ML032591109
| ML032591109 | |
| Person / Time | |
|---|---|
| Site: | Diablo Canyon  |
| Issue date: | 09/05/2003 |
| From: | Bar-Lev 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: ML032591109 (10) | |
Text
I-X 1
2 3
4 5
6 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
775 3 L3 8
9
- 10 11 12 HMPMUD 13 RXE mm 14 1 5 16 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 Date:
Time:
Place:
Judge:
September 29, 2003 1:30 235 fpine Street, 22nd Floor San Francisco, California Hon. Dennis Montali 17 18 19 20 21 22 23 24 25 26 27 28 DECLARATION OF JOSHUA BAR-LEV 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 BAR-LEV DECL. ISO MOTION FOR ORD. AUTH. PG&E TO COMP. CLMS AGAINST EL PASO
( -F 1
I, Joshua Bar-Lev, declare as follows:
2
- 1.
I am an attorney licensed to practice law in the State of California and 3
counsel for Pacific Gas and Electric Company ("PG&E" or the "Debtor"), a position I have 4
held for twenty-five years. I am currently Chief Counsel for Electric and Gas Transmission 5
and Supply in PG&E's Law Department, where I am responsible for gas and electric 6
transmission and procurement matters, legal assignments related to electricity crisis issues 7
and matters pending at the California Independent System Operator (the "ISO"), the 8
California Power Exchange (the "PXT
) and the Federal Energy Regulatory Commission (the 9
"FERC11). I am also involved in assessing setoffs and affirmative claims that PG&E may 10 have against the ISO, the California Department of Water Resources (the "CDWR"), market 11 participants and others arising out of power purchases and sales.
12
- 2.
I make this Declaration in support of the Debtor's Motion For Order 13 Authorizing Pacific Gas and Electric Company To Compromise Claims Against El Paso 14 Natural Gas Company Et Alia And To Enter Into Agreements Resolving the Claims. I make J^_
15 this Declaration based upon my leading role in the negotiation of this settlement, my 16 personal knowledge of PG&E's litigation and claims resolution process and my review of 17 PG&E's records concerning the matters stated herein. If called as a witness, I could and 18 would testify competently to the facts stated herein.
19 20 Summary and Status of the Claims 21
- 3.
From June 2000 to June 2001, the prices paid by California citizens for 22 electricity and natural gas rose to unprecedented levels, creating a state-wide emergency (the 23 "California energy crisis'). Because gas is a key cost-input in most electric generation, spot 24 gas prices in the Topock, Arizona spot market (a key market for incremental supplies of gas 25 for delivery to California) affected open market prices for electric power during the 26 California energy crisis. As a result, California consumers paid at least $8.3 billion more 27 than they expected to pay for natural gas supplies and the natural gas component of electrical 28 BAR-LEV DECL. ISO MOTION FOR ORD. AUTH. PG&E TO COMP. CLAIMS AGAINST EL PASO
1 energy supplies. PG&E and its ratepayers bore a substantial portion of these massive 2
overpayments.
3
- 4.
On April 4, 2000, the California Public Utilities Commission (the "CPUC")
4 filed a complaint against El Paso Natural Gas Company ("EPNG"), El Paso Merchant 5
Energy-Gas, L.P., and El Paso Merchant Energy Company at the FERC (Docket No. RPOO-6 241 -000) alleging that firm contracts held by El Paso Merchant Energy-Gas, L.P. and El 7
Paso Merchant Energy Company for transportation capacity on the EPNG system were 8
obtained in violation of the FERC's Standards of Conduct and raising issues regarding the 9
exercise of market power (the "FERC Natural Gas Proceeding"). Southern California 10 Edison ("Edison') and PG&E, among others, subsequently intervened in that proceeding.
11
- 5.
