ML021750380

Notice of Motion and Motion for Authority to Acquire Information Technology Equipment

ML021750380
Person / Time
Site:	Diablo Canyon
Issue date:	06/12/2002
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: ML021750380 (16)

Text

1 JAMES L. LOPES (No. 63678)

JANET A. NEXON (No. 104747) 2 JULIE B. LANDAU (No. 162038)

HOWARD, RICE, NEMEROVSKI, CANADY, 3 FALK & RABKIN ý1-7'5 2:3,P 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

UNITED STATES BANKRUPTCY COURT 9

NORTHERN DISTRICT OF CALIFORNIA 10 SAN FRANCISCO DIVISION 11 Case No. 01-30923 DM In re 12 PACIFIC GAS AND ELECTRIC Chapter 11 Case

'13 COMPANY, a California corporation, July 2, 2002 HCWIR RIE Date:

Debtor. ""C"ANU Time: 1:30 p.m.

14 Place: 235 Pine Street, 22nd Floor

&*RA.HIN

,-O* San Francisco, California 15 Federal I.D. No. 94-0742640 16 17 18 NOTICE OF MOTION AND MOTION FOR AUTHORITY TO ACQUIRE INFORMATION TECHNOLOGY EQUIPMENT 19

[SUPPORTING DECLARATION OF MARTIN HUNT FILED 20 SEPARATELY]

21 22 23 24 25 26 27 MI 28 MOTION FOR AUTHORITY TO ACQUIRE INFORMATION TECHNOLOGY EQUIPMENT

.LL 1 NOTICE OF MOTION AND MOTION 2 PLEASE TAKE NOTICE that on July 2, 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 Acquisition of 7 Information Technology Equipment (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 Martin Hunt 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 FURTH-ER 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 c 14 Motion and the relief requested herein must be filed with the Bankruptcy Court and served

,P*1*W* 15 upon appropriate parties (inctudipig 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 AUTHORITY TO ACQUIRE IN-FORMATION TECHNOLOGY EQUIPMENT 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 acquire 4 certain information technology equipment, outside of the ordinary course of business 5 pursuant to Bankruptcy Code Section 363(b)(1).

6 7 I. 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.

11 On April 19, 2002, PG&E, together with its parent corporation, PG&E 12 Corporation, filed its amended Plan of Reorganization (as amended from time to time, the "Plan"). The Court-approved Disclosure Statement for the Plan (the "Disclosure HOWARD 13 RKEI q 14 Statement"), along with the Plan, will be mailed to creditors for voting on or after June 17,

• o**15 2002. A Plan confirmation hearing has been set for August 1, 2002.

16 The Plan generally provides for the creation of three new companies, ETrans 17 LLC, GTrans LLC and Electric Generation LLC (collectively, the "New Entities"), whereby 18 PG&E will separate its operations into four lines of business based on PG&E's historical 19 functions. Accordingly, the Reorganized Debtor will continue the retail gas and electric 20 distribution business, ETrans will operate the electric transmission business, GTrans will 21 operate the interstate gas transmission business, and Electric Generation will operate the 22 electric generation business.

23 A. Necessity for Information Technology Equipment Acquisition 24 The New Entities will require various information technology computer and 25 network hardware, software and miscellaneous components (collectively, the "IT 26 27 'The evidentiary basis and support for the facts set forth in this Motion are contained in the Declaration of Martin Hunt filed concurrently herewith.

28 MOTION FOR AUTHORITY TO ACQUIRE INFORMATION TECHNOLOGY EQUIPMENT 1 Equipment") in order to support their business operations. The lines of business currently 2 use over 400 applications that must be separated from PG&E in order for the New Entities to 3 operate independently. Examples of these applications include: (i) the SAP system, which 4 performs many functions, including accounting, materials management, FERC reporting, 5 work management and project tracking; (ii) the capital accounting system, which performs 6 numerous functions, including: tracking depreciation of capital assets, tax accruals, property 7 appraisals, asset accounting and tracking of tangible property for property tax and franchise 8 fee calculations; and (iii) Microsoft BackOffice Systems, which includes electronic mail and 9 calendar, file and print services, user authentication and a desktop management system.

