ML021580579
| ML021580579 | |
| Person / Time | |
|---|---|
| Site: | Diablo Canyon  |
| Issue date: | 05/23/2002 |
| 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: ML021580579 (10) | |
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15 16 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:
Time:
Place:
June 13, 2002 1:30 p.m.
235 Pine Street, 22nd Floor San Francisco, California NOTICE OF MOTION AND MOTION FOR AUTHORIZATION TO INCUR ADDITIONAL EXPENSES RELATED TO PERMITS; MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF
[SUPPORTING DECLARATION OF MICHAEL SCHONHERR FILED SEPARATELY]
"/t-MOTION FOR AUTHORIZATION TO INCUR ADDITIONAL PERMIT EXPENSES 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 Attorneys for Debtor and Debtor in Possession PACIFIC GAS AND ELECTRIC COMPANY UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF CALIFORNIA SAN FRANCISCO DIVISION 17 18 19 20 21 22 23 24 25 26 27 28
1 NOTICE OF MOTION AND MOTION 2
PLEASE TAKE NOTICE that on June 13, 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 7
Additional Expenses Related to Permits (the "Motion").
8 This Motion is based on this Notice of Motion and Motion, the accompanying 9
Memorandum of Points and Authorities, the Declaration Michael Schonherr filed 10 concurrently herewith, the record of this case and any evidence presented at or prior to the 11 hearing on this 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 California, any written opposition to the RKE "C 14 Motion and the relief requested herein must be filed with the Bankruptcy Court and served FA IIA(N AYRA.N 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 INCUR ADDITIONAL PERMIT EXPENSES.W
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
additional expenses related to permits as described below, outside of the ordinary course of 5
business pursuant to Bankruptcy Code Section 363(b)(1). These expenses are in addition to 6
those covered in PG&E's prior Motion for Order Authorizing Expenditures related to 7
Permits and Franchises (the "Permit and Franchise Motion"), filed on April 19, 2002 and 8
approved by the Court after hearing conducted on May 9, 2002.
9 10 I. FACTUAL BACKGROUND 1 11 PG&E filed a voluntary petition for relief under Chapter 11 of the Bankruptcy 12 Code on April 6, 2001. A trustee has not been appointed, and PG&E continues to function 13 as a debtor-in-possession pursuant to Sections 1107 and 1108 of the Bankruptcy Code.
RICE ouki 14 PG&E is an investor-owned utility providing gas and electric services to more RýLK
&PABKIN 15 than 4.5 million customers in central and northern California serving a total population of 16 about 13 million. PG&E employs over 19,000 people and has in excess of 30,000 trade 17 creditors.
18 On April 19, 2002, PG&E, together with its parent corporation, PG&E 19 Corporation, filed its Plan of Reorganization (as amended from time to time, the "Plan").
20 The Court-approved Disclosure Statement for the Plan, along with the Plan, will be 21 distributed to creditors for voting on June 17, 2002.
22 The Plan generally provides for the creation of three new companies, ETrans 23 LLC, GTrans LLC and Electric Generation LLC (collectively, the "New Entities"), whereby 24 PG&E will separate its operations into four lines of business based on PG&E's historical 25 functions. Accordingly, the Reorganized Debtor will continue the retail gas and electric 26 27 The evidentiary basis and support for the facts set forth in this Motion is contained in 28 the Declaration of Michael Schonherr filed concurrently herewith.
MOTION FOR AUTHORIZATION TO INCUR ADDITIONAL PERMIT EXPENSES 1
distribution business, ETrans will operate the electric transmission business, GTrans will 2
operate the interstate gas transmission business, and Electric Generation will operate the 3
electric generation business.
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A.
Description of Permits and Permit Application Process.
6 PG&E holds tens of thousands of operating and land occupancy permits, licenses 7
and related governmental entitlements from local, state and federal government agencies.
8 Approximately 15,000 of these permits, licenses and entitlements (collectively, "Permits")
9 must be transferred or reissued 2 to the New Entities in order for the New Entities to conduct 10 business operations in accordance with applicable laws, rules and regulations. 3 11 The Plan contemplates that PG&E will follow established application procedures 12 for the transfer of Permits under applicable local, state or federal law. Many Permit transfers 13 will involve ministerial review by the applicable government agency, which typically takes m EE"A 14 several weeks to process following receipt of appropriate documentation. Other Permit
~ac 15 transfers will involve discretionary review and approval by the government agency, which 16 varies by agency but typically requires from one to six months to process following receipt 17 of appropriate documentation. 4 18 PG&E is mindful of the fact that some government agencies will be receiving an 19 influx of Permit applications, which may stretch agency resources. Thus, in assessing the 20 potential time periods required for completion of the Permit transfers, PG&E is assuming 21 that typical time periods for processing applications may be extended, particularly for 22 agencies receiving multiple applications.
23 24 2For ease of reference, the transfer or reissuance of permits is referred to hereafter as "transfer".
25 3The New Entities could begin operations without a small portion of these Permits, 26 which involve non-essential activities.