Since then, at least seven class action complaints have been filed against El 12 Paso Corporation, EPNG and El Paso Merchant Energy, L.P. (collectively, "El Paso") and 13 other defendants in California state courts, alleging that El Paso and others had committed R=E MP, 14 antitrust violations and engaged in unfair competition or unfair business practices in the SUR MN.
15 California gas and/or electric power markets. The Attorneys General of the States of 16 California and Nevada, the cities of Long Beach and Los Angeles, and various utility 17 companies have filed complaints in state court and at the FERC alleging violations of laws 18 and regulations by El Paso and other power sellers with respect to the California energy 19 crisis.
20
- 6.
In September 2001, the Attorney General of the State of California 21 commenced an investigation into the facts relating to El Paso's participation in the 22 California gas and electric power markets from 1998 to the present, which to date has 23 resulted in the production by El Paso of hundreds of thousands of pages of documents and 24 numerous investigative hearings. The Attorneys General of Washington and Oregon have 25 also been investigating the facts relating to El Paso's direct and indirect participation in the 26 Oregon and Washington electric power and gas markets from 1998 to the present.
27
- 7.
In addition, the California Attorney General, PG&E and Edison have each 28 filed federal court actions in the United States District Court of the Central District of BAR-LEV DECL. ISO MOTION FOR ORD. AUTH. PG&E TO COMP. CLAIMS AGAINST EL PASO f
E 1
California alleging that El Paso's manipulation of the California energy market during the 2
energy crisis violated federal and state anti-trust and unfair competition laws. The 3
complaints in these now-consolidated actions are based, legally and factually, in large part, 4
on investigation and analysis undertaken by Edison, the CPUC and PG&E in the FERC 5
Natural Gas Proceeding. PG&E's complaint against El Paso is attached hereto as Exhibit A.
6 7
The Settlement Terms 8
- 8.
In order to resolve the many claims set forth above' in a manner that would 9
provide prompt and effective relief to the people of the states of California, Nevada, Oregon 10 and Washington without the burden, expense and uncertainty of continued litigation, PG&E 11 and the other claimants (collectively, the "Settling Claimants")2 negotiated a settlement with 12 El Paso (the "Settlement").
HOWARD 13
- 9.
The terms of the Settlement are set forth in the Master Settlement RKE 14 Agreement ("MSA"), executed on June 24, 2003. The MSA resolves the claims of the MelCb-A 15 Settling Claimants against El Paso (collectively, the "Parties") in both state and federal 16 court, as well as at the FERC. A true and correct copy of the MSA is attached hereto as 17 Exhibit B.
18
- 10.
To implement the payment of consideration under the MSA, the Settling 19 Claimants entered into an Allocation Agreement (the "AA") and a Designated 20
'The claims and allegations of all of the Settling Claimants are set forth in greater 21 detail in Part 2 of the Master Settlement Agreement, attached hereto as Exhibit B.
2hn 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 D artment of Water Resources, the California Energ 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, the 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 Stella, John Clement Molony, SierraPine, Ltd., John and Jennifer Frazee, John 28 W.H.K. Phillip, and Cruz Bustamante.
BAR-LEV DECL ISO MOTION FOR ORD. AUTH. PG&E TO COMP. CLAIMS AGAINST EL PASO
)
1 Representative Agreement (the "DRA"), and will soon enter into an Escrow Agreement (the 2
"EA"). True and correct copies of the AA and DRA are attached hereto as Exhibits C and D, 3
respectively.
4
- 11.
The AA was entered into between the Settling Claimants and sets forth the 5
terms under which the settlement proceeds are to be allocated and administered.
6
- 12.
The DRA, also entered into between the Settling Claimants, designates the 7
Office of the California Attorney General as the Designated Representative (the "DR") of 8
the Settling Claimants and governs how and when the DR is to act on behalf of the Settling 9
Claimants.
10
- 13.
The AA and the DRA were executed simultaneously with the MSA.
