ML023080051

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

ML023080051
Person / Time
Site:	Diablo Canyon
Issue date:	10/18/2002
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: ML023080051 (16)

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SAN FRANCISCO DIVISION.-

I CaseNo.-0bi-0023 DM In re PACIFIC GAS AND ELECTRIC COMPANY, a California corporation, Debtor.

Federal I.D. No. 94-0742640 Chapter 11 Case Date:

Time:

Place:

November 8, 2002 1:30 p.m.

235 Pine Street, 22nd Floor San Francisco, California NOTICE OF THIRD MOTION AND THIRD MOTION FOR AUTHORITY TO INCUR MISCELLANEOUS IMPLEMENTATION EXPENSES; MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF

[SUPPORTING DECLARATIONS OF LANCE MAEDA, MICHAEL SCHONHERR, WILLIAM A. UTIC AND JUDI MOSLEY FILED SEPARATELY]

ti-1e THIRD MOTION FOR AUTHORITY TO INCUR MISCELLANEOUS IMPLEM`ENT'TAION EXPENSES JAMES L. LOPES (No. 63678)

JANET A. NEXON (No. 104747)

JULIE B. LANDAU (No. 162038)

HOWARD, RICE, NEMEROVSKI, CANADY, FALK & RABKIN A Professional Corporation Three Embarcadero Center, 7th Floor San Francisco, California 94111-4065 Telephone:

415/434-1600 Facsimile:

415/217-5910 Attorneys for Debtor and Debtor in Possession PACIFIC GAS AND ELECTRIC COMPANY UNITED,STATES BANKRUPTCY COURT

.NORTfIfRN DISTRICTOF CALIFORNIA:

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. 15 16 17 18 19 20 21 22 23 24 25 1261 27 28 TABLE OF CONTENTS NOTICE OF MOTION AND MOTION MEMORANDUM OF POINTS AND AUTHORITIES I.

FACTUAL BACKGROUND

-A.

Accounts Payable Interactive Voice Response (Cost Estimate-$58,000).

B.

Additional Land-Related Expenses (Cost Estimate

$750,000)

C.. ;Facility Separation Costs (Cost.Estimate-$606,400)

D.

ETrans Communications Plan (Cost Estimate-$280,000)

II.

THE ADDITIONAL IMPLEMENTATION EXPENSES SHOULD BE APPROVED PURSUANT TO SECTION 363(B)(1) OF THE BANKRUPTCY CODE CONCLUSION

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THIRD MOTION FORl AUTHORITY TO INCUR MISCELLANEOUS IMPLEMENTATION EXPENSES

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TABLE OF AUTHORITIES Page(s) 1 2

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9 In re Montgomery Ward Holding Corp., 242 B.R. 147 (D. De. 1999)'

Official Comm., of Subordinated Boridholders V. Integrated ReIs, Inc: (In re Integrated Res., Inc.), 147 B.R. 650 (S.D.N.Y. 1992)

Smith v. Van Gorkom, 488 A.2d 858 (Del. 1985) 11 12 12

,12 Stephens Indus., Inc. v. McClung,.789 F.2d 386 (6th Cir. 1986)

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&RAMlIN Ai*.,

15 16 17 18 19 20 21 22 23 24 25 26 27 28 Statutes Bankr. Code

§363(b)'

§363(b)(1) 11 2,311

.1 Bankr. Local R. 9014-1(c)(2)

Other Authorities 3 Lawrence P. King, Collier on Bankruptcy ¶363.02[1][g] (15th ed. rev.

1998) 2

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9 10 11, 12 HOVIAM 13 EKE NEmw 14 MHRAfON 15 16 17 18 19 20 21 22 23 24 25 26 27 28 I.NOTICE OF MOTION.AND MOTION PLEASE TAKE NOTICE that on November 8, 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 I

Company,. the debtor and debtor in possession in the above-captioned Chapter 11 case

("PG&E"), will and hereby does move the Court for entry of an Order Approving Third Motion for Authority to Incur Miscellaneous Implementation Expenses (the "Motion").

This Motion is based on this Notice of Motion and Motion,, the accompanying Memorandum of Points'and Atthorities, the Declarations of Lance Maeda, Michael Schonherr, William A. Utic and Judi Mosley, filed concurrently herewith, 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 for the Northern District of California, any written 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, the Office of the United States Trustee and the Official Committee of Unsecured Creditors) 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.

