ML032591102
| ML032591102 | |
| Person / Time | |
|---|---|
| Site: | Diablo Canyon  |
| Issue date: | 09/08/2003 |
| From: | Lafferty W 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 309230 DM, 94-0742640 | |
| Download: ML032591102 (14) | |
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7 JAMES L. LOPES (No. 63678)
JANET A. NEXON (No. 104747)
WILLIAM J. LAFFERTY (No. 120814)
HOWARD, RICE, NEMEROVSKI, CANADY, FALK & RABKIN A Professional Corporation Three Embarcadero Center, 7th Floor San Francisco, California 94111-4024 Telephone:
415/434-1600 Facsimile:
415/217-5910 Attorneys for Debtor and Debtor in Possession PACIFIC GAS AND ELECTRIC COMPANY 3
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'11 12 H0AARD 13 l.NEr 14 15 16 17
- UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF CALIFORNIA SAN FRANCISCO DIVISION 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 tbate:
Time:
Place:
Judge:
September 29, 2003 1:30 m.
235 Pine Street, 22nd Floor San Francisco, California Hon. Dennis Montali 18 19 20 21 22 23 24 25 26 27 28 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEBTOR'S MOTION FOR ORDER AUTHORIZING PACIFIC GAS AND ELECTRIC COMPANY TO COMPROMISE CLAIMS AGAINST EL PASO NATURAL GAS COMPANY ET ALIA AND TO ENTER INTO AGREEMENTS RESOLVING THE CLAIMS MPA ISO MOTION FOR ORDER AUTHORIZING PG&E TO COMPROMISE CLAIMS AGAINST EL PASO
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.24 25 26 27 28 TABLE OF CONTENTS Page FACTUAL BACKGROUND 1
I.
STATEMENT OF FACTS 1
II.
SUMMARY
AND STATUS OF THE CLAIMS 2
III.
THE SETTLEMENT TERMS 3
A.
The Master Settlement Agreement 4
- 1.
The Up-front Payments 4
- 2.
The Deferred Payments 5
- 3.
The Contract Concession to CDWR 6
- 4.
Structural Remedies 6
- 5.
Release of Claims By PG&E and El Paso 7
B.
The Allocation Agreement 7
ARGUMENT 9
I.
THE SETTLEMENT IS FAIR AND EQUITABLE AND IN THE BEST INTERESTS OF THE ESTATE.
9 A.
The Probability of Success is Uncertain.
9 B.
The Settlement Amount Is Not Expected To Be Difficult To Collect From the El Paso Entities.
9 C.
The Case is Complex And Continued Litigation Would Entail Unnecessary Expense, Inconvenience and Delay.
10 D.
The Settlement Benefits the Creditors.
11 CONCLUSION 11 MPA ISO MOTION FOR ORDER AUTHORIZING PG&E TO COMPROMISE CLANS AGAINST EL PASO
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9 10 11 12 HoWRD 13 Gvjo 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF AUTHORITIES Page(s)
Cases Martin v. Kane (In re A & C Properties), 784 F.2d 1377 (9th Cir. 1986)
Woodson v. Fireman's Fund Ins. Co. (In re Woodson), 839 F.2d 610 (9th Cir.
1988) 9 9
MPA ISO MOTION FOR ORDER AUTHORIZING PG&E TO COMPROMISE CLAIMS AGAINST EL PASO
-ii-
7 1
Pacific Gas and Electric Company ("PG&E" or the "Debtor"), the debtor and 2
debtor in possession in the above-captioned Chapter 11 case, seeks the Court's authorization 3
to enter into certain agreements which resolve potential claims by PG&E and others 4
(collectively, the "Settling Claimants')' against El Paso Corporation, El Paso Natural Gas 5
Company and El Paso Merchant Energy, L.P. (collectively, "El Paso," and together with the 6
Settling Claimants, the "Parties") arising out of the California energy crisis in 2000 and 7
2001.
