ML040440320

Notice of Motion and Motion for Approval Re Disputed Claims Escrow Accounts; Memorandum of Points-And Authorities in Support Thereof

ML040440320
Person / Time
Site:	Diablo Canyon
Issue date:	02/06/2004
From:	Nexon 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: ML040440320 (27)

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.5 JAMES L. LOPES (No. 63678)

JANET A. NEXON (No. 104747)

GARY M. KAPLAN (No. 155530)

HOWARD, RICE, NEMEROVSKI, CANADY, FALK & RABKIN A Professional Corporation Three Embarcadero Center, 7thFl6or :.:'

San Francisco, California 94111-4024 Telephone:

415/434-1600 Facsimile:

415/217-5910 Attorneys for Debtor and Debtor in Possessi6n PACIFIC GAS AND ELECTRIC COMPANY:

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15 16 17 18 19 20 UNITED STATES BANKRUPTCY COURT.

NORTHERN DISTRICT OF CALIFORNIA SAN FRANCISCO DIVISION In re PACIFIC GAS AND ELECTRIC COMPANY, a California corporation, Case No. 01-30923 DM Chapter 11 Case Date:-

March 5, 2004 Time:

130 p.m.

Place:'i 235 Pine Street,.22nd Floor San Francisco, California Judge: Hon. Dennis Montali Debtor.

Federal I.D. No. 94-0742640 1, * ~~~~~~.

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i 21 22 23 24 25 26 27 28 NOTICE OF MOTION AND MOTION FOR APPROVAL RE DISPUTED CLAIMS ESCROW ACCOUNTS; MEMORANDUM OF POINTS -AND AUTHORITIES IN SUPPORT THEREOF

[SUPPORTING DECLARATIONS OF MICHAEL SCHONHERR, MICHAEL J.

DONNELLY, WALTER CAMPBELL, CHRISTOPHER JOHNS, LAURA DOUGLASS AND JOSEPH CASTILLO FILED SEPARATELY]

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MOTIN FOR APPROVAL RE DISPUTED LAIMS ESCROWACCOUNTS

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'27 28 TABLE OF CONTENTS NOTICE OF MOTION AND MOTION MEMORANDUM OF POINTS AND AUTHORITIES I.

INTRODUCTION II.

FACTUAL BACKGROUND A.

General Background B.

Disputed Claims Escrows

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Existing Agreements Regarding Disputed Claims Escrows.

2.

The Class 7 Escrow.

3.

The Class 5 and Tax Claims Escrows.

III.

PG&E'S PROPOSED ESCROW AMOUNTS FOR CLASS' 5 AND TAX CLAIMS IS ADEQUATE TO PAY ALL CREDITORS WITH DISPUTED CLAIMS A.

No Escrow Is Necessary For The RMR Claims.

1.

The Remaining Portion Of The ISO RMR Claim Is Owed Back To PG&E In Its Capacity As An RMR Owner.

2.

PG&E Should Not Reserve For Either The SDG&E RMR Claim Or The Duke Oakland RMR Claim Because The ISO Shows Nothing Owing To Either Of Those Parties.

a.

The SDG&E RMR Claim.

b.

The Duke Oakland RMR Claim.

- 3., PG&E Should Not Have To Reserve For The Mirant Potrer6 and Mirant Delta RMR Claims Because PG&E Has An Offset of More Than $300 Million; B.

PG&E Should Not Have to Set Aside Funds for Duplicate Claims.

C.

PG&E's Total Liability With Respect to the Tax Claims Should Not Exceed $34.3 million.

1.

IRS Claims.

2.

Franchise Tax Board Claims.

MOTION FOR APPROVAL RE DISPUTED CLAIMS ESCROW ACCOUNTS

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State Board of Equaliiation Claim.

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PG&E Will Be Able To Satisfy Any RMR Claimfs and Tax.

Claims at Become'Allowed Claims in the Ordinary Course of Business.

IV.

PROPOSED INVESTMENT OF ESCROWED FUNDS, PAYMENT OF DISPUTED CLAIMS OUT OF ESCROWS' A.

Investment of Escrowed Funds.

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Payment of Funds Out of Escrow.

C.

Appointment of Escrow Agent and Paying Agent.

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TABLE OF'AIUTHORITIES

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

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.:-.NOTICE

.OF MOTION AND MOTION PLEASE TAKE NOTICE that on March 5, 2004 at 1:30 p.m., or as soon thereafter as the matter -maybe heard, in the Courtroom of the Honorable Dennis Montali, located at 235 Pine Street, 22nd.Floor, San Francisco, California, Pacific Gas and Electric Company, the debtor and debtor in possession in the above-captioned Chapter 11 case

("PG&E" or the "Debtor"), will and hereby does move the Court for approvals regarding the establishinent and maintenance of certain disputed claims escrow accounts and payment procedures related thereto (the '.Motion"). The Motion is based on this Notice of Motion and Motion, the accompanying Memorandum of Points and Authorities,;the Declarations of Michael Schonherr ("Schonherr Declaration"), Walter Campbell ("Campbell Declaration"),

Michael J. Donnelly ("Donnelly Declaration"), Christopher Johns ("Johns Declaration"),

Laura Douglass (Douglass Declaration")-andJoseph Castillo ("Castillo Declaration") filed-concurrently herewith, the record of this case and any evidence or argument presented at or prior to the hearing on this Motion..

PLEASE TAKE FURTHER NOTICE that pursuant to Rule 9014-1(c)(1) of the Ban kruptcy Local Rules of the United States District Court 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 14 days prior to the scheduled hearing date.. -If there is no timely opposition to the requested relief, the Court may enter an order granting such relief by default and without further hearing.

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'17 18 19 20 21 22 23 24' 25 26 27 28 hIi MEEKORANDU1I OF roINTS AND AUTHORITIES INTRODUCTION On Decemb'er 22, 2003, this Court entered its order confirming the Plan of Reorganization Under Chapter 11 of the Bankruptcy Code for Pacific Gas and Electric Company Dated July31, 2003,:As Modified by Modifications Dated November 6, 2003 and December 19, 2003 (the.Plan).' Pursuait to Section 5.4(g) of the Plan, PG&E has agreed to establish one or more escrow accounts forthe purpose. of setting aside finds to make distributions on Disputed Claims to the extent such Claims become Allowed Claims. The amount deposited into escrow does' not.limit the obligation of PG&E to pay all Allowed Claims. By this Motion, and subject to and in accordance with the Plan, PG&E seeks an order of this Court.approving the establishment and maintenance of certain Disputed Claims escrow accounts and the procedures for payment of Disputed Claims,, as set forth below.

-~~IT FACTUAL BACKGROUND2 A.

GeneralBackground PG&E filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code on April 6,2001. A trustee has not been appointed, and PG&E continues to function as a debtor in possession pursuant-to Sections 1107 and 1108 of the Bankruptcy Code.

