ML021690171

Pacific Gas & Electric Companys Notice of Motion and Motion for Order Further Extending Exclusivity Period for Plan of Reorganization; Supporting Memorandum of Points and Authorities

ML021690171
Person / Time
Site:	Diablo Canyon
Issue date:	06/07/2002
From:	Kaplan G 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: ML021690171 (10)

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&RAWON A*,d 15 16 17 18 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:

June 27, 2002 Time:

1:30 p.m.

Place:

235 Pine St., 22nd Floor San Francisco, California Judge:

Hon. Dennis Montali PACIFIC GAS & ELECTRIC COMPANY'S NOTICE OF MOTION AND MOTION FOR ORDER FURTHER EXTENDING EXCLUSIVITY PERIOD FOR PLAN OF REORGANIZATION; SUPPORTING MEMORANDUM OF POINTS AND AUTHORITIES PG&E's MOTION TO FURTHER EXTEND EXCLUSIVITY PERIOD FOR REORGANIZATION PLAN JAMES L. LOPES (No. 63678)

WILLIAM J. LAFFERTY (No. 120814)

GARY M. KAPLAN (No. 155530)

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 19 20 21 22 23 24 25 26 27 28

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9 10 11 12 HOWARD 13 RKZE S14 CAMDV1 A, R, 15 16 17 18 19 20 21 22 23 24 25 26 27 28 NOTICE OF MOTION AND MOTION PLEASE TAKE NOTICE that on June 27, 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 (the "Debtor" or "PG&E"), will and hereby does move the Court for entry of an order pursuant to Bankruptcy Code Section 1121(d) further extending, from June 30, 2002 until December 31, 2002 (or such later date as the Court may hereafter order based upon a subsequent motion filed on or before December 31, 2002), the period during which PG&E maintains "plan exclusivity" (except with respect to the California Public Utilities Commission ("CPUC"))

pursuant to Bankruptcy Code Section 1121(c)(3) (the "Motion"). As set forth below, PG&E submits that there is "cause" to grant the requested extensions pursuant to Bankruptcy Code Section 1121(d).

This Motion is based on the facts and law set forth herein, 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 9014-1(c)(2) of the Bankruptcy Local Rules of the United States District Court for the Northern District of California, any 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) 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.

MEMORANDUM OF POINTS AND AUTHORITIES I.

FACTUAL BACKGROUND.

1.

On April 6, 2001 (the "Petition Date"), PG&E filed a voluntary petition under Chapter 11 of the Bankruptcy Code. PG&E continues to manage and operate its business and property as a debtor in possession pursuant to Sections 1107 and 1108 of the Bankruptcy PG&E's MOTION TO FURTHER EXTEND EXCLUSIVITY PERIOD FOR REORGANIZATION PLAN 1

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10 11 12 HOWAMD 13 CANUTI 14 AP,*,d 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Code. No trustee has been appointed.

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As set forth in previous papers filed with the Court, PG&E has reported assets of tens of billions of dollars and more than thirteen thousand creditors. In addition to the sheer size of this case, it is exceedingly complex, based on, inter alia, PG&E's status as a utility company subject to a myriad of state and federal statutes, rules and regulations. During this bankruptcy case, PG&E has also continued to grapple with an unprecedented energy crisis.

3.

Pursuant to Bankruptcy Code Sections 1121(b) and (c), PG&E had the exclusive right to file a plan for 120 days after the Petition Date (i.e., until August 6, 20011), and, if it filed a plan by such time, an additional sixty days during which it would maintain plan exclusivity (i.e., until October 3, 2001).

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By its "Order Extending Exclusivity Period" filed on July 20, 2001, this Court (a) extended the exclusive period under Section 1121 during which only the Debtor could file a plan by four months, until December 6, 2001, and (b) in the event that the Debtor filed a plan by December 6, 2001, extended the period during which the Debtor maintained plan exclusivity pursuant to Section 1121(c)(3) by four months, until February 4, 2002. That Order expressly authorized PG&E to seek further extension of these time periods by filing a subsequent motion on or before December 6, 2001 and February 4, 2002, respectively.

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On September 20, 2001, PG&E (and co-proponent PG&E Corporation, PG&E's parent company) filed the "Plan of Reorganization under Chapter 11 of the Bankruptcy Code for Pacific Gas and Electric Company" (as amended from time to time, the "PG&E Plan"),

and an accompanying Disclosure Statement (as amended from time to time, the "PG&E Disclosure Statement").

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By filing the PG&E Plan prior to December 6, 2001, pursuant to the Court's July 20, 2001 Order, the Debtor maintained plan exclusivity pursuant to Section 1121(c)(3) until February 4, 2002, or such later date as the Court might order based on motion filed by 1 The 120th day after the Petition Date was actually August 4, 2001. Since that date fell on a Saturday, pursuant to Federal Rule of Bankruptcy Procedure 9006(a), the 120-day period expired on Monday, August 6, 2001.