8 9
10 FACTUAL BACKGROUND 11 12 1.
___~sD 13 STATEMENT OF FACTS RKE
'GB< 14 From June 2000 to June 2001, the prices paid by California citizens for natural 15 gas and electricity rose to unprecedented levels, creating a state-wide emergency (the 16 "California energy crisis"). Because gas is a key cost-input in most electric generation, spot 17 gas prices in the Topock, Arizona spot market (a key market for incremental supplies of gas 18 for delivery to California) affected open market prices for electric power during the 19 California energy crisis. As a result, California consumers paid at least $8.3 billion more 20 than they expected to pay for natural gas supplies and the natural gas component of electrical 21
'In addition to PG&E, the Settling Claimants consist of: the Attorney General of the 22 State of California, the Governor of the State of California, the California Public Utilities Commission, the California Department of Water Resources, the California Energy 23 Oversight Board, the Attorney General of the State of Washington, the Attorney General of the State of Oregon the Attorney General of the State of Nevada, Southern California 24 Edison Company, e City of Los Angeles, the City of Long Beach, and classes consisting of all individuals and entities in California that purchased natural gas and/or electricity for use 25 and not for resale or generation of electricity for the purpose of resale, between September 1, 1996 and March 20, 2003, inclusive, represented by class representatives Continental Forge 26 Company, Andrew and Andrea Berg, Gerald J. Marcil, United Church Retirement Homes of Long Beach, Inc., doing business as Plymouth West, Long Beach Brethren Manor, Robert 27 Lamond, Douglas and Valerie Welch, William Patrick Bower, Thomas L. French, Frank and Kathleen Stelfa, John Clement Molony, SierraPine, Ltd., John and Jennifer Frazee, John 28 W.H.K Phillip, and Cruz Bustamante.
MPA ISO MOTION FOR ORDER AUTHORIZNG PG&E TO COMPROMISE CLANS AGAINST EL PASO 1
energy supplies. PG&E and its ratepayers bore a substantial portion of these massive 2
overpayments. Declaration Of Joshua Bar-Lev In Support Of Debtor's Motion For Order 3
Authorizing Pacific Gas and Electric Company To Compromise Claims Against El Paso 4
Natural Gas Company Et Alia And To Enter Into Agreements Resolving The Claims ("Bar-5 Lev Decl.') ¶3.
6 7.
8
SUMMARY
AND STATUS OF THE CLAIMS 9
On April 4, 2000, the California Public Utilities Commission (the "CPUC') filed 10 a complaint against El Paso Natural Gas Company ("EPNG"), El Paso Merchant Energy-11 Gas, L.P., and El Paso Merchant Energy Company at the Federal Energy Regulatory 12 Commission (the "FERC') (Docket No. RPO0-241-000) alleging that firm contracts held by 13 El Paso Merchant Energy-Gas, L.P. and El Paso Merchant Energy Company for
,,,,O 14 transportation capacity on the EPNG system were obtained in violation of the FERC's 15 Standards of Conduct and raising issues regarding the exercise of market power (the "FERC 16 Natural Gas Proceeding'). Southern California Edison ("Edison") and PG&E, among 17 others, subsequently intervened in that proceeding. Id. ¶4.
18 Since then, at least seven class action complaints have been filed against El Paso 19 and other defendants in California state courts, alleging that El Paso and others had 20 committed antitrust violations and engaged in unfair competition or unfair business practices 21 in the California gas and/or electric power markets (collectively, the "Class Actions"). The 22 Attorneys General of the States of California and Nevada, the cities of Long Beach and Los 23 Angeles, and various utility companies have filed complaints in state court and at the FERC 24 alleging violations of laws and regulations by El Paso and other power sellers with respect to 25 the California energy crisis. Id. ¶5.