PG&E's Plan was confirmed on.December 22, 2003; the Effective Date of the Plan has'not yet occurred.,

B.

Disputed'Claims Escrows On or shortly after the Effective Date, PG&E anticipates that it will pay, in cash,.

1 Capitalized terms used herein without definition have the meanings ascribed to them in the Plan.

2 The evidentiary basis and support for the facts set forth in this Section are contained in the Schonherr.Declaration filed concurrently herewith.

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Allowed Claims in the aggregate'amount of approximately $9 billion. Although the vast majority of Claims are undisputed 'or have been resolved, there are some Disputed Claims which have not yet been resolVed.; Pursuant to Section 5.4(g) of the Plan, PG&E has agreed

• toestablish one or more escrows -for the payment of such Disputed Claims. :No escrow is required for."pass.through" Claims in Class8 (Environmental Claims, Fire Suppression Claims;'Pehding Litigation Claims and Tort Claims) or Class '10 (Workers' Compensation

.Claims). As described in more detail below, he only other classes of Claims with material

• disputed amounts are Classes 5; 6 and 7,'and certain unclassified priority tax claims (the

"~Tax-Claims"';

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Attached as Exhibit A heretois a list of the material Disputed Claims in Classes 5 and 7 and Tax Claims, including the name of the claimant, the claim number, the face amount of each Disputed Claim (except as'otherwise noted therein) and the amount that PG&E proposes to place'in escrow for such Claim. PG&E believes that Exhibit A contains all material Disputed Claims in such 'classes (except for certain Disputed Claims of Enron entities, which are discussed supra; 3 however, PG&E does not waive its right to object to any Claim regardless of whether it is listed 'on such Exhibit.

1.

Existing Agreements Regarding Disputed Claims'Escrows.

PG&E has entered into two agreements with creditors 'that specify the amounts and certain terms of the Disputed Claims escrow. fof such creditors. With respect to Class 6 Claims, PG&E has entered into a Stipulation Resolving Objections of Class 6 Objectors to Plan of Reorganization, which was approved by this Court on November 13, 2003 (the :

. 3This Motion does not address (and Exhibit A therefore does not include) certain contingent or duplicative claims 'thit'-PG&E expects will be resolved through oerati6n'df the Plan and/or certain "clean-up" objections. For example, Class 3b Claims (Necured

'Claims'Relating to PC-Related MottgaBonds) are'deemed contingent Claims pursuant to Section 4.6 of the Plan; such Claims will be paid.only to the extent that such payments are not timely provided for by the payment of nncipal and interest on' the respective PC-

-Related Mortgage Bonds (Class 4a 'Claims).' Pursuant to the' Plan, funds received by the Bond Trustee as the payment of Class 3b Allowed Claims will be applied by the Bond Trustee to satisfy.a like amount of.Class 4a Allowed Claims;-

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"Class 6 Stipulation'?) (Docket No. 14076). fTh-e Class 6 Stipulation provides that PG&E*

2 will establish a separate escrow. for the benefit of all creditors in Class 6 in the amount of 3

$1.6 billion. PG&E believes-that the outcome of the-FERC Refund Proceedings will result 4

in PG&E owing substantially less than $1.6 billion on account of Class 6 Claims.

5 In addition to the Class 6 Stipulation, PG&E has entered into a Settlement 6

Agreement with'certain Enron entities (the "Enron Settlement"), and a Stipulation Regarding 7

Funding of Disputed Claims Escrow With Respect to Disputed Claims of EnronEnergy 8

Services, Inc. and Enron Energy Marketing Corp. (the "Ehron Stipulation"). Pursuant to the 9

Enron Settlement and the Enron Stipulation, Enronr and PG&E have agreed that Enron's

• 10 maximum recoveryon certain direct access cost responsibility surcharge (CRS) Claims (as 1

described in the SettlementAgreemeit) in the aggregate face amount of approximately $5 1 12 million will be limited to $30 million, and PG&E has agreed to establish a separate escrow 13 account in that amount. PG&E has filed a Motion. seeking approval of this Settlement chic'~ 14 Agreement, which was pending at the time of the filing of this Motion. See Motion for 15 Order Approving Settlement-Agreement Among the-Debtor, Enron Canada Corp., Enron 16 Energy Marketing Corp., Enron Energy Services, Inc, Enron North America Corp. and 17 Enron Power Marketing, Inc., filed herein on January 16, 2004 (Docket No. 14447). The 18 Enron Stipulation was approved by the Court on December 28, 2003 (Docket No..14309).

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The Class 7 Esciows 21 The Disputed Claims:in Class 7 total approximately $24. million.4 PG&E 22 intends to establish a separate escrowfor all Disputed Claims in Class 7 in such amount.

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-The Class 5 and Tax Claims Escrows..

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PG&E hasdetermined that the face amount of the Disputed Claims5 in Class 5 26 4This amount is based on the assumption that the Enron Settlement is approved by the 27

'Court..

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.23 24, 25 26 27 28 totals approximately,'$226.7 millioniand the face amount of the disputed Tax Claims totals approximately $196.9 million.6, PG&E does not believe that it would be appropriate to reserve funds in escrow for certain Class 5 Claims (or portions thereof) or disputed Tax Claims, for the reasons set forth in Section II below. In particular, PG&E does not propose to reserve finds f6r disputed RMR Claims,(as defined in Section I below) or Duplicate Claims (as defined in Sectioh m below) in Class 5. Such disputed MRClaims'total t

approximately $101.8 million, and the Duplicate Claims total approximately $6 million.

Accordingly, theamount of the escrow on account of Class 5 Disputed Claims should be limited to $118.9 million (total Disputed Claims of $226.7 million less $107.8 million in RMR'and Duplicate Claims). Further, for the reasons set forth in Section m below, PG&E does-not believe it is appropriate to reserve for Disputed -Tax 'Claims; to the,extent such Tax Claims exceed $34.3 million in the aggregate. Accordingly,'PG&E seeks an Order of this Court approving the establishment of separate escrow, accounts for (i) disputed Tax Claims, in the total amount of $34.3 million; and (ii) Disputed Claims in Class '5 in the total amount of $118.9 million,'in each case, plus applicable Post-Petition Interest accrued through the Effective Date on such amount.

; i'PG&E'S PROPOSED ESCROW AMOUNTS FOR CLASS 5 AND TAX CLAIMS IS ADEQUATE TO PAY ALL CREDITORS WITH DISPUTED CLAIMS-As described above, PG&E proposes to fund the amount of $118.9 million in the escrow account with respect to Disputed Claims in.Class 5. This amount represents the-face amount of all Disputed Claims attributable to such class ($226.7 million); except to the

, extent a Disputed Claim seeks amounts related to RMR Agreements (the "RMR Claiins"),

(... continued)

Court.

