ML020450435
| ML020450435 | |
| Person / Time | |
|---|---|
| Site: | Diablo Canyon  |
| Issue date: | 01/24/2002 |
| From: | Schaffer 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: ML020450435 (18) | |
Text
w 1 JAMES L. LOPES (No. 63678)
JEFFREY L. SCHAFFER (No. 91404) 2 SARAH M. KING (No. 189621)
HOWARD, RICE, NEMEROVSKI, CANADY, 3 FALK & RABKIN A Professional Corporation 4 Three Embarcadero Center, 7th Floor San Francisco, California 94111-4065 5 Telephone: 415/434-1600 Facsimile: 415/217-5910 6
Attorneys for Debtor and Debtor in Possession 7 PACIFIC GAS AND ELECTRIC COMPANY 8
91 UNITED STATES BANKRUPTCY COURT 10 NORTHERN DISTRICT OF CALIFORNIA 11 12 In re No. 01-30923 DM PACIFIC GAS AND ELECTRIC Chapter 11 Case 13 RD COMPANY, a California corporation, 14 Date: February 8, 2002 C9W 2:30 p.m.
&uM Debtor. Time:
15 Place: 235 Pine Street, 22nd Floor A San Francisco, California 16 Federal I.D. No. 94-0742640 17 18 DEBTOR'S NOTICE OF MOTION AND MOTION FOR ORDER 19 APPROVING EXPENDITURE OF FUNDS TO CONSTRUCT THE TRI-VALLEY PROJECT, SUPPORTING MEMORANDUM OF POINTS AND AUTHORITIES 20
[SUPPORTING DECLARATIONS OF GARRETT TIMOTHY GRIDER AND 21 VALERIE 0. FONG FILED SEPARATELY]
22 23 24 25 26 27/
28 EXPEND. OF FUNDS TO CONSTRUCT TRI-VALLEY PROJECT DEBTOR'S NOT.OF MOT., MOT. & MPA FOR ORDER APPROVING
0 S 1 TABLE OF CONTENTS 2 Page 3 NOTICE OF MOTION AND MOTION 1 2
4 MEMORANDUM OF POINTS AND AUTHORITIES I. INTRODUCTION 2 5
3 6 H. FACTUAL BACKGROUND A. The Tri-Valley Project 3 7
B. Tri-Valley Project Cost 5 8
The CPUC's Issuance of a CPCN for the Tri-Valley Project 7 9 C.
10 D. PG&E's Management Approved Construction of the Tri Valley Project 9 11 III. THE TRI-VALLEY PROJECT SHOULD BE AUTHORIZED 12 PURSUANT TO SECTIONS 363 AND 105 OF THE 12 BANKRUPTCY CODE HOARD 13 15 RIM CONCLUSION mmNOET 14
-* . 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DEBTOR'S NOT. OF MOT., MOT. & MPA FOR ORDER APPROVING EXPEND. OF FUNDS TO CONSTRUCT TRI-VALLEY PROJECT
-i-
rrAuT U' W AITTIFAUTTIES 2 1Page(s) 3 4 Cases 10 5 Louisiana Pub. Serv. Comm'n v. FCC, 476 U.S. 355 (1986) rel. Moore, 487 U.S. 354 6 Mississippi Power & Light Co. v. Mississippi ex (1988) 7 Statutes 9
11 U.S.C. 1,2,12,14 10 §105 14
§105(a) 12,12,14 11 §363 13
§363(c) 12 Cal. Pub. Util. Code 12 13 §§330 - 398.5 3 raM §1001 et seq. 11 14 14
§1005.5
§1 005.a)10,11 05.5 11 11
- x15 15 elAffiWlaqW §1005.5(b) 11
§1005.5(d) 16 17.3, 18 (Cal. Code CPUC Rules of Practice and Procedure 2-8, 15, 16, 17.1, 3 17 of Regs., Title 20) 3 18 CPUC General Order 131-D 19 Other Authorities (15th ed. rev. 2000) 15 20 2 Lawrence P. King, Collier on Bankruptcy ¶105.01 21 22 23 24 25 26 27 28 DEBTOR'S NOT. OF MOT., MOT. & MPA FOR ORDER APPROVING EXPEND. OF FUNDS TO CONSTRUCT TRI-VALLEY PROJECT
-- Jk
1 NOTICE OF MOTION AND MOTION soon 2 PLEASE TAKE NOTICE that on February 8, 2002, at 2:30 p.m., or as 3 thereafter as the matter may be heard, in the Courtroom of the Honorable Dennis Montali, and Electric 4 located at 235 Pine Street, 22nd Floor, San Francisco, California, Pacific Gas 11 case 5 Company, the debtor and debtor in possession in the above-captioned Chapter for entry of 6 ("PG&E" or the "Debtor"), will and hereby does move the Court (the "Motion")
Tri-Valley 7 an order authorizing PG&E to construct and energize the project known as the in the 8, Electrical Capacity Project ("Tri-Valley Project") as more particularly described 9 accompanying Memorandum of Points and Authorities incorporated by reference herein.
