ML030380364
| ML030380364 | |
| Person / Time | |
|---|---|
| Site: | Diablo Canyon  |
| Issue date: | 01/30/2003 |
| 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 DM, 94-0742640 | |
| Download: ML030380364 (7) | |
Text
JAMES L. LOPES (No. 63678)
GARY M. KAPLAN (No. 155530)
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 1
2 3
4 5
6 7
8 9
10 11 12 13 RKI N
14 A,.R 15 16 17 In re PACIFIC GAS AND ELECTRIC COMPANY, a California corporation, Debtor.
Federal I.D. No. 94-0742640 Case No. 01-30923 DM Chapter 11 Case Date:
Time:
Place:
February 27, 2003 1:30 p.m.
235 Pine Street, 22nd Floor San Francisco, California NOTICE OF MOTION AND MOTION FOR AUTHORITY TO INCUR POST-PETITION SECURED DEBT IN CONNECTION WITH NATURAL GAS TRANSPORTATION AGREEMENT WITH PG&E GAS TRANSMISSION, NORTHWEST CORPORATION; MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF
[SUPPORTING DECLARATION OF MICHAEL G. WHITE FILED SEPARATELY]
MOTION FOR AUTHORITY TO INCUR POST-PETITION SECURED DEBT; MPA Attorneys for Debtor and Debtor in Possession PACIFIC GAS AND ELECTRIC COMPANY UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF CALIFORNIA SAN FRANCISCO DIVISION 18 19 20 21 22 23 24 25 26 27 28
1 PLEASE TAKE NOTICE that on February 27, 2003 at 1:30 p.m., or as soon 2
thereafter as the matter may be heard, in the Courtroom of the Honorable Dennis Montali, 3
located at 235 Pine Street, 22nd Floor, San Francisco, California, Pacific Gas and Electric 4
Company, the debtor and debtor in possession in the above-captioned Chapter 11 case
.5
("PG&E"), will and hereby does move the Court for authority to incur post-petition secured 6
debt in connection with a natural gas transportation agreement between PG&E and PG&E 7
Gas Transmission, Northwest Corporation ("GTN").
8 This Motion is based on this Notice of Motion and Motion, the accompanying 9
Memorandum of Points and Authorities, the Declaration of Michael G. White filed 10 concurrently herewith, the record of this case and any evidence presented at or prior to the 11 hearing on this Motion.
12 PLEASE TAKE FURTHER NOTICE that pursuant to Rule 9014-1(c)(1) of the 13 Bankruptcy Local Rules for the Northern District of California, any written opposition to the RKM h
14 Motion and the relief requested herein must be filed with the Bankruptcy Court and served W*IK
,.;;z 15 upon appropriate parties (including counsel for PG&E, the Office of the United States 16 Trustee and the Official Committee of Unsecured Creditors) at least 14 days prior to the 17 scheduled hearing date. If there is no timely opposition to the requested relief, the Court 18 may enter an order granting such relief without further hearing.
19 20 21 22 23 24 25 26 27 28 MOTION FOR AUTHORITY TO INCUR POST-PETITION SECURED DEBT; MPA 1
MEMORANDUM OF POINTS AND AUTHORITIES 2
PG&E requests authority, pursuant to 11 U.S.C. Section 364, to incur post 3
petition secured debt in connection with a natural gas transportation agreement with GTN, as 4
described further below.
5 6
I.
FACTUAL BACKGROUND' 7
PG&E filed a voluntary petition for relief under Chapter 11 of the Bankruptcy 8
Code on April 6, 2001. A trustee has not been appointed, and PG&E continues to operateits 9
business as a debtor in possession pursuant to Sections 1107 and 1108 of the Bankruptcy 10 Code.
11 A.
GTN's Natural Gas Transportation Services 12 and Request for Collateral Related Thereto.
13 Pursuant to a Firm Transportation Service Agreement dated October 26, 1993 RIM mK 14 (the "Service Agreement") between PG&E and GTN,2 GTN transports natural gas supplies EJRAWNN 15 purchased by PG&E in Canada. These gas supplies are transported through GTN's pipeline 16 (located at the border of British Columbia, Canada and Idaho) to the Oregon-California 17 border, where the pipeline connects with PG&E's California gas transmission system. The 18 Service Agreement requires GTN to provide PG&E with 609,968 decatherms per day of 19 transportation (a decatherm is equal to 100,000 British thermal units). Pursuant to the 20 Service Agreement, PG&E pays GTN a fixed monthly reservation fee to reserve the right to 21 use the foregoing capacity and also pays GTN volumetric fees based on the actual quantities 22 transported each month. Currently, the fixed monthly reservation fee is approximately $4.6 23 million.