6PG&E is continuing to resolve claims on a regular basis. To the extent additional.

material claims have been resolved prior to the hearing on this Motion, PG&E will seek to reduce the amount of the escrow in a corresponding amount.

MOTION FOR APPROVAL RE DISPuTED CLAIMS ESCROW ACCOUNTS

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F "and to'the 'extent a Disputed Claim seeks aniounts that are clarly duplicative ofanother 2

Disputed Claim (each, a "Duplicate Claim"). PG&E believes that it is not necessary to set' 3

aside funds for the full amount of the RMR Claims and Duplicate Claims for the following 4 'reasons. First, as set forth in more detail in Part A below; PG&E does not believe that it will 5

ultimately have any liability for the RMR Claims. The amounts claimed are substantial and 6

placing such claimed amounts in' escrow would unnecessarily restrict PG&E's ability to use 7

such funds and would not be cost-effective. Second, with respect to the Duplicate Claims, 8

PG&E can be liable, at' most,' for'only one of the duplicate amounts, as discussed in Part B 9

below.

10 PG&E's proposalto place $34.3 million into theTax Claims escrow' account also 11 is appropriate.. The face amount of the Tax Claims contaihs clearly duplicative amounts, and 12 further, PG&E is' wed refunds and other amounts to offset a portion of the remainder of HOLD ' 13 -'such amounts, as discussed in Part C below. '

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' Moreover, in the unlikely event that it is ultimately determined that PG&E does 9l IWAJN A_

15' owe some amount on the RMR Claims,or the amount owed on the Tax Claims is greater 16' than PG&E anticipates, PG&E will have the ability to pay such Allowed Claims from 17 operating funds, as described in the Declaration of Walter L. Campbell filed concurrently 18 herewith (the "Campbell Declaration"). The amount deposited in escrow does not limit the 19 obligation of PG&E t6pay'Allowed Claims. As provided in Section 5.4(g)(iii) of the Plan, 20 "In'the event that the amount of Cash deposited into the escrow(s) i's insufficient to make the 21 ' requiried payment upon a Disputed Claim becoming an'Allowed Claim, the Reorganized 22 Debtor will pay the holder of such Allowed Claim the Cash necessary to satisfy the 23 shortfall." Accordingly; creditors with Disputed Claims that become Allowed Claims will 24

-bepaid, regardless of whether every dollar of the face amount of every Disputed Claim is 25 placed in escrow.

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-A.; No Escro Is Necessary For The.RMR Claims.?.

i A handful of claimants filed claims based on amounts allegedly due under-their

.-Reliability Must Run ("RMR") Agreements ("RMR Claims"). In general, RMR Agreements provide that, when called upon by the California Independent System Operator Corporation (the "ISO"), the RMRiownerwill make energy available in order to maintain acceptable voltage and line loads in the transmission gnd. -Pursuant to the RMR Agreements, as well as the applicable ISO tariffs, the RMR owners bill the ISO for their RMR services; the ISO reviews such bills and if it accepts them invoices the transmission-owning utility (here, PG&E) by posting the invoices on the secure ISO website; PG&E then pays the ISO; and the ISO passes the payment on to the RMR owner.:

Several RMR ovners filed prepetition claims, including: the Northern California Power Agency ("NCPA") (Claim No. 9520, amended byClaim13331); San Diego Gas and Electric Company("SDG&E") (ClaimNo. 8824), Duke Energy Oakland (Claim No. 8855),.

Mirant Potrero LLC ("Mirant Potrero') (Claim No. 8876), and Mirant DeltatLLC (Mirant Delta," and collectively with Mirant Potrero, Mirant") (Claim No' 8875). In addition, the City of Palo Alto ("Palo Alto") filed a claim.(Claim No. 12385) for-amounts which are; identical to certain amounts claimed by NCPA,8 and the ISO filed a claim (Claim No. 8802) on behalf of all RMR owners shown on its books and records as being owed money by PG&E. The majority of the $46 million ISO..RMR claijm has been withdrawn, leaving only approximately $18 million which is owed to PG&E itself in its capacity as an RMR owner.

For a variety of reasons generally unique to each claim, PG&E does not need to reserve for any of the remaining RMR claims, each of which is addressed below.

7The factual basis for this section'is contained in the Declarations of Laura Douglass and Joseph Castillo filed concurrentlyherewith.

8-As indicated, suipra, PG&E intends to reserve for the NCPA claim (including the RMR portion) in full, but not for the Palo Alto RMR claim since it is duplicative of the NCPA RMR claim.;

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The Remaining Portion Of The ISO RMR Clafin Is Owed Back To PG&E In Its Capacity As An RMR Owner.

Because RMR payments generally flow from PG&E through the ISO to the RMR owner, the ISO filed an almost $46 million'RMR claim seeking amounts due to various RMR owners with outstanding invoices.owed by PG&E, including NCPA and Mirant.

Because the RMR owners each filed their own claims as well, the ISO subsequently agreed to withdraw its claims filed on behalf of NCPA and Mirant (among others).9 Accordingly,' the only'remaining portion of the ISO RMR Claim is approximately

$18 million owed to PG&E itselfin its capacity. as an RMR owner. Monies owed to PG&E-in its capacity as an RMR:6wner from PG&E as a transmission owner are one of the few exceptions to the general rule that such monies are paid to, and passed on by, the ISO.

Instead, the parties' normal course of business is to allow PG&E to take care of such amounts through an internal credit memo accounting mechanism. Accordingly, PG&E is currently attempting to negotiate a stipulation with the ISO which would provide for the withdrawal of the remaining portion of the ISO RMR claim, and the satisfaction of the debt through the internal accounting process. In any event, whether or not PG&E and the ISO are able to finalize such a resolution, there is no reason to require PG&E to reserve for the remaining portion of the ISO RMR claim, since it is clear that. such claim is made on PG&E's behalf. Theie is simply no reason to require PG&E to reserve money it owes itself.

9See Docket No. 14077 (Stipulation Re Certain ISO and Generator Claims For Reliability Must Run Service Agreement Charges; Order Thereon).

lAlthough the ISO RMiR claim 'seeks approximately $I8million on PG&E's behalf PG&E believes that the correct number is approximately $16.4 million. The exact amount owed, however, is irrelevant since no matter what the amount is, it is owed by PG&E to PG&E, and there is consequently no reason to require PG&E to reserve for such claim.

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PG&E Should Not ReserveFor EitherkThe SDG&E RMR Claim 'Or The Duke Oakland RMR.Claim Because The ISO Shows Nothin2 O-Owing To Either Of Those Parties.,

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ITheSDG&ERMR-Claim.

