ML022610323

Notice of Motion & Motion for Authority to Incur Additional Miscellaneous Implementation Expenses; Memorandum of Points & Authorities in Support Thereof

ML022610323
Person / Time
Site:	Diablo Canyon
Issue date:	09/12/2002
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: ML022610323 (24)

Text

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-NORTHERN DISTRICT OF CALIFORNIA In re PACIFIC GAS AND ELECT]

COMPANY, a California c6rp Debtor.

Fedeial I.D. No. 94-0742640 SAN FRANCISCO DIVISION

- Case No. 01-30923 DM R1C Chapter 11 Case

)oration,,

Date:

October 2, 2002

,Ti me:

9:30 a.m.

-Place: _235 Pine Street, 22nd Floor San Francisco, California "NOTICE OF MOTION AND MOTIONFOR AUTHORITY TO INCUR ADDITIONAL MISCELLANEOUS IMPLEMENTATION EXPENSES; MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF

[SUPPORTING DECLARATIONS 'OFM. KIRK JOHNSON, LANCE MAEDA, MICHAEL MEKO, STEPHANIE MAGGARD AND JUNE RUCKMAN FILED SEPARATELY]

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06 I MOTION FOR XAfHORITY TO INCUR ADDITIONAL MISCELLANEOUS IMPLEMENTATION 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, 7thFlo6ir" San Francisco, California 94111-4065

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Telephone:

415/434-1600 Facsimild:

415/217-5910 Attorneys for Debtor and Debtor in Possession PACIFIC GAS AND ELECTRIC COMPANY U

SR UNITED STATES BANKRUPTCY COURT 3

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, ",TABLEOF CONTENTS "Page 3

NOTICE OF MOTION AND MOTIN 1

4 MEMORANDUM OF POINTS AND. AUTHORITIES 2

5 I.

-,FACTUAL BACKGROUND..

2 6

A.

GTrans Business Processes.

,3 7

1.

Credit Evaluations (Cost Estiniat e$40,000) 4 8

2.

Vi7tu'l:-lerihg.(Cos-t Estimate-$ 140,600).

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9.

B.

Reorganized Pg&E-Business Processes.,

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1.,.' :Sotre.Lic~nses and Related-Expenses (Cost Estimate-$9,200).

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Stock Option Management (Cost Estimate-$25,000).

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New Entity Busin es-sProcesses.

7 HOWAR 13 S

e--$i, NTMU,-

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Human Resources Software (Cost Estimat 5

7 FAIN" 14 AWN

2. _Banking & Money Management (Cost Estimate

"- "--15 1"*

$195,800).

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3.

Electronic Data Interchange (Cost Estim~.te---$90,000):..-

11 17 4...-Proctirerrient Management,(Cost.Estimate-$270,000).

11 18 5.:' Accounting Processes and Procedures (Cost Estimate

$1.5million).

13 19 D.

General ImpltementationExpenses 16 20 21.1.'.I.;TransdctionalAgreements and Schedules (Cost 16 21 Estimate-$257,000).

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Permit and Franchise Application Fees (Cost Estimate

$3 million).

17 23 24II.

THE ADDITIONAL MISCELLANEOUS IMPLEMENTATION

24 EXPENSES SHOULD BE APPROVED PURSUANT TO "SECTION 363(B)(1) OF THE BANKRUPTCY CODE 19

" 25 -

CONCLUSION 21 "i 6 27 28 MOTION FOR AUTHORITY TO INCUR ADDITIONAL MISCELLANEOUS IMPLEMENTATION EXPENSES

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TABLE OF.AUTHORITIES

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CA' 14

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16 Committee-of Equity Sec. Holders v:Lionel-Corp.J(WnreLionel Corp.), 722.

F.2d 1063 (2d Cir. 1983)

In re Montgomery Ward Holding Corp., 242 B.R. 147 (D.'Del. 1999) l 1

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Official Comm. of Subordinated Bondholders v. Integrated Res., Inc. (In re

-Integrated Res.,Inc.),' 147 B.R. 650 (S.D.N.Y.41992)-.

Smith v. Van Gorkom; 488 A.2d'858 (De1.,1985)\\,, !,'

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Stehens Clting789T.2d'386

-6thCir~l 986).:

Ste-pbe.s Inu.

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4-Banldrptcy Code

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§363(b)

§363(b)(1)

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Rule '014-1(c)(2) 6f the BankruptcytLocal Rules for-the Northern District of California

':Oher Authorities -

f 3 Lawrence P. King;'Collier on.Banlruptcyv ¶363.02[,1][g] (15th ed. rev.

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1998) 4*.

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-I, MOTION FOR AUTHORITY TO INCURADDITIONAL MISCELLANEOUS IMPLEMENTATION EXPENSES 1 2

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£ NOTICEMOF MOTION AND MOTION PLEASE TAKE NO.TICE that on October 2;-2002 at 9:30 a.m., or as soon thereafftr as. the matter may be heard in the Courtroom of the Honorable Dennis Montali, lboated'at,235-Bine'Street, 22ndr]Floor; San Francisco, California, Pacific Gas and Electric Company, the debtcirfand debtor, in. possession in the above7captioned,.Chapter 11 case

("PG&E"), will and hereby does move the Court for entry of an Order Authorizing Additional Miscellaneous Implementýtion Expenses (the "Motion").

This Motion is

-sed on. this Notice of Motion ahd Motion, the accompanying Memorandum" ofPoint§ and Authorities, the Declarations of M. Kirk Johnson, Lance Maeda,

.Michael Meko,.Stephanie Maggard and June Ruckman, filed concurrently herewith,, the record of this case andrany evidefice presented at or prior to.the. hearing on this Motion.

PLEASEo,-AKE, URTfIER NOTICE that pursuant to Rule 9014-1(c)(2) of the Bankruptcy Local Rules for the.Northem District of California; any written'oppositioni to the Mbtion and the rrelief requestedherein, must.be filed with the Bankruptcy Court and served upon appropriate partiesz(includinfg-.cQunsel forPG&E, the Office of the United States Trustee and the Official Committee of Unsecured Creditors) at least -five (5) cays prior to the scheduled, hearing datef,'Ifth're~is no timely objeqtion to the~requested relief, the Court may eniier an order granting-sucit relief without-further hearing.

r MOTION FOR AUTHORITY TO INCUR ADDITIONAL MISCELLANEOUS IMPLEMENTATION EXPENSES I I

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-MEMORANDUM O1I POINTS AND4AUTHORITIES "Pacific Gas'and Electric Company; the debf6r and deb*tt iii possession in the

'above-captioned Chapt r-1f dcise.("PG&E'"), requests:ah order.authorizing PG&E to incur additiorial misd'ellaneous, expenfses related toi'mplemhentataion'of PG&E' s proposed,Plan of 1Reorganization, pfrsuint toBanl uptcy Code Sectioft363(b)(.1)

"FACTUAL BACKGROUND -.