THIRD MOTION FOR AUTHORITY TO INCUR MISCELLANEOUS IMPLEMENTATION EXPENSES.

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1 MEMORANDUM OF POINTS AND AUTHORITIES

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,PacificGas and Electric Company, the debtof and d~btor-in possession in the 3-- above-captioned Chapter 11 ca~e ("PG&E")',requests an order'authoriziiig' PG&E to incur 4

additional miscellaneous implementation expenses related to ir-lpeidnentation of PG&E's 5-15roposed Plan of Reorganization, pursuant to'Bankruptcy C6d6 Se~tion 363(b)(1).

7 I. FACTUAL BACKGROUND 8

,PG&E'filed a voluntary.petiti6n fdr relief under Chapter1 1 of the Bankruptcy 9

.Code on April 6, 2001. A trustee has not been'appoirited,'and PG&E'continues to function

-10 as a debtor-in-possession pur'suant io Sections 1107 'and 1108 of the Bankrniptcy Code.

11 PG&E, together with its patent corporation; PG&E Corporation, h1s proposed a 12 Plan of Reorganization (as amended frbm time to time, th&e"'Plan"), which has recently been HOWR 13 voted on by creditors, along with the competing plan of reorganization proposed by the RKE c*mtx 14 California Public Utilities Commission. The confirmation hearing is scheduled to AP,*..a.

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commence on November 18;,2002:

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'The Plan'generally-provides for the creation of three hew companies, ETrans

17 LLC, GTrans LLC and Electric Generati6h'LLC (colle'ctively*'the "NewxEntities"), whereby 18 PG&E will separate its operations into four lines 'of business based 'on PG&E's historikal j19 functions. Accordingly; the Reorganized Debtor-will continue the retail gas'and electric 20 distribution business, ETrans LLC will operate the electric transmission business, GTr'ans 21 LLC will operate the interstate gas transmission business, and Electric Generation LLC will 22 operate the electric generation business.

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-. PG&E previously filed and obtained orders approving 12 motions seeking 24 authority to incur costs related to implementation of the Plan.- In the Motion for Author-ity to 25 Incur Information Technology Consulting Expenses,and the accompaniying Declaration of

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Stephanie Maggard (the "Maggard Declaration"),.filed 6n-July 23, 2002,'PG&E identified 27 additional implementation projects that will need to commence before the Planf is confilined 28 (the "Implementation Projects") and estimated that the total expenses for these THIRD MOTION FOR AUTHORITY TO INCUR MISCELLANEOUS IM'PLEMENTATION EXPENSES 1

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RKI S15 16 17 18 19 20 21 22 23 24 25 26 27 28 Implementation Projects will range from $10.8 to $17.8 million. Since that time, PG&E has obtained approval for $6,999,990 in additional implementation expenses pursuant to the Motion for Authority to Incur Miscellaneous'Implementation Expenses filed on August 15, 2002 and the Motion for Authority to Incur Additional Miscellaneous Implementation Expenses filed on September 12; 2002.. The present motion seeks approval for an additional

$1,694,400 in implementation-related expenses.

For each of the staffing agencies and consulting firms described below, PG&E's standard contractual provisions in place with these agencies and firms (or to be included in any contracts to be executed hereafter) do not guarantee future work or any minimum amount of revenue. PG&E will also maintain the right to terminate the work at any time without cause, in which case PG&E is liable only for, work performed to the date of,

termination plus costs reasonably incurred by the consultant in terminating any work in progress.,

A.

,Accounts Payable Interactive Voice Response (Cost Estimate-$58,000).'

PG&E.currently uses an Interactive Voice Response ("'IVR") system for accounts payable functions, the FirstLine Encore IVR-system, provided by EPOS Corporation. This system allows vendors and employees to access their invoice and payment information through a series of interactive menus by using their touch-tone phones. PG&E believes~it is necessary to have the IVR system available to vendors and employees of the New Entities by the Effective Date under the, Plan to allow for a smooth transition and to minimize confusion for vendors and employees who are accustomed to using the IVR system. EPOS Corporation will provide the necessary hardware, software, installation and training in connection with the'FirstLine Encore IVR system for the New Entities at a cost of approximately $58,000. -This work will not commence until immediately after Plan confirmation, as PG&E believes it can be completed during the period between'confirmation 1 See Declaration of Lance Maeda filed concurrently herewith.