11
- 14. The EA will govern the escrow account in which the settlement funds will 12 be held until disbursed and is still being negotiated and drafted. I expect the EA to be 13 finalized and the escrow account to be established by approximately September 2003.
CA 14 SLK z;-.;
15 The Master Settlement Agreement 16
- 15.
Under the terms of the MSA, El Paso has agreed to provide, inter alia, $1.55 17 billion in settlement consideration, valued in nominal dollars,3 in three principal forms: (1) 18 up-front payments; (2) deferred payments; and (3) a contract concession. Specifically, El 19 Paso will make up-front payments to the Settling Claimants totaling approximately $550 20 million; will make semiannual payments to the Settling Claimants over twenty years totaling 21 approximately $875 million; and will reduce the price of power to the Settling Claimants by 22
$125 million under a long-term power supply contract between El Paso and the CDWR.
23
- 16. Pursuant to the MSA, the approximately $550 million in up-front payments 24 consists of the following:
25 26 27 3Nominal dollars are amounts that have not been adjusted to take into account the 28 effect of inflation.
BAR-LEV DECL ISO MOTION FOR ODD. AUTH. PG&E TO COMP. CLAIMS AGAINST EL PASO 1
(a) El Paso will deposit into escrow a payment in the amount of 2
$78,590,071 upon the later of the execution of the MSA or the Escrow 3
Effective Date4; 4
(b) El Paso will deposit into escrow a payment in the amount of 5
$243,229,464 by December 22, 2003;
.6 (c) El Paso Corporation will sell 26,371,308 shares of its common stock 7
(worth approximately $227,000,000 when the MSA was executed) at 8
the direction of the Settling Claimants after a shelf registration 9
statement authorizing issuance of the shares becomes effective. 5 The 10 proceeds of that stock sale will be deposited into escrow; and 11 (d) El Paso will deposit into escrow prior to the Effective Date6 a payment 12 in the amount of $2 million, from a bonus pool for El Paso officers.
13
- 17.
Beginning on the later of the Effective Date or July 1, 2004, El Paso will MG~~ 14 begin making deferred payments totaling approximately $875 million in forty semi-annual 15 installments over a period of twenty years (the "Deferred Payments"). El Paso may prepay 16 its deferred payment obligation, in full or in part, before or after the Effective Date. If El 17 Paso regains an investment grade credit rating for a period of six months or longer, the 18 remaining payments are accelerated so that the obligation is paid off within fifteen instead of 19 twenty years. Under a twenty-year amortization schedule, each semiannual payment will be 20 in the amount of $21,890,651. If the amortization schedule is accelerated to fifteen years, 21 the amount of each payment will increase, although the precise amount of the increase will 22 23 4The Escrow Effective Date is the date on which all Parties (or their designated 24 representatives) and an acceptable escrow agent execute an escrow agreement.
51t should be noted that the value of this component of the up-front payments may be 25 significantly affected by the value of El Paso common stock when it is registered and sold.
6The Effective Date is defined as the date when all conditions precedent have been 26 satisfied, including, inter alia, entry of a judgment by the San Diego Superior Court approving the class action settlement, approval of the settlement by the-FERC and dismissal 27 of various FERC proceedings against El Paso, the approval by the Bankruptcy Court of the settlement as to PG&E, and entry of a stipulated judgment in federal distrct court 28 encompassing the structural relief agreedto by the parties. Ex. A m 3.1,3.2.
BAR-LEV DECL. ISO MOTION FOR ORD. AUTH. PG&E TO COWP.
CLAIMS AGAINST EL PASO N)o 1
2 3
4 5
6 7
8 9
10 11 12 HoUewD 13 No RI X
ANN 14 FaK
_ 15 16 17 18 19 20 21.
22 23 24 25 26 27 28 depend on when the acceleration takes place. The amortization schedule will not revert to twenty years if El Paso thereafter becomes non-investment grade.
- 18.