10 PG&E does not have sufficient hardware to implement a separate network to 11 support the New Entities, although PG&E will be transferring approximately 63 servers to 12 the New Entities. In addition to the equipment to be transferred by PG&E, additional IT 13 Equipment will be needed by the New Entities, as described below. The IT Equipment RICE N~xy 14 listed below is the absolute minimum required to split shared applications and to implement

&RAB(2N AP,* =.IdC- 15 an independent network for the New Entities.

16 The IT Equipment includes servers, switches and routers to implement a 17 physically separated network for the New Entities. This will establish: (i) an independent 18 network for both the New Entities and the Reorganized Debtor; (ii) a data center for the New 19 Entities to host application servers, data storage, backup services and network components 20 (the "Data Center"); and-(iii) a supporting structure to allow network authentication (log-in 21 and security functions), file and print capability, electronic mail and miscellaneous other 22 "back office" functions.

23 B. IT Equipment to be Leased or Purchased for the New Entities.

24 PG&E has decided that the IT Equipment should be acquired by lease or 25 purchase (as explained further below) on a consolidated basis. PG&E anticipates that the 26 benefits of consolidated acquisition will include: (i) reduced overall cost through acquisition 27 in larger lots; (ii) reduced maintenance costs by procuring hardware based on a common 28 MOTION FOR AUTHORITY TO ACQUIRE INFORMATION TECHNOLOGY EQUIPMENT 1 standard; and (iii) minimizing time and complexity by dealing with a limited number of 2 lessors and vendors. Also, PG&E believes that obtaining approval for the IT-Equipment 3 acquisition in one motion will facilitate consolidated purchasing by permitting PG&E to 4 proceed with the bidding process without any delay in obtaining piece by piece approvals.

5 PG&E will acquire the IT Equipment through a competitive bid process. The bid 6 proposal will include clauses to allow PG&E the flexibility needed if the separation of the 7 lines of business under the Plan does not occur. For example, PG&E will be able to retain 8 the IT Equipment for its use, or alternatively, PG&E will be able to transfer the IT 9 Equipment to the New Entities once the separation becomes effective. The anticipated costs 10 set forth below represent the maximum amounts that PG&E anticipates spending on the IT 11 Equipment; PG&E will attempt to obtain the lowest possible price through the bidding 12 process.

HOWARD1 13 1. Items to be Leased. The IT Equipment to be leased includes:

SM 14 (a) 97 Servers. Approximately 97 servers will be leased. The servers will be EINK A*.,I.b 15 used to run the various applications that will be needed for the New Entities' business 16 operations, including accounting, human resources and payroll, document management, e 17 mail, security and network access as well as applications that are specific to a business line, 18 such as SCADA (gas control software), DNA (gas and power monitoring system) and the 19 hydro thermal optimizations system.

20 (b) 75 Switches and Routers. Approximately 75 switches and routers will be 21 leased. The switches and routers are hardware devices that will connect every personal 22 computer, application and related computer resources of each employee of the New Entities.

23 The switches and routers will enable functioning of both an internal network and the 24 Internet.

25 (c) Two Storage Area Networks and One Tape Library. Two storage area 26 networks and one tape library will be leased for the Data Center. A storage area network is 27 similar in use to a hard drive and is connected to the network and available for use by all 28 users and systems. The tape library is a system that holds back-up tapes and will be the MOTION FOR AUTHORITY TO ACQUIRE INFORMATION TECHNOLOGY EQUIPMENT 1 primary back-up and recovery system for the New Entities.

2 The total estimated cost for leasing the above equipment for the period ending 2

3 December 31, 2002 is $4.4 million.

4 2. Items to be Purchased. Certain components of the IT Equipment cannot 5 be leased, such as software and miscellaneous equipment. Therefore, the following includes 6 all IT Equipment that must be purchased instead of leased.

7 (a) Data Center Components: This includes components for the site 8 preparation at the facilities for the.New Entities and to support the segregation of 9 components within PG&E's existing data center for the co-located Data Center. These 10 components include: (i) security cages for component isolation in the Data Center; (ii) 11 component racks and wiring for new equipment; and (iii) environmental support equipment 12 to maintain proper environmental conditions (such as temperature, surge protection and fire HOWARD 13 1 control) for all computer hardware.

