ML030230642
| ML030230642 | |
| Person / Time | |
|---|---|
| Site: | Diablo Canyon  |
| Issue date: | 01/17/2003 |
| 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, 94-0742640 | |
| Download: ML030230642 (11) | |
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9 10 In re PACIFIC GAS AND ELECTRIC COMPANY, a California corporation, Debtor.
Federal I.D. No. 94-0742640 Case No. 0 1-30923 DM Chapter 11 Case Date:
Time:
Place:
February 6, 2003 1:30 p.m.
235 Pine Street, 22nd Floor San Francisco, California NOTICE OF MOTION AND MOTION FOR AUTHORITY TO INCUR LEASE EXTENSION FEES; MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF
[SUPPORTING DECLARATION OF KENNETH RICHERSON FILED SEPARATELY]
MOTION FOR AUTHORITY TO INCUR LEASE EXTENSION FEES; MPA T.
JAMES L. LOPES (No. 63678)
JULIE B. LANDAU (No. 162038)
HOWARD, RICE, NEMEROVSKI, CANADY, FALK & RABKIN A Professional Corporation Three Embarcadero Center, 7th Floor San Francisco, California 94111-4065 Telephone:
415/434-1600 Facsimile:
415/217-5910 Attorneys for Debtor and Debtor in Possession PACIFIC GAS AND ELECTRIC COMPANY UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF CALIFORNIA SAN FRANCISCO DIVISION 11 12 HCAARD 13 RP"I c*
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~FAWON 15 16 17 18 19 20 21 22 23 24 25 26 27 28
_56, 2-7S-1 3
1 NOTICE OF MOTION AND MOTION 2
PLEASE TAKE NOTICE that on February 6, 2003 at 1:30 p.m., or as soon 3
thereafter as the matter may be heard in the Courtroom of the Honorable Dennis Montali, 4
located at 235 Pine Street, 22nd Floor, San Francisco, California, Pacific Gas and Electric 5
Company, the debtor and debtor in possession in the above-captioned Chapter 11 case 6
("PG&E"), will and hereby does move the Court for entry of an Order Approving Motion for 7
Authority to Incur Lease Extension Fees related to Implementation of Plan of 8
Reorganization (the "Motion").
9 This Motion is based on this Notice of Motion and Motion, the accompanying 10 Memorandum of Points and Authorities, the Declaration of Kenneth Richerson, filed II concurrently herewith, the record of this case and any evidence presented at or prior to the 12 hearing on this Motion.
HCtNAD 13 PLEASE TAKE FURTHER NOTICE that pursuant to Rule 9014-1(c)(2) of the RICE 14 Bankruptcy Local Rules for the Northern District of California, any written opposition to the 15 Motion and the relief requested herein must be filed with the Bankruptcy Court and served 16 upon appropriate parties (including counsel for PG&E, the Office of the United States 17 Trustee and the Official Committee of Unsecured Creditors) at least five (5) days prior to the 18 scheduled hearing date. If there is no timely objection to the requested relief, the Court may 19 enter an order granting such relief without further hearing.
20 21 22 23 24 25 26 27 28 MOTION FOR AUTHORITY TO INCUR LEASE EXTENSION FEES; MPA. V
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 din order authorizing PG&E to incur 4
lease extension fees related to implementation of PG&E's proposed Plan of Reorganization, 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 PG&E, together with its parent corporation, PG&E Corporation, has proposed a 12 Plan of Reorganization (as amended from time to time, the "Plan"), which is currently the 13 subject of confirmation proceedings before the Court.
E'flX 14 The Plan generally provides for the creation of three new companies, ETrans 15 LLC, GTrans LLC and Electric Generation LLC (collectively, the "New Entities"), whereby 16 PG&E will separate its operations into four lines of business based on PG&E's historical 17 functions. Accordingly, the Reorganized Debtor will continue the retail gas and electric 18 distribution business, ETrans LLC ("ETrans") will operate the electric transmission 19 business, GTrans LLC ("GTrans") will operate the interstate gas transmission business, and 20 Electric Generation LLC will operate the electric generation business.