SDG&E filed an RMR claim-for approximatcly $18.46 million. As explained in the Omnibus Objection -To ISO and Generator Claims For-Reliability Must-Run Service Agreement Charges (the "¶RMR Objection',1 these amounts are tied to outstanding RMR

. billing disputes between SDG&E and theISO, and the ISO has n6t yet invoiced PG&E or

. any other customer for the 'amounts claimed by SDG&E. In the.face of PG&E's RMR Objection, SDG&E agreed to an.Order'.1which pr6vided that its RMR claim will remain

. "disputed" until the resolution of the varicius disputes between'.SDG&E and the ISO.

Indeed, itis telling that the ISO has not filed a claim on behalf of SDG&E..Thus, according to the entity responsible for RMR accounting and billing, SDG&E is currently not owed any RMR amounts, and PG&E should accordingly not be required to reserve for such claim."3

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The Duke Oakland RAIR Claim.

-Duke Oakland has filed an RMR claim for approximately $44.8 million (net).

The ISO, however, has not filed an RMR claim on Duke Oakland's behalf. Indeed, based on.

PG&E's communications with the ISO, it is PG&E's understanding' that the specific RMR invoices that make up the Duke Oakland RMR claim have never been seen, nor are they supported by, the ISO.'4 Moreover, the RMR invoices that Duke Oakland has submitted to See DocketNo.8361.

See Cider On'Omnibus Objection'To ISO And Generator Claims For Reliability

'Must-Ruin Service Aeement Charg'es (As'To San Diego Gas Aid Electric Company Claim No. 8824) (Docket o. 12744).'

' Moreoveritisimportant t6'note even if SDG&

I ultimately prevailed in its disputes with the ISO, PG&E will be invoiced by the ISO for an unknown ortion of the $18.5

'million,claim(the rest of which will be billed to' other ISO customers).

. 1 u111er, there anapproximately $36 million discre aiic'ybten h M

invoices Duke Oakland submitted to the ISO 'on March 2,2002 in response to a FERC-ordered refund report and those'attached to its bankruptcy claim. See Castillo Declaration (continued'...)

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28 the ISO for the'prepetition period havebeen uniformly rejected by theISO for failing to comply with certain provisions of the RMR Agreements and the applicable ISO Tariffs.15 More specifically, the ISO has rejected. the invoices because:

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The ISO has reclassified Duke Oakland's November 2000 through February

-2001 ivoices-as Out of Market ("OOMN') dispatches, as opposed to RMR dispatches.- This reclassification means that energy produced by Duke' Oakland should not be included in its RMR invoices. If Duke Oakland'sinvoices are corrected for the reclassification, a credit to PG&E of approximately $24.7 million results.

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The RMR invoices underlying Duke Oakland's claim fail to comply with' Section 9.1(f) of the RMR Agreement, because they fail t provide for certain Scheduling Coordihator Credits ("SC Credits") owed'to PG&E. Duke Oakland's original RMR invoices contained appropriate SC Credits. However, after the FERC ordered Duke Oakland to revise its rates and issue an appropriate refund, Duke Oakland removed the more than $24.6 million in SC Credits from the invoices it filed with its bankruptcy claim.'6 Additionally, Duke Oakland's RMR invoices are based on rates that have been' subsequently reduced by FERC retroactive to October 1, 2000. The FERC accordingly ordered Duke Oakland to issue an appropriate refund, which it has not yet done. If adjusted

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5PG&E objected to the Duke Oakland claim on this and other grounds, and Duke Oakland agreed to a stipulation providing that its claim would remain 'disputed" until the resolution of the FERC RMR Rate Proceeding (as defined in the stipulation),' the FERC Refund Proceedings (potentially). and the resolution of the reclassification dispute, as discussed below. See Stipulation Resolving Objection ToRMR Claim of Duke Energy Oaklaid (Claim No. 8855); Order Thereon (Docket No. 13363).

.' 6Duke Oakland argues that the SC Credits cannot be calculated until the FERC determines the ISO aid PX'market clearing prices in the FERC Refund Proceeding. The ISO agrees with PG&E, however, that Duke Oakland must apply appropriate SC Credits.

based on the market prices in 'effect-at the time-i e the same'prices Duke Oakland used to calculate the SC. Credits until they unaccountably disappeared m its revised invoices..

Accordingly, the ISO has rejected Duke Oakland invoices that do not properly include SC Credits.

MOTION FOR APPROVAL RE DISPUTED CLAIMS ESCROW ACCOUNTS 1

for such rate changes, Duke Oakland's RMR claim must be reduced by approximately $3 6.3

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million.1 o

3 When all of these adjustments and offsets are accounted for, the result is a net 4

-credit due'to PG&E in the approximate amount of $13 million. 8 Accordingly, PG&E 5

should not be obligated to reserve for the Duke Oakland RMR claim.

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PG&E Should Not Have To Reserve For-The Mirant Potrero and

'Mirant Delta RMR Claims-Because PG&E Has An Offset of More 8

Than $300 Million. :.';

9 Unlike the SDG&E and Duke Oakland claims, the ISO has approved and i0 forwarded ceriain invoices for Mirant Potrero and Mirant Delta. Neveftheless, PG&E 11 should not need to reserve for either the Mirant Potrero or Mirant Delta claims in the

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12 amounts of'$3.9 million and $16.6 million, respectively, because it has applicable offsets of AD 13 more than $300 million.

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ca'Am 14 More specifically, Mirant owes PG&E more than $300 million dollars as a result..

0 RABI N 15 of having used an inflated Fixed Option Payment Factor" (the,'OPF)--a component used 16 to determine certain RMR charges under the Mirant RMR Agreements. This dispute is the 17 subject of litigation before the FERC (Docket No. ER98-495). Consistent with PG&E's 18 arguments in the FERC proceeding, the Presiding Administrative Law Judge (TPALJ")

19 issued a decision inboune 2000 that will require the reduction of the FOPF and a refund of 20 more than $300 million in principal and interest to PG&E.'9 After the application of this 21 There are accordingly hree

'disputed issues: OOM reclassification, revised RMR 22 ; rates and SC Credits, but the effects are not additive. The OOM reclassification dispute is separate from the'RMR rate refund and SC Credits issues-that is, if Duke Oakland does

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reclassify its RMR'invoices as OOM dispatches as required by the ISO, it would 24 significantly reduce the magnitude of 'the FERC-ordered rate refund and the SC Credits.

i8Moreover, PG&E h'as otstanding invoice disputes with Duke Oaldand of 25 approximately $700,000.