THIRD MOTION FOR AUTHORITY TO INCUR MISCELLANEOUS IMPLEMENTATION EXPENSES 0 r 1

and the Effective Date under the Plan ("Plan Effective' Date").- PG&E is including this 2,

requ'est now so that this work can commence imriediately'following'Plan confirmation 3

'withoutanydelay.'

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5 B.

Additional Land-Related Expenses (Cost Estimt6--S750,000).'2 6

PG&E previously filed a Motion for authority'to"incur and pay land-related

'7 expenses on April 12, 2002 (the "Land Motion'), which was A@proved by order entered on May 17, 2002. The Land Motioh described'eipenses to be incu"rred by PG&E in connection 9

with title review and analysis, and survey work, for a total estimated cost of $5;500,000. As 10 stated in the'Land Motion, this work, arises out of PG&E's large portfolio of real estate' 11 assets, including approximately 250,000 acres of land, more than six million sqluare'feet of 12 support service space (service centers, offices and warehouses) and hundreds of real 13 property leases (collectively, the "Land"), along with thousands of related redl property' cUaNX 14 rights, including: rights-of-way and easements, prescriptive rights, possessory interests,.

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..,.**15-unrecorded rights and other lafid-related agreements, and associated maps and drawings 16 (collectively, the "Land Rights")., This work is necessary to prepare for the transfers of Land 17 and Land Rights to the New Entities in connection with the implerqentition of the Plan.

18 Since the Lanid Motion was filed, PG&ýE has identified additional laind-'related 19 work that needs to be completed in advance of the Plan Effective Date, as described below.

20 These new tasks are similar-in nature to the work'described in the LEdnd Motion'and will be 21 completed by the same contractors identified in 'the Land Motion. 'H6we'verr, PG&E" 22 estimates that the completion of these new tasks could add up'to $750,000'in additional 23 expenses.

24 The additional work to be completed consists of:

25 a.:

Additional Land and Land Rights Analysis and Reconciliation. This 26 category of work includes title work in connection with the -review, analysis and,'

27 2 Se& Declaration of Michael 'Sch'onh6ir filed concurrently hierewith.'

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reconciliation of all Land Rights, including field verification of information, assignment of 2

the. Land and.Land Rights to the New Entities, and analyzing new and modified rights to be 3

acquired. Contractors performing this work are as-follows:

4 EDB Data Resources Phillip Longo 5

Charle. McClue. i.:".

6 Paragon Partners, Ltd.

6 Kenneth Sorensen:.

Willbanks Resources Corporation 7

Specifically, the additional work arises out of the transfer of gas transmission 8

facilities to GTrans. In connection with the title review and analysis associated with these 9

gas transmission rights, it is necessary to analyze and reconcile data delineated on 10 approximately 12,000 gas system maps. Additional title review and analysis is also 1 1 necessary in connection -with the distribution feeder mainsi(i.e., local -gas transmission' 12 facilities) to be transferred to GTrans.

HOWARD 13 The foregoing projects have become necessary since the previous Land Motion CANA" 14

&R0 was filed, based on the further development of the asset transfer process and the

~15 identific'ition of specific asset transfers to take place between PG&E and GTrans.

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Additionaal L'and Surveying. This category of work includes land surveys, 17 preparation of the deeds and maps related to the possible subdivision, lot line adjustments, 18 and/or transfer of fee properties to the New Enttities, work necessary to ensure compliance 19 withlocal r h ruesan regulations, and preparation of easement reservations and new easement 20 grants. The contractor performing this work is Towill, Inc.

21 Specifically, the additional survey work arises out of communications and 22 telecommunications-related transfers that will occur as part of Plan implementation. PG&E 23 requires Towill's services in preparing exhibit maps and legal descriptions in connection 24 with the following agreements to be executed in connection with the Plan: (i) the Master 25 Communications Easement Agreement, which will provide for easements by and between 26 1.1 PG&E and each of the New"Entities related to the ongoing maintenance and operation of 27 communications facilities; this agreement will allow PG&E and each of the New Entities to 28 THIRD MOTION FOR AUTHORITY TO INCUR MISCELLANEOUS IMPLEMENTATION EXPENSES I

1 have the mutual benefit 'of existing communications facilities that may be located on 2

property owned by PG&E, for example, following the'Plan Effective Date; and (ii) the 3

Telecommunications Services Agreement, which will provide'for tleckrfmunications 4

se'vices'to be provided by ETrans to PG&E ana the other New Entities, including the 5

transfer of certain Land Rights related to telecommunications facilities.