PG&E's MOTION TO FURTHER EXTEND EXCLUSIVITY PERIOD FOR REORGANIZATION PLAN 1

February 4, 2002.

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By its "Amended Order Further Extending Exclusivity Period for Plan of 3

Reorganization" filed on February 4, 2002, this Court extended the period during which the 4

Debtor maintains plan exclusivity (except with respect to the CPUC, as further discussed 5

below) pursuant to Section 1121 (c)(3) of the Bankruptcy Code until June 30, 2002, or such 6

later date as the Court might order based upon a subsequent motion filed on or before June 7

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By it "Order Terminating Plan Exclusivity with Respect to the California Public 9

Utilities Commission and Authorizing the California Public Utilities Commission to File an 10 Alternate Plan of Reorganization" filed on March 22, 2002, the Court terminated the 11 Debtor's exclusivity with respect to the CPUC effective as of February 27, 2002 and 12 authorized the CPUC to file an alternative plan and disclosure statement by April 15, 2002.

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On April 15, 2002, the CPUC filed the "California Public Utilities Commission's

'Uc 14 Plan of Reorganization under Chapter 11 of the Bankruptcy Code for Pacific Gas and 15 Electric Company" (as amended from time to time, the "CPUC Plan"), and an 16 accompanying Disclosure Statement (as amended from time to time, the "CPUC Disclosure 17 Statement").

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By its Order filed on April 24,2002, the Court approved the PG&E Disclosure 19 Statement.

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By its Order filed on May 17, 2002, the Court approved the CPUC Disclosure 21 Statement.

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By its "Order Approving... Voting Solicitation Procedures... " filed on May 23 20, 2002, the Court established June 17, 2002 as the first date for soliciting acceptances or 24 rejections with respect to the PG&E Plan and the CPUC Plan.

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By its "Scheduling Order Supplementing Orders Approving Disclosure 26 27 2 Pursuant to Federal Rule of Bankruptcy Procedure 9006(a), since June 30, 2002 falls 28 on a Sunday, the applicable date is actually July 1, 2002.

PG&E's MOTION TO FURTHER EXTEND EXCLUSIVITY PERIOD FOR REORGANIZATION PLAN 1

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• .I' 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Statement... "filed on May 20, 2002, the Court ordered the hearing on confirmation of the PG&E Plan and the CPUC Plan to commence (with a status conference) on August 1, 2002.

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By this Motion, PG&E requests that the Court enter an order pursuant to Bankruptcy Code Section 1121(d) further extending, from June 30, 2002 until December 31, 2002 (or such later date as the Court may hereafter order based upon a subsequent motion filed on or before December 31, 2002), the period during which PG&E maintains plan exclusivity (except with respect to the CPUC) pursuant to Bankruptcy Code Section 1121(c)(3).

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As discussed above, there are now two Chapter 11 Plans for which the Court has approved the respective Disclosure Statements, and for which balloting will soon commence (prior to the scheduled hearing on this Motion). If another party were to file a plan at this time, it would be both confusing and counterproductive. Among other things, it would be impossible for such a plan to be included on the same time track as the PG&E Plan and CPUC Plan, and would serve no useful purpose.

II.

CAUSE EXISTS UNDER BANKRUPTCY CODE SECTION 1121(d) TO EXTEND THE EXCLUSIVE TIME PERIOD UNDER SECTION 1121 (c)(3) FOR THE PG&E PLAN.

A.

Section 1121(d) Permits A Court To Extend. For Cause, The Exclusivity Periods For The Debtor's Filing Of A Reorganization Plan Beyond The Initial 120 Day And 180 Day Periods Provided Therein.

Pursuant to Bankruptcy Code Section 1121, Congress provided Chapter 11 debtors with time to attempt to reach agreement with their creditors, leaving to the bankruptcy court the discretion as to how much time should be allowed. Section 1121(b) establishes an initial period of 120 days after the order for relief during which only the debtor may file a plan.3 If the debtor files a plan within the 120-day period, Section 3 Section 1121(b) provides that [e]xcept as otherwise provided in this section, only the debtor may file a plan until after 120 days after the date of the order for relief under this chapter.