4 If any Permits are denied by government agencies or cannot be issued on a timely 27 basis, PG&E reserves the right to seek relief from the Court pursuant to Bankruptcy Code Section 1142(b) or other applicable bankruptcy law.
28 MOTION FOR AUTHORIZATION TO INCUR ADDITIONAL PERMIT EXPENSES 1
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15 16 17 18 19 20 21 22 23 24 25 26 27 28 B.
Necessity for the Additional Permit Work.
This Motion seeks approval for certain expenses related to the transfer of the Permits to the New Entities (the "Permit Work"). This Motion supplements PG&E's previous Permit and Franchise Motion, which focused on expenses related to the transfer of Permits issued by local government agencies (as well as expenses related to obtaining new franchises). This Motion focuses on expenses related to the transfer of Permits issued by state and federal government agencies, which comprise the majority of the Permits to be transferred to the New Entities. 5 The contractors described below have specialized expertise and experience in dealing with government entitlement issues and will handle, in addition to the state and federal government Permit transfers, the more complex local government Permit transfers as well.
C.
Description of Permit Work to be Performed by Contractors.
The contractors described below (the "Contractors") will assist PG&E with the process of transferring Permits to the New Entities. Although PG&E maintains internal expertise in this area, the volume and timing of the Permit Work requires substantial outside assistance. The Contractors will perform the Permit Work at the direction of and under the supervision of PG&E.
The Contractors have previously worked for PG&E, are familiar with PG&E's unique permit issues and possess significant experience and understanding of the local, state and federal processes. The Contractors who will perform this work are as follows:
9CH2M-Hill, Inc.
- EDAW, Inc.
eEssex Environmental
- Matrix Environmental Planning
- Dinwiddie & Associates Specifically, the work to be performed by each of the Contractors will include: (i) 5 There are in excess of 6,100 federal agency Permits and in excess of 6,700 state agency Permits to be transferred to the New Entities.
MOTION FOR AUTHORIZATION TO INCUR ADDITIONAL PERMIT EXPENSES 1
contact with agency staff to conduct "pre-application" meetings to discuss and confirm 2
transfer requirements such as form and content of applications, key contacts and supporting 3
documentation required for the transfer process; (ii) analysis and assembly of necessary 4
supporting documentation; (iii) preparation and submission of applications for the transfer of 5
Permits; (iv) coordination and resolution of agency inquiries relating to the transfer process; 6
and (v) negotiations with agencies as necessary.
7 Each of the Contractors will perform the functions described above. However, 8
the work will be divided among the Contractors according to their availability and also 9
according to government agency focus. For example, one Contractor may handle the 10 transfer of Permits issued by certain federal agencies such as the United States Forest 11 Service (covering over 2,000 Permits), while another Contractor may handle the transfer of 12 Permits issued by the California Department of Motor Vehicles (covering over 1,200 13 Permits).
c 14 In addition to the Contractors, PG&E anticipates hiring independent contractors
&RAkK<3N 15 to perform similar functions. These individuals will be hired on a temporary basis through 16 Corestaff Services, Inc. ("Corestaff"), and will also have familiarity with PG&E's unique 17 permit issues and experience with government agency application processes. The number of 18 additional staff required will depend on the ability of the Contractors to fully staff projects as 19 well as the scope and complexities of the Permit Work as the process advances. For 20 example, one individual (a retired PG&E employee) has been chosen to lead the process of 21 transferring Permits issued by the California Department of Transportation. PG&E 22 contemplates that additional individuals will be similarly employed on an as-needed basis.
23 PG&E requests approval to pay the Contractors (including any individuals 24 employed by Corestaff) approximately $7 million, over the period beginning May 2002 and 25 continuing to the Effective Date (as defined in the Plan) or such earlier date on which the 26 Permit Work has been completed. PG&E will pay the Contractors on a monthly basis as 27 work is completed, based on monthly billings by the Contractors (except for individuals 28 employed by Corestaff, who will be paid on a weekly basis, based on the number of hours MOTION FOR AUTHORIZATION TO INCUR ADDITIONAL PERMIT EXPENSES I
worked).
2 PG&E believes that the Contractors and Corestaff employees are not 3
"professional persons" under the Bankruptcy Code due both to the nature of the services to 4
be provided and their limited role in connection with PG&E's reorganization proceeding.
5 See In re That's Entertainment Mktg. Group, Inc., 168 B.R. 226, 230 (N.D. Cal. 1994); see 6
also In re Saybrook Mfg. Co., Inc., 108 B.R. 366, 368-369 (Bankr. M.D. Ga. 1989) (in 7
determining whether a person is a professional for purposes of Section 327, courts consider 8
not only the nature of the services provided but also how central the services are to the 9
reorganization proceeding). Although the Permit Work is related to implementation of the 10 Plan, PG&E believes that the Permit Work should not be considered "central" to the Chapter 11 11 case or the Plan proceedings.
12 HOWARD 13 D.
Current Need for Approval of the Permit Work.