PG&E filed Avountai'y petiti"n for reliefihder.Ghaptd. 11.of-the Bankruptcy Cd'onAjpril 6,-2001. -A tristee has'not.been appoiinted; and.PG&Econtinues:tofunction as &debtio-ii-po'ssession pursiuant to Seoticins" 107.andS11081of.the BankruptcyCode.

PG&E,-,tbgeth* with"itparentetorpbiiti;iPG&E Corporation, has proposeda Pla,n~f "r

6oganiiation (as am-iidrd.fr6*a'timetto6Aiie,T the 'TPlar*'), which has recently been

• voted on by'cfddit6is; along with the e6ofrpeting'plih':of-reo'rgafiiiz'tibf proposed bythe".

Caiiforniai Public Utilities Comifsssidn.* The confirmation hearing has-been'schedpled to '"

-commence on'N0vehber12, 2002::

-Th6ePlahii generally provides fdf thbe:reati6n-crf three new companies, ETrans LGC, GTrins LLC and Eletric Generation-LC '(collectivelyv the '."New.Entities"),,wyhereby 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 business, ETrans LLC will operate the electric transmission business, GTrans LLC will operate the interstate ga~s transmission business, and Electric Generation LLC will operate the electric generation ""usi ess PG&E previously filed and obtained orders approving 11 moions seeking authorit to"incur costs related t-iiipleiihentatibn bf the Plan.:hIfi the Motion for Authority to Incur Information Technology Con'sulting Expenes'and the accompanying Declaration of Stephafiie Maggard (the "Maggard Declaration"), filed on July;23, 2002, PG&E identified additional implementation projects that will need to commence before the Plan is confirmed MOTION FOR -UTHORITY TO INCUR ADDITIO0NAL M1I-SCELLAN_ EOUS IMPLEMENTATION EXPENSES I'

1 th6 "Iinplemerifation Projects") and estimated that the total expenses for these 2

Implementation Projects' will range from $10.8 to $1,7.8 million. In the Motion for Authority 3

to Incur Miscellaneous'Implementation Expenses ("Miscellaneous Motion") filed on 4

Aifgust 15, 2002, a-portion-of theImplementation Projects.were covered for a total estimated 5

7cost of $1,397,180.; This Motion-coie'rs additional Implementation-Projects for a total S6-estimatedd'ost of $5,602,810 '.ri.

7 As explSaified in the: supporting declarations, the cost estimates set forth herein are 8

bas'ed on PG&E's initial scaoping of the,project requirements and-negotiations with the "9" consultahts Who -ohdvIe been selected to performthemwork (or preliminary discussions with the 10 potential cohsultants'; as nofed below).,, For each, of the consulting firms, PG&E's standard 11 contractual provisions iný plaee'.;,;ith~these.firmns (orto.be included in, any contracts to be "11 'executed hereafter.)'d6 not guarantee future work or any minimum amount of revenue.

13-PG&E-'vrill also'maintdin the right to terminate the work at any time without cause, in which HOVCAM 1"ý f 4" 'cas'ePG&E'is liable only for work.1erformed to the, date of termination plus costs

&RAZGN 15 reasohably'inciirred bythe-consultant.in terininating any work in progress. There are a few 16 exceptions, howvever, wherePG&E has been unablb to obtain the s-erviceslwjthout paying an 17 initial set-up or flat fee, which. cannot be.recovered if the worlc.is subsequently terminated.

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`Tlies& exceptions have been described.below, where applicable. In addition, the software 19' 'licenge fees~dekcribed below ifivolve one*time, charges that.cannot)be recovered if the work 20 is subse4uently-terminated;,,

21 22 A.

GTRANS'BUSINESS PROCESSES.2 23' The following projects'relate to the business.requirements of GTrans LLC 2PG&E anticipates filing one or more motions in October to cover additional Implementation 25 Projects not covered in the Miscellaneous Motion or this Motion. Also, certain projects desbribed herein involve work that PG&E has decided can wait until Plaf conafirmation to commence, but will 26 need to commence immediately thereafter. Where theseprojects have been included herein, it is noted that the expense will hiotbe inicurred until iiii-nediatelI after Plan confirmation.

27" 2 The facts set forth in'thi S-ection A are 9tipported by the Declaration of M. Kirk Johnson

'.filed concurrently herewith.

28 MOTION FOR AUTHORITY TO INCUR ADDITIONAL MISCELLANEOUS IMPLEMENTATION EXPENSES I

1

("GTtnhs"), the New Eniiti-that will'operate the interstategas.trarjsmqission-.

line of business.

'3

" Credit Evaluitions (Gost EBifiae- $40,00).

4 GTrans -will require credit evaluations, to.beperformed for approxima~ely 80 5 "customers Who h~ld Qualifying Facilities-("QF",agreements-,w.ithPG&E.,Xnder.the terms 6

.of the QF agreements, PG&E purchases electricity froýmQF customers;,-PG&E also, provides

" 7-QF custb niefs with gas+'and electric~trinsmission services.,, PG&E curently may offset 8

payments to 'the QF.customers (for'electricity puirchased

.from them)Nyith amounts due from 9+ the QF cust61'ners (for gas and electiic transmission seryices); TJe'abilityto offset payments 10

-is' i consideration in determininig the'creditworthiness of, these QF customers.

11'+

' '-, Upseparation from P.G&E~IGTrdnswill provide gas.transmission seryices to 12 -'the QF ctitomersbtit'will not buy electricity fromlthem..and therefore not have. the ability to HOAD 131 'offset desciihbed 'ab6ve. -AccordinglyjtheQF.custoilers. must be.eyaluated to ensure their "CMUa 14,;

creditwotthines§.This w ork must'be compltedprior~to.the'Effectiye Date under the Plan IUK 15

'(the "'Plan Effective -Date") in -order for:GTrails to comnmenCegas transmission services to 16 Ahese customenrs after'the Plan Effective Date:. -PG&E'intepds to conduct the credit 17 ev*,luitioris immediately after thePlan isconfirmed-in' order.to allow sufficient time to 18' complete the evaluation process; as well -as the drafting andexecution f any necessary co n l t

a d e e ut o f a 19 crtedit instrumffents; in advance of the Plan-Effective Date,-- PG&E 'is seeking approval of.this 20' epense nowto~avoid any.delay in commencing this workiimmediatelyafter Plan 21 "confirmation. cIn the event that the Plan is not confirmed, this work will not be performied.

22 PG&E has selected a management consulting and engineering firm, ESS 23 Consulting, to perforni the credit-evaluations:.The cost -for this work will be approximately 24

$40,000.

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.;2.' ++' irtuaiMe~t~ing (Cost Estimate--$140O+000)-.. '

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-+"+.