RKE CANuy 14 (b) Software Licenses: This includes software licenses for software tools that

,.O =- 15 are required by the New Entities, including: (i) anti-virus software for servers; (ii) anti-virus 16 software for workstations; (iii) desktop management tools; (iv) user account migration tools; 17 (v) help desk management and support tools; (vi) server operating systems; and (vii) back-up 18 software.

19 (c) Miscellaneous Components: This includes additional items needed to 20 support the information technology requirements of the New Entities. These items include:

21 (i) back-up tapes; (ii) voice communication circuits; (iii) Internet access fees and software 22 -components to facilitate Internet functioning (such as firewalls and security systems); and 23 (iv) data communication circuits..

24 The total estimated cost for purchasing the above software and equipment for the 25 26 2PG&E will seek further approval for any costs to be incurred after December 2002 in 27 excess of this amount if the Effective Date (as defined in the Plan) has not occurred by that time.

28 MOTION FOR AUTHORITY TO ACQUIRE INFORMATION TECHNOLOGY EQUIPMENT 3

1 period ending December 31, 2002 is $2 million.

2 C. Necessity for Current Approval of IT Equipment Acquisition 3 By this Motion, PG&E is requesting approval for all of the IT Equipment that 4 must be acquired. This will allow PG&E to enter into leases or contracts for the IT 5 Equipment once bids have been accepted, without obtaining separate Court orders for each 6 acquisition. Therefore, PG&E has brought this Motion in advance of the bidding process.

7 It could take several months to complete the bidding process, accept bids, 8 negotiate contracts and obtain the IT Equipment. It could then take several more months to 9 complete the physical installation of hardware, installation of software, configuration of and reliability. 4 10 specific functions and settings, and system testing for functionality 11 Therefore, PG&E believes that the IT Equipment must be acquired promptly in order for the 12 New Entities to be prepared for a timely implementation of the Plan once it has been HOWARD 13 confirmed.

PKI cEx 14 In the event that separation of PG&E's business lines does not occur as

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A,,*.* 15 contemplated by the Plan, the IT Equipment could be used by PG&E to update its existing 16 hardware and software, both to replace aging hardware and software and to accommodate 17 the normal replacement process whereby approximately 20 to 30% of PG&E's equipment is 18 replaced each year as equipment reaches the end of its lifecycle. PG&E also believes that

19. any IT Equipment that is not needed could be sold to recover a major portion of the costs 20 incurred. PG&E will have the right to purchase anry leased equipment (at a reduced price 21 based on the number of lease payments already received) and estimates that most of the IT 22 Equipment could be sold for 60 to 70% of its original value. Nonetheless, PG&E believes 23 that most, if not all, of the IT Equipment could bemused by PG&E as set forth above.

24 25 3 PG&E will seek further approval for any costs to be incurred after December 2002 in 26 excess of this amount if the Effective Date (as defined in the Plan) has not occurred by that time.

27 4 By separate motion, PG&E will be seeking Court approval for consulting services related to the installation, configuration and testing processes for the IT Equipment.

28 MOTION FOR AUTHORITY TO ACQUIRE INFORMATION TECHNOLOGY EQUIPMENT 1 II.

THE IT EQUIPMENT ACQUISITION SHOULD BE APPROVED 2 PURSUANT TO SECTION 363(b)(1) OF THE BANKRUPTCY CODE 3 PG&E seeks approval for the acquisition costs set forth above for the IT 4 Equipment 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 IT Equipment is required in connection with 6 implementation of the Plan, PG&E believes that the purpose and scope of the expenditure 7 may be characterized (at least in part) as outside of the ordinary course of business and 8 therefore requires Court approval.

9 The Court has considerable discretion in approving a request pursuant to Section 10 363(b)(1) of the Bankruptcy Code ("[t]he trustee, after notice and a hearing, may use, sell or 11 lease, other than in the ordinary course of business, property of the estate"). See In re 12 Montgomery Ward Holding Corp., 242 B.R. 147, 153 (D. Del. 1999) (affirming the HOVAMD 13 bankruptcy court's decision to approve expenditure for employee incentive programs, noting RICE cq2'~D( 14 that bankruptcy court has considerable discretion in approving a Section 363(b) motion).