26 In September 2001, the Attorney General of the State of California commenced 27 an investigation into the facts relating to El Paso's participation in the California gas and 28 electric power markets from 1998 to the present, which to date has resulted in the production MPA ISO MOTION FOR ORDER AUTHORIZING PG&E TO COMPROMISE CLAIMS AGAINST EL PASO 1
by El Paso of hundreds of thousands of pages of documents and numerous investigative 2
hearings. The Attorneys General of Washington and Oregon have also been investigating 3
the facts relating to El Paso's direct and indirect participation in the Oregon and Washington 4
electric power and gas markets from 1998 to the present. Id. 16.
5 In addition, the California Attorney General, PG&E and Edison have each filed 6
federal court actions in the United States District Court of the Central District of California 7
alleging that El Paso's manipulation of the California energy market during the energy crisis 8
violated federal and state anti-trust and unfair competition laws.2 The complaints in these 9
now-consolidated actions are based, legally and factually, in large part, on investigation and 10 analysis undertaken by Edison, the CPUC and PG&E in the FERC Natural Gas Proceeding.
I i Id. 17 & Ex. A.
12 13 m.
RNZ
-1 Om 14 THE SETTLEMENT TERMS G*RAN3M 15 In order to resolve the many claims set forth above3 in a manner that would 16 provide prompt and effective relief to the people of the states of California, Nevada, Oregon 17 and Washington without the burden, expense and uncertainty of continued litigation, PG&E, 18 the other Settling Claimants and El Paso (collectively, the Parties") negotiated a settlement 19 (the "Settlement"). I. ¶8. The terms of the Settlement are set forth in the Master Settlement 20 Agreement (the "MSA"), executed on June 24, 2003 and attached as Exhibit B to the Bar-21 Lev Declaration. Id. ¶9. The MSA resolves claims against El Paso in both state and federal 22 court, as well as at the FERC. Id.
23 To implement the payment of consideration under the MSA, the Settling 24 Claimants entered into an Allocation Agreement (the "AA"), attached as Exhibit C to the 25 Bar-Lev Declaration, and a Designated Representative Agreement (the "DRA"), attached as 26 2PG&E's complaint against El Paso is attached to the Bar-Lev Declaration as Exhibit 27 A.
3 The claims and allegations of all of the Settling Parties are set forth in greater detail 28 in the Master Settlement Agreement. See Bar-Lev Decl. Ex. B Part 2.
MPA ISO MOTION FOR ORDER AUTHORIZING PG&E TO COMPROMISE CLANS AGAINST EL PASO
1 Exhibit D to the Bar-Lev Declaration, and will soon enter into an Escrow Agreement (the 2
"EA"). Id. 10. The AA was entered into between the Settling Claimants and sets forth the 3
terms under which the settlement proceeds are to be allocated and administered. Id. 11.
4 The DRA, also entered into between the Settling Claimants, designates the Office of the.
5 California Attorney General as the Designated Representative (the "DR") of the Settling 6
Claimants and governs how and when the DR is to act on behalf of the Settling Claimants.
7 Id. 112. The AA and the DRA were executed simultaneously with the MSA. Id.113. The 8
EA will govern the escrow account in which the settlement funds will be held until disbursed 9
and is still being negotiated and drafted. I. ¶14. PG&E expects the EA to be finalized and 10 the escrow account to be established by approximately September 2003. See id.
11 Because the MSA and AA address the manner of disposition of estate assets, the 12 terms of these agreements are discussed in greater detail below.
HONAM 13 r"IDM 14 A.
The Master Settlement Agreement 15 Under the terms of the MSA, El Paso has agreed to provide, inter alia, $1.55 16 billion in settlement consideration, valued in nominal dollars,4 in three principal forms: (1) 17 up-front payments; (2) deferred payments; and (3) a contract concession. Specifically, El 18 Paso will make up-front payments to the Settling Claimants totaling approximately $550 19 million; will make semiannual payments to the Settling Claimants over twenty years totaling 20 approximately $875 million; and will reduce the price of power to the Settling Claimants by 21
$125 million under a long-term power supply contract between El Paso and the California 22 Department of Water Resources (the "CDWR"). Id. 15.
23 24
- 1.