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'After the Plan Effectiye Date, GTrans will be a gas transmission business and 28' PG&E will be one of its customers:for gas deliveries..In order t°o bill PG&E for+gas MOTION FOR'AUTHORITY TO INCUR ADDITIONAL MISCELLANEOUS IMPLEMENTATION EXPENSES

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-11 137 HOWARMD13 f 8 19 20 21 22 23 24 25 26 27 28 deliveries, GTrlans will need to *measure the quantity of gas delivered to PG&E. Currently, the over 5,000 interconnection points between what will be the GTrans gas transmission system and the PG&Ej gas distribution system are not metered. In view of the large number of iiiterc6rriection.points, it is, not economically feasible to install.meters.

.. :... Therefore;.nstead of meters, the gas deliyeries will be'measured pursuant to a

¶'iirtualmetering" niethodol6gy;*which1 ha's been proppsed.pursuant to the Metered. Quantity Determination Agreement (ý'lAQDA").. As, part of PG&E's applications filed on November 30, 2001 with thie Federal:Energy Regulatory Commission ("FERC') to, approve the transactions contemjplat&d, by.the Plan, PG&EE'filedthe proposed MQDA and requested FERC~s approval:ffnr its~viiiu l meteringmethodology......

In order to create.this-virtual metering; a new database will be. developed to serve as' the central data irep sit6ry for MQDA gas-,delivery'information. The databasewill e,.

used to-calculate and proyide a record of GTrans' gas deliveries to PG&E, and,will bI the sole source of information abo.utthese gas'deliveries. It is estimated that the process of designing'and de'.eloping thee riew'database will take approximately three months.

Following'the deveilpmend'of the database,, PG&E iequires aidditional time to test the database ihi advance of.thePliri Effective Date.;,

PG&E has seicted two, applications developers.from Blackstone Technology, Group to design,'deveiio.arid implement'the new database, working, with PG&Ebusiness and systems analysts., Blackstone Technology Grqup is a consulting firm specializing in utility application solutiohs. PG&E estimates that this project will cost approximately

$140X000.

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REORGANIZED PG&E BUSINESS PROCESSES.

4 PG&E has identified several projects related to the business, operations of' Reorganized PG&E (refe*rid to herein as PG&E), as described below, to be completed by or in advance of the Plani Effective Date. All of the work described below is necessary to establish important PG&E buisiness processes'that'need to be developed as a result of the MOTION FOR AiUTHORITIý TO INCUR ADDITIONAL MISCELLANEOUS IMPLEMENTATION EXPENSES 1i 'separatioh conteamplted Wthe Plan.

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Software Licenses Aftc1 Relaied -Expenses (Cost-Estimhte-:-$9.200).3 4

rufrently,,PG&E Corporation provides cettaffi 'ervices to PG&E utilizing soft 5

~war.eprodufcts hat'are lhensed by PG&E Corpotation.. ':Aa iesult'of the separation under "the PlanPG&E m-ust purchas~eaid install seVeral software produ6ts so-that.it~will be able to 7

perform these fulnctioisintemally. The'otal costs-fcr th'e'se software licenses and related S8 "'t~ihiing and suipport services is approximately:S9,200.'.

Tte tyeg dfsoftwatepeiietises that PG&E will.need to purchase include:

10 (i) s'oftware used to track 'employe&contributions to PG&E's political'action committee; "11 ii)isoftwar6 used t6 niaiiage PG&E's pehision &nd~peifsion benefits funds; (iii) software used 12 : i6 t i"i" PG&E emplo6ees over'the Intemet 6nd-liisines'i ethicsand compliance with legal and HOCWRD 1n regulatory requirements' (iV):softfvre'used tohtack risk managerent and insurance, 14 requim s; A (v)software 'ised f6r tax return'prep ation'and ta-"s-lutions.

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-T h foreg6ing softivare licenses muisi be'purchased.promptly, to allowfor time to 16 "install and configure the `s6ftw"de a:s part of a pai'ticulhrbusiness system or set of business 17 processes, to test the installation, and,.in some cises;to'c onvert existing data or create sepa 18

'rite databa'ses to accouritfor the separation 6f-PG&E fr6m the New Entities. -Also, PG&E 19 reqiiires-additional time to provide inistrictiri and train'ing to.the employees who-willbe, 20-iisint fie arious s6ftware pir6diits.>

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Stock Option Management (Cost Estimate-S25,000).

23 PG&E Cofporation cuiiently administers'a stock option plan for PG&E 24" employ'ees who'holdioptontpurchase. P.G.&.E Clrportion stook. Pursuantto the Plan;

"'245 em ployees who'hbla'...... --r..-v p.u

§eQE:rpra n

-25' 'plo.y.esw..

6-h old 6ptniosn to pufrchase PG&E Corporatioih stock will also be granted 26 27 "3The racts set fdrth ii{ thi f lSecti~nB.1 "ad-Sectioii B.2below 6re supported by the Declaration of Lance Maeda filed concurrently herewith ("'Maeda Declaration").

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-MOTION FORAUTHORITY TO INCUR ADDITIONAL MISCELLANEOUS IMPLEMENTATION EXPENSES

'1 - otibfn§ to purchase PG&E stock, which will be publicly traded after thePlan Effective Date.

' 2' Therefore, PG&E will require ý new: PG&E stock option plan, which it will administer for 3'

,'all indiidlal-who ar66 granted PG&E stock options.

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-. PG&8 has selected.Sailoiion Smith Barney, a member of Citigroup.("Sa1omon"),

5 to develbpa asystem-for adminisei'ing the new stock optiori plan.,Salomon provides,.

6' '.&orporitions-with'a range. of'orporate financial services; including stock option plan, 7-services. The process of developing and iriplementing the:new, stock option pjan is 8'

expected t6take apiproximately threemonths.. Specifically, Salomon will: (i) design and 9

develop a system to'administerthe: stock option plan*,including, the. online access features, 10'

'(ii) install and testthd sy steti, (iiiy set up accounts for option holders,,and (iy) de4velop a 11 -%6mmunication plan to-inforra option holders on how to usegthe new system.- All of these "12- -tasks must be comfpleted bythe PlanEffective Date, since'9ption holders may wish to 13 eercise their o3ptiohs immediately after the Plan Effective Date.,:..

14 Salomon will prcvNide these services to PG&E for. a cost of approximately 15-

$25,000. -This cost ihicludei ýin initial -set-up. fee of $5,QO;O.which PG&E will be required to 16 payeven if-the project is cancelled before. completion..

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NEW ENTITV BUSINESS PROCESSES.,

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PG&E hasidentified severalprojects.related to. the b'4siness operatipns of all of 20 the New Entities, described below, which must be completed.by or.in.advance qf the Plan 21

".Effective Date; 22 K

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H 11H'ima'n Ris'ourcs'Software (Cost Estimate--$75.810).4 24 PG&E has identified a number of software tools that are critical for the human 25 resources functions required by the New Entities. PG&E requests authorityto purchase the 26

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)4The facts set forth in this Section C. 1 and Sections C.2 and C.3 below. are supported by the 28 Mada' Declaration.