, . 15 In determining whether to authorize a transaction under Section 363 (b)(1), courts*

16 require a debtor to show that a sound business purpose justifies such actions, applying the 17 business judgment test. See, e.g., Stephens Indus., Inc. v. McClung, 789 F.2d 386, 389-90 18 (6th Cir. 1986); Committee of Equity Sec. Holders v. Lionel Corp. (In re Lionel Corp.), 722 19 F.2d 1063, 1071 (2d Cir. 1983); see also 3 Lawrence P. King, Collier on Bankruptcy 20 ¶363.02[1][g] (15th ed. rev. 1998).

21 Once the debtor has articulated a rational business justification, a presumption 22 attaches that the decision was made "on an informed basis, in good faith and in the honest 23 belief that the action taken was in the best interest of the [debtor]." See, e. Official 24 Comm. of Subordinated Bondholders v. Integrated Res., Inc. (In re Integrated Res., Inc.),

25 147 B.R. 650, 656 (S.D.N.Y. 1992) (citing Smith v. Van Gorkom, 488 A.2d 858, 872 (Del.

26 1985)).

27 Here, sound business justifications exist for approval of the IT Equipment 28 acquisitions. PG&E does not have sufficient capacity with its existing hardware to support MOTION FOR AUTHORITY TO ACQUIRE INFORMATION TECHNOLOGY EQUIPMENT 1 the New Entities' hardware requirements, although approximately 63 servers will be 2 transferred by PG&E to the New Entities, thereby reducing the number of new servers that 3 need to be acquired. PG&E believes that the acquisitions described in this Motion represent 4 the minimum necessary to allow the New Entities to commence business operations. Also, 5 PG&E is solvent and has sufficient cash to acquire the IT Equipment without causing any 6 detriment to its creditors.

7 It will take several months to acquire the IT Equipment and complete the work 8 required to install, configure and test the IT Equipment for basic functionality. PG&E 9 therefore believes that the acquisition cannot be delayed until after Plan confirmation 10 without jeopardizing PG&E's ability to timely implement the Plan.

11 Finally, PG&E would be able to utilize the IT Equipment to replace its own 12 outdated equipment in the event that the business. lines are not separated into the New HOWARD1 13 Entities as contemplated by the Plan. PG&E could also recover a significant portion of its

""CAT 14 costs by selling any IT Eqjuipment that is not needed.

A~~15 16 17 18' 19 20 21 22 23 24 25 26 27 5 As reflected in PG&E's April 2002 Monthly Operating Report, PG&E held more than

$4.5 billion in cash reserves as of April 30, 2002.

28 MOTION FOR AUTHORITY TO ACQUIRE INFORMATION TECHNOLOGY EQUIPMENT 1 CONCLUSION 2 For all of the foregoing reasons, PG&E respectfully requests that the Court 3 approve the IT Equipment acquisition and grant such other and further relief as may be just 4 and appropriate.

5 6 DATED: June 12, 2002 Respectfully, 7

HOWARD, RICE, NEMEROVSKI, CANADY, 8 FALK & RABKIN A Professional Corporation 9

10 By:

(JULIE B. LANDAU 11 Attorneys for Debtor and Debtor in Possession 12 PACIFIC GAS AND ELECTRIC COMPANY HOWARD 13 WD 061102/1-1419905/995960/v2 RKIE cNwDx' 14

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,.o* . 15 16 17 18 19 20 21 22 23 24 25 26 27 28 MOTION FOR AUTHORITY TO ACQUIRE INFORMATION TECHNOLOGY EQUIPMENT 1 JAMES L. LOPES (No. 63678)

JANET A. NEXON (No. 104747) 2 JULIE B. LANDAU (No. 162038)

HOWARD, RICE, NEMEROVSKI, CANADY, 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 UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF CALIFORNIA 10 SAN FRANCISCO DIVISION 11 In re Case No. 01-30923 DM 12 PACIFIC GAS AND ELECTRIC Chapter 11. Case HA RK- 13 COMPANY, a California corporation, Date: July 2, 2002

' 14 Debtor. Time: 1:30 p.m.