9

'. In addition as noted in the RMRObjection, PG&E currently has outstanding 26 invoice disputes with both'Mirant Delta and Mirant Potrero'. 'Specifically, PG&E has listed official disputes on ISO's secure website with respect to the invoices' comprising Mirant's 27 RMR Claims in the total amount of $5,656,061.43 for Mirant Delta, and $544,100.43 for Mirant Potrero.-

28 MOTION FOR APPROVAL RE DISPUTED CLAIMS ESCROW ACCOUNTS 1 1-

2 3'

4 5

6 7

8 9

jo 11 12 QA~iRD' 13 NEMO~~

FALK 154

'16 17 18 19 20 21 22 23 24 25 26 27 28 anticipated offset, Mirant's RMR cIainfs'will be more than fully'satisfied, and PG&E 'should accordingly not be required to reserve for the Mirant RMR claims.20 B.

PG&E Should Not Have to Set Aside Funds.forDuplicate Claims.

Two Claims-the Claim of the City of Palo Alto and the Claim of NCPA-seek

'rtually the same recovery, as is evident on the face of their respective proofs of claim filed herein.2 ' In paiticular, Palo Alto's proof of claim, at page 2, seeks payment of the following three liabilities: "1. CAISO-RMR Sales totaling $297,737.79 underthe MUST-RUN SERVICE AGREEMENT, dated January 1, 2000...

2. PGEU-Emergency Services sales totaling $3,225,228 underthe EMERGENCY SERVICE AGREEMENT, dated July 10, 2000... 3. PGEU-IA purchases for which NCPA is owed for imbalance energy it sold to PG&E in the amount of $2,464,724.94.'...

The NCPA proof of claim is substantially identical with respect to these three liabilities: It seeks payment'for: "A. CAISO-RMR sales totaling $381,000.96 underthe MUST-RUN SERVICEAGREEMENT; dated January 1, 2000... B. PGEU-Emergency Services sales totaling $3,225,228, under the EMERGENCY SERVICE AGREEMENT, dated-July 10, 2000...

3. PGEU-IA purchases for which NCPA is owed for'ibalance energy it sold to PG&E in the amount of $2,464,724.94." (The amount claimed by NCPA for CAISO-RMR sales differs slightly from the amount claimed by Palo Alto, presumably due to the fact that NCPA's Claim was amended'to inchide additional invoices related to this element of the Claim, but Palo Alto's was not.)

Because it is 'apparent from the face of each of the proofs of claimthat the NCPA Claim and the Palo Alto Claim contain duplicate claims for the same liability, PG&E should only have to place in the Disputed Claims escrow the amount of the NCPA Claim 20 PALJ decision is subject to review and affirmance by the FERC. It is currently unkmown when the FERC will rule on the matter; as it has taken the matter off calendar at the request of the parties so they may attempt to settle their various disputes.

2 1Copies 6f the proofs of claim filed by each of NCPA and Palo Alto are attached to the Schonherr Declaration as Exhibit A.

MOTION FOR APPROVAL RE DISPUTED CLAIMS ESCROW ACCOUNTS 2

• 3

-4 5,

.6

.6 7.

'8 9

10 11 12 Je~ARD. 13 NMO' FAID 14.

S -ARON

=15 16 17 18

-19 20

-21 22 23 24 25 26 27 28

($6,070,953.90), plus the small amountof the Palo Alto.Claim that is unique to its Claimi

($122,190.53 related to a landfill gas lease and operating agreement).

C.

PG&E's Total Liability With Respect to the Tax Claims Should Not Exceed

$34.3 million.

As explained in detail below, upon examining each of the Tax Claims filed by the Internal Revenue Service ('IRS"), the California Franchise Tax Board ('¶FTB") and the State Board of Equalization ("SBE"), PG&E has determined that its total liability for these Claims 22 should not exceed $34.3 million.

~~e A

1..IRSClaims.

The IRS has filed three claims against PG&E in the aggregate amount of' approximately $167 million (designated Claim Nos. 12342,13310, 13360) (collectively, the

'IRS Claims"), with each subsequent claim number amending the earlier claim number(s):.

Accordingly, Clain Nos. -12342 and 13310, in the aggregate amount of approximately $ 10 million, are duplicative of the claims asserted in Claim No.13360. PG&E and the IRS are in the-process of finalizing aistipulation -which provides, inter alia, that (1) Claim Nos. 12342 and 13310 are superseded by Claim No. 13360,- (2) the allowed amount of Claim No.13360 will be determined through negotiation or in applicable non-bankruptcy fora, (3) the aggregate amount of the allowed IRS Claims (before any setoff) shall not exceed approximately $57.6 million (the amount of Claim No. 13360); (4) PG&E has paid certain interest accrued pre-petition and post-petition with respect to the IRS Claims, including' payment of approximately $13 million of pre-petition interest included in the'IRS Claims, and (5) the allowed amount of the IRS Claims will be reduced.by certain tax overpayments due to PG&E. Based on, among other things, PG&E's payment of pre-petition interest of

-'~he factual basis for this section is contained in the Johns Declaration, filed concurrently herewith' MOTION FOR APPROVAL RE DISPUTED CLAIMS ESCROW ACCOUNTS 2

3

' 4 5.

6 7

8'

• '9 10 11.

12 IKWA R 13 14

-15 16.

17 18

-19 20 21 22 23 24'

• 25 26 27 28 approximately $13 million included in the IRS Claims, and applicable setoffi acknowledged in the IRS Clainis'themselves'of'approkiinately $25.8 million, PG&E estimates'thdt the net amount owed with respect to the IRS Claims will not exceed approximately $18.8 million.

Accordingly, PG&E ubmitsthat the appropriate amount necessary to include in the Disputed Claims escrow for the IRS Claims is $18.8 million.

2.' ' Franchise Tax-Board Claims.

The' FTB has filed two claiis against PG&E'(designated Claim Nos, 12362-and 12509) (collectiVely, the "FTB Claims"), aggregating 'approximately $25.6' million. PG&E and the FTB liave entered into a stipulation (approved by this Court's Order of May 9, 200 2),23 providing, inter alia, that (1) the allowed amount of the FTB Claims will be determined through negotiation or in applicable non-bankruptcy fora, and (2) the allowed amount of the FTB Claims will be setoff by certain tax refiunds admittedly owed by the FTB to PG&E. Based on, among other things, its discussions with the FTB, PG&E estimates the aggregate amount of suchrefunds is approximately $1 l.2'million, and that the net amount owed with respect to the FTB Claims will not exceed $14.5 million. Accordingly,'PG&E submits that the'appropriate amount necessary to. include in the disputed claims escrow for the FTB Claims is not more than $14.5 million.

3.-

State Board of Equalization Claim.-

The SBE has filed a'claim against PG&E'(designated Claim No. 13024) in the aggregate amount of approximately $22 million (the "SBE Claim"). PG&E and the SBE have entered into a stipulation (approved by this Court's'order of August 5, 2002)24 23See Stipulation For Relief From Stay To Allow Determination Of Alleged Tax Liabilities In Non-Bankruptcy Fora, To Limit Allowable Amount Of Claim To Amount Determined In Such Fora, And To Negotiate Resolution Of Mutual Debts And Setoff Mutual Debts;.Order Thereon (Docket No; 6394).