6 The' foregoing survey projectsha'e become necessary since the previous Land 7

Motion was filed, based on the further development of the asset transfer process with respect 8

to commuinications'and telecommunications facilities that will be part of the Land and Land 6,$.gts o *Z

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Rights to be transferred by the Plan Effective Date.

10 11 C. 'Facility Separation* Costs (Cost Estimate-S606,400).

12 To implement the Plan PG&E

'seven nef buildings will be'leased HOm i13 and prepared for occupancy and 30 existing PG&E-owned buildings must be modified for S

14 use by PG&E and the New Entities. Thesefacilities are needed to provide separate w6rking 6RAWN(N 15 Parea's for field employees of PG&E and each of the New Entities by the Plan EffectieDate.

16 Fo'r'example, PG&E currently has sub~station'inainteianbeTacilities that include both 17 distribution and electric trans 'Mission functions, which PG&E believes cannot be operated S..

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a 18 effectively uriless the einploees of PG&E and employees of ETrans are hiclly 19 sepai'ated." Since PG&E and ETransI s will be'separate legal entities, it.i§ important that there 20 be no confusion about employee supervision and compliance with -egal and usiness 21 requirements. Another reason for the'new, buildings and.xisting,.building modifications is "1 ifd22dl thath'e

'"al

"":"-yee ha 22 hat the Entte ill individally be sieallr companies,'with fewer employees, than 23 pre'seni day'PGb&E. In order'for thf New Entities to maintain pr6perly-supervised work 24 25

ý See Declaration of William-A Utic filed concurrently h6rewith.

, 4 This project will not provide forthe separation of all employees of PG&E and the 26 New Entities by the Plan Effective-Date;'rather, the separation described herein only covers a portion of the facility separation work, specifically the portion that-PG&E has deemed 27 critical to complete by the Plan Effective Date. The remaining facility separation work will be completed after the Plan Effective Date.

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15 16 17 18 19 20 21 22 23 24 25 26 27 28 sites, it is necessary tq modify existing work sites or to find new space that will accommodate the need for consolidated work sites.

Although PG&E has identified the. need for new space to be leased and for certain construction worklto be performed, PG&E will not enter into any leases or commence any construction work uirtil after Plan confirmation (and after obtaining Court approval). The projects set forth below involve preliminary.work that must begin promptly in order for PG&E to be prepared to commence construction work following Plan confirmation:

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Construction Project Managers. In order to prepare the new buildings for occupancy, and modify the existing buildings to serve multiple companies, PG&E intends to hire construction project managers to manage the required construction work. Although PG&E has in-house expertise in this area, PG&E does not believe it has the capacity to, perform the work inhouse, due to current,workloads.

Although PG&E intends to delay any construction work until after the Plan has been confirmed, in order to assessthe construction needs and plan for the construction work" it is necessary to hire the construction managers promptly to perform preliminary work prior to Plan confirmation. This preliminary work will include the following tasks: (i) determining the scope of work to be performed on each building; (ii) preparing and submitting local buildingpermit and conditional use permit applications; (iii) developing detailed, site-specific work schedules; and (iv) preparing contract specifications, selecting qualified contractors, and negotiating contract terms.

Based upon its experience with similar projects, PG&E estimates that approximately seven construction managers will be required,to manage the building projects at a total estimated cost of approximately $425,000. The construction managers will be hired on a temporary basis through Source California Energy Services, Inc. There will be no minimum amounts due and the services may be terminated at any time, without penalty (provided that PG&E will pay for any services performed prior to termination and reasonable expenses incurred).