24 PG&E has utilized GTN to transport natural gas supplies purchased in Canada 25 26 The evidentiary basis and support for the facts set forth in this Motion are contained in the Declaration of Michael G. Whlte filed concurrently herewith ("White Declaration").
27 2 GTN is a subsidiary of PG&E National Energy Group, Inc., which is a wholly-owned 28 subsidiary of PG&E Corporation, the parent corporation of PG&E.
MOTION FOR AUTHORITY TO INCUR POST-PETITION SECURED DEBT; MPA 1
since 1961. Canadian gas supplies comprise approximately 70% of PG&E's natural gas 2
portfolio, from which PG&E serves more than 3 million core gas customers.
3 Pursuant to a GTN tariff approved by the Federal Energy Regulatory 4
Commission or "FERC" (the "Tariff'), there are credit requirements for "Shippers" such as 5
PG&E contracting for gas transportation services with GTN. These credit requirements 6
specify that GTN shall not be required to perform or to continue transportation services on 7
behalf of any Shipper that is or becomes insolvent, or who fails within a reasonable period of 8
time to establish or confirm creditworthiness. Shippers who fail to meet the creditworthiness 9
requirements have the option of providing a guarantee of financial performance or providing 10 security acceptable to GTN.3 11 As a result of the downgrading of PG&E's credit rating in January 2001, GTN 12 requested and obtained collateral from PG&E in the amount of $11.4 million on or about 13 January 10, 2001. This amount represented approximately three months of fixed reservation "Mm"' 14 fees as well as three months of estimated volumetric fees under the Service Agreement, at A
. 15 the rates in effect as of January 2001. Effective November 1, 2002, GTN increased the 16 reservation rate under the Service Agreement, pursuant to a FERC-approved tariff, by 17 approximately $930,000 per month. As a result, the $11.4 million previously deposited as 18 collateral is no longer sufficient to cover three months of fees under the Service Agreement.
19 Therefore, GTN has requested an additional $2,783,457 to be deposited with GTN as 20 collateral.4 21 22 23 3 A copy of the relevant portion of the Tariff is attached as Exhibit A to the White Declaration.
24 4 PG&E has requested that the collateral amount be deposited into an escrow or other segregated account with GTN. GTN has indicated that it is not willing to segregate these 25 funds and that it does not segregate similarly situated collateral received from other Shi pers. However, GTN has confirmed in writing that these funds are being held as 26 collateral to secure PG&E's obligations under the Service Agreement. Nevertheless, the absence of a segregated account for these funds may expose PG&E to certain risks in 27 connection with obtaining the return of the collateral in the event that GTN failed to comply 28 with its obligation to return the collateral to PG&E.
MOTION FOR AUTHORITY TO INCUR POST-PETITION SECURED DEBT; MPA 1
B.
Adequate Protection of Senior Indebtedness.
2 The indenture trustee for certain mortgage bonds issued by PG&E (the "Indenture 3
Trustee"), who holds a lien on substantially all of PG&E's assets for the benefit of the 4
mortgage bondholders, is fully secured and adequately protected by a substantial equity 5
cushion. The Indenture Trustee has indicated that it has no objection to this Motion 6
provided that PG&E can establish that its interests are adequately protected. It is undisputed 7
that the indebtedness held by the mortgage bondholders is adequately protected by a 8
substantial equity cushion. See Motion for Order Modifying Stipulation: (i) Authorizing 9
Use of Cash Collateral, etc. and Declaration of Kent Harvey filed in support thereof on 10 February 1, 2002 as Docket Nos. 4577 and 4578 (establishing that PG&E's total assets 11 exceeded the unpaid bond indebtedness by more than $20 billion). See also PG&E's 12 Monthly Operating Report for the month ended November 30,2002 (filed on December 30, 13 2002), reflecting total assets of approximately $25 billion. Since the filing of the above p
14 referenced cash collateral motion, the amount of the unpaid bond indebtedness has decreased Fix 15 while PG&E's total assets remain at approximately $25 billion.