24 SeeStipulation Resolving The Debtor's Objection To The California State Board Of Equalization's Proof Of Claim, And For Relief From Stay; Order Thereon (Docket No.

9457).

MOTION FOR APPROVAL RE DISPUTED CLAIMS ESCROW ACCOUNTS i.1 2

3, 4

-5 6'

.10

.'11

-12 FA~PRD 13 camK.14 15 16 17 18 19 20 21 22 23 24 25 26 27.

28 providing, among otherthings, that (1) approximately $18.2 million of the SBE Claim is allowed, (2) the remainder of the SBE. Claim will be determined through negotiation or in applicable non-bankruptcy fora; and (3) PG&E has previously paid approximately $18.1 million of the SBE Claim.,. PG&E and the SBE are in the process of finalizing a stipulation which provides, among other things; that (a) PG&Eoowes approximately.$1.9 million with

-respect to the remaining unresolved portion of the SBE Claim, including interest accrued pre-petition, and (b) such amount owed by PG&E will be setoff by amounts 'owed by SBE to PG&E'aggregating approximately $1.2 million; plus applicable interest. Accordingly,

'PG&E estimates that.the net amount owed with respect to the'SBE Claim (including the approximately $0.1 'million previously resolved, unpaid aimount) will not exceed$1 million.

Therefore, PG&E submits that the appropriate amount necessary to include in the disputed claims escrow for.the.SBE Claim is not more than $1 million:

D.