10 This Motion is made pursuant to Sections 105 and 363 of the United States 11 Bankruptcy Code (11 U.S.C. §§105 & 363) and is based on the facts and law set forth in the Timothy Grider 12 attached Memorandum of Points and Authorities, the Declarations of Garrett any evidence 13 and Valerie 0. Fong filed concurrently herewith, the record of this case and lI"14 wgK presented at or prior to the hearing on this Motion.
8RAIggUN for A,.Wo.-O 15 PLEASE TAKE FURTHER NOTICE that this Motion is being noticed Re 16 hearing on ten (10) business days' notice pursuant to the above-captioned Court's Order Business 17 Motion For Authority To Make Capital Expenditures In The Ordinary Course of Order does not 18 dated June 29, 2001 (the "Cap Ex Omnibus Order"). The Cap Ex Omnibus 19 specify the time for filing any written opposition to the Motion; nonetheless, because both this 20 the Court and PG&E should have the opportunity to review any written opposition to 21 Motion prior to the hearing thereon, parties in interest are advised to file any written no later 22 opposition to the Motion and the relief requested therein with the Bankruptcy Court upon 23 than two business days prior to the hearing, and to serve any such written opposition of 24 counsel for PG&E, the Office of the United States Trustee, and the Official Committee to the 25 Unsecured Creditors by hand service on the same date. If there is no timely objection hearing.
26 requested relief, the Court may enter an order granting such relief without further 27 28 PROJECT EXPEND. OF FUNDS TO CONSTRUCT TRI-VALLEY DEBTOR'S NOT. OF MOT., MOT.& MPA FOR ORDER APPROVING
- ~~ ~ .i.hTC1AN1r% A irfr1LTTYDT11i'FQ 1 MEIMOM ATNDUUTV. up ruI.1 I SAN 2
3 I. INTRODUCTION the debtor and debtor in 4 By this Motion, Pacific Gas and Electric Company, to 5 possession in this Chapter 11 case ("PG&E" or the "Debtor"), seeks an order pursuant 6 Sections 363 and .105 of the Bankruptcy Code (11 U.S.C. §§363 & 105)1 authorizing the is to build construction of the Tri-Valley Project. The purpose of the Tri-Valley Project
.7 demand in the electric transmission and distribution facilities to meet the projected electric of unincorporated 8 cities of Dublin, Livermore, Pleasanton, and San Ramon, and in portions 9 Alameda and Contra Costa Counties near these cities (collectively the "Tri-Valley area").
10 PG&E brings this Motion because the requested $135.9 million expenditure for Authority to Make 1 authorization exceeds the project limit authorized in PG&E's Motion 12 Capital Expenditures in the Ordinary Course of Business filed in this case on June 6, 2001, 29, 2001 (such prior HOARM 13 which was approved pursuant to the Court's Order thereon dated June Eli
""CANMV 14 as the "Omnibus Cap Ex Motion WK Motion and Order hereinafter are collectively referred to
... 15 and Order"). In broad outline, pursuant to the Omnibus Cap Ex Motion and Order, PG&E is the Official 16 authorized to proceed (a) without notice to or approval of the Court or 17 Committee of Unsecured Creditors (the "Committee"), with any project costing less than any project costing
- 18. $10 million, (b) with notice to and no objection by the Committee, with 19 noticed to the more than $10 million and less than $50 million', and (c) only upon a motion 20 notice and approval Committee and the United States Trustee on at least: 10 business days' 21 of the Court, with any project anticipated to cost more than $50 million..
"22 PG&E submitted a notice and desicription of the Tri-Valley Project to the 23 Committee on November 29,2001,*whichlthe.Committee approved on December 12, 2001.
Si24:. The Commiftee on December 12, 2001 indicated in writing that it had no objection to the 25: iDebtorproeeding with the Tri-Valley.Project.,
26 United 1Unless otherwise indicated, all statutory references in this Motion are to the 27 States Bankruptcy Code (title 11 of the United States Code).