El Paso will secure the Deferred Payments with oil and gas reserves with a value equal to 130% (a coverage ratio of 1.3 to 1) of the net present value of the outstanding Deferred Payments, measured as of the close of each calendar quarter. El Paso will deliver letters of credit or other collateral acceptable to the Settling Claimants and to any applicable rating agency (if the obligations have been monetized).
- 19.
As of the Effective Date, El Paso will amend the Master Power Purchase and Sale Agreement dated as of February 9, 2001, between El Paso Merchant LP and CDWR to reduce the price of the contract by $125,000,000 over the remaining two and half years of the term of the contract. Under the AA, CDWR has committed to use all consideration allocated to it (including this contract concession) to reduce its annual revenue requirement.
- 20. El Paso agrees to certain "structural remedies" to prevent any future manipulation of the California gas market, including guarantees to make physically available the capacity to deliver 3,290 MMcf/day of gas to California and clarification of the procedure whereby northern California shippers may recall Block II capacity in order to serve customers in PG&E's service area, as set forth in the settlement approved by the FERC in DocketNo. RP95-363-000 on April 16, 1997 (the "1996 Settlement").7 With the exception of issues that are within the exclusive jurisdiction of the FERC, the structural remedies are to be enforced in Federal District Court through a special master.
- 21.
Pursuant to the MSA, PG&E agrees to release all claims against El Paso related to, inter alia, the exercise of market power; manipulation or misreporting of gas or electric power prices; and reduction of the supply of natural gas, electric power or gas pipeline capacity for the period September 1, 1996 through March 20, 2003. In return, El 7The parties to the 1996 Settlement divided EPNG's 1.614 Epflday of turnback 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 PG&E and others.
BAR-LEV DECL. ISO MOTION FOR ORD. AUTH. PG&E TO COMP. CLAIMS AGAINST EL PASO 1
Paso agrees to release all claims against PG&E related to, int ali, the price or supply of 2
natural gas, electric power or gas pipeline capacity for the period through March 20, 2003, 3
including El Paso's bankruptcy claim against PG&E for approximately $57.5 million, the 4
amount PG&E allegedly owes for sales of power to PG&E through the California ISO and 5
the California PX (Claim No. 0008837).
6
- 22. The release does not cover claims asserted by PG&E against other parties in 7
various regulatory proceedings, such as the FERC Refund Proceeding and the 390 QF 8
Proceeding at the California Public Utilities Commission (the "CPUC'), where PG&E is 9
seeking refunds of excessive energy payments made to Qualifying Facilities ("QFs") during 10 the energy crisis (including El Paso owned/controlled QFs).
11 12 The Allocation Agreement HOAUMD 13
- 23. In addition to the settlement with El Paso, the Settling Claimants also RNE NCw",2 14 agreed on the allocation of and administration of the settlement proceeds. Pursuant to the WIC JW_,. 15 AA entered into between the Settling Claimants, all consideration is being divided pro rata 16 based on calculation of the "damages" suffered by each party.8 The percentages can only be 17 estimated at this time because, depending on the final allocation of consideration to 18 municipal claimants (which are subject to a claims procedure), the allocation percentages of 19 the other Settling Claimants may change to some extent.
20
- 24. Under the AA, PG&E will receive approximately 6% (currently estimated 21 at $81 million) of the total consideration for damages incurred as a result of gas purchases 22 and approximately 16% (currently estimated at $217 million) of the total consideration for 23 damages as a result of electricity purchases (the "Settlement Amount').
24 8Such 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, includinggl) fixed allocations for the settlement shares of the states of Washington, Oregon 26 and Neva
, and for the consideration going to certain other non-class claimants; (2) attorneys' fees foattornettorneys 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. Ex. B ¶¶3, 4, 28 6
BAR-LEV DECL. ISO MOTION FOR ORD. AUTH. PG&E TO COW. CLAMS AGAINST EL PASO 1
- 25. In a rulemaking proceeding initiated pursuant to a recent Order Instituting 2
Rulemaking ("OR'), the CPUC, pursuant to the AA, will determine how the El Paso 3
settlement proceeds paid to PG&E should be allocated among various classes of customers 4
and will designate the refund and accounting mechanisms for PG&E's portion of the 5
proceeds.