PG&E Will Be Able To'Satisfy-Any RMR Claims and Tax Claims that Become Allowed Claims in the Ordinary Course of Business.25 Pursuant to the Plan, PG&E is required to pay all'Claims that become'eAllowed Claims, regardless of whether there are funds in the Disputed Claims escrows to satisfy'such Claims. Section 5.4(g)(iii) of the Plan provides: "In the event that the amount of Cash' deposited into the escrow(s) is insufficient to make the required payment upon a Disputed Claim becoming an Allowed Claim, the Reorganized Debtor willpay the holder of such

~~~~~.,,.

-the, shrl.".,;..-..

Allowed Claim the Cash necessary to stisfy the shortfall.

-PG&E's overall financial condition following 'the Effective Date of the Plan'-will enable it to'satisfy all of its ongoing obligations under the Plan; including the payment 6f any Disputed Claims as they become6 allowed. PG&E'sfinancial projections, including projected cash flows, demonstrate that it will have sufficient fuds to satisfy any additional The'evidentiary basis and support for the facts set forth in this Section are contained in the Campbell Declaration filed concurrently herewith.

MOTION FOR APPROVAL RE DISPUTED CLAIMS ESCROW ACCOUNTS

~1 2

3

-4 5-6

-7' 8

9:

10 12 UnAmD 13 caAm 14 16 17 18 19.

20.

21 22 23-24 25 2'6 27 28 Disputed Claims that become Allowed'Clains' in the ordinary course of its business. See Campbell Declaration, Ex. A. The Court has found that. these financial projections C

"represent a-reasonableprojection of the Reorganized Debtor's future financial condition and performance." Findings Of Fact, filed herein on January 5, 2004 (Docket No. 14351) 1¶109. Further, the Commission Settlement Agreement, incorporated in and made a part of the Plan, contains numerous.provisions which provide assurance of PG&E's future financial viability.

Accordingly, PG&E will be able to make payments on Disputed Claims, as and when they become'AllowedClaims, regaxdless of whether funds are available in the Disputed Clhims escrow accounts for the payment of such Claims. PG&E has taken a very conservative approach in determining the' amounts that should be placed in the escrow accounts, and should not be required to fund more than proposed herein for these accounts.

Additional funding would not be cost-effective, since the debt service on the funds will be much higher than the interest they will earn while in escrow, and PG&E would be denied the' use of the funds unnecessarily for a potentially lengthy period during which the Disputed Claims are being resolved.

IV.

- PROPOSED INVESTMENT OF ESCROW ED FUNDS, PAYMENT OF DISPUTED CLAIMS OUT OF ESCROWS A.

Investment of Escrowed Funds.

The Plan provides that the Cash in the Disputed Claims escrow accounts will 4"earn interest at the same rate as if such Cash had been invested in either (i) money market funds consisting primarily of short-term U.S. Treasury securities or (ii) obligations of or guaranteed by the United States of Amherica or any agency thereof." PG&E proposes to 26The evidentiary basis and support-for the facts set forth in this Section are contained in the Donnelly Declaration filed concurrently herewith.

MOTION FOR APPROVAL RE DISPUTED CLAIMS ESCROW ACCOUNTS.

J 2

3 -

-4 5

9 10 11.

12 Howag 13 A.

14

. 15 16 17

-18 20

-21' 22 23 24 25 26 28

direct the escrow agent t6 invest the fnds.in~'each of the Disputed Claims escrows in

,accordance with PG&E's existing investment policy, which thd Court has approved for the investment of estate funds during 'thependency of this Chapter-l I Case (the'Investment Policy"). See Order Granting Debtor's Emergency Motion re Bank Accounts and Cash

. Management,:dated April 6,2001 (DdocketNo. 42).: Pursuant to the Investment Policy, the es'crowed funds will be invested primarily in institutional'money market funds, U.S.'

government money market funds and/or'U.S.' Treasury money market funds, provided that any such'fund is rated "AAA" by S&P and Moody's (or has been in-operation for at least

'two years),ha~sa minimilmasset siie6of $1billion, and conforms,-in the case' of any

-institutional money market fiind,to Rule 2a-7 of the Investment ompany Act of.1940Y Becau'se the amount of the funds in thb Disputed Claims'.escrows will be substantial,and because in 'some cases, the funds may be held in the escr6w for an extended period of time, PG&E believes that it is reasonable Aid prudent to invest the flinds'in accordance with the Investment Policy, as it allows PG&E sufficient flexibility to diversify' the investment of the.

escrowed funds.' -

'B.,, '-Pavmet of Funds Out of Escrow. '

Pursuant to the Plan, distributions from the Disputed Claims escrows are permitted only when afDisputed Claim becomes an Allowed Claim, or when such a claim is "otherwise resolved by the Bankruptcy-Court." -PG&E'expects that it'Will be able to pay any Tax Claim or Claim in Class 6 or Class 7-within five (5) business days of the date that such Claim becomes an Allowed Claim, provided'.thht PG&E and the escrow'agent have received:

all of the doc mentation'necessary to pay such Claim.- Tax Claims, Class 6 and Class 7 Claims'will accrue and be paid interest as.provided in the Plan.

i In order to efficiently administer payment of the Class 5 Disputed Claims that become Allowed Claims, PG&E proposes to pay. such Claims on a monthly basis only, as

' 27See Exhibit A to Donnelly Declaration filed concurrentlyherewith.

MOTION FOR APPROVAL RE DISPUTED CLAIMS ESCROW ACCOUNTS X

.2' 3

4 5.

6 7

8-11.

12

.Ham 13 RcE

'ct'fiK 14.

_c 15 16 17 18

. 19

• .20 21

• 22

. 23 24

. 25 26 27 28 follows. On the first business day of each. month, PG&E will pay any such Disputed Claim that becomes an Allowed Claim on or before the 24th day of the prior month; provided that PG&E and the es'crow agent have received all of the necessary payment documentation by the 24th day of such prior month-(or the next business day if the 24th falls on a weekend or holiday)-i.e.,'a signed Court Order or Stipulation allowing the Claim, a Form.W-9'(if' required by the Internal Revenue SerVice), 'and any necessary payment information.

Payment of each such Claim will include interest.accrued through the last calendar day of each month, at the rate of interest earned on thee allowed amount of the Claim (which amount shall include'any Post-Petition Interest to which such Claim is entitled under the Plan) while in escrow.- As an example, if a Disputed Claim in Class 5 becomes an Allowed Claim on

'May 10, 2004, assuming that the necessary documentation is delivered to PG&E aid the escrow agent on or before May 24, 2004, the escrow agent will pay such Claim on June 1, 2004,'plus interest accrued on the amount of the Claim through May 31, 2004.25-The interest portion of the Claim would include two components: (i) Post-petition Interest accrued through the Effective Date on the allowed amount of the Claim, based on the interest rate for such Claim pursuant to the Plan, and (ii) interest accrued on the allowed amount of the Claim plus the. Post-Petition Interest component described in (i) above, based on the rate of interest earned on the funds from the date the funds were deposited in escrow until May 31, 2004.

With respect to Class 5 Claims, on a monthly basis, as such Claims are paid, funds will be.released from the respective escrow accounts to PG&E in the amount of any difference between the amount paid on a Claim (including the interest components for such Claim) and the amount reserved for such Claim as set forth on the list of Disputed Claims attached hereto as Exhibit A plus interested accrued on such amount while in escrow. In

'PG&E proposes to pay interest in accordance with the practice followed by the funds in which te escrowed amounts will be invested. Interest accrues on the money..

market funds in which the escrowed funds will be invested up to (but not including) the date of redemption, and is paid monthly, in arrears, on the first day of each month.

MOTION FOR APPROVAL RE DISPUTED CLAIMS ESCROW ACCOUNTS 1

2 4

5 6

7.

.8

.9

,10.

11

.12 HowvA~

13 cGAw 14 FRABrIN 15 16 17 18, 19 20 21 22 23 24 25 26 27 28 addition, to the extent a Tax Claim or a Disputed Claim in.Class 5-or Class 7 is disallowed pursuant to a Final Order or Stipulation, PG&E will instruct the escrow agent to release funds to PG&E in such disallowed amount, plus any interest accrued thereon.

Pursuant to the Class 6.Stipulation, as Allowed Class 6 Claims are paid in full, the Disputed Claims escrow for Class 6 will be reduced to reflect the difference between the Allowed Amount of such Claims and $i.6 billion.