28 EXPEND. OF FUNDS TO CONSTRUCT TRI-VALLEY PROJECT DEBTOR'S NOT. OF MOT., MOT. & MPA FOR ORDER APPROVING 1 Before PG&E's Chapter 11 filing, PG&E applied to the California Public Public 2 Utilities Commission ("CPUC") pursuant to applicable provisions of the California "CPCN-') to 3 Utilities Code2 for a Certificate of Public Convenience and Necessity (a "CPUC construct the Tri-Valley Project. In a final order dated October 10, 2001 (the of the Order"), the CPUC approved the Project and, subject to PG&E's acceptance 3 below, the conditions in the CPUC Order, issued PG&E a CPCN. As discussed further CPUC Order purports to set a "cost cap" on the Tri-Valley Project in the amount of 7
$118,359,015 (approximately $17 million less than PG&E currently estimates the Project 8
will cost to build). Notwithstanding the CPUC's "cost cap," PG&E requests that the 9 Motion be granted and that PG&E be authorized to construct and install the Tri-Valley 10 Project and to expend up to $135.9 million for its construction and installation of the Project.
11 PG&E further requests that it receive such approval forthwith because the Tri-Valley Project 12 already is behind schedule.
HOA&RD 13 S 14 II. FACTUAL BACKGROUND 4 15 A. The Tri-Valley Project 16 Due to the extension of mass transportation, favorable land costs and availability, 17 the Tri-Valley area is experiencing rapid 1 and relative proximity to the greater Bay Area, 18 development. Several major residential and commercial developments currently are in the double and electric load in the area is expected to 19 planning, approval or construction phases, over the next 15 to 20 years, growing at a rate of 27 megawatts ("MW") per year. To 20 21 2 See Cal. Pub. Util. Code §1001 et sect.; CPUC Rules of Practice and Procedure 2-8, 15, 16, 17.1, 17.3, 18 (Cal. Code of Regs., Title 20); CPUC General Order I31-D.
22 3 A true and correct copy of the CPUC Order is attached as Exhibit A to the 23 referred to as the "Gider Declaration" Declaration of Garrett Timothy Grider (hereinafter herewith.
and cited as the "Grider Decl.") filed concurrently 24 4The evidentiary basis and support for the facts set forth in this Motion are contained in the Grider Declaration and in the Declaration of Valerie 0. Fong (hereinafter referred to as 25 the "Fong Declaration" and cited as the "Fong Decl.") filed concurrently herewith. Where there is no citation supporting a particular fact, the evidentiary basis for such fact is 26 contained in the Grider Declaration. Where, on the other hand, the evidentiary basis for a particular fact is contained in the Fong Declaration, we will specifically cit to the Fong 27 Declaration.
28 OF FUNDS TO CONSTRUCT TRI-VALLEY PROJECT EXPEND.
DEBTOR'S NOT. OF MOT., MOT. & MPA FOR ORDER APPROVING
1 support the load growth, the California Independent System Operator ("ISO") has found, and and distribution 2 the CPUC has agreed, that substantial additions to PG&E's transmission to meet demand and 3 systems will-be required.to be,inplace by summer 2003 and 2004 5
ensure system reliability.
5 The Tri-Valley Project, composed of a Northern and Southern Component, has been designed to: solve transmission and distribution deficiencies in the Tri-Valley area. To 6 complete the Northern Component~of -theTri-Valley Project, PG&E will:
7 7 Construct two new 230/21 kilovolt ("kV") distribution substations, one in necessary 8 North Livermore and the other in North Dublin, along with the 9
distribution circuits; and
.10 1 Construct approximately 8.2 miles of 230 kV double circuit transmission 11 line (5.4 miles of underground and 2.8 miles of overhead) from the Contra 12 Costa-Newark No. 2 circuit to the new distribution substations.
HOWAM RIM 13 W' 14 To complete the Southern Component of the Tri-Valley Project, PG&E will:
(9RAHGN
- Convert the Vineyard substation from 60 kV to 230 kV service along with A* , 15 16 constructing the necessary distribution circuits; and 17
- Construct 5.7 miles of 230 kV underground double circuit transmission 18 line from the Contra Costa-Newark No. 2 230 kV circuit to Vineyard 19 substation.
20 21i PG&E originally scheduled construction on the Tri-Valley Project to begin in in June 2001 sothat the Project would become operational in June 2002. Because of delays 22 Tri-Valley Project currently is behind schedule. To meet the
'23 Sthe CPUC proceedings, the begin by operational deadlines of summer 2003 and 2004,6 pre-construction activities must
-25, planning and approval process, the 5 ;5Pursuant tothe ISO's comprehlensive,atransmission pproved the Tri-Valley Project as the preferred 26
- ISQlGoyernin'gBoard on January272000 ran ussioi alternative t0 addresS' thie idented reliabilityconcems on the ISO Grid.
26 6 The Vineyard and North Livermore sIubstations are scheduled to be operational by 27 28 (continued...)
28 OF FUNDS TO CONSTRUCT TRI-VALLEY PROJECT S~ APPROVING EXPEND.
'DEBTORS'NOT. OF MOT.; MOT. & MPA FOR ORDER
1 March 2002 and construction must begin no later than June 2002. PG&E intends to start 2 construction on June 1, 2002 on the Vineyard substation, August 1, 2002 on the North 3 Livermore substation, and Junel, 2003 on the North Dublin substation.