&Rk< Place: 235 Pine Street, 22nd Floor 15 San Francisco, California Federal I.D. No. 94-0742640 16 17 18 DECLARATION OF MARTIN HUNT IN SUPPORT OF MOTION FOR AUTHORITY TO ACQUIRE 19 INFORMATION TECHNOLOGY EOUIPMENT 20 21 22 23 24 25 26 27 28 DECLARATION OF MARTIN HUNT

1 I, Martin Hunt, declare:

2 1. I am employed by Pacific Gas and Electric Company ("PG&E"), the debtor 3 and debtor-in-possession in this Chapter 11 case. I am the project manager for the 4 acquisition of information technology equipment in.connection with the implementation of 5 PG&E's proposed Plan of Reorganization (as amended from time to time, the "Plan"). This 6" declaration is submitted in support of PG&E's Motion for Authorization to Acquire 7 Information Technology Equipment (the "Motion"). Defined terms used herein shall have 8 the meanings set forth in the Motion. I make this declaration from personal knowledge and 9 if called as a witness, could and would testify competently to thle matters set forth herein.

10 2. The New Entities will require various information technology computer 11 and network hardware, software and miscellaneous components (collectively, the "IT 12 Equipment") in order to support their business operations. The lines of business currently HoVAR 13 use over 400 applications that must be separated from PG&E in order for the New Entities to RICE ..

NE, uy 14 operate independently. Examples of these applications include: (i) the SAP system, which RAMl(

&RANON

-15 performs many functions, including accounting, materials management, FERC reporting, 16 work management and project tracking; (ii) the capital accounting system, which performs 17 numerous functions, including: tracking depreciation of capital assets, tax accruals, property 18 appraisals, asset accounting and tracking of tangible property for property tax and franchise 19 fee calculations; and (iii) Microsoft BackOffice Systems, which includes electronic mail and 20 calendar, file and print services, user authentication and a desktop management system.

21 3. PG&E does not have sufficient hardware to implement a separate network 22 to support the New Entities, although PG&E will be transferring approximately 63 servers to 23 the New Entities. In addition to the equipment to be transferred by PG&E, additional IT 24 Equipment will be needed by the New Entities. The IT Equipment listed below is the 25 absolute minimum required to split shared applications and to implement an independent 26 network for the New Entities.

27 4. The IT Equipment includes servers, switches and routers to implement a 28 physically separated network for the New Entities. This will establish: (i) an independent DECLARATION OF MARTIN HUNT 1 network for both the New Entities and the Reorganized Debtor; (ii) a data center for the New 2 Entities to host application servers, data storage, backup services and network components 3 (the "Data Center"); and (iii) a supporting structure to allow network authentication (log-in 4 and security functions), file and print capability, electronic mail and miscellaneous other 5 "back office" functions.

6 5. PG&E has decided that the IT Equipment should be acquired by lease or 7 purchase (as explained further below) on a consolidated basis. PG&E anticipates that the 8 benefits of consolidated acquisition will include: (i) reduced overall cost through acquisition 9 in larger lots; (ii) reduced maintenance costs by procuring hardware based on a common 10 standard; and (iii) minimizing time and complexity by dealing with a limited number of 11 lessors and vendors. Also, PG&E believes that obtaining approval for the IT Equipment 12 acquisition in one motion will facilitate consolidated purchasing by permitting PG&E to in obtaining piece by piece approvals.

13 proceed with the bidding process without any delay RI'E14

&R~INK

6. PG&E will acquire the IT Equipment through a competitive bid process.

. 15 The bid proposal will include clauses to allow PG&E the flexibility needed if the separation to 16 of the lines of business under,the Plan does not occur. For example, PG&E will be able 17 retain the IT Equipment for its use, or alternatively, PG&E will be able to transfer the IT costs 18 Equipment to the New Entities once the separation becomes effective. The anticipated IT 19 set forth below represent the maximum amounts that PG&E anticipates spending on the 20 Equipment; PG&E will attempt to obtain the lowest possible price through the bidding 21 process.