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Permits, Engineering and Other Pre-Construction Costs. With respect THIRD MOTION FOR AUTHORITY TO INCUR MISCELLANEOUS IMPLEMENTATION EXPENSES

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-24 25 26 27 28 to both the buildings to be leased and the existing PG&E-owned buildings, certain pre construction costs needclto6be incurred beginning'in November 2002'for such items as conditional use.ird'constriictioh pei-mits,'preliminary'engineering-ahd design work, and environmental assessments.- For ex'ample; in'the,'case of a bniildig thai PG&E intends to

.lease for use as a Materials Distributidn Center for the New"Ehtities, 5 there'afe currently estimated costs of $36,400, comrprised of the following components:'(i) $2,000 for a

'.conditional use perriit to operate the site as a'utility warehouse anid -distribution'center; (ii)

$2,000 for a c6nstruction* perrnit related to necessary,ficility modifications; (iii) $24,900 for design, seismic analysis,.fire protection design and permits related to'the installation of

-materials racking;6 and (iv) $7,500 'for a Phase 1 Environmental Site' Assessment.

PG&E anticipates that similar expenseswill be incurred with respect, to the other buildings (provided th~it a Phase I will only be conducted with respect to the properties to be leased). Until the construction'project'managers' des'cribed inSecii6n 1 above begin work, PG&E will not have a precise estimate of the total pre-c6hstruction costs. -Currently, it is',,

.anticipated 'that Phase I-assessments will be conducted withres'pict to all leased properties at a cost of approximately $7,500 each. PG&E also seeks 'authoriity to incur up to $100,000 in

. additiohal'pre-construction'expetises to cover permits'and'engineering costs:, While PG&E will ha ve a -more precise estimate of these pre-construction expenses -within'the next month and extects that these expenses will exceed $100,000, it 'is impbrtant that the projects not be 5 At age 9 of the Motion for Authority to Incur Miscellaneous Implementation Expenses, filed on August 15, 2002, PG&E explained its intent to have the New Entities share PG&E's existing warehouse§ until a new.Materials'Distribution' Center ("Center")

could be set up. PG&E has now decided to set up the new Center by,the Plan Effective Date in lieu of implemefiting 'shared waireh6iise procedures'. This decisidn is'based, in part, on the availability of a suitable building for the new Center, which can be prepared for occupancy by the Plari Effective Date7--This -will also avoid th6 difficulties`6f havi4n the New Entities

temporarily share warehouse space with PG&E. The $30,000 in consulting fees previously approved f6ri the maridgement of the materials distfibuition p'roject is sitill 'needed; the focus of the project has simply shifted to development of the new Center in lieu of a facility sharing strategy.

"The vendor forthis part of the project is Crown'Li T materials haridlinig 15rbducts, storage s'olutionsand support servicesrelatied to warehousing and materials distribution systems as well as.acertified fire engiiiee-ing and design firm.

THIRD MOTION FOR AUTHORITY TO INCUR MISCELLANEOUS IMPLEMENTATION EXPENSES

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14 15 16 17 18 19 20 21 22 23 24 25 26 "27 28 delayed while PG&E is determining the full extent of this work and can bring another motion for Court approval. Based on PG&E's past experience in preparing buildings for occupancy andthe estimates that have.been developed for the Materials Distribution Center, PG&E believes that it, can begin certain critical or time-sensitive pre-construction work with the authority to incur up to $100,000 at this time. Therefore, PG&E seeks authority to incur a total of $181,400 in pre-construction costs, including: (i) $36,400 in connection with the Materials Distribution Center, as described above; (ii) an additional $45,000 for Phase I assessments for 6 additional properties to be leased; and (iii) an additional $100,000 for permit and engineering costs.

PG&E' believes that it must begin to incur these expenses prior to Plan confirmation for the following reasons. The permits can, take as long as two months to process; therefore, as, soon as the project managers identify a need for a permit, an' application will be submitted to the appropriate local government entity.7 The preliminary engineering work must begin prior to confirmation so that the actual construction work can begin promptly, following confirmation; also, certain preliminary engineering work is required in connection with the preparation of construction or conditional use permit applications., Finally, an environmental assessment of any property to.be leased must be completed prior to the time PG&E, enters into the lease, so that PG&E can be fully informed about any environmental hazards associated with the building and have a baseline assessment of the condition of the building prior to PG&E's occupancy.

