a use of estate property that is outside of the ordinary course of business under 28 Bankruptcy Code Section 363(b)(1). Since the HRMS relates to implementation of the Plan, MOTION FOR AUTHORIZATION TrINWGUR HRMS EXPENSES 1
PG&E believes that the purpose and scope of the expenditure may be characterized as 2
outside of the ordinary course of business and therefore requires Court approval.
3 The Court has considerable discretion in approving a request pursuant to Section 4
363(b)(1) of the Bankruptcy Code ("[t]he trustee, after notice and a hearing, may use, sell or 5
lease, other than in the ordinary course of business, property of the estate"). See In re 6
Montgomery Ward Holding Corp., 242 B.R. 147, 153 (D. Del. J999) (affirming the 7
bankruptcy court's decision to approve expenditure fpr employee incentive programs, noting 8
that bankruptcy court has considerable discretion in approving a Section 363(b) motion).
- 9.
In determining whether to authorize a transaction under Section 363(b)(1), courts 10 require a debtor to show that a sound :business purpose justifies such actions, applying the 11 business judgment test. See, e.g*, Stephens Indus., Inc. v. McClung, 789 F.2d 386, 389-90 12 (6th Cir. 1986); Committee of Equity Sec. Holders v, Lionel Corp. (In re Lionel Corp.), 722 H*
13 F.2d 1063, 1071 (2d Cir. 1983); see also 3 Lawrence P. King, Collier on Bankruptcy NHEOVAM
'1_kAt 14
¶363.02[1][g] (15th ed. rev. 1.998).
&ANY
&RABION 15 Once the debtor has articulated a rational business justification, a presumption 16 attaches that the decision was made "on an informed basis, in good faith and in the honest 17 belief that the action taken was in the best interest of the [debtor]." See, e.g., Official 18 Comm. of Subordinated Bondholders v. Integrated Res., Inc. (In re Integrated Res., Inc.),
19 147 B.R. 650, 656 (S.D.N.Y. 1992) (citing Smith v. Van Gorkom, 488 A.2d 858, 872 (Del.
20 1985)).
21 Here, sound business justifications exist for approval of the HRMS Expenses.
22 PG&E's outdated and problematic HR/Payroll System cannot be utilized for the New 23 Entities. The development of the HRMS for the New Entities will be one of the critical first 24 steps in the Plan implementation process since it will be integral to the commencement of 25 business operations. As described above, the work necessary for the HRMS to reach basic 26 functionality could take up to 12 months and therefore cannot be delayed until after Plan 27 confirmation without jeopardizing PG&E's ability tO timely implement the Plan.
28 Also, PG&E is solvent and has sufficient cash to pay the HRMS Expenses OMQTION-FQR AUTHORIZATION TO. INCUR HRMS EXPENSES 1
without causing any detriment to its creditors.4 Thus, while there is the possibility that the 2
Plan will not be confirmed and therefore the HRMS will become unnecessary, this does not 3
justify denial of the expenditure. See Montgomery Ward, 242 B.R. at 154 (no requirement 4
for debtor to show a successful prospect of reorganization in order to justify expenditure 5
request under Section 365(b)(1)). It is sufficient that PG&E currently has sound business 6
reasons for the expenditure. In a case of this size and complexity, it is simply not possible to 7
wait until Plan confirmation to begin all of the work necessary to implement the Plan.
8 Therefore, in requesting approval for the HRMS Expenses, PG&E has attempted to strike a 9
balance between being prepared to implement the Plan on a timely basis and being prepared 10 to terminate PeopleSoft's contract'on 14 days' notice should the work prove unnecessary.
12 CONCLUSION, 13 For all of the foregoing-reasons, PG&E respectfully requests that the Court RUC M
14 approve the HRMS Expenses and grant such other and further relief as may be just and rIn<
&'RAflGN 15 appropriate.
16 17 DATED: May 10, 2002 18
- Respectfully, 1 8 HOWARD, RICE, NEMEROVSKI, CANADY, 19 FALK & RABKIN 20 A Professional Co oration 21 By:QA*W(.
JULIE B. LANDAU 22 Attorneys for Debtor and Debtor in Possession 23 PACIFIC GAS AND ELECTRIC COMPANY 1419905/992745.3 24 25 26- -
27 4As reflected in PG&E's March 2002 Monthly Operating Report, PG&E held more 28 than $4.5 billion in cash reserves as-of March 31,, 2002.
MOTION FOR AUTHORIZATION-TO, INCUR HRMS EXPENSES