22 7. The IT Equipment to be leased includes:

23 a. Servers. Approximately 97 servers will be leased. The servers will be used to 24 run the various applications that will be needed for the New Entities' business operations, 25 including accounting, human resources and payroll, document management, e-mail, security 26 and network access as well as applications that are specific to a business line, such as 27 SCADA (gas control software), DNA (gas and power monitoring system) and the hydro 28 thermal optimizations system.

DECLARATION OF MARTIN HUNT 1 b. Switches and Routers. Approximately 75 switches and routers will be leased.

2 The switches and routers are hardware devices that will connect every personal computer, 3 application and related computer resources of each employee of the New Entities. The 4 switches and routers will enable functioning of both an internal network and the Internet.

5 c. Storage and Tape Library. Two storage area networks and a tape library will be 6 leased for the Data Center. A storage area network is similar in use to a hard drive and is 7 connected to the network and available for use by all users and systems. The tape library is 8 a system that holds back-up tapes and will be the primary back-up and recovery system for 9 the New Entities.

10 8. The total estimated cost for leasing the above equipment for the period 11 ending December 31, 2002 is $4.4 million.

12 9. Certain components of the IT Equipment cannot be leased, such as software 13 and miscellaneous equipment. Therefore, the following includes all IT Equipment that must RCE jNEMROV'5q(

uq1kn* 14 be purchased instead of leased.

Ft*K

, 15 (a) Data Center Components: This includes components for the site preparation at 16 the facilities for the New Entities and to support the segregation of components within 17 PG&E's existing data center for the co-located Data Center. These components include: (i) 18 security cages for component isolation in the Data Center; (ii) component racks and wiring 19 for new equipment; and (iii) environmental support equipment to maintain proper 20 environmental conditions (such as temperature, surge protection and fire control) for all 21 computer hardware.

22 (b) Software Licenses: This includes software licenses for software tools that are 23 required by the New Entities, including: (i) anti-virus software for servers; (ii) anti-virus 24 software for workstations; (iii) desktop management tools; (iv) user account migration tools; 25 (v) help desk management and support tools; (vi) server operating systems; and (vii) back-up 26 software.

27 (c) Miscellaneous Components: This includes additional items needed to support 28 the information technology requirements of the New Entities. These items include: (i) back DECLARATION OF MARTIN HUNT

1 up tapes; (ii) voice communication circuits; (iii) Internet access fees and software 2 components to facilitate Internet functioning (such as firewalls and security systems); and 3 (iv) data communication circuits.

4 10. The total estimated cost for purchasing the above software and equipment 5 for the period ending December 31, 2002 is $2 million.

6 11. It could take several months to complete the bidding process, accept bids, 7 negotiate contracts and obtain the IT Equipment. It could then take several more months to 8 complete the physical installation of hardware, installation of software, configuration of 9 specific functions and settings, and system testing for functionality and reliability.

10 Therefore, PG&E believes that the IT Equipment must be acquired promptly in order for the 11 New Entities to be prepared for a timely implementation of the Plan once it has been 12 confirmed.

occur as HOVM 13 12. In the event that separation of PG&E's business lines does not "ICX 14 contemplated by the Plan, the IT Equipment could be used by PG&E to update its existing

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, 15 hardware and software, both to replace aging hardware and software and to accommodate 16 the normal replacement process whereby approximately 20 to 30% of PG&E's equipment is 17 replaced each year as equipment reaches the end of its lifecycle. PG&E also believes that 18 any IT Equipment that is not needed could be sold to recover a major portion of the costs 19 incurred. PG&E will have the right to purchase any leased equipment (at a reduced price 20 based on.the length of time that the lease has been in place) and PG&E estimates that most 21 of the IT Equipment could be sold for 60 to 70% of its original value. Nonetheless, PG&E 22 believes that most, if not all, of the IT Equipment could be used by PG&E as set forth above.

23 24 25 26 27 28 DECLARATION OF MARTIN HUNT 1 I declare under penalty of perjury of the laws of the United States that the 2 foregoing is true and correct, and that this declaration was executed at San Francisco, 3 California on June 12, 2002.

4 5 MATIN fUT 6 WD 061102/1-1419905/1002317/vl 7

8 9

10 11 12 13 14

,15 16 17 18 19 20 21 22 23 24 25 26 27 28 DECLARATION OF MARTIN HUNT