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ETran*s Com'municationis Plan (Cost Estimate-$280,000).8 The sepaatio of PG&E contemplated by the Plan creates special communications is sueýs With respect to ETMans, the entity that will carry on the electric transmissioIn line of business., Unlike the other lines of business within PG&E today, the a Although PG&E may request permits in advance of leasing the properties, it is

,anticipated that th6 building owners will consent to the permit applications.

8 See Declaration of Judi Mosley filed concurrently herewith..

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.27 28 electric transrmiis'sion line of business is operated aIspart of PG&E's integrated transmission and distrib-tion busirieýs op-rations " ilio it ay iiidep~n'd~rit communi6atidns-related materials'or resources. "Therefore, PG&E has iden tified the need to develop! a T tre rancustoers ari governme nt and conifiunic tions plafn to comrmunicate with T

-tiEr' ETrans '

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ga regulator' agenici&s'about EMraini, includifig the'services it 'willl'offer, 6peraitioinial

'informati6n and emergency proceures Thecomiuiiinications plan will helý ensure a smooth operating transitio'n in electric transc6issioh sevic( fr'i6m PG&E to ETrans. 'The "1ETrafis cdmmunications plal'will ifichide(i) dev'elopiireritbof m-aterials (sch informational packets), and (ii) meetings with customers anrd g6vernment and rýegulat6ry iagencies. 'As described below,' a miajority' of th& 6osts for this projecit ivill not be incurred until after coiifirmationof the Pla'n; h6-iev'eriin the initerest ofju'dicial'ecd6on'my and to avoid repetitive motions, PG&E lids included all 6xp'enses reldte'd fothe tTrans coniihnunications plan in this'Motion.

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Communications Consultant. PG&E seeks to hire John Ferrare as a

..communicationis consultant-'td6 irovide design' and ecthnical wrniing' ervicis for all ETrans communications materials, t6 develop customer'communications strategy arid to manage the customer mneetings that will be required. 'PG&E estimates that the total expenses for the communications consultant will be approximately $130,000, with work to commence in November 2002 and to 60ntinue to'the ?Ian Effective Date.

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Communications An'alysts'. PG&E seeks to hire'two'communications

-analysts through CoreStaff Services, Inc., a temporary staffing agency,,to provide administrative support~for the ETranfs 6ommuihicatioris'Illn, inchlding editing and proofreading, material layout, and assistance with customer'meetings. PG&E estimates that the total.expenses.

the communications analysts will be appr6ximately $62,000, with' work to commence in December2002 and to continue to the Plan Effective Date.

• ETrans customers will include PG&E,as'wvell'as'arious whblesale customers, including municipal districts, generators and certain wifeless'and fiber o1tic' camriers.

"THIRD MOTION FOR'AUTHORITY TO INCUR MISCELLANEOUS IMPLEMENTATION EXPENSES N~t

1 3.,

Customer Meetings. In connection with meetings to be organized with 2

customers, PG&E estimates that it will incur total expenses of approximately $70,000.

3 These costs would include such items as renting meeting or conference facilities, prepanng 4

presentations, including audiovisual costs, and other related costs associated with the 5

customer meetings:. These costs will not be incurred until after Plan confirmation.

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Communications Materials. In addition to the consultants' services 7

described above, there will be material and printing costs of approximately $18,000 in 8

connection with preparing the ETrans communications materials. These costs will not be 9

incurred until. after Plan confirmation.

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,,Although PG&E anticipates that no more than $50,0Q0 of the total $280,000 in 11 expenses described above will be incurred prior to confirmation of the Plan, PG&E believes 12 that the project must begin promptly to allow for sufficient time to implement the ETrans 13 communications plan in advance of the Plan Effective Date.

RKM NEAMINt*//

_15 THE ADDITIONAL IMPLEMENTATION EXPENSES SHOULD BE APPROVED PURSUANT TO SECTION 363(b)(1) OF THE BANKRUPTCY CODE 16 I

PG&E seeks approval for the vaiious implementation expenses set forth above as 1 7 a u s e o f t h e o rd i n a ry th a t-is obtssi n e s s u n d ert B a n k r u p t c c ur f