16 II.
17 PG&E SHOULD BE AUTHORIZED TO INCUR THE POST-PETITION SECURED DEBT PURSUANT TO BANKRUPTCY CODE SECTION 364 18 19 Bankruptcy Code Section 364(d)(1) provides, in pertinent part, as follows:
20 The Court, after notice and a hearing, may authorize the obtaining of credit or the incurring of debt secured by a senior or equal lien on 21 property of the estate that is subject to a lien only if 22 (A) the trustee is unable to obtain such credit otherwise; and 23 (B) there is adequate protection of the interest of the holder of the lien on the property of the estate on which such senior or equal lien is 24 proposed to be granted. (11 U.S.C. §364(d)(1))
25 Thus, the only statutory prerequisites for obtaining credit on a senior secured 26 basis is that the debtor be unable to obtain such credit otherwise, and that there be adequate 27 protection for the existing lienholder. This test is clearly satisfied in this case. As discussed 28 above, PG&E cannot arrange for necessary gas transportation services without meeting MOTION FOR AUTHORITY TO INCUR POST-PETITION SECURED DEBT; MPA It 1
GTN's creditworthiness requirements. The GTN Tariff permits GTN to stop performing 2
services unless security is provided, in the absence of meeting the creditworthiness 3
requirements. Furthermore, the only existing potential lienholder (the Indenture Trustee) is 4
fully secured and adequately protected by a substantial equity cushion.
5 In determining whether to approve a transaction under Section 364, courts act in 6
their "informed discretion." In re Ames Dep't Stores, Inc., 115 B.R. 34, 37 (Bankr.
7 S.D.N.Y. 1990). Courts have established that such discretion is to be utilized to permit the 8
debtor's reasonable business judgment to be exercised so long as the financing agreement 9
does not contain terms that are primarily designed to benefit the secured party at the expense 10 of the estate or leverage the bankruptcy process. Id. at 39-40; In re Simasko Prod. Co., 47 11 B.R. 444,)449 (D. Colo. 1985). In undertaking such analysis, courts focus on the following 12 principal factors: proposed terms that would tilt the conduct of the bankruptcy case; 13 prejudice, at the early stages, to the powers and rights that the Bankruptcy Code confers for 14 the benefit of all creditors; or terms that leverage the Chapter 11 process by preventing A,**,.,
15 motions by parties in interest from being decided on their merits. In re Tennev Village Co.,
16 Inc.,
104 B.R. 562, 567-70 (Bankr. D.N.H. 1989); Norris Square Civic Ass'n v. St. Mary 17 Hosp. (In re St. Mary Hosp.), 86 B.R. 393,401-02 (Bankr. E.D. Pa. 1988); In re Crouse 18 Group, Inc., 71 B.R. 544, 550-51 (Bankr. E.D. Pa. 1987).
19 As discussed above, PG&E seeks to deposit the $2,783,457 in order to satisfy 20 GTN's creditworthiness requirements. This financing will allow PG&E to continue to serve 21 its gas customers by obtaining necessary natural gas transportation services. PG&E believes 22 that the amount of collateral to be posted as security is reasonable as it is calculated to cover 23 approximately three months of fees under the Service Agreement. Accordingly, the Court 24 should authorize PG&E to incur post-petition secured debt in favor of GTN under Section 25 364.
26 27 28 MOTION FOR AUTHORITY TO INCUR POST-PETITION SECURED DEBT; MPA CONCLUSION Based on the foregoing, PG&E respectfully requests authority to incur post petition secured debt in the amount of $2,783,457 in favor of GTN, pursuant to 11 U.S.C.
Section 364, and that the Court grant such other and further relief as may be just and appropriate.
1 2
3 4
5 6
7 8
9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Respectfully, HOWARD, RICE, NEMEROVSKI, CANADY, FALK & RABKIN A Professional Corporation B:Q LAIE B. LANDAU Attorneys for Debtor and Debtor in Possession PACIFIC GAS & ELECTRIC COMPANY MOTION FOR AUTHORITY TO INCUR POST-PETITION SECURED DEBT; MPA Y RICE DATED: January 30,2003