The Up-front Pavments 25 Under the MSA, the approximately $550 million in up-front payments consists of 26 the following:
27 4'Nominal dollars are amounts that have not been adjusted to take into account the 28 effect of inflation.
MPA ISO MOTION FOR ORDER AUTHORIZING PG&E TO COMPROM[SE CLAIMS AGAINST EL PASO 1
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10 11 12 HIOAPD 13 9CS0" 1 4 INK MNUM Fi 1 5 16 17 18 19 20 21 22 23 24 25 26 27 28 (1) El Paso will deposit into escrow a payment in the amount of $78,590,071 upon the later of the execution of the MSA or the Escrow Effective Date5 (id. 1I6(a) & Ex.
B 14.1(e)(i));
(2) El Paso will deposit into escrow a payment in the amount of $243,229,464 by December 22, 2003 (i 16(b));
(3) El Paso Corporation will sell 26,371,308 shares of its common stock (worth approximately $227,000,000 when the MSA was executed) at the direction of the Settling Claimants after a shelf registration statement authorizing issuance of the shares becomes effective.6 The proceeds of that stock sale will be deposited into escrow id. %16(c) & Ex. B
¶4.1(j)); and (4) El Paso will deposit into escrow prior to the Effective Date7 a payment in the amount of $2 million, from a bonus pool for El Paso officers. Id. 116(d) & Ex. B 4.1(b).
- 2.
The Deferred Payments Beginning on the later of the Effective Date or July 1, 2004, El Paso will begin making deferred payments totaling approximately $875 million in forty semi-annual installments over a period of twenty years (the "Deferred Payments"). Id. ¶17 & Ex. B
¶4.1 (dXi). El Paso may prepay its deferred payment obligation, in full or in part, before or after the Effective Date. Id. ¶17 & Ex. B ¶4.1(d)(ii)(A). If El Paso regains an investment grade credit rating for a period of six months or longer, the remaining payments are accelerated so that the obligation is paid off within fifteen instead of twenty years. Id. ¶17 &
5The Escrow Effective Date is the date on which all Parties (or their designated representatives) and an acceptable escrow agent execute an escrow agreement 61t should be noted that the value of this component of the up-front payments may be significantly affected by the value of El Paso common stock when it is registered and sold.
'The Effective Date is defined as the date when all conditions precedent have been satisfied, including, inter a entry of a judgment by the San Diego Superior Court approving the class action settlement, approval of the settlement by theTERC and dismissal of various FERC proceedings against El Paso, the approval by the Bankruptcy Court of the settlement as to PG&E. andentry of a stipulated judgment in federal distnct court encompassing the structural relief agreed to by the parties. Bar-Lev Decl. Ex. B 113.1, 3.2.
MPA ISO MOTION FOR ORDER AUTHORIZING PG&E TO COMPROMISE CLAIMS AGAINST EL PASO 1
Ex. B 54.1(d)(i)(B). Under a twenty-year amortization schedule, each semiannual payment 2
will be in the amount of $21,890,651. Id. ¶17 & Ex. B ¶4.1(d)(i). If the amortization 3
schedule is accelerated to fifteen years, the amount of each payment will increase, although 4
the precise amount of the increase will depend on when the acceleration takes place. See id.
5
¶l7 & Ex. B 4.1(d)(i)(B). The amortization schedule will not revert to twenty years if El 6
Paso thereafter becomes non-investment grade. See id.
7 El Paso will secure the Deferred Payments with oil and gas reserves with a value 8
equal to 130% (a coverage ratio of 1.3 to 1) of the net present value of the outstanding 9
Deferred Payments, measured as of the close of each calendar quarter. Id. 18 & Ex. B 10 8.3(a)(ii). El Paso will deliver letters of credit or other collateral acceptable to the Settling 11 Claimants and to any applicable rating agency (if the obligations have been monetized). Id.
12
¶18&Ex.B¶8.3.
HOURD 13
,^,
14
- 3.
