PG&E Bankruptcy Judge Denies Dynegy Claim, Weighs Palo Alto?s

Two hefty claims left dangling after Pacific Gas & Electric?s bankruptcy reorganization plan went into effect met different fates this week. Federal bankruptcy judge Dennis Montali rejected Dynegy?s attempt to reap $1 million from the utility. During the March 8 hearing, Montali also said he would mull over whether the city of Palo Alto deserved a $1.9 million award. The hearing on the Dynegy and Palo Alto claims, originally set for late 2004, had been rescheduled a number of times. Montali said Dynegy?s assertion that it significantly affected the outcome of the PG&E Chapter 11 case because its counsel suggested that the vying parties would enter into settlement talks would set a bad precedent. Negotiated settlements are ?part of the bankruptcy fabric.? He pointed out that he had pushed for a judicially supervised negotiation and fellow judge Randall Newsom managed to get the parties to hammer out a deal after two and a half years of fighting. ?I think each judge should get $1 million,? Montali quipped. Dynegy attorney Philip Warden of Pillsbury Winthrop asserted without success that his push for negotiations ?shaved a year or two off the case,? and the company deserved a ?modest percentage? of the substantial legal fees claims, amounting to about $100 million a year. U.S. Assistant Trustee Frank Cadagen took issue with that proposition, telling the court that Dynegy?s contribution was just ?ordinary.? Palo Alto attorney Larry Engle, who actively participated in the hearings that dragged out for three years, staked the city?s claim on a successful fight to keep PG&E from breaking up into unregulated businesses. Montali wanted proof that Engle met the legal requirement of a ?substantial contribution? to that outcome, adding that the California Public Utilities Commission also vigorously fought PG&E?s disaggregation plan. Furthermore, the utility?s move to get out from under state control was undermined by a Ninth Circuit Court of Appeals ruling, the judge added. Engle replied that the totality of the circumstances needed to be taken into account and that he had successfully pushed ?for a better result.? Case law, Engle added, acknowledges that a party keeping a strategy from being implemented can qualify as making a substantial contribution under Section 503(b) of the Bankruptcy Code. Engle ?vastly overstated? the benefit he provided to the utility?s estate and process, according to PG&E attorney Bill Lafferty of Howard Rice. Engle agreed to back up his claim with highlighted sections of the proceeding?s lengthy transcript. Palo Alto spent about $3 million on legal fees and is seeking recovery of costs related to claims that ?benefited all the bankruptcy creditors,? said city attorney Grant Kolling. In related news, Palo Alto?s suit challenging PG&E?s bankruptcy plan is on its last legs. The plan was approved by the CPUC in December 2003. On March 14, there will be a final status conference on the pending matter before federal district court judge Vaughn Walker. The matter, however, has been made virtually moot by implementation of the reorganization plan and PG&E?s recent issuance of $1.9 billion in bonds.

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PG&E Bankruptcy Judge Denies Dynegy Claim, Weighs Palo Alto?s

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