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MOTION FOR AUTHORITY TO INCUR ADDITIONAL MISCELLANEOUS IMPLEMENTATION EXPENSES 1

follow'ig itemsofsoftx ar'.flow in order.to illow suffic'iift time tq,obtain the software, as 2'

asoistall,configure and test it sdthat all critical human resoulrces functions will be in 2'

'W611 as to" "isal-cni e and

-t I.

'3 place for the New Entities b*, the Plan EffectNie Date. PG&E:will~obt*?4:the necessaiy; 4

1 ý6ftwhre Iic'nses bui thelicenses willbe transferable to the New Entities upon the Plan.

5 -Effective Date. Ifthe Plan is-notconfirmed,PG&E.antioipates :that it will,-be ableto use all 6 *bf tlfe'sbftWare tools described below, which repreqent current (and.tljerefore upgraded) 7 ersiofls of software already-in use by PG&E.5.

.. -i-, "

S8"-

"' ai.'Random Drug Testif

'."Heidi/Assistant",is a softwvareo.ol,currently Used by

",91 PG&E to'inanage random drugtesting of certain classes, of employees in order tocoiply 10' 4*iti Depattmenft of Transportation.regulation-._;'The New Entities will also besubjecl to.the

11 ]

Departmenit.of Transportation regulations 'requiring certain classes ofemployees to be 12' raidoriily drag-tested. Therefore-PG&Eintends'to purchase, asimilar softw.areicenxse-for 13 the Neiv Entities frofn'Com-lianie -Inforrfiati'n, Systems -for approximately,$6,,590 AhiqJ

"%.,.', 14 "ificludes'the'softwire and sup 6rt for 2j00.tests, per.year. :-

15 bUAffirrati 6eAtidn P*in:., "'Great AAIRt is.a software tool-current!y usede-by-16 PG&E tocreate and manage affirnr*ti Ve actionmplahs to complywith-state and federal C:

17 regulations. The New Entities will also require this tool to manage their affirmative action 18 plans. PG&E intends to purchase this so~fwairej icense from Berkshire Associates, Ific..for 19 approkiimately $2;995,,which iricludes the-Great AAP Master Edition Single License and one

• 20 -'y-af of technical siu"

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21 c.' Training'Managemeit: "'Training Server" is a software tool curr tly,used by 22 PG&E to manage training classes,-training class enrollment and employe!e training records.

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'It is 6uheiatly-thesolerepository for PG&E-employee training records. These traininig 24 25 5PG&E previously obtained auihoritý' 6 incur c6nsulting expenses for PeopleSoft's implementation of a human resources management system for the New Entities., In addition, PG&E 26*

previously "obtainied authority to incur expenses related to additional human resouice information technology applications, including -applications related to aiiErfiployee Assistance Program, Salary 27

-Planriinfg.aiidthe Test Results Tracking Database;: The software identified in this:Motion relates to additional human resource requirements that have not been covered in the previous motions.

28 MAL E

MOTION FOR AUTHORITY TO INCUR ADDITIONAL MISCELLANEOUS IMPLEMENTATION E' )2"ENSES 1

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""Od 15-i 18"7 f 8' "20 21 22' "23' 24 25 26 27' 28 certifidatiorfs are necessary to' ensure that employees can continue to safely perfom their

'jobs' hnd-operate certain specidlized equipment. Therefore, the New Entities will require this

ý- bftwlre" tobl, to ttrck-empldyee training records,as well,, including the records for current PG&E eemiploy7ees' who.mayworlkfor.the New Entities. PG&E-intends to purchase this, softwvdre lic'ise-from.THINQ Leaihing Solutions Inc.- for approximately $20,000., In

additionw:THINQwill.provide;installation,',configuration and testing for this software'at a cost of approximately $40;000..-'*

-',',:,Einployee Testing:. 2'Scan.Tools" is a software-tool currently used by PG&E

- to" ot~eiate aSbubble'card s~aiiner (used to score pre-employWent and employee tests). This

• testing'i§r*r'iired to:ensiure" that employees inspecificjobs can continue to perform the

• frquired job' functioni. Theref6re the New Entities will: also require this software tool to "1conducttestirig for'new aid contintling, ermployees. In addition,,"EEI Scanner Software" is "curientIly used by PG&E-iii conjunrction with the Scan-Tools softWare, to, score employee tests. The New Entities will also. require this software in order to,score employee tests.

PG'&E initends to purehase-thESchnTools software license-from NCS Pearson for

,;ipproxifnately $1-,725and'the EEI Scanner Software from, the Edison Electric Institute for "a" rximatel'$4,5 pp *

.I.

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B:

'!fankifig',& Mohey Mhanagement (Cost Estiinat&--$195,800).-.

,By thePlan Effective Date, the NewrEntities will, require certain software and i~S6 iformiatioin technology *iplications to handle banking and money management services.

Th-eefore; PG&E intends to purchase licenses for certain specialized software products, which must be installed and tested for use byr the New. Entities;; In addition, existing banking

"* 'PG&E prevIously' obtaifned'approval for approximately $32,400 in expenses related to technical writers' and programmer analysts who are assisting with documenting and installing certain applicationsrelated to banking and money managefhient a~s wellas tax, legal compliance and..

business ethics (sge Motion for Atithority to Incur Information Technology Consulting Expenses approved by Order entered on August 21, 2002). The present project involves specialized banking and money management software that was not covered in the previous motion.

MOTION FOR AUTHORITY-TO INCUR ADDITIONAL MISCELLANEOUS IMPLEMENTATION EXPENSES I

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ý9 10" 12 HOD13 RKE

"'CANU 14"'

AO 15 1f6 17 18 19 20 21 22 23 24' 25 26 27 28 a.nd Imoneymnan.agem&eiitda Ifnust Ibe sepaiated from1PG&E~and'transferred to the rCppljchtjons to be used by the-New" Entities. The bahldng' and,money~ma~nagement projects "dese~iibe-d lbel6w are xpei~ted io take ap~roiximately three'to'fourrnioxiths to 6pxhplete', which 3:ihcljde's th6 S'ofwaintlaoi s'wlashe.separatidn and transfer of data, a?' Cash-Mnagaenient Soft'&are-and Related S&V~ices.~ P&E, currently lidpnses Resure Q oft~vaiie, 'which it us'eito m'anageits dailycash~positij~n -and to~record banking transaction's to the general ledger ac66unting sy'stiem. ý'Therefore', for the New Entities" PG&'E initends to pu~rchite'as'im~ilar lice-nie from Sunguatd.Tre~as -urySystems' ("ýSiinguard"),

-abhn1ing'96ftw'ar'&s pecialist, at a'cbst bfaippiokimately,$l 1 0;.,.--ot~r.osl~t f

ýr will as'sisit withi the' instailation,ý cofifiguiiition and implemeainof."