RICE 14 The Permit Work is essential to the implementation of the Plan. PG&E believes FAIIC Y RAP, AIN AF1C 15 that it could take several months to complete the Permit Work necessary to enable the New 16 Entities to operate their respective businesses. The timing for Permit transfers will vary, in 17 part, due to factors over which PG&E has no control, such as the exercise of an agency's 18 discretion in processing Permit applications, or the ability of certain agencies to process a 19 substantial number of applications at the same time. Therefore, the Permit Work must begin 20 well in advance of confirmation of the Plan, given the volume of work involved and the 21 potential time period required for completion of this work.
22 To the extent that subsequent events demonstrate that the Permit Work will not 23 be necessary, the work can be terminated immediately. PG&E's standard contractual 24 provisions in place with the Contractors and Corestaff do not guarantee future work or any 25 minimum amount of revenue. PG&E also maintains the right to terminate the contracts at 26 any time without cause, in which case PG&E is liable only for work performed to the date of 27 termination plus costs reasonably incurred by the Contractors in terminating any work in 28 progress.
MOTION FOR AUTHORIZATION TO INCUR ADDITIONAL PERMIT EXPENSES 1
II.
THE PERMIT EXPENSES SHOULD BE APPROVED 2
PURSUANT TO SECTION 363(b)(1) OF THE BANKRUPTCY CODE 3
PG&E seeks approval for the expenses described above (the "Permit Expenses")
4 as a use of estate property that is outside of the ordinary course of business under 5
Bankruptcy Code Section 363(b)(1). Since the Permit Work relates to implementation of the 6
Plan, PG&E believes that the purpose and scope of the expenditure may be characterized as 7
outside of the ordinary course of business and therefore requires Court approval.
8 The Court has considerable discretion in approving a request pursuant to Section 9
363(b)(1) of the Bankruptcy Code ("[t]he trustee, after notice and a hearing, may use, sell or 10 lease, other than in the ordinary course of business, property of the estate"). See In re 11 Montgomery Ward Holding Corp., 242 B.R. 147, 153 (D. Del. 1999) (affirming the 12 bankruptcy court's decision to approve expenditure for employee incentive programs, noting HCV-4A 13 that bankruptcy court has considerable discretion in approving a Section 363(b) motion).
RICE IqE 14 In determining whether to authorize a transaction under Section 363(b)(1), courts FAILI
&RAN(IN Aflq,ý 15 require a debtor to show that a sound business purpose justifies such actions, applying the 16 business judgment test. See, e.g*, Stephens Indus., Inc. v. McClung, 789 F.2d 386, 389-90 17 (6th Cir. 1986); Committee of Equity Sec. Holders v. Lionel Corp. (In re Lionel Corp.), 722 18 F.2d 1063, 1071 (2d Cir. 1983); see also 3 Lawrence P. King, Collier on Bankruptcy 19
¶363.02[1][g] (15th ed. rev. 1998).
20 Once the debtor has articulated a rational business justification, a presumption 21 attaches that the decision was made "on an informed basis, in good faith and in the honest 22 belief that the action taken was in the best interest of the [debtor]." See, e Official 23 Comm. of Subordinated Bondholders v. Integrated Res., Inc. (In re Integrated Res., Inc.),
24 147 B.R. 650, 656 (S.D.N.Y. 1992) (citing Smith v. Van Gorkom, 488 A.2d 858, 872 (Del.
25 1985)).
26 Here, sound business justifications exist for approval of the Permit Expenses.
27 The New Entities will require approximately 15,000 Permits in order to commence business 28 operations. The Permit transfers will involve months of planning, documentation and MOTION FOR AUTHORIZATION TO INCUR ADDITIONAL PERMIT EXPENSES 1
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& RANIN A.f 15 16 17 18 19 20 21 22 23 24 25 26 27 28 potential negotiations between PG&E and various government agencies, as well as processing time for the government agencies, which may exceed typical processing time given the volume of applications to be received by certain agencies. Therefore, this process cannot be delayed until after Plan confirmation without jeopardizing PG&E's ability to timely implement the Plan.
Also, PG&E is solvent and has sufficient cash to pay the Permit 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 Permit Work will become unnecessary, this does not justify denial of the expenditure. See Montgomery Ward, 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 Plan. Therefore, in requesting approval for the Permit 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 Permit Work should the work prove unnecessary.
6As reflected in PG&E's March 2002 Monthly Operating Report, PG&E held more than $4.5 billion in cash reserves as of March 31, 2002.
MOTION FOR AUTHORIZATION TO INCUR ADDITIONAL PERMIT EXPENSES 1
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10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DATED: May 23, 2002 Respectfully, HOWARD, RICE, NEMEROVSKI, CANADY, FALK & RABKIN A Professional Corporation
/JULIE B. LANDAU Attorneys for Debtor and Debtor in Possession PACIFIC GAS AND ELECTRIC COMPANY WD 051502/1-1419905/994767/vI MOTION FOR AUTHORIZATION TO INCUR ADDITIONAL PERMIT EXPENSES HCOARD NEMEItJV9I RIIK A?.ROV~
CONCLUSION For all of the foregoing reasons, PG&E respectfully requests that the Court approve the Permit Expenses and grant such other and further relief as may be just and appropriate.