4 The Tri-Valley area is currently served by both 230 kV and 60 kV transmission 5 facilities. Nine 230 kV transmission'lines run along the perimeter of the Tri-Valley area 6 with 230 kV distribution substations at San Ramon and Las Positas. Four 60 kV 7 transmission lines run through the center of the Tri-Valley area and converge at the Vineyard 8 and Radum 60 kV distribution substations. The 60 kV transmission facilities at peak 9 conditions are currently operating at or above their maximum load-serving capability. New 10 transmission infrastructure is needed to meet the continuing increase in electric demand.
11 The electric distribution system in the Tri-Valley area consists of both 12 kV and 12 21 kV systems. The 12 kV system is served off the 60 kV system and supplies the Vasco, HAMED 13 Livermore, Radum, Parks and Sunol substations, which at peak conditions are loaded at
"ýCAtV14 capacity. The Tri-Valley Project does not include a plan to install more substation capacity
~BHUN
- o,,.15 on the 12 kV distribution system due to the 60 kV system constraint. Rather, load will be 16 transferred, as needed, from the 12 kV to the more economical 21 kV system to prevent 17 overloads on the 12 kV system.
18 19 B. Tri-Valley Project Cost 20 In October 1999, PG&E's Board of Directors approved an appropriation of $81 21 million to fund PG&E's proposed Tri-Valley Project. As part of the changes to the Project 22 ordered by the CPUC (discussed below), PG&E is required to underground an additional 23 seven miles of transmission lines. The cost to underground more transmission lines 24 increased the original project estimate of $81 million to PG&E's current cost estimate of 25
... continued) summer 2003; the North Dublin substation is scheduled to be operational by summer 2004. small 26 Between now and the installation of the Tri-Valley Project, PG&E plans to implement load capital upgrades and operating solutions to accommodate the Tri-Valley near-term 27 growth.
28 TRI-VALLEY PROJECT DEBTOR'S NOT. OF MOT., MOT. & MPA FOR ORDER APPROVING EXPEND. OF FUNDS TO CONSTRUCT
a notice and description of the 1 $135.8 million.7 On November 29,,2001, PG&E submitted 12, 2001, the Committee notified 2 Tri-Valley Project to the Committee, and onDecember requested updates on critical events 3 PG&E that it did not oppose the Tri-Valley Project but PG&E's Board of Directors 4 leading to actual cash outlays.- On December 19, 2001, amount of $135.9 million to 5 approved updated capital expenditures in the aggregate Tri-Valley Project, subject to Bankruptcy Court approval. 8 6 construct the CpUC-approved
.7 Fong Decl. ¶3.
for providing the electric 8, In addition to being the only CPUC-certified approach the projected loads in the Tri-Valley 9 transmission and distribution capacity required to serve to serve new electric customer 10 area, the Tri-Valley Project is the lowest cost alternative design estimates of the CPUC 11 demand in the Tri-Valley area. Based on preliminary that the Tri-Valley Project will cost the 12 approved route for the Project, PG&E estimates HOWM 13 following per year:
2002 2003 2004 Total W 14 Business Prior Years Ufit S U_15 $9.8M $38.2M
$7.2M $6.2M $15.OM "Elec.Distr. $40.0M $40.3M $11.9M $97.7M 16 Elec. Trans. $5.5M
$46.2M $55.31M $21.7M $135.9M 171 Total $12.7M 18 Fong Decl. Ex. A.
overall Tri-Valley Project has an estimated negative net present value 19 The 20 CPUC in PG&E's ope estimony S21 ! 7 As PG&E witnesses testified before the 2001 hearings, the relative per-mile cost submitted in January 2001 and during the February Ti-Valley Project is substantially more 2-of contrucfi.g. underground transmission line in theline. This $55 million increase in the than the cost of costtructing overhead transmission to the Project cost estimate reflects not only the increase in costs related indirect costs such as 23 Tri-Vley also associated additiona miles'of underground- transmission line,-but coningency costs (which are. calculated as a percentage of the subtotal of labor, material, 24 contract and other direct costs).
methodologies explain the difference between the
.25 8 Different applications of rounding one hand, and the authoriz figure V'og
ýused at *otandfo the CPUC hearing, on the Board of Directors, on*
25413518 1-i5t9milionicost
-,million cost ot estimate .htiadobtained from PG&E's 26~ 3,9 million the same chart that was presented to the Board 27 *-*th] ther.i The chart that followi inlthe text is of Directors and therefore adds up to $1359 illion.