21 PG&E previously filed and obtained orders approving 13 motions seeking 22 authority to incur business-related costs in connection with implementation of the Plan. In 23 the Motion for Authority to Incur Information Technology Consulting Expenses and the 24 accompanying Declaration of Stephanie Maggard, filed on July 23, 2002, PG&E identified 25 additional implementation projects that would need to commence before the Plan is 26 confirmed (the "Implementation Projects") and estimated that the total expenses for these 27 Implementation Projects would range from $10.8 to $17.8 million. Since that time, PG&E 28 has obtained approval for approximately $8.7 million in additional implementation expenses MOTION FOR AUTHORITY TO INCUR LEASE EXTENSION FEES; MPA 1
pursuant to the (i) Motion for Authority to Incur Miscellaneous Implementation Expenses 2
filed on August 15, 2002, (ii) Motion for Authority to Incur Additional Miscellaneous 3
Implementation Expenses filed on September 12, 2002, and (iii) Third Motion for Authority 4
to Incur Miscellaneous Implementation Expenses filed on October 18, 2002. The present 5
Motion seeks authority to incur approximately $75,000 in additional monthly expenses 6
beginning February 2003 (except that, as noted below, a portion of these monthly expenses 7
would not be paid until March or April 2003) and continuing to such time as the Plan is 8
confirmed.
9 10 A.
Request to Pay Lease Extension Fees for New Facilities to be Leased.'
11 As set forth in the Third Motion for Authority to Incur Miscellaneous 12 Implementation Expenses filed on October 18, 2002 (Docket No. 10594) at page 7, PG&E RCPN 13 anticipates that up to seven new buildings will need to be leased and prepared for occupancy RICE
",,1, 14 for use by the New Entities by the Effective Date under the Plan ("Plan Effective Date').2 A Pf--
C 15 For example, PG&E currently has substation maintenance facilities that include both 16 distribution and electric transmission functions. Since the Reorganized Debtor and the New 17 Entities will be separate legal entities, it is important that there be no confusion about 18 employee supervision and compliance with legal and business requirements. Physical 19 separation of the employees of the Reorganized Debtor and the New Entities will 20 accomplish these important objectives. These new facilities, a subset of the total new 21 facilities that will ultimately be needed by the New Entities, represent only those facilities 22 that are necessary by the Plan Effective Date for the New Entities' commencement of initial 23 field operations.
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' The evidentiary basis and support for the facts set forth in this Motion are contained 25 in the Declaration of Kenneth Richerson, filed concurrently herewith.
2 Pursuant to the Third Miscellaneous Motion, PG&E obtained authority to incur 26 costs for preliminary work related to leasing the new buildings (as well as the modification of existing PG&E buildings). This preliminary work included hiring construction project 27 managers, obtaining necessary permits, doing preliminary engineering and design work and 28 obtaining environmental assessments.
MOTION FOR AUTHORITY TO INCUR LEASE EXTENSION FEES; MPA V
1 The present Motion relates to lease "option" payments (referred to herein as 2
"Extension Fees") for the new buildings that PG&E has now identified as key sites to be 3
leased by one or more of the New Entities immediately following Plan confirmation in order 4
to ensure that the new facilities will be operational by the Plan Effective Date.
5 PG&E is in the process of negotiating the Extension Fees as part of a written 6
lease (or lease assignment) with each landlord (or current tenant) for the various properties 7
described below; however, the leases will not be effective unless and until the Plan is 8
confirmed and the Court has authorized PG&E to enter into the leases. PG&E intends to 9
bring a subsequent motion seeking authority to enter into the leases effective upon Plan 10 confirmation.
II As explained further below, there are five buildings currently available for lease 12 that are well-suited to the needs of the New Entities and for which PG&E has been able to HomJ 13 negotiate or expects to obtain favorable lease terms. However, the landlords (or current 14 tenants) of the five buildings are actively attem pting to lease (or sublease) the space and are UFAiWN 7,;,
15 not willing to hold the properties exclusively for PG&E pending the outcome of the Plan 16 confirmation proceedings. PG&E is also considering a sixth building (described in Section 17 B.6 below). Additional buildings may be needed but have not yet been identified and 18 therefore PG&E reserves the right to bring further motions seeking approval for any 19 additional Extension Fees that may be necessary.