s nes uderBankruptcy Code SectionA 36

)(1n."'Sifice tliese"projects are related to the implementation of the Plan, 19 PG&E believes that the purpose and'scope of the expenditure may be characterized as 20 itsfde of the ordin ary'ouof business and theref6re iequires Court approval.'0 21 h'iapusattSeto "The' Cburf ha considerable discretion in approving a request pursuant to Section 22 363(b)(1) oft he Bainkifiptcy Code ("[t]he frustee, after 'notice and a hearing, may use, sell or lease, othler thain the crdinary course of business, property of the esiate"). See In re 24 Montgomeiy Ward Holding Cor., 242 B.R. 147, 153 (D. Del. 1999) (affirming the 25 26 10 PG&E believes that the consultants described above should not be considered "professional persons" requiring approval under Bankruptcy Code Section 327(a). This is 27 due both to the nature of the services to be provided and to the consultants' limited role in 28 connection With PG&E's reorganiza'tion proceeding.

THIRD.MOTION FOR AUTHORITY TO INCUR MISCELLANEOUS IMPLEMENTATION EXPENSES

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bankruptcy court's decision to appiove expenditure for employ'ee incentive programs, noting 2

that bankruptcy court has c6nsiderable discretion in approving a Section 363(b) motion).

"3 In determining whether to authorize a transaction iindelr Secti6i'363(b)(1), courts 4

require a debtor to show that a sound business purpose justifi.e` such actions, applying the 5

business judgment test. See, e._., Stephens Indus., Inc. v. McClung, 789 F.2d 386, 389-90 6

(6th Cir.: 1986); Committee'of Equity Sec.-Holders v. Lionel 'Corp. (In re Lionel Corp.), 722 7,

F.2d 1063, 1071 (2d Cir. 1983);'see also'3 Lawrence P. King, Collier on BankrUptcy 8

¶363.02[1][g] (15th ed. rev. 1998).

9 Once the debtor has articulated a rational business justification, a presumption 10 attaches that the decision was made '"on an informed basis, in good faith and in the honest 11 belief that the action taken' was'inf the best interest of the [debtor]." See,'e.g., Official 12 Comm. of Subordinated Bondholders V.: Integrated Res., Inc. (In re IntegrAted Res., Inc.),

HcWAM 13 147 B.R. 650, 656 (S.D.N.Y. 1992) (citing Smith v. Van'Gorkom, 488 A.2d 85'8 (Del.

CAU 14 1985))..'

EFAl(

, 15 Souind business jiihtifications exist for approval of the valious implementation 16 costs described above. PG&E does not have sufficient capacity or skills in-house to perform 17 and complete the work without the assistance of the outside consultants. Also, PG&E is 18 solvent and has sufficient cash to pay the expenses described herein without causing any 19 detriment to its creditors."

20 Consistent with PG&E's previous implementation expense requests, PG&E 21 continues to enter into contracts with consulting firms that allow PG&E to terminate without 22 cause and without any penalty, so that in the event that the implementation work is no longer 23 necessary, PG&E can minimize its costs. Furthermore, PG&E has included only those 24 projects that have been identified as critical for completion by or in advance of the Plan 25 Effective Date, and which require long lead time or must be completed before subsequent, 26 27 11 As reflected in PG&E's August 2002 Monthly Operating Report, PG&E held more 28 than $4.1 billion in cash reserves as of August 31, 2002.

THIRD MOTION FOR AUTHORITY-TO INCUR MISCELLANEOUS IMPLEMENTATION EXPENSES 1

1 related implementation work can be performed. On that basis, PG&E believes that the 2

implementation projects described herein are recessary and should be hpproved so that work 3

can commence promptly.

4 5

CONCLUSION.

6 For all of the foregoing reasons,, PG&E respectfully requests that the Court 7

approve the costs described above ana ýrant 8uch other arid further relief as may be just and 8

appropriate.

9 DATED: October 18,2002 10

.' *Respectfully, 11 C

HOWARD, RICE, NEMEROVSKI,,CANADY, FALK & RABKIN 12 A Professional Corporation.

HcM*R 13 "I

.t("

.°"L"E HOWAM 13 r~ov*<*

.1...By:

CAM 14

-,q A

,LIE B. LANDAU 15 Attorneys fort Vebtor and Debtor in Possession 1 6 PACIFIC GAS AND ELECTRIC COMPANY 17 18 20 21 22 23 24 25 26 27 28 THIRD MOTION FOR'AUTHORITY TO INCUR MISCELLANEOUS IMPLEMENTATION EXPENSES