28ý TO CONSTRUCT TRI-VALLEY PROJECT OF MOT., MOT. &
DEBTOR'SoNOT. oPA FOR ORDER APPROVING EXPEND. OF FUNDS I
0 S 1 ("NPV") of -$99.4 million (-$71.5 million for transmission cost components and -$27.9 2 million for distribution cost components), and a present value of revenue requirements 3 ("PVRR") of $167.8 million ($120.7 million for transmission cost components and $47.1 4 million for distribution cost components) over the 20-year study period. 9 5 The cost of transmission facilities is expected to be included in PG&E's base 6 utility revenue requirements and is expected to earn the rate of return authorized by the 7 Federal Energy Regulatory Commission ("FERC"). The cost of distribution facilities is 8 expected to be included. in PG&E's base utility revenue requirement and is expected to earn 9 the rate of return authorized by the CPUC.
10 11 C. The CPUC's Issuance of a CPCN for the Tri-Valley Project 12 In November 1999, PG&E submitted an application to the CPUC for a CPCN HV 13 authorizing the construction of the Tri-Valley Project. In January and February 2001, PG&E cmAN" 14 submitted written and oral testimony of witnesses testifying to, among other things, the 15 current and projected electric demand in the Tri-Valley area, the need for the Tri-Valley 16 Project to ensure system reliability under state and federal standards, the proposed locations 17 of the Project's transmission lines and facilities, the estimated cost of construction based on 18 the preliminary design and the PG&E-proposed locations for the Tri-Valley Project 19 improvements, and the estimated costs of various alternative Project routes being evaluated 20 by the CPUC.
21 After several weeks of hearings in February 2001, the CPUC issued a proposed 22 draft decision on July 24, 2001 (the "Draft Decision"). In the Draft Decision, the CPUC 23 24 9 NPV is an economic measure generally used to compare reliability projects against each other when customer revenues or customers' value of a project are not constant.
25 PVRR.. which identifies the present value of the revenues required to pay for a project's installation, is an economic measure used to compare project alternatives against each other 26 when customer revenues or beniefits are cornstant or essentially the same. PG&E proposes to build the Tri-Valley Project despite its negative NPV because the Project is needed to 27 maintain transmission system reliability and meet distribution load.
28 DEBTOR'S NOT. OF MOT., 'MOT. & MPA FOR ORDER APPROVING EXPEND. OF FUNDS TO CONSTRUCT TRI-VALLEY PROJECT 0 0 cap" of 1 issued a CPCN for theý Tri-Valley Project but, among other things, adopted a "cost of the new 2 approximately $98.0 million on project expenditures, changed the location and changed the
- 3. Dublin Substation site, .rejected the North Livermore Substation altogether, filed comments 4 proposed route and placement of transmission lines. In August 2001, PG&E routes, the 5 on the Draft Decision objecting to some of the changes in transmission line Livermore 6 change in the North Dublin Substation site,.the failure to approve the North cap,. 10
- 7. Substation, and the proposed "cost Alternate 8 In October 2001, following. preparation by Commissioner Wood of an the CPUC 9 Proposed Decision addressing many of the concerns raised in PG&E's comments, Order 10 issued the CPUC Order granting a CPCN for the Tri-Valley Project. The CPUC Livermore 11 approved Phase 1 of the Tri-Valley Project in its entirety, including the North location. Over 12 Substation, and adopted PG&E's recommended North Dublin Substation line route that 13 PG&E's objections, however, the CPUC Order selected atransmission RKE approximately an NA" 14 differed from PG&E's selected route, requiring PG&E to underground tLK shall be 15 additional seven miles of transmission lines, and stated that "PG&E's projectcosts Order) at 16 capped at $118,359,015 for the project authorized." Grider Decl. Ex. A (CPUC
.17 149. This amount is approximately $17 million less than the amount of PG&E's estimated costs 18 cost for the CPUC-approved project., The CPUC accepted PG&E's distribution-related 19 for purposes of setting the "cost cap"; the CPUC's approximately $17 million the Project.
20 "disallowance" relates to FERC-jurisdictional transmission components of Order
'21 In November 2001, PG&E filed an application for rehearing of the CPUC to 221 ("Rehearing.Application"), arguing that: (a) the CPUC has no statutory authority the reliability 23 reconsider ISO's determination that the Tri-Valley Project is needed to ensure 24ý 25: '0 PG&E also, objected to other components of the Draft Decision, including the CWC's decisionto not ap prove Phase Twoof the Project (not described herein), its lack of 26., authoityund state orfederal law heto ISO'S a cost cap onthat mosedetermiaion the all Tri-Valley Project, components andTfiits of the Jhre osideration(andreeetion)of 27 Valley Project are needde to en4Sr stemreliability .