6
- 26. The CDWR is allocated, pursuant to the AA, approximately 33%
7 (approximately $461 million) for damages as a result of electricity purchases, which include 8
the reduced price of its contracts with El Paso. All consideration received by the CDWR 9
shall be used to reduce the CDWR's revenue requirement, and the allocation of such 10 reduction among utilities shall be determined by the CPUC.
12 Evaluation of the Settlement HOW:;RD 13
- 27.
In a case of this type, the outcome is always uncertain, and the probability NcTW" 14 of success is difficult to weigh. El Paso has denied all wrongdoing and disputes the amount Fix
_ 15 of damages suffered by PG&E and the other Settling Claimants. If PG&E's federal action 16 were to proceed through trial, there is a reasonable risk that the factfinder would award 17 PG&E damages that would be lower than the Settlement Amount.
18
- 28. The pursuit of PG&Es claims against El Paso in the federal action and 19 elsewhere (to the extent necessary) would require lengthy and expensive litigation, and the 20 judgment would likely be subject to appeal. Consequently, a considerable amount of time 21 would pass before El Paso would be required, if at all, to compensate PG&E for its alleged 22 damages. The Settlement minimizes this delay and uncertainty by preventing further 23 appeals and disputes and by providing for guaranteed up-front and deferred payments by El 24 Paso to PG&E and the other Settling Claimants.
25
- 29. Under the terms of the MSA, in the event of default, the Settling Claimants 26 may, upon prior notice to El Paso, accelerate the Deferred Payments, making the entire 27 discounted amount immediately due and payable. El Paso will also secure the Deferred 28 Payments with its oil and gas reserves. As such, I expect collection of the Settlement BAR-LEV DECL. ISO MOTION FOR ORD. AUTH. PG&E TO COMP. CLAIMS AGAINST EL PASO 1
Amount to be without difficulty.
2
- 30. The Settlement resolves the complex and various claims against El Paso of 3
over twenty parties who previously differed in their willingness to settle. If the Settlement 4
were not approved, each of the Settling Claimants would presumably continue litigating its 5
particular claims at great expense and inconvenience to the parties involved and the courts.
6
- 31. PG&E's litigation against El Paso raises many complex and challenging 7
issues, including El Paso's expected challenge of PG&E's damages. These complex issues 8
would presumably require extensive expert analysis and testimony and result in protracted 9
and costly litigation. Based on the foregoing considerations, I believe that the Settlement 10 eliminates such unnecessary expense, inconvenience and delay and is thus favorable to the 11 Debtor.
12
- 32. The Settlement fully resolves PG&E's. claims against El Paso without the 13 expense, risk and delay inherent in PG&E's civil action against El Paso. Avoidance of 14 unnecessary litigation will benefit PG&E's creditors by minimizing costs and delay and 15 allowing PG&E's personnel to focus on more critical functions.
16
- 33.
The Settlement Amount will avoid the risk of a lower net recovery for the 17 estate if PG&E were to pursue its civil action against El Paso through trial. The Settlement 18 not only preserves estate assets, but also provides the estate with funds which will assist the 19 Debtor in implementing its plan of reorganization.
20 I declare under penalty of perjury under the laws of the United States of America 21 and the State of California that the foregoing is true and correct. Executed this 5&day of 22 September, 2003, at San Francisco, California.
23 24 JOSHUA BARNV 25 WD 0827031.-1419916/cxn/1094491/v4/
26 27 28 BAR-LEV DECL. ISO MOTION FOR ORD. AUTH. PG&E TO COMP. CLAIMS AGAINST EL PASO