11 U.S.C. §1121(b). Pursuant to Bankruptcy Code Section 301, the order for relief was entered on the Petition Date.

PG&E's MOTION TO FURTHER EXTEND EXCLUSIVITY PERIOD FOR REORGANIZATION PLAN 1

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O* ' 15 16 17 18 19 20 21 22 23 24 25 26 27 28 1121(c)(3) allows an additional 60 days during which only the debtor may obtain acceptances of the plan.4 Bankruptcy Code Section 1121(d) provides that the Court may extend both such exclusivity periods for "cause." 5 Although the Bankruptcy Code does not define "cause" for purposes of Section 112 1(d) or establish formal criteria for an extension of the exclusivity periods, Congress recognized that the debtor should be given a meaningful opportunity to formulate and negotiate a plan. H.R. Rep. No.95-595, at 231-32 (1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6191 (hereinafter "House Report"). At the same time, Congress recognized that an open-ended exclusivity period could encourage a debtor to stall in order to exact undue concessions from creditors and could unnecessarily delay creditors. S. Rep.

No.95-989, at 118 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5904 (hereinafter, "Senate Report"). Thus, the courts must necessarily strike an appropriate balance.

To achieve this objective, cause "is to be viewed flexibly in order to allow the debtor to reach an agreement." In re McLean Indus., Inc., 87 B.R. 830, 833 (Bankr.

S.D.N.Y. 1987) (internal quotation marks omitted); Gaines v. Perkins (In re Perkins), 71 B.R. 294, 297 (W.D. Tenn. 1987) ("[t]he hallmark of [Section 1121(d)] is flexibility"). This.

standard allows the court "maximum flexibility to suit various types of reorganization proceedings." In re Public Serv. Co., 88 B.R. 521, 534 (Bankr. D.N.H..1988); accord In re Gibson & Cushman Dredging Corp., 101 B.R. 405,409 (E.D.N.Y. 1989).'

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Congress And Courts Have Recognized That The Size and Complexity Of A Chapter 11 Case Provide Cause For Extending The Plan Exclusivity Periods.

Although the Bankruptcy Code does not define the circumstances that constitute "cause" to extend the exclusivity periods contained in Bankruptcy Code Section 1121, the 4 Section 1 121 c)(3), provides, in relevant part, that non-debtor parties in interest may file a plan "if and only if... the debtor has not filed a plan that has been accepted, before 180 days after the date of the order for relief under this chapter, by each class of claims or interests that is impaired under the plan." 11 U.S.C. §1121(c)(3).

5 Section 1121(d) provides, in relevant part, that "[o]n request of a party in interest...

the court may for cause reduce or increase the 120-day period or the 180-day period referred to in this section." 11 U.S.C. §1121(d) (emphasis added).

PG&E's MOTION TO FURTHER EXTEND EXCLUSIVITY PERIOD FOR REORGANIZATION PLAN 1

legislative history makes clear that the initial 120-day period established by Section 1121(b) 2 merely represents a baseline from which the Court is free to deviate, particularly in large and 3

complex cases such as PG&E's Chapter 11 case:

4 "In most cases, 120 days will give the debtor adequate time to negotiate a settlement, without unduly delaying creditors. The court is given the power, 5

though, to increase or reduce the 120-day period depending on the circumstances of the case.

For example, if an unusually large company were to seek 6

reorganization under chapter 11, the court would probably need to extend the time in order to allow the debtor to reach an agreement." (House Report, at 232, 7

1978 U.S.C.C.A.N. at 6191 (emphasis added) (footnote omitted))

8 Thus, bankruptcy courts frequently identify the size and complexity of a Chapter 9

11 case as "cause" to warrant extension of the exclusivity periods. See, e.g., In re Dow 10 Coming Corp., 208 B.R. 661, 665 (Bankr. E.D. Mich. 1997); In re Express One Int'l, Inc.,

11 194 B.R. 98, 100 (Bankr. E.D. Tex. 1996); In re Public Serv. Co, 88 B.R. at 534-35; In re 12 Texaco, Inc., 76 B.R. 322, 325-27 (Bankr. S.D.N.Y. 1987); In re Perkins, 71 B.R. at 297 13 300; In re Pine Run Trust, Inc., 67 B.R. 432, 434-36 (Bankr. E.D. Pa. 1986); In re United NAýU 14 Press Int'l, Inc., 60 B.R. 265, 270 (Bankr. D.D.C. 1986).

15 In Perkins, 71 B.R. at 296-300, for example, the court held that a case involving 16 approximately $13 million in assets and claims held by about 100 creditors was sufficiently 17 "large and complex" to justify an exclusivity period of over 800 days. See also In re Public 18 Serv. Co., 88 B.R. at 537 (granting a seven-month extension due to size and complexity of 19 case); In re United Press Int'l., Inc., 60 B.R. at 270 ("[iln many much smaller cases, 20 involving far less complications, two or three years go by before the debtor is in a position to 21 file a plan"); In re Express One Int'l, Inc., 194 B.R. at 100-0 1 (allowing exclusivity period of 22 one year based on, inter alia, size and complexity of case).