20 In order to prevent the buildings from being leased or subleased to others, PG&E 21 is requesting authority to make month to month payments in exchange for the landlord's 22 agreement to lease the property to PG&E upon Plan confirmation (provided that there may 23 be other conditions to be satisfied, including Court approval). PG&E anticipates that it will 24 obtain six successive "extension periods" of one month each for the properties (i.e., the 25 period of time during which the landlords will agree to accept monthly payments in 26 27 28 MOTION FOR AUTHORITY TO INCUR LEASE EXTENSION FEES; MPA 1
exchange for waiving the right to lease the properties to another tenanty 2
3 B.
Description of Properties and Lease Extension Fees 4
The following describes the particular properties that PG&E intends to lease and 5
the anticipated Extension Fees to be paid for each property in order to ensure the continued 6
availability of each property for lease by PG&E upon Plan confirmation.
7 The properties described below (i) are necessary for the New Entities to 8
commence business operations by the Plan Effective Date, (ii) meet the specific 9
requirements of the New Entities (such as sufficient warehouse space that includes an 10 outside storage or parking area), and (iii) are located in key geographic areas designed to 11 meet the New Entities' needs for regional employee headquarters and to provide convenient 12 access for service employees relative to the service territories to be covered.
HCPAMA 13 RICE oNuý 14
- 1.
GTrans Construction Headquarters in Stockton.
15 PG&E has identified an industrial building in Stockton that is well-suited for use 16 by GTrans as its Construction Headquarters. Employees to be located here will be 17 responsible for all transmission pipeline construction and major emergency repair activities.
18 This location will be near GTrans' transmission pipeline and underground storage facilities 19 and has outstanding freeway access allowing for efficient dispatch of construction crews and 20 fast emergency response. The building also offers a mix of building to yard area that is not 21 readily available in the Stockton area. The building, consisting of approximately 20,000 22 square feet, includes both a warehouse area and an office area; the site includes a large 23 parking lot and covers approximately 3.6 acres. GTrans intends to use the building for 24 offices, storage of materials and a fabrication shop, and to use the lot for parking of 25 construction trucks.
26 27 3 The only exception is for the Foster City property described in Section B.5 below, 28 where PG&E expects to obtain four successive extension periods of one month each.
MOTION FOR AUTHORITY TO INCUR LEASE EXTENSION FEES, MPA 1
PG&E is in the process of negotiating the lease terms and anticipates that the 2
Extension Fees will commence in April 2003 in the amount of approximately $12,000 per 3
month. This amount is equivalent to the base rent (i.e., rental fees without any other charges 4
such as taxes or insurance) that PG&E expects to negotiate for a lease of the property.
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- 2.
GTrans Offices and Maintenance Base in Turlock.
7 PG&E has identified an industrial building in Turlock that is well-suited to 8
GTrans' needs because of its location in relation to GTrans' local transmission facilities.
9 This facility is ideally located for maintenance personnel and emergency response for the 10 area between Ceres and Livingston. The property is desirable due to its large yard area and 11 because it requires only minimal tenant improvements. The building includes both 12 warehouse and office areas, consisting of approximately 6,000 square feet; the site includes HCJVR 13 a parking lot covering approximately 7,500 square feet. This facility will be used for general "C 14 offices by maintenance and operating personnel and for the storage and parking of a portion 15 of the GTrans' truck fleet.
16 PG&E is in the process of negotiating the lease terms and anticipates that the 17 Extension Fees will commence in February 2003 (following approval of this Motion) in the 18 amount of approximately $3,100 per month. This amount is equivalent to the base rent that 19 PG&E expects to negotiate for a lease of the property.
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- 3.
GTrans Offices and Maintenance Base in Oakland.