Except for the distributions described above, no funds shall be released from the escrows without further Court order. ; ? ;

-~

C.

Anpointrent of Escrow Agent and Paying Agent.

..PG&E has selected Deutsche Bank Trust Company Americas ('Deutsche Bank Trust"), a subsidiary of Deutsche Bank, to serve as escrow agent and paying agent with respect to the escrows for Disputed Claims in Classes 5, 6 and 7 and Tax Claims.29 Deutsche Bank has assets exceeding $800 billion, and has extensive excperience in providing trust and agency services. Deutsche Bank Trust has approximately $41.5 billion in assets.

Deutsche Bank has informed PG&E.that its trust-services grouprepresents over 3800 corporations and government agencies, servicing over $2 trillion in securities.- PG&E believes that Deutsche Bank Trust has the requisite financial strength and expertise to act as escrbw and paying agent in this case. Deutsche Bank.Tiust has agreed to waive its usual acceptance, administration, transaction and legal review fees in connection with this engagement.

• ~.

ONCLUSION For all of the foregoing reasons, PG&E respectfully requests that the Court make

.~~~~~~~~~~~~~~~~~~~~~~~~~~~

29The evidentiary basis and support for the facts set forth in this Section are contained in the Donnelly Declaration filed concurrently herewith.

MOTION FOR APPROVAL RE DISPUTED CLAIMS ESCROW ACCOUNTS 2

3

'4.

5 6

7 8

9 10 11 12 HOWbRD 13' lucE cow 14 15 16 17 18 19 20.

21 22 23 24 25 26

.27 28.

and enter its Order as follows:

1.

Granting the Motion;

2.

Approving the establishment of separate escrow accounts for Disputed Tax Claims in the amount of $34.3million, Disputed Claims in Class 5 in the total amount of

$118.9 million, and Disputed Claims in Class 7 in the amount of $24.4 million, plus applicable Post-Petition. Interest through the Effective Date on such amounts;

3...: Approving the establishment of a separate escrow account for Claims in Class 6 in the aggregate amount of $1.6 billion;

4.

Approving the investment of the escrowed funds pursuant to the Investment Policy and the procedures for payment of Disputed Claims that become Allowed Claims, as described above;

5.

Approving the appointment of Deutsche Bank Trust Company Americas as escrow and paying agent for the Disputed Claims escrows; and

6.

Granting such other and'further relief as may be just and appropriate.

DATED: February i 2004 Respectfully, HOWARD, RICE, NEMEROVSKI, CANADY, FALK & RABKJN A Professional Corporation By:

&&A JANETA. NEXON Attorneys for Debtor and Debtor in Possession PACIFIC GAS AND ELECTRIC COMPANY WD 020504t2-1419995/Y6/1 i24819/v6 MOTION FOR APPROVAL RE DISPUTED CLAIMS ESCROW ACCOUNTS Calm No.

13034 7 915 -

i 305i 8846' 8045 4383 Class 7 Total:

. I' Exhibit A Disputed Claims In klphabetial Ord by Caimantz'

.~~~~

Creditor AES NEWENERGY INCORPORATED BOSTON PROPERTIES INCORPORATED AND BOSTON PROPERTIES LIMTED PARTNERSHIP IDAHO POWER COMPANY PG&E ENERGY SERVICES VENTURES INCORPORATED SACRAMENTO MUNICIPAL UllLIY DISTRICT TENDERLAND POWER COMPANY Face Amount Proposed) 8,94i7319.25 0()

13,038,402.50

.~~

~

.497..*

497,832.01 )

346,835.S5 (1 30,473.41 (1) 31,342.73 Escrow Amount 8,947,31925 13,038,402.50 497,832.01 346,835.55 1,530,473AI 31,342.73 S24,392,205.45

==

$24, 9 205.A5

.., I I.

I I.

I 1:..

11

I I 1...

1..

.

6 -

(1) The 'Face Amount' does not represent the full face amount of the Claim, as filed, because portions of the Claim are non-Class 7.

(2)The 'Face Amount' or Idaho Power Companys Claim 13051 does not represent the full face amount of the Claim, as filed, because a portion of the Claim was withdrawn by the stipulation filed 08/26/2002 (Docket No..9874).

I hExhubt A

I ot2

Exhibit A Disputed Claims In Alphabdca Order by Oaimant Cli I

I I

I din No.

Creditor Face Amount 1603 ASSOCIATED DEVELOPERS GROUP 7211 BANK OF AMERiCA NA 8802 CALIFORNIA INDEPENDENT SYSTEM OPERATOR CORPORATION 3281 CALIFORNIA POWER EXCHANGE CORPORATION 3462 CAMBRIDGE CONSULTING GROUP

)579 CIT GROUP/CREDIT FINANCE INCORPORATED, THE 1809 CORAL POWER LLC, 1855 DUKE ENERGY OAKLAND LLC 1850 DUKE ENERGY TRADING & MARKETING LLC 8837 EL PASO MERCHANT ENERGY L P 140 GEORGIA-PACIFIC CORPORATION 5738 MIDWAY-SUNSET COGENERATION COMPANY 8872 MIRANTAMER)CAS ENERGY MARKETNG LP 1875 MIRANT DELTALLC 8876 MIRANT POTRERO LLC 1027 MODESTO IRRIGATION DISTRICT 3331 NORTIERN CALIFORNIA POWER AGENCY 3390 NUEVO ENERGY COMPANY 2385 PALO ALTO, CITY OP 7875 PRUDENTIAL INSURANCE COMPANY OF AMERICA, THE (MIDSUN) 1824 SAN DIEGO GAS AND ELECTRIC COMPANY 2640 SAN FRANCISCO, CITY AND COUNTY OF 2602 SANTA CLARA, CITY OF DBA SILICON VALLEY POWER 7903 SPP DIRECTOR OF POWER A FUELS CONTRACTS SIERRA PACIFIC POWER COMPANY 3471 THE PORT OF STOCKTON 1550

. TURLOCK IRRIGATION DISTRICT 7563 WILLIAMS ENERGY SERVICES; WILLIAMS ENERGY MARKETING &

TRADING COMPANY TOTAL OF REMAINING CLAIMS UNDER S20K

$503,758.79 1,263.065.65 )

56,505,301.00 (2) 124,270.08 36,991.44 788,466.72 38,636.38 ()

44,764,441.79 11,299,480.11 )

2,099,692.00 )

1,711,821.89 876,472.01 (4 7,846,214.25(2 16,639,577.40, 3,917,510.07 11,999,044.00(3) 6,070,953.90 0) 743,005.80 )

6,109,881.26 3,733,052.00 18,460,000.00 )

22,358,872.05 )

3,241,097.53 (5) 3,537,514.57 )

264,743.00

. 1,024,496.61 )

747,900.00 )

12,915.15 ()

Proposed Escrow Amount

$503,758.79 1,263,065.65 38,505,301.00 124,270.08 36,991.44 788,466.72 38,636.38 0.00 11,299.480.11 2,099.692.00 1,711,821.89 876,472.01 7,846,214.25 0.00 0.00 1,999,044.00 6,070,953.90 743,005.80 122,190.53 3,733,052.00 0.00 22,358,872.05 3,241,097.53 3,S37,514:57 264,743.00 1,024,496.61 747,900.00 12,915.15 S118,937040-31

$18,800,000.00 0.00 0.00 14,500,000.00 0.00 1,000,000.00 Class 5 Subtotal:

S226,719,175.45 13360 12342 13310 12362 12509 13024 DEPARTMENT OF THE TREASURY DEPARTMENT OF THE TREASURY INTERNAL REVENUE SERVICE DEPARTMENT OF THE TREASURY INTERNAL REVENUE SERVICE FRANCAISE TAX BOARD FRANCHISE TAX BOARD STATE BOARD OF EQUALIZATION S57,562,724.79 53,022,740.90 56,789,128.19 22,324,955.71 3,304,350.04 3,920,896.78 )

Class FTC SubtotaLi S196,924,79641 S423,643,971.86 S34,300,000.00 S153,237,04031 Class 5, FTC Total:

(I) The 'Face Amount' for Bank of America's Claim 7211 only represents the Class 5 disputed portion of the full face amount of the Claim, as filed, of 939,724,065.

(2) The 'Face Amount" for California ISO's Claim 8802 does not represent the full face amount of the Claim, as filed, because a S27.9M portion of the Claim was resolved by the stipulation filed on 11/13/2003 (Docket No. 14077) and a S723M portion of the Claim was resolved by the stipulation filed on 01/12/2004 (Docket No.

14384). The Proposed EscrowAmount' for this Claim is comprised of the Class S portion of the Claim that is not related to an RMR Clail.

(3) The 'Face Amount' does not represent the full face amount of the Claim, as filed, because portions of the Claim are non-Class 5, 7 or PTC.

(4) The 'Face Amount for Midway Sunset Cogeneration Company's Claim 6738 represents the maximum amount payable by PG&E per the stipulation filed on 12/23/2002 (Docket No. 11564).

(5) The Face Amount' for the City of Santa Clara's Claim 12602 does not represent the full face amount of the Claim, as filed, because portions of the Claim vere withdrawn per the stipulation filed on 06103/2003 (DocketNo. 12918) and other portions of the Claim are non-Class 5, 7 or PTC.

(6) The following is a list of the Total Remaining Claims Under $20K and their respective Class S face amounts: 8831 for S827.03 (Amador Water Agency), 12619 for 19,117.04 (East Bay Municipal Utility District) and 13425 for S2,971.08 (San JoseDowntown Association).

(7)The 'Face Amount' for the State Board of Equalization's Claim 13024 represents the full face amount of the Claim, as filed, less the paid amount as specified by the stipulation filed on 08/05/2002 (Docket No. 9457).

hFbNt A 2 2

4..

-The suporting declarations are not included in this service mailing. You may obtain copies of the deaainnoeo the following ways: through the "Pacific Gas &':Electric Company Cha'pter 11 Case" link accessible through the Bankruptc Court's website (www.canb.useourts.gov), or by written request to Howard, Rice, Nemerovski,

Canady, Falk &

Rabkin, Attn:

Nathaniel H.

Hunt, Three Embarcadero Center, 7th Floor, San Francisco, California 94111-4024, or by email at nhunt~howardrice.c'om.

WD 020504/1-1419995/ 129278/vl