23 The present case is of a much larger size and complexity than the foregoing 24 cases, involving tens of billions of dollars of assets, and claims of more than 13,000 25 creditors. In addition to the sheer size of this case, it is exceedingly complex, based on, inter 26 alia, PG&E's status as a utility company subject to a myriad of state and federal statutes, 27 rules and regulations, and the fact that PG&E continues to grapple with an unprecedented 28 energy crisis.

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On these facts, the additional extension of six months of the plan exclusivity 2

period under Section 1121(c)(3) is both reasonable and appropriate.

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Courts Have Found Cause To Extend Exclusivity Periods In Circumstances Such As These Where The Debtor Has Made Substantial Progress Toward A 4

Successful Reorganization.

5 The legislative history and the case law interpreting Section 1121 have 6

established that exclusivity period extensions are appropriate where the debtor displays some 7

likelihood of a successful, consensual reorganization. Senate Report, at 118, 1978 8

U.S.C.C.A.N. at 5904 ("the granted extension should be based on a showing of some 9

promise of probable success"). Thus, in evaluating whether there is cause for extending the 10 exclusivity periods under Section 1121, courts have examined whether the debtor has made

.11 good-faith progress toward reorganization, including the status of negotiations between the 12 debtor and third parties, which, if successful, would enable the debtor to file a viable plan.

13 See, e.g., In re McLean Indus., 87 B.R. at 834; In re United Press Int'l, 60 B.R. at 269; In re NEW 14 Nicolet, Inc., 80 B.R. 733, 741-42 (Bankr. E.D. Pa. 1987); In re Perkins, 71 B.R. at 298.

15 For example, in In re Pine Run Trust, 67 B.R. at 435, the court granted a 90-day 16 extension of both plan exclusivity periods where "substantial progress had been made in 17 negotiations [between the debtors and the creditors' committee] that, all concede, are critical 18 to a successful reorganization [and] there was no evidence presented that the debtors sought 19 this additional extension in order to pressure their creditors to accede to their reorganization 20 demands"). See also In re McLean Indus., 87 B.R. at.833-35 ("a finding that the debtor is 21 not seeking to extend exclusivity to pressure creditors to accede to [the debtor's]

22 reorganization demands.., and the fact that the debtor is paying its [postpetition] bills as 23 they come due" provided "cause" to extend the exclusivity periods) (citations and internal 24 quotation marks omitted); In re Homestead Partners, Ltd., 197 B.R. 706, 720 (Bankr. N.D.

25 Ga. 1996) (cause exists to extend exclusivity where the debtor has made substantial progress 26 toward gaining acceptance of a plan, recalcitrance of certain creditors has posed a significant 27 hurdle to timely plan development and presence of complex legal issues has occupied much 28 of debtor's plan-making opportunity).

PG&E's MOTION TO FURTHER EXTEND EXCLUSIVITY PERIOD FOR REORGANIZATION PLAN 1

1 As discussed above, PG&E has already made substantial efforts towards a 2

successful reorganization. Indeed, in view of the size and complexity of this case, it is 3

unprecedented that in approximately the first year of this case, PG&E has already obtained 4

approval of the PG&E Disclosure Statement with respect to the PG&E Plan, which enjoys 5

broad creditor support (including by the Committee and other creditor constituencies).

6 Furthermore, there is nothing to suggest that PG&E seeks the requested 7

extensions in order to pressure its creditors to accede to its reorganization demands.6 Rather, 8

PG&E has continued to diligently work the plan confirmation process through a fast track, in 9

an effort to accelerate the resolution of this case for creditors and other interested parties as 10 quickly as possible. The requested extension will protect this process while the PG&E Plan 11 confirmation efforts are concluded, which could take several months.

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13 CONCLUSION.

ICA?" 14 Wherefore, PG&E respectfully requests that this Court enter its Order:

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Determining that notice of the Motion was appropriate under the 16 circumstances; 17

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Granting the Motion; 18

3.

Extending, from June 30, 2002 until December 31, 2002 (or such later date 19 as the Court hereafter may order based upon a subsequent motion filed on or before 20 December 31, 2002), the period during which PG&E maintains plan exclusivity (except with 21 respect to the CPUC) pursuant to Bankruptcy Code Section 1121(c)(3); and 22

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For such other relief as this Court determines to be equitable and just.

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&PAHON A,,,d 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DATED: June 7,2002.

Respectfully, HOWARD, RICE, NEMEROVSKI, CANADY, FALK & RABKIN A Professional Corporation ByARY:. KAPLAN Attorneys for Debtor and Debtor in Possession PACIFIC GAS AND ELECTRIC COMPANY WD 0606021-1419915/999039/v2 PG&E's MOTION TO FURTHER EXTEND EXCLUSIVITY PERIOD FOR REORGANIZATION PLAN 1