22 PG&E has identified an industrial building in Oakland that is well-suited to 23 GTrans' needs because of its central location with respect GTrans' local transmission system 24 located between Hayward and Rodeo. PG&E has spent several months looking for an 25 alternative site in the Oakland area and has found no other suitable site. This site also offers 26 good freeway access for rapid emergency response. The building includes both warehouse 27 and office areas (consisting of approximately 11,180 square feet), and will be used as a 28 headquarters for East Bay maintenance and operations employees as well as for storage and MOTION FOR AUTHORITY TO INCUR LEASE EXTENSION FEES; MPA 1
parking of a portion of the GTrans truck fleet.
2 PG&E is in the process of negotiating the lease terms and anticipates that the 3
Extension Fees will commence on March 1, 2003 in the amount of approximately $7,500 per 4
month. This amount is equivalent to the base rent that PG&E expects to negotiate for a lease 5
of the property.
6 7
- 4.
ETrans Warehouse in Woodland.
8 PG&E has identified an industrial building in Woodland that is well-suited for 9
use as a warehouse by ETrans because of its location along the Interstate 5 and Highway 113 10 transportation corridors and its large outdoor storage area. The building will be utilized as a 11 warehouse with limited office space, consisting of approximately 64,800 square feet; the 12 appurtenant land covers approximately 8.42 acres and includes a fenced and paved lot.
HCPAARD 13 PG&E is in the process of negotiating the lease terms and anticipates that the RKE rC=,
14 Extension Fees will commence in February 2003 (following approval of this Motion) in the E*J.C AP,*-
r-15 amount of approximately $22,700 per month for the first 3 months and approximately 16
$32,100 for the next 3 months. The first three months' Extension Fees are equivalent to 17 approximately 85% of the base rent under the lease that would be assigned to PG&E by the 18 current tenant and the next three months' Extension Fees are based on the current tenant's 19 full lease costs (including rent, real estate taxes and insurance).
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- 5.
Shared Building for ETrans and GTrans in Foster City.
22 PG&E has identified an industrial building in Foster City that is well-suited for 23 use by ETrans and GTrans due to its location between San Francisco and San Jose, near 24 local transmission facilities for ETrans and GTrans. ETrans and GTrans intend to use this 25 facility to maintain and operate their respective local transmission facilities located 26 throughout the San Francisco Peninsula region. PG&E has spent several months looking for 27 possible alternatives to this building and has not found a suitable alternative site. The site 28 contains both warehouse and office areas, consisting of approximately 20,000 square feet, MOTION FOR AUTHORITY TO INCUR LEASE EXTENSION FEES; MPA 1
and also includes a 13,500 square foot parking lot. The site would be used for general 2
offices, material storage, truck parking and a fabrication shop.
3 PG&E is in the process of negotiating the lease terms and anticipates that the 4
Extension Fees will commence in February 2003 (following approval of this Motion) in the 5
amount of approximately $20,600 per month. This amount is equivalent to the base rent 6
under the lease that would be assigned to PG&E by the current tenant.
7 8
- 6.
Potential ETrans Site In Or Near Rocklin.
9 PG&E is currently searching for a suitable industrial building for ETrans along 10 either the Highway 50 or Highway 80 corridors, including warehouse and office space, areas 11 suitable for truck parking, material storage and a fabrication shop. PG&E has located only 12 two possible sites that meet ETrans' requirements for outside storage space, both in the HONRD 13 Rocklin area and consisting of approximately 10,000 square feet (building) and RICE "oM.(X 14 approximately 30,000 square feet (yard). The market is competitive for this type of facility EAIK 15 because few such facilities exist in the area. PG&E requests authority at this time to make 16 monthly payments of Extension Fees, if necessary to retain the property once a decision has 17 been made, in the amount of approximately $8,500 per month. PG&E believes that this 18 amount is equivalent to the base rent that could be negotiated for a lease of the properties 19 under consideration.