28 EXPEND. OF FUNDS TO CONSTRUCT TRI-VALLEY PROJECT DEBTOR'S.NOT. OF MOT., MOT. & MPA FOR ORDER APPROVING 1 of the electrical transmission system; (b) the CPUC has no authority under state or federal 2 law to impose a "cost cap" on the Project; (c) the CPUC Order wrongly orders PG&E to 3 show cause why the CPUC's "Cost cap" should not be lowered if final detailed engineering 4 design-based construction estimates predict a materially lower cost; and (d) the CPUC 5 Order's arbitrary reductions of PG&E's costs estimates are not supported by the evidence, 6 should be reversed and other costs must be added. As of the filing of this Motion, the CPUC 7 has not ruled on the Rehearing Application.
8 9 D. PG&E's Management Approved Construction of the Tri-Valley Project 10 In deciding whether to *approve construction of the Tri-Valley Project, and seek 11 Bankruptcy Court approval to expend the necessary funds, PG&E management weighed the 12 risks posed by the CPUC's "cost cap" (assuming, as PG&E must, that PG&E's Rehearing HOYNAD 13 Application is denied). The "cost cap" poses potential risks to completion of the Project and RIK a 14 cost recovery. After taking into account and balancing (i) the need for the Tri-Valley Project
&RANUN
, 15 to maintain reliable electrical service, (ii) PG&E's belief that the CPUC "cost cap" will not 16 interfere with either completion of the Project or cost recovery for the reasons set forth 17 below, and (iii) the amount at risk, PG&E management is willing to proceed with the Tri 18 Valley Project despite the CPUC having purported to set the "cost cap" approximately $17 19 million below PG&E estimated costs for the Project." In making the Motion and seeking 20 this Court's authorization under Sections 363 and/or 105 of the Bankruptcy Code for PG&E 21 to expend up to the requisite $135.9 million to proceed with and complete the Tri-Valley 22 Project, PG&E is not asking this Court to address or rule on whether or how PG&E may 23 seek or obtain any cost recovery for the $17 million that exceeds the "cost cap" or otherwise 24 to make any ruling with respect to the merits of PG&E's position respecting the "cost cap."
25 "PG&E's decision to proceed with the Tri-Valley Project despite the CPUC's 26 arbitrary "cost cap" does not mean that PG&E will recommend proceeding with any other transmission project where the CPUC sets a cost cap" below PG&E's estimated costs. The 27 risk associated with each project will be considered individually.
28 DEBTOR'S NOT. OF MOT., MOT. & hMPA PORORDE*R APPROVING EXPEND. OF FUNDS TO CONSTRUCT TRI-VALLEY PROJECT 0
1 Nonetheless, a summary of PG&E's position regarding the so-called "cost cap" may be 2 helpful to the Court.
3 The CPUC asserts authority to set a "cost cap" based on Section 1005.5(a) of the 4 California Public Utilities Code, which provides:
5 Whenever the commission issues to an electrical or gas corporation a certificate authorizing the new construction of any addition to or extension of 6 the corporation's plant estimated to cost greater than fifty million dollars
($50,000,000), the commission shall specify in the certificate a maximum cost 7 determinedtheto be reasonable andprudent facility.
for the of The commission shall construction determine maximum an estimate cost usingdesign the anticipated 8 cost, taking into consideration the of the project, the expected duration of construction, an estimate of the effects of economic iflation, and any 9 known engineering difficulties associated with the project.
10 PG&E contends that: (a) the CPUC has been deprived of state law authority to 11 set "cost caps" on transmission projects by the California Legislature's transfer of S12 responsibility for the electrical transmission grid to the ISO; and (b) any CPUC authority to 13 "cap" transmission projects' costs is preempted by the FERC tariff with the ISO. Through RKE1 "camt ggtBAgU 14 the enactment of AB 1890,12 the California Legislature created the ISO, transferred control 15 of the electrical transmission grid from the CPUC to the ISO, and ordered the ISO to submit 16 control of the transmission grid to FERC jurisdiction. The ISO now operates the 17 transmission grid pursuant to a FERC-approved tariff, which has the force of federal law.
18 See, e.g,Louisiana Pub. Serv. Comm'n v. FCC. 476 U.S. 355, 368-69 (1986). PG&E's 19 analysis of these issues is set forth more fully in its Rehearing Application, attached as 20 Exhibit B to the Grider Declaration. Because the recovery of transmission costs is under 21' FERC jurisdiction, the CPUC cannot legally constrain transmission cost recovery through 22 the imposition of a "cost cap."
23 Even the CPUC seems to, concede this point, stating: "while the FERC ultimately 24 will decide how much of the costs for this project PG&E may recoup in transmission rates, 25 we believe our cost cap has bearing on the amount PG&E may seek from the FERC."
26f ,AB 1890(is codified at Sections 330 through 398.5 of the California Public Utilities 27 Code.