• 6 R ourceIQ at aii additiohal cost of ap~r6kiifiaiely-.$32,O0 InAdto,~Q~i

• ~~ pucis licens fo

_foiBafik's Tele~ash~software~for he-~e 6Entitiesata~cost of app~roqrdmately $350. ~This's'oftwva*r"isused to approvew~ire~ttains-fers of mqney to anid from

'MelloWnBa-nk'initiated throiugh the-Res~urb&'IQ softaerdisyste~m. lJ'-;1:<.

t:~ankihg'Relation~hirp S'offwa're ahd-Reldted:S~rvic~es;, P.G&E currefitly uses BafikifigRela tonship Mafiaer' sofrtar t6 analytebanking fees and spervices. -1or the New Entities, PG&E will purc6has~e a license for Banking Relationship. Ma elpfw from The Weiland Finahncial Gr 6p ("Weiland"), a firfancial services consultinig firm, at a ýost of apixr-tl-2;0

-Weiland will also ~pibvide one..orrnmore, consultants who will assist PG&E in,'se-'rating-thd' dat'a'cur eiitl~y'sloi6dý -i i~he B anking Relationship Manager sobftware uge'd by PG&E; The cost for the consultants' services will be approcipiately,$2,9OO.

A

c. Project Managemeni. PG&E has selected Bort and Company, Inc., a cash mafiagement consulting-firm, to prd"Vide project nianhagement services in connection with the implementatio~n of jhe banking-ind ronoxiy ihana -gement processe~s for the New Entities at a

-cost oftappr.oximately $3,0.Thes6.&ivic& \\Will include ~hediiling, trackin-and

.reporting-6n the status of the fore'going bankin~g and moiiey.frianagement pr6jects.

'-MOTION FOR AUTHORITY TO INCUR ADDITIONAL MISCELLANEOUS IMPLEMENTATION EXPENSES

"'* I

3. -'Electronic Data-Interchange (Cost.Estimate-S90,000)..-.

2 GE Global Exchange Services currently provides an Electronic Data Interchange 3

("EDI") program for PG&E's. purphasing and acco*nts payable functions. The, EDI program 4

allows -PG&E to, communicate. electronically.with its vendors and exchange purchase orders,

,5' -

purchase order changes.aidjinvoices electronically. I tals permits PG&E to pay vendors "6

_.via Electronic.Funds.Transfer..:.PG&E, has found that the,EDI'program reduces itscoits and 7 iinproves the overall efficiencies of its operations. Therefore, PG&E has.decided,to ihstall "8".the EDI program for.the New. Entities to ensure a smooth transition upon separation and to 9.1 avoid inefficient an4dpotentialJy inaccurate payment processing by the New Entities.

10 PG&E has selected GE Global Exchange.Services to provide a similar EDI 11

'program for the New Entities. This will include, analysis of current PG&E procedures,

'12- [including special processes, and repgKng, modifications to Yarious aspects of the existing H*,

13-1 ',EDI. program 16 meet, the. special'. requirements of theJ New Entities, setting up the.EleCtronic 14; rFunds Transfer system, adding an electroniri connection between GEGlobal Exchange.

&RANI 15" *'Services and th*,New-Entities,.and testing and implementation of the new EDI p with "1 6

' approximately,250, vendors.- JThis projectis expected to take approximately four months to 17,,

-omplete.- The set-up cost is.$40,000:and the additionalestimated cost, for implementing the 18 system is $50,000. The set'up,9ost of $40,000 cannotkbe avoided even if the contract is.

19, ',subsequently-cancelj4 before completionof the project.,,7 The remaining $50,000 is b ased on 20 time and expenses and therefore-could be partially or fully avoided upon contract 21 term ination.

-: c 22,

• 23 4.-

Procurement Man a$emnent (CostEstimate-27 0,000) 7 24 Procuring goods and services for a large company such as PG&E is a substantial 25 and complextask-Although the New Entities will not be as large as, present day' PG&E, it is 2 6

' I '.

27

_7The facts set forth in this Section.C.4 are supported by the Declaration of Michael Meko filed 28 concurrently herewith (the "Me1ko Declaiation").,

MOTION FOR AUTHORITY TO INCUR ADDITIONAL MISCELLANEOUS IMPLEMENTATION EXPENSES 1

• L2

'3 4

7'

'8 9

10 11 12:

HOMD 13 INX 15

16 18

'19 20 21 22 23 24 "25' 26,

'27 28 estima-ted.ilhatfti New Entities-collectively.Will:*e-nd!PaTProximately $200 million per year dn'niaterials (including`uplies and'equiprnent) ahd $30.0"ll1oflrper year on services -e ticluding co.sulting servies and technical assikstance.

b

'7' "1" In order for tti Nei, Entities `o'be ptre5ared4o commence bus'ness opgrations by

-ih EfSfecive DIate, it is.critical to' iinpleine-nt cef'tifi piorUtirem'ment processes in advance of "i~*:fe~~ Da*:"Without'ant' "s~,sy ay--,,ag....

iEffetiie ]Date 8 Wht iestablshed system rinplace f6rrthe6`dcy-to-day~management "of p'r&refierient, the New Entities -vill r6t be able tb-perdte'ffioiently, and would face subat coAtial 6"nfu'sibh ind delay in the '66ipletidn"of inPorrotant business tasks.-TFor example, "the' follwming key pro&urm ent furicfionsýwill be'fiied'ed'by the-New-ErifitieS: materials "purnchs ndfontstctngeot o arid 'admmiinisfration; warehousing; "plannmginjad fofe-6stin-g; "ucdii;,ota n'"

at.

qddfsmbuton oýf e'qu~ipmbnt anamate'n-ls". ""'

• -.The proc &s of creafing,-f6tiiig'oahid inauplerifefiting new prootirerment procedures for the'New" Entities may take up to six ihf6nths..Tfiereford, PG&E believes that-the vwork mu~t bdgin promply.- Significa'nt 'p6rtions 0l'-is-prrj~ctLwill behatdled bj PG&E,,ithouti,,: "

the assistance bf outside res6urces, inicludifig, forexaih'ple, the cofifigrafion of the new Maiterials Manage-nent System9gto be' utiiiied by the-Newv Entities." :'H6wever,-PG&E 'will reqrie the assistance of the foll36ing consultn i to'ectione with this project and, also "aneticilates'incurring certain pfifiting costs at describeddbelov: " X. -"

a. Proj.ct Manakment. -Russell'Harris7,of-Source C alifornia Energy:Se, ices will provide'troject management servic~s'for this project3 in.luding the preparation'rf work plans,' trackinig project status, preparing reports,' and otherwise facilitating and managing the

""PG&E previously obtaied authority to incur expenses forservices related t6 negotiatifig approximatej'. 1,200 goods'and services contracts for the New Entities (see Motion for authority to incur certain procurement expenses approved bS' Orde' entered cdn'Mdy 20, 2002). In'addition,

-PPG&E ir'eviously obtaindd authority~to incur expenses related to setting up existing PG&E,.