The Contract Concession to CDWR 15 As of the Effective Date, El Paso will amend the Master Power Purchase and Sale 16 Agreement dated as of February 9, 2001, between El Paso Merchant LP and CDWR to 17 reduce the price of the contract by $125,000,000 over the remaining two and half years of 18 the term of the contract. Id. 19 & Ex. B 4.1(g). Underthe AA, CDWR has committed to 19 use all consideration allocated to it (including this contract concession) to reduce its annual 20 revenue requirement. Id. 119 & Ex. C ¶4(c)(ii).
21 22
- 4.
Structural Remedies 23 El Paso agrees to certain "structural remedies" to prevent any future manipulation 24 of the California gas market, including guarantees to make physically available the capacity 25 to deliver 3,290 MMcf/day of gas to California and clarification of the procedure whereby 26 northern California shippers may recall Block II capacity in order to serve customers in 27 PG&E's service area, as set forth in the settlement approved by the FERC in Docket No.
28 MPA ISO MOTION FOR ORDER AUTHORIZING PG&E TO COMPROMISE CLAIMS AGAINST EL PASO 1
RP95-363-000 on April 16, 1997 (the "1996 Settlement").8 Id. ¶20 & Ex. B ¶3.5, Appendix 2
1.69. With the exception of issues that are within the exclusive jurisdiction of the FERC, the 3
structural remedies are to be enforced in Federal District Court through a special master. Id.
4
¶20 & Ex. B, Appendix 3.4.
5 6
- 5.
Release of Claims By PG&E and El Paso 7
Pursuant to the MSA, PG&E agrees to release all claims against El Paso related 8
to, inter alia, the exercise of market power, manipulation or misreporting of gas or electric 9
power prices; and reduction of the supply of natural gas, electric power or gas pipeline 10 capacity for the period September 1, 1996 Through March 20, 2003. Id. ¶21 & Ex. B ¶5.2.
11 In return, El Paso agrees to release all claims against PG&E related to, inter alia, the price or 12 supply of natural gas, electric power or gas pipeline capacity for the period through March 13 20, 2003, including El Paso's bankruptcy claim against PG&E for approximately $57.5 R=
,"Nw 14 million, the amount PG&E allegedly owes for sales of power to PG&E through the 15 California Independent System Operator and the California Power Exchange' (Claim No.
16 0008837). Id. ¶21 & Ex. B ¶¶5.3, 5.4. The release does not cover claims asserted by PG&E 17 against other parties in various regulatory proceedings, such as the FERC Refund 18 Proceeding and the 390 QF Proceeding at the CPUC, where PG&E is seeking refunds of 19 excessive energy payments made to Qualifying Facilities ("QFs') during the energy crisis 20 (including El Paso owned/controlled QFs). Id. ¶22 & Ex. B ¶5.5(c).
21 22 B.
The Allocation Agreement 23 In addition to the settlement with El Paso, the Settling Claimants also agreed on 24 the allocation of and administration of the settlement proceeds. Id. ¶23 & Ex. C. The key 25 elements of the AA, which was entered into between the Settling Claimants, are as follows:
26
&The parties to the 1996 Settlement divided EPNG's 1.614 Epf/day of turnback 27 capacity into three blocks (Blocks I, II and III) for the term of that settlement. Block II contains 614 MMcf/day of capacity and consists of primary point deliveries to Topock for 28 PG&E and others.
MPA ISO MOTION FOR ORDER AUTHORIZING PG&E TO COMPROMISE CLAIMS AGAINST EL PASO 1
(1) The consideration is being divided pro rata based on calculation of the 2
"damages" suffered by each party.9 Id. 123 & Ex. C 14. The percentages can only be 3
estimated at this time because, depending on the final allocation of consideration to 4
municipal claimants (which is subject to a claims procedure), the allocation percentages of 5
the other Settling Claimants may change to some extent. Id. ¶23 & Ex. C 14(d).