28 TRI-VALLEY PROJECT 28 DEBTOR'SNOT. OF MOT., MOT..& MPA FOR ORDER APPROVING EXPEND. OF FUNDS TO CONSTRUCT 1 Grider Decl. Ex. A (CPUC Order) at 136-37, 147. The CPUC, however, may not prevent 2 PG&E from recovering those costs that FERC has found recoverable. Mississippi Power &
3 Light Co. v. Mississippi ex rel. Moore, 487 U.S. 354, 369-70 (1988) (no state prudence 4 review where FERC approves the rates).
5 Moreover, even if the CPUC has authority to issue a "cost cap" pursuant to 6 Section 1005.5(a) of the Public Utilities Code, PG&E may apply to the CPUC for an 7 increase in the cost cap specified in the CPCN:
8 "After the certificate has been issued, the corporation may apply to the commission for an increase in the maximum cost specified in the 9 certificate. The commission may authorize an increase in the specified maximum cost if it finds and determines that the cost has in fact 10 increased and that the present or future public convenience and necessity require construction of the Project at the increased cost; 11 otherwise, iljshall deny the application." (Cal. Pub. Util. Code
§1005.5(b))
12 The CPUC Order recognizes such right. CPUC Order at 138, 147. In the event HORD 13 RKE NmEAt 14 that the actual project costs exceed the cost cap and PG&E believes that it will be fruitful to approach the CPUC for an increase in the cost cap, PG&E will seek an increase pursuant to A* Od.*. 15 Section 1005.5(b).
16 PG&E also believes it can complete the Tri-Valley Project, without violating the 17 CPCN, even if costs ultimately exceed the CPUC's "cost cap," and without seeking further 18 CPUC approval, thereby avoiding the risk of significant costs being "stranded" if the Tri 19 Valley Project could not be completed for less than the amount of the CPUC "cost cap."
20 Even assuming that the CPUC still has authority to apply Section 1005.5 to transmission 21 projects, Section 1005.5(a) provides only that the CPUC shall "specify in the certificate a 22 maximum cost determined to be reasonable and prudent for the facility." Nothing in Section 23 1005.5(a) or anywhere else in Section 1005.5 allows the CPUC to "cap" the costs that 24 PG&E may incur on the Tri-Valley Project. Indeed, Section 1005.5(d), which states that the 25 26 13 Pending California Assembly Bill 47 (as amended June 25, 2001), if enacted, would amend Section 1005.5 to "provide that the application of an increase may occur before, 27 during, or after construction."
28 DEBTOR'S NOT. OF MOT., MOT. & MPA FOR, ORDER APPROVING EXPEND. OF FUNDS TO CONSTRUCT TRI-VALLEY PROJECT 1 CPUC may "consider whether or not the actual costs of construction are within the 2 maximum cost specified by the conmnission"' when establishing rates that reflect the costs of 3 new construction, makes plain that.the CPUC has no authority to set a "maximum" amount 4 that PG&E may spend on the Tri-Valley Project.
5 Finally, the CPUC Order requires PG&E to "file a written notice with the 6 Commission... executed by an officer of PG&E duly authorized ... to acknowledge 7 PG&E's acceptance of the conditions set forth in Ordering Paragraphs 1 through 9, 8 inclusive, of this decision." Grider Decl. Ex. A (CPUC Order) at 151. The CPUC's "cost 9 cap" is contained in Ordering Paragraph 4. For the reasons set forth above, PG&E does not 10 believe that the CPUC may require PG&E to agree that it will not seek to recoup all of the 11 actual Tri-Valley Project costs in transmission rates. In all events, PG&E's written notice, 12 filed on December 21, 2001, affirmatively asserted PG&E's right to complete the Tri-Valley recovery of all Project HORY 13 Project even if actual costs exceed the CPUC's "cost cap" and to seek "NFAm'" 14 costs from FERC, even if actual costs exceed the CPUC's "cost cap." If the CPUC revokes
&RPAMON
,..O&O,1, 15 the CPCN because of such reservations, PG&E will not voluntarily construct the Tri-Valley 16 Project notwithstanding this Court's approval of the Motion. Assuming the CPUC does not 17 revoke the CPCN, PG&E can and will proceed with the Tri-Valley Project upon this Court's 18 approval of the Motion.
19 20 I1I. THE TRI-VALLEY PROJECT SHOULD BE AUTHORIZED PURSUANT TO SECTIONS 363 AND 105 OF THE 21 BANKRUPTCY CODE 22 As set forth at some length in the Omnibus Cap Ex Motion, PG&E on an annual 23 basis makes approximately $1.5 billion in capital expenditures in the ordinary course of its 24 business of providing gas and electric service to its customers. These capital expenditures 25 cut across the utility functions of the company (including electric distribution, gas 26 ddistutibo electric transmission, gasP ansmission and electric generation) and generally 27 fall into one or more of three broad categories. (1),emergency/safety projects; (2) projects 28 TRI-VALLEY PROJECT DEBTOR'S NOT. OF MOT., MOT. & MPA FOR ORDER APPROVING EXPEND. OF FUNDS TO CONSTRUCT
- 0 1 that are mandated by regulatory or legal orders (including projects undertaken to remain in 2 compliance with regulatory and legal requirements); and (3) other projects, such as projects 3 designed to improve the reliability of PG&E's distribution or transmission system which 4 may not be mandated by specific performance requirements. See Omnibus Cap Ex Motion 5 at 3:19-4:4.