- warehouse space for the temporary use by the New Entities as 'well is *preliififiari-planning for'a

-new materials distribiutiohcenter (s.ýe Miscellanieous Motion; approved by Order entered on' September 4, 2002). The present project covers expenses related to the planning, development -nd implementation of procurement procedures for the New Entities't6 mi-a-iage'the 'day-to-day procurement of goods and services: -".

sA:s described in,the Miscellaneous Moti6on,:the customized inventory,system currently uis'ed by PG&E would be costly and difficult to' adapt for use by the-New Entities.

"M-MITbION FOR AUTHORITY TO INCUR ADDITIONAL-MISCELLANEOUS IMPLEMENTATION EXPENSES 1.

5-'.,'-

,)

i

I 1

2 3

4 5

6 7

8 9

10i 11 12

N2I14, HO8AMN z

15 16 17" 18 19, 20 21 22 23 24 25 26 27 28

'project: PG&E:estimates that.the cost for.these services, will be approximately $135,000.10 In addition, Stan Miyamoto, f, Stan Miyamoto Consultingwill provide project management support as well as oversee the coordination of this project with the related materials distribution( center project (seefootnote 9 above),. PG&E estimates that the cost for Mr. Mi~'amoto's' services will be approximately $25,000.

b.-- Consultants with Procurement Expertise.,: Three outside consultants will, be needed to. provide -eipertise-artd recommendations in-the areas of warehouse management, paperless procurement and ý-commerce, technology.,PG&E has~not yet selected the consultants-but estimates-a total oost of approximately,$75,000 for these services, based on its-past experience.with similar consultants.and preliminary discussions to date with.

potential consultants.

"c. Printing of Materials. PG&E, estimates that it will-incur approximately,

$3 5,000 for printing.of training-.manuals, policies and procedures manuals, and other mtnterials relat~dto p5rocuremeritproc&dures for use by.the New-Entities. PG&E intends to St

° incur these printing expenses, immediately after Plan confirmation.

5. '--iAciuntingProcesses And Procedu'res (Cost Estimate--$1,5, Million)."

Currently, PG&E's principal accounting system is provided througha client "server application d~veloped6by-SAP America, Inc. ("SAP"). P G&E also uses more than 80 other software applications that support informati9n recorded in the SAP., accounting 'system and perfornr other accounting functions. These supporting, aQcounting systems consist of subsidiary ledgers containing detail information for certainline items contained in the general ledgef,' as,'Well as systems that perform computations of amounts tQ berecorded in the general ledger. Both manhual and automated interfaces-transfer information from the 0

L

• ii...!

various accounting systems into the SAP accounting systems. Approximdt61y ve million 10Mr. Harris has perf6rni.d preliminary selrvices °on thi s-kroqje'ct beginning in July 2"002.

.5

-t

• " The facts set foi-th ini this Section C.5, are supported by the Declaration of Stephanie Maggard filed concurrently herewith ("Maggard De claratior'.').

MOTION FOR AUTHORITY TO INCUR ADDITIONAL MISCELLANEOUS IMPLEMENTATION EXPENSES 1

transadtions -aie pbsted to the SAP accounting system each week.,PG&E estimates that 2

approxirmiately 30 percenia bf thes'e transactions relate-to buiigzness adtivities of the New

ý3

• Efitities. ;

2*..

4 'k "

By-the Plain Effective Date,,th6 New-Entitles will require accounting systems and 5

applications that are fully implemented and operatibnal in order-to mdintain.their books and 6" rec

'ords. 12 Each of the accounting sYstems and'applicationswill-require.associated processes "fi and procedures to capture; record and validatdaccouriting'transactions to ensure'that 8

accurate arid comilete informationis ultimatelyyecorded in the:general-ledger. For.

.'exiample, the recording of revenue 'requires complex processes and procedures to.capture the

- 10 units sold or services provided; price the goods-and serhices, estimate collectible amounts,,

11

-and prepare and record revenue journal entries in the general ledger.:." -.

12

'Althbugh PG&E intends to rellicafe existing jioceduies and processes andI 13' intrbduice as little change as pbssible, the New Entities will. b6 separate, new companies and HOWAMD kNIC(

14

• out of necessity certain processes and procedures' will-rhange., Inaddition, itwill be

&RAW*N 15 important that employees of the,New Entities-be~trained in the use'of all accounting 16

-processes and procedures. -It will also be critical that PG&E review its existing accounting

• 4 7 Ap-1ocesses and procedures to e~niguie that these.processes andproceures are not disrupted~as a 18

result of the'separation..'.

19

-r

.01) glba acontn and 19

"-- :.,-.":PG&E has selected Price~vaterhouseCoopers (PWC'*),'a global accounting and 20

'finaiicihl services firm, to assist with the development 6f accounting -processes and 21' "l~rocedirfor the New Entities.1 PWC-fias extensive' experiencein, the accounting.field; 22 to12'

"Pursuant to teMiscellaneous Motion, PG&E obtainied approval for application integration 23

-softwAre and wupport-related to the SAP system and other key systenis that will be used by the New Entities. The present project relates to the overall development and implemehtationi of acc6untiiig 24 processes and procedures as opposed to the technical implementation.,*

- 13PWC is also approved as a professional in this case as the financial advisor to the Official 25 Committee of Unsecured-Creditors ("Comriiittee"). PWC has infrmiedPG&E thatthe Committee has no objection to PWC's representation of PG&E for the limited purposes set forth-above and that 26 PWC has ethical walls and procedures in place to protect both the.Committee's and PG&E's confidential informiation. PG&E is ifif6rmed aiid believes that `PWC is filing a Supplemental 27 Declaration of Michael -Hamilton with the Coiiit on or about September 13, 2002 disclosing its'.

28 proposed services to be provided to PG&E. *

- 'MOTION FOR AUTHORITY-TO INCUR ADDITIONAL MISCELLANEOUS IMPLEMENTATION EXPENSES 1

including the i."mplementationo'!6processes, procedduresý and internal controls associated with 2

'complex accouniitfng* systems". Spedifically, this project will' iihclu'de the following 3

c6mponent.: (i) au'ninvenfory' 6f existing accounfting~applications, procedures and'controls; 4'

(ii) analysis'of existing procedures aiid controls to-determine-which comnponents can be 5

duplicated, duplicated with modifications, or require a new design; (iii) recommendations of

.6 -I.: modifications to existing'plo sses to accommodate.brganizational changes, application 7

configuration arid other'chafiges niecessitated by foi-riatiofi 6f the New* Entities; (iv) assisting "8' PG&E in designinig newvac*'oiurtihg pro cedures for functions that, are new or tequire more 9"

' s*ub'stantial chaaiges;'(v)"estiinating-resource'requirernents, in~ljiding employee requirements, 10 'to perform'r accountinig proce's'sei at the New Efitities and'at PG&E; (vi) revieWirfg interfaces 11 between fieid locati'ns a~nd centi-alized Processing fun'c'tions and betwe*n and amohg "1"2 acdcouniing systems; (vii)' testing 6f new pr6cedures, and' controls for thd New -Entities and 13 PG&t; (viii) dete-miinn firiniing fieedsrand assist in developing training materials; and maG4k 14 (ix) assisting in the irihplenientatiboi of all fiiew accounting processes.'

f5 1Implementation of accounting systdms; pro'edures and controls to capture; record 16

'ahd validate business-tr-n~sctions is a lcritidal biisiiiess-fun6ti6n that miust be completed.'