6 (2) PG&E will receive approximately 6% (currently estimated at $81 million) of 7
the total consideration for damages incurred as a result of core gas purchases and 8
approximately 16% (currently estimated at $217 million) of the total consideration for 9
damages as a result of electricity purchases (collectively, the "Settlement Amount). Id. ¶24 10
&Ex. C4.
11 (3) In a rulemaking proceeding initiated pursuant to a recent Order Instituting 12 Rulemaking ("OIR"), the CPUC will determine how the El Paso settlement proceeds paid to 13 PG&E should be allocated among various classes of customers and will designate the refund
,N,, 14 and accounting mechanisms for PG&E's portion of the proceeds. Id. 25 & Ex. C ¶4(b).
15 Further, the CDWR is allocated approximately 33% (approximately $461 16 million) for damages as a result of electricity purchases, which include the reduced price of 17 its contracts with El Paso. Id. ¶26 & Ex. C ¶4(c). All consideration received by the CDWR 18 shall be used to reduce the CDWR's revenue requirement, and the allocation of such 19 reduction among utilities shall be determined by the CPUC. Id.
20 21 22 23 24 9Such pro rata sharing percentages apply to the up-front and deferred consideration 25 received from El Paso. The consideration reflects prior deduction of certain fixed amounts, including (1) fixed allocations for the settlement shares of the states of Washington, Oregon 26 and Nevada, and for the consideration going to certain other non-class claimants; (2) attorneys' fees for the attorneys representing the plaintiff classes and for the attorneys 27 representing the Office of the California Attorney General, the CPUC, PG&E, Edison, and the City of Los Angeles; and (3) the $125 million CDWR contract concession. Bar-Lev 28 Decl. Ex. C3, 4, 6.
MPA ISO MOTION FOR ORDER AUTHORIZING PG&E TO COMPROMISE CLAIMS AGAINST EL PASO 1
ARGUMENT 2
3 I.
4 THE SETTLEMENT IS FAIR AND EQUITABLE AND IN THE BEST INTERESTS OF THE ESTATE.
5 6
"The law favors compromise and not litigation for its own sake... " Martin v.
7 Kane (In re A & C Properties) 784 F.2d 1377, 1381 (9th Cir. 1986). Bankruptcy courts 8
have great latitude in approving compromise agreements that are "fair and equitable."'
9 Wood son v. Fireman's Fund Ins. Co. an re Woodson. 839 F.2d 610, 620 (9th Cir. 1988).
10 In determining whether a compromise is "in the best interest of the bankrupt estate" (A & C 11 Properties 784 F.2d at 1382), courts consider the following factors:
12
"(a) The probability of success in the litigation; (b) the difficulties, if any to be encountered in the matter of collection; (c) the complexity 13 ofg ltigat involved, and the expense, inconvemence and delay Pas necessanly attending it; and (d) the paramount interest.of the creditors mc'i 14 and a proper deference to their reasonable views in the premises." (Od.
een~a 1at 1381) 15 16 PG&E respectfully submits that these A & C Properties factors weigh in favor of 17 the Settlement, as demonstrated below.
18 19 A.
The Probability of Success Is Uncertain.
20 In a case of this type, the outcome is always uncertain, and the probability of 21 success is difficult to weigh. El Paso has denied all wrongdoing and disputes the amount of 22 damages suffered by PG&E and the other Settling Claimants. If PG&E's federal action were 23 to proceed through trial, there is a reasonable risk that the factfinder would award PG&E 24 damages that would be lower than the Settlement Amount. Bar-Ley Decl. 127.
25 26 B.
The Settlement Amount Is Not Expected To Be Difficult To Collect From the El Paso Entities.
27 28 The pursuit of PG&E's claims against El Paso in the federal action and elsewhere MPA ISO MOTION FOR ORDER AUTHORIZING PG&E TO COMPROMISE CLANS AGAINST EL PASO 1
(to the extent necessary) would require lengthy and expensive litigation, and the judgment 2
would likely be subject to appeal. Consequently, a considerable amount of time would pass 3
before El Paso would be required, if at all, to compensate PG&E for its alleged damages.