6 The Tri-Valley Project has elements of all three expenditure categories, in that 7 the Tri-Valley Project is designed to achieve the substantial additions to the existing 8 transmission and distribution systems for the Tri-Valley Area that both the ISO and the 9 CPUC have agreed should be in place by summer 2004 to meet demand and ensure system 10 reliability.
11 As previously noted in the Cap Ex Omnibus Motion, PG&E believes that the 12 expenditures on virtually all of its capital projects as described above are within the ordinary 13 course of its business. As such, PG&E appreciates that such expenditures should be
. 14 permitted without notice or hearing or any Bankruptcy Court approval pursuant to 11 U.S.C.
AO,'W*. 15 Section 363(c) as a use, sale or lease of estate property in the ordinary course of business.
16 However, recognizing that few are the cases in which a debtor in possession must make well 17 over $1 billion in capital expenditures per year due to the unique nature of its business and 18 the complex regulatory environment in which it operates, PG&E already has agreed that the 19 Committee and the Court should be apprised of and/or asked to approve PG&E's capital 20 expenditures at certain substantial materiality thresholds as established in the Omnibus Cap 21 Ex Motion and Order. See generally Omnibus Cap Ex Motion at 15:23-16:20. Thus, 22 although the Tri-Valley Project in a real sense has been conceived and will be undertaken in 23 the ordinary course of PG&E's business, PG&E seeks this Court's authority to proceed with 24 the Tri-Valley Project because the anticipated cost of the Project exceeds $50 million, and a 25 motion and Court approval therefore are required pursuant to the Omnibus Cap Ex Motion 26 and Order.
27 PG&E has demonstrated in Part II above that the Tri-Valley Project is perceived 28 DEBTOR'S NOT. OF MOT., MOT. & MPA FOR ORDER APPROVING EXPEND. OF FUNDS TO CONSTRUCT TRI-VALLEY PROJECT 1 to be an important one by PG&E's regulators, and that the proposed maximum $135.9 2 million expenditure for such Project pursuant to the Motion will allow for the 3 implementation and completion of the Project. Accordingly, this Court plainly can and 4 should utilize its authority under Section 363 of the Bankruptcy Code to approve the capital 5 expenditure authorization for the Tri-Valley Project requested by the Motion.
6 Additionally, Section 105(a) of the Bankruptcy Code authorizes this Court to 7 issue any order, process, or judgment that is necessary or appropriate to carry out the 8 provisions of this title." The purpose of Section 105 is "to assure the bankruptcy courts' 9 power to take whatever action is appropriate or necessary in aid of the exercise of their 10 jurisdiction." 2 Lawrence P. King, Collier on Bankruptcy ¶105.01 at 105-6 (15th ed. rev.
.11 2000). For the reasons set forth above, the capital expenditure authorization for the Tri 12 Valley Project requested by the Motion plainly will enable the Debtor to proceed responsibly or 13 in discharging its duty to serve in the Tri-Valley area, and will not violate any principle NEAMP1 14 precept of the Bankruptcy Code.. Accordingly, pursuant to the Court's authority and
. 15 discretion under Section 105(a) of the Bankruptcy Code, the Court can and should grant the 16 Motion.
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28 PROJECT DEBTOR'S NOT. OF MOT., MOT. & MPA FOR ORDER APPROVING EXPEND. OF FUNDS TO CONSTRUCT TRI-VALLEY 1 CONCLUSION 2 For all .ofthe foregoing reasons, PG&E respectfully requests that this Court make 3 and enter an order granting the Motion, authorizing PG&E to enter into contractual 4 commitments and incur the expenditure of funds up to a maximum of $135.9 million to 5 construct and install the Tri-Valley Project.
6 7 DATED: January*)A 2002 8 Respectfully submitted, 9 HOWARD, RICE, NEMEROVSKI, CANADY, FALK & RABKIN 10 A Professional Corporation 11 By: ---. V/" L. "..
12 13 Attorneys for Deb, or and Debtor in Possession PACIFIC GAS AND ELECTRIC COMPANY S I14
&IRAflUN A*.,. 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DEBTOR'S NOT. OF MOT., MOT. & MPA FOR ORDER APPROVING EXPEND. OF FUNDS TO CONSTRUCT TRI-VALLEY PROJECT