'17' 'before the New Eni'ti'es corrnihien& busines§ operations'. PG&E must also ensure that there 18" aareho gaps in its adcounting procedures as a! result of th& separation of the business lines.

19 PISG&E estimates that the a icc inting process arid *rodddures work to be performed by PWC 20 (and related work td be'perforlfi'ed by PG&E)will take appf6ximafely six months.' This 21' project is designed toprovide on1y the bagf6 accounting ieqiiirerfients for the New Entities 22 and PG&E to keep acculatC fihahcial-records, develop financial statements, and perfornri 23

' baslic financial fuin'tions', such' as paying employees and billing' custbmers. PG&E estimates 24 that the total cost for PWC'ý -services will be appir6xirniately,-$1.5 million.

25

'26

, r 27 28 MOTION FOR AUTHORITY TO INCUR ADDITIONAL MISCELLANEOUS IMPLEMENTATION EXPENSES I 4

1 2

3 51 6

7

9.

10 11

12.

HCVARD

13.

14 E~UK

&P IAMC2N

,., _.15 16' 17 "18 19 20 21 22 23 24

`25 26 27 28 4

'1'-'

14 D.. GENERAL IMPLEMENTATION-EXPENSES.

The following projects relate to PG&E's plahnin g and preparation for Plan implementation.. PG&E believes that these project costs must,be, incurred well in advance of

,t.he Plan Effective Date due'to the nature of the work, as described in more detail beloiv.

"*1. Transactional Agreements And Schedules (Cost Estimate-S257,000).g 5

Implementation ofthe Plan will requ ire the creation *of up to100.separate agreements, :most of which will have several schedules attached listing or describing specific items related to the particular-transactipon;.as a aesult,.some of the schedules arpe expected to

-take up thousands ofT.pges and will be maintained on computer discs rather than in paper

,format,. These agreements will cover such critical matters as how each of the New Entities will be separated from PG&E and what.sets each will own. Examples of theseagreements include the asset transferassignment and assumpytion agreement (which will contain "

voluminous schedules), and the subsqation/switchyarq agreements.- Due to the volume of information involved, substantial time is required to develop and review these documents..

-Eachagreemefit and schedule requires extensive research, input and review byvarious.5, subject-matter experts at PG&E..The develgpment process for these doeurqents could take several months, as aresult of the time involved in assembling *the necessary information, and the drafting and revliewprocess..There will be many PG&E representatives, as well as.

outside counsel, participating in the preparation of these documents.

""*-PG&E-has selected ZIA Information Analysis Gr9up, Inc. ("ZIA") to provide

&dta managqment support. for this project. ZIA's work on a related. proj ect.was previously

-approved by the'Court,(.se PG&E's Motion for Authority to.IncurData ManagementCosts, approved by Qrder entered on June 20, 2002).

"The prior motion related to ZIA'

.4This category of implementation work was not specifically described in the previous Maggard Declaration, but PG&E has recently become aware of the necessity of these projects and costs. PG&E anticipates that it will stay within its previous cost estimates for the Implementation Projects, notwithstanding this additional category of implementation work.

15The facts set forth in this Section D. 1 are supported by the Maggard Declaration.

MOTION FOR-AUTHORITY TO INCUR ADDrITONALMISCELLANEOUS IMPLEMENTATION EXPENSES

.4 3>

1 2

3' 4,

5 6

7 9'

10 S11

, 12<'

HIARD 13 CM 141

~Ic 16' 17 18 19 20

"*21' 22' 23 24' 25

__26

_i27 28 dev'elopnient and maffiienanc of an, asset database to facilitate. the preparation of the asset schedules needed for.the asset'transfer assignment and-assumption documentation _

cihfitempfated'by theJRlan_ The present project relates to ZIA's.development and...

-'niaintenance of a secure.iwebsite for all Plan-related transactional documentation in order to

,"facilitate.the exchange-bfjnformation between PG&E,. its outýde counsel-and, any-other.

• patties issisting.vwith Plafi implementation who.will-be authorized to access the websiteý ZIA v-ill'als6'assist with th6 comipilation, organization' and review of the transactional doeunientation; ificluding the input 0f-alldraft documents "ontopthe website. PG&E estimates thatthe cbst'for-thifiork.will be approximately.S257,Q00.

16 "2;."

PBerm'it And rinefiise Ai4plieation Fees (Cost Estimate-$3 Million).

.:Inits'Motionifor Order AuthorizingExpenditiires Related to Permits.and

,Frýlndisbs'("Pe nits Motion7),') aPlroved by. Order entered on-May 17, 2002; PG&E explained that it holdl fens of thousands of operating, and land pccupancy permits, licenses kind relht~d g6',emmrni'ental entitlem&nts,'and is a:party to over 520 franchise agreements with

'irarioisrcities and'cofnhti~s" PG&E further explained thathe separation contemplated by the

" Plaii required'thrt c~itain iprrmits':and.licenses, be transferr.ed ortreissued to the New nities, and-that new frandhis~s b* obtained by the New Entities, in. order for theý New..Entities to, be auth6iized to condii6tdbugiiiesskoperations-by the Plan-Effective. Date. Pursuant to the Pcrtmits'Motioin, PG&E obtained authority to hirevarious consultantsto.assist.PG&E with tht process of obtaining the 'necessary permits and. franchises ("Permits and Franchises") for the New Entities. In.* ddition;puisiianf to the Motion for Authority to Incur Additional, Pirmit Expenses; app-oVed b1yOrder entered on 'June 20, 2002, PG&E obtained.authority to inchur additional epenfises related to the permit transfer process.

Considerable work has been done on this project since the previous motion's were 1i6 h The facts'set foth in this Section' D.2 are supported by the Declaration of June Ruckman filed concurrently herewith.

"MOTION FOR AUTHORITY TO INCUR ADDITIONAL MISCELLANEOUS IMPLEMENTATION EXPENSES ----

I-

2 3

4 5,

6 7

9 10 ILI 12 135 HOWAD 1

14 17 18 19 "20 21 22 23 24 25 26 27 28

-aippro-ved.- G&E and its c6nsultantshave now contacted many of the.applicable --

government entities to begin the le~igthy-1roceis'of aftaniging for'the Permits and Franbhises to be in place inhdance'6f the Plan Effective' Date."h Isome cases, applicatipns have ýbeen

"'subiitted.: Sbnmegovernment eritities are requiestii g.that PG&E submit application fees.