20 II.
21 THE LEASE EXTENSION FEES SHOULD BE APPROVED PURSUANT TO SECTION 363(b)(1) OF THE BANKRUPTCY CODE 22 23 PG&E seeks approval for the Extension Fees described above as a use of estate 24 property that is outside of the ordinary course of business under Bankruptcy Code Section 25 363(b)(1). Since the purpose of the Extension Fees is related to the implementation of the 26 Plan, PG&E believes that the purpose and scope of the expenditure may be characterized as 27 outside of the ordinary course of business and therefore requires Court approval.
28 The Court has considerable discretion in approving a request pursuant to Section MOTION FOR AUTHORITY TO INCUR LEASE EXTENSION FEES; MPA
'I 1
363(b)(1) of the Bankruptcy Code ("[t]he trustee, after notice and a hearing, may use, sell or 2
lease, other than in the ordinary course of business, property of the estate"). See In re 3
Montgomery Ward Holding Corp., 242 B.R. 147, 153 (D. Del. 1999) (affirming the 4
bankruptcy court's decision to approve expenditure for employee incentive programs, noting 5
that bankruptcy court has considerable discretion in approving a Section 363(b) motion).
6 In determining whether to authorize a transaction under Section 363(b)(1), courts 7
require a debtor to show that a sound business purpose justifies such actions, applying the 8
business judgment test. See, eg., Stephens Indus., Inc. v. McClung, 789 F.2d 386, 389-90 9
(6th Cir. 1986); Committee of Equity Sec. Holders v. Lionel Corp. (In re Lionel Corp.), 722 10 F.2d 1063, 1071 (2d Cir. 1983); see also 3 Lawrence P. King, Collier on Bankruptcy 11
¶363.02[1][g] (15th ed. rev. 1998).
12 Once the debtor has articulated a rational business justification, a presumption HOAARD 13 attaches that the decision was made "on an informed basis, in good faith and in the honest RKE CANUYx 14 belief that the action taken was in the best interest of the [debtor]." See, e.g., Official DU.K
&RABON 15 Comm. of Subordinated Bondholders v. Integrated Res., Inc. (In re Integrated Res., Inc.),
16 147 B.R. 650, 656 (S.D.N.Y. 1992) (citing Smith v. Van Gorkom, 488 A.2d 858 (Del.
17 1985)).
18 Sound business justifications exist for approval of the Extension Fees described 19 above. PG&E has identified the need for each property, including the various properties' 20 desirability based on location, unavailability or higher cost of suitable alternative sites, and 21 satisfaction of specific needs and requirements such as ample warehouse or yard space.
22 PG&E believes that the Extension Fee amounts are reasonable and comparable to the base 23 rent that could be negotiated for a long-term lease of each property. At the same time, 24 PG&E is not assuming the long-term obligations associated with a typical lease until such 25 time as Plan confirmation occurs and this Court has authorized PG&E to enter into leases.
26 PG&E also believes that these properties will not be available to PG&E several months from 27 now without payment of the Extension Fees; therefore, PG&E believes that the Extension 28 Fees are essential to implementation of the Plan.
MOTION FOR AUTHORITY TO INCUR LEASE EXTENSION FEES; MPA 1
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10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DATED: January 17, 2003 Respectfully, HOWARD, RICE, NEMEROVSKI, CANADY, FALK & RABKIN A Professional Corporation By:
aýJULIE B. LAýNDAýU
ý Attorneys for Debtor and Debtor in Possession PACIFIC GAS AND ELECTRIC COMPANY WD 01 1703/1-141990511049361lv3 4 As reflected in PG&E's November 2002 Monthly Operating Report, PG&E held more than $4.1 billion in cash reserves as of November 30, 2002.
MOTION FOR AUTHORITY TO INCUR LEASE EXTENSION FEES; MPA CA!PDX rALU
- fRA.(IN Finally, PG&E is solvent and has sufficient cash to pay the expenses described herein without causing any detriment to its creditors.4 CONCLUSION For all of the foregoing reasons, PG&E respectfully requests that the Court approve PG&E's payment of the Extension Fees described above and grant such other and further relief as may be just and appropriate.