4 The Settlement minimizes this delay and uncertainty by preventing further appeals and 5
disputes and by providing for guaranteed up-front and deferred payments by El Paso to 6
PG&E and the other Settling Claimants. Id. ¶28.
7 Under the terms of the MSA, El Paso shall deposit the settlement proceeds into 8
an escrow account for payment to the Settling Claimants. Id. 116 & Ex. B ¶4.1(b), (e), ().
9 El Paso will also secure the Deferred Payments with oil and gas reserves with a value equal 10 to 130% of the net present value of the Deferred Payments, measured as of the close of each 11 calendar quarter. Id. ¶18 & Ex. B ¶8.3(a)(ii). El Paso will also deliver letters of credit or 12 other collateral acceptable to the Settling Claimants and to any applicable rating agency. Id.
H MM 13 18 & Ex. B ¶8.3. In the event of default, the Settling Claimants may, upon prior notice to N
14 El Paso, accelerate the Deferred Payments, making the entire discounted amount 15
'immediately due and payable. Id. ¶29 & Ex. B ¶9.1. As such, PG&E expects collection of 16 the Settlement Amount to be without difficulty. See id.
17 18 C.
The Case is Complex And Continued Litigation Would Entail Unnecessary 19 Expenses Inconvenience and Delay.
20 The Settlement is monumental in scope and complexity, it resolves the complex 21 and various claims against El Paso of over twenty parties who previously differed in their 22 willingness to settle. If the Settlement were not approved, each of the Settling Claimants 23 would presumably continue litigating its particular claims at great expense and 24 inconvenience to both the parties involved and the courts. Id. 130.
25 PG&E's litigation against El Paso raises many complex and challenging issues, 26 including El Paso's expected challenge of PG&E's damages. These complex issues would 27 presumably require extensive expert analysis and testimony and result in protracted and 28 costly litigation. Based on the foregoing considerations, PG&E believes that the Settlement MPA ISO MOTION FOR ORDER AUTHORIZING PG&E TO COMPROMISE CLANS AGAINST EL PASO 2
3 4
5 6
7 8
9 10 11 12 1I0ARD 13 irE NoU 14 ENK RRAWN Z;Z;W_ 15 16 17 18 19 20 21 22 23 24 25 26 27 28 eliminates such unnecessary expense, inconvenience and delay and is thus favorable to the Debtor. See id. 31.
D.
The Settlement Benefits the Creditors.
The Settlement fully resolves PG&E's claims against El Paso without the expense, risk and delay inherent in PG&E's civil action against El Paso. Id. ¶32. Avoidance of unnecessary litigation will benefit PG&E's creditors by minimizing costs and delay and allowing PG&E's personnel to focus on more critical functions. I. The Settlement Amount will avoid the risk of a lower net recovery for the estate if PG&E were to pursue its civil action against El Paso through trial. I. 133. Moreover, El Paso has agreed to withdraw its bankruptcy claim against PG&E, thereby eliminating the need to expend further estate resources in separate litigation concerning the value of this claim. See id. ¶21. The Settlement not only preserves estate assets, but also provides the estate with funds which will assist the Debtor in implementing its plan of reorganization. Id. ¶33.
CONCLUSION Based on all of the factors discussed above, PG&E respectfully submits that the Settlement is fair and equitable and in the best interests of the estate. Accordingly, PG&E respectfully requests that this Court grant the Motion and enter an order authorizing PG&E to compromise its claims against El Paso and to enter into any agreements necessary to resolve such claims, including the MSA, AA, DRA and EA.
DATED: September,2003.
Respectfully, HOWARD, RICE, NEMEROVSKI, CANADY, FALK & RABKIN A Professional Corporation By: Oil W XLIIWJ. LAFFERTY Attorneys for Debtor and Debtor in Possession PACIFIC GAS AND ELECTRIC COMPANY MPA ISO MOTION FOR ORDER AUTHORIZING PG&E TO COWROMSE CLANS AGAINST EL PASO