"and~or" 6'st iecdvery fees to help defray 'costs in' :processing' the..applications (c ollectively, "pp~lliationfFe~s").

iin add-itio upon issuance ofFranchiseg, PG&E-,may-.be,.required to

-IP.osf a suretyor Pei-foriiainice bond' to se.curepeffornmance;in the absence obf hich-PG&E will lcse the 1ranchise altogether.'

PG&E' hriticipate's-thatit'will have.bonding 6apac'ity and will ilterefore only ie'eed~tb pay'b6iid premiu'ms.---At this time, PG&E does not know te:

exact'amouint of the'Application Fees or bond premiums that will be 6yked, but PG&E esiiiiats tbhatt ' oiild be.approximately$3 inillio,, T4i* estimate is based on

&ommunci.ations to date with' the vfiousgov'e-fiment 'dntitieis,, hithe past experience'of

pb'&E emnployees 'did consultants in working'withlgoverrimeftit entities on-related matters.

"PG&E requests authorityto paythese fees so that the process of obtaining the;

n) ceesar' Permits and Franbhis'es'for the New' Entities can continue. Since -the Application Fees -are'ordifianly r*euired'up front, it is impoitahtthat-PG&E have some flexibility in payingth'eise fees _whe'nrequestedw vithout-repdatedly filing motions for Court approval. 7

-Sifilarlyi-it is important to a.void jeopardi2zing the issuance of-a.ftinchise as 4-ge1ult 6f not having -iititority to incur costs f6r a-perforiaignce bond..:Sinc6 PG&E will be.receiving the

'fee "reqfrests'frioi vari6us govemmeiit agencies at.staggered times, it is neither feasible to, bnniig amton njow with more precise iformation, nor 'is it feasible, to wait and jeopardize

"*th"implerme'nt~ti n of the Pan.

rTheief6re, PG&E.requests auithority to pay.up to $3 million as 'tha 'App'licaiion Fees'`nd liond iequirements arise.? PG&E will bring a further rnotion seeking appioval to payany arnoun!tsin 'excess of $3 inillion;,ifthis bco.mes necessary.° I7Under the Franchise Act of 1937, cities and counties'iiiayre-qiiest bonds upon granting of the franchise. Based on-discussions to date, PG&E anticipates that most cities 'and counties will require

-th& bonds:' Undei-the statute,'the franchise is forfeited if the bond-is not posted within 5 days 6f-the grantin 'ofthe franchise. -

- MOTION FOR AUTHORITY-TO INCURVADDITIONAL MISCELLANEOUS IMPLEMENTATION EXPENSES

-" '4

I 21 3,

4 5:

6

-"7 8'

S.9 10

' ' 11:.

12" HO-R 1-3 A,* *.,

15 16 17 18 19 20 21 22 23 24 25 26,

- 27.

28 II,.Z THE ADDITIONAL-MISCELLANEOUS IMPLEMENTATION EXPENSES SHOULD BE APPROVED PURSUANT TO

-;. SECTION 363(B)(1) OF THEBANKRUPTCY. CODE o

PQ&E seeks apprpval for the various implementation expenses set forth above as a use of estate property'that is outside of the ordinary course ofbusiness under Bankruptcy Code Section 363(b)(1).. Since these projects are related to the. implementation of the.Plan,

-PG&E believes that the purpos9 and scope of the expenditurp may be characterized aý out

--side of-the ordinary-course of.business, and therefore requires Court approval. 1 8 The. Court has considerable discretion in approving a request pursuant to Section 363(b)(1) -of the-Bankruptcy..ode ('[t]he trustee,, after. notice and a hearing, may use," sell or leaseother-than in the ordinary 9ourse 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 deei~ionjoq approve expenditure for,emploype incentive programs. noting

.that bankiuptcy~court has.considerable discretion in. approving a Section,363(b) motion).

In determining~whetherto authorize t.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._g, 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[l][g] (15th ed. rev.- 1998).

Once the debtor has articulated a rational business.justification, a presumption

-attaches that the decision was made,"on an informedbasis, in good faith and in the honest belief that the action taken was in the best interest of the [debtor]." See, P._+/-, Official Comm. of Subordinated Bondholders v. Integrated Res., Inc. (In re Integrated Res., Ihc.),

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

18PG&E believes' that the consultants described above should'not be cbnsidered "professional persons"

'reluifirig approval under BAruptcy Code Section 327(a).. This is due,both,to the nature of the services'to be provided and to the consultants' limited role in connection with PG&E's reorganization proceeding.

MOTION FOR AUTHORITY TQ INCUR ADDITIONAL MISCELLANEOUS IMPLEMENTATION EXPENSES 1

2 4

.5 7'

11 12 13 RKI ~a14

&IRAW~N A EO15 16 17 18 19 20 21 22 23 24 25 26 27 28 1985)).

Sound business justificatlons exis'ftfb apprfthl obthe vanus ipeetto

,costs describe~d above:. PME d61es nbt have s-uffici&fi jýAciityori skills fin-house to perform

~and complete the work without th& assihtanice'6f thd~otitsid6 ýonsiiitaniis.' Also; PG&E~is solveit~id has'sufficient* cash to piy the e~xpe n-'s 6sýdes~crib~d hbrdin'without causing any detriment toit:cei~sI W

'Con'isteni wi x'thi PG&Fs previous ifrtpleiiieh'tatibn dxpi-se reqitests, PG&E con tinues to'6 enter'into contracts with 'c6nsulting inght'al~

PG&E'to'terminate without cauý6 and w.i -thout any-peiialty;yso'that'i hi he*6Vnt thR7 the imnpleffi'entation work is no Ionger necessary' JG&E can -minimize its '66'sts_'(witýi fimfited-bxceptions-as n'Oted above).

ý'-furthe~rnl or'1 PG&E -has included 61ly those pro-j 6tsthat have betn:id&ntified as critical for 6onpk6ti6iby or inad~'a~n~e of he Plan Effe'iive Dat4'ýnd vhi'h te uire longeatieo must be comkl~ted befoi'e subs eqififii,'i~elated iffhpkhmihtatioh Work can be performed' On that basis;P&

believes that tdie iffiolmentati6hifr -tots destribedllerein are neces.sary andl should be approved 'so that w'ork &6afi bomm~nce promptly..

Y-As reflected in PG&E's July 2002 'Monthly Operating Report, PGi&E he~d more than. $3.9 billibii in cash'rese-rves as of July 31, 2002.

MObTION FOR AUTHORITY TO INCUR ADDITIONAL MISCELLANEOUS IMPLEMENTATION EXPENSES CONCLUSION For all of the foregoing reasons, PG&E respectfully requests that the Court approve the costs described above and grant such other and further relief as may be just and appropriate.

DATED: September 12, 2002 HOWARD; RICE, NEMEROVSKI, CANADY, FALK & RABKIN A Professional Corporation By:

SLIULIE B. LANDAU Attorneys for Debtor and Debtor in Possession PACIFICGAS AND ELECTRIC COMPANY 12 HcWNIR 13 S14

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