Tug of War over PG&E Millions in Bankruptcy Fees

Federal bankruptcy court judge Dennis Montali, who pushed for a negotiated settlement of Pacific Gas & Electric Co.'s bankruptcy battle to put a lid on the astronomical costs, signed off on the latest round of claims associated with PG&E's Chapter 11 filing. The latest $10 million in bills is a fraction of the total bankruptcy costs to date and covers lawyer and account fees for PG&E and the creditors committee from last April Fool's Day to the end of July 2003. The total bankruptcy tab for professional fees is around $400 million, according to the U.S. trustee. Montali, who has presided over the proceedings for the past two years, was not fazed by the recent claims from 16 entities. "I have no concerns about any of them," he said at a November 13 hearing. But he did concede the immensity of the situation as he was signing the authorizations. "Think of all those dollars," he said. "At least I'm not signing checks." Before Montali was PG&E's $7.9 million in professional fees and expenses, which include rates for utility lawyers and accountants as high as $700 per hour over a four-month period. Another bill submitted seeks approval of official creditors' $2.4 million in professional fees and expenses from April to the end of July 2003, for which PG&E is on the hook. The much larger $400 million bankruptcy tab includes the California Public Utilities Commission's costs in the case, estimated in the $46 million range. It also factors in $58 million for implementing the settlement PG&E reached with the CPUC staff, if approved. The CPUC is expected to issue a draft decision next Tuesday. PG&E's mega-bill for filing for bankruptcy protection does not, however, include the hefty legal fees and expenses that the myriad intervenors, including the state and a number of cities, counties, and irrigation districts, have accumulated. Since PG&E filed for bankruptcy in April 2001, professional fees and expenses have reached $118 million. The utility's attorneys and accountants have charged $93 million, and professional fees and costs for the official creditors' committee are $25 million. On top of that are PG&E Corp.'s estimated legal expenses, which run to $96 million, accompanied by an additional $29 million for financial and accounting costs. City of Palo Alto attorney Larry Engle took issue with the legal fees charged by PG&E Corp., which were not before Montali. Engle insisted the court approve payments to the parent company's lawyers only for work done on the settlement. The attorneys should not be paid for devising a plan to split the utility into unregulated parts because no benefit was derived from that work. "The court should set a standard to determine what are reasonable fees," Engle said. Before Montali's Thursday hearing on the claims, consumer groups blasted PG&E for seeking a $9 billion bailout to pay its bills. Calling PG&E "the richest bankrupt company in the world," Mike Florio, senior attorney for The Utility Reform Network, noted that the utility's parent corporation had reported a $500 million profit for the most recent financial quarter. Layne Schneider, representing Community Action Marin, reported that about 1.2 million debtors' customers, many of whom are seniors, were hit with 48-hour shutoff notices this summer, with no payment arrangements. Michelle Allesandro, a ratepayer at the November 13 consumer group's press conference, said she received a shutoff notice because PG&E allegedly failed to set up an account for her. The trial on confirming Pacific Gas & Electric?s reorganization plan kicked off at the beginning of the week with arguments not addressed in the pending deal reached by the utility and CPUC staff. Much of the sparring in court focused on the utility?s sending millions to PG&E Corp., attempts to release the parent from any liability, the reasonableness of paying out a $118 million dividend, and ring-fencing PG&E Corp. affiliate National Energy Group (NEG). PG&E?s chief financial officer Kent Harvey said when the crisis hit, the utility?s undercollections doubled?soaring from $3.4 billion at the end of October 2000 to $6.6 billion the following December. ?Our world changed after that,? Harvey said. At the same time, he defended the utility?s action of sending its parent $400 million prior to filing for Chapter 11 protection and paying out a hefty dividend in October 2000 just before the energy market went haywire. Cameron Baker, attorney representing the city and county of San Francisco, attempted without success to get Harvey to estimate how much of PG&E?s $6 billion-plus in power costs racked up during the crisis included income it received from selling its own power supplies into the market. Baker also attacked the utility?s action of upstreaming millions to the parent, asking why when PG&E later became awash in red ink it didn?t seek help from the corporation or affiliate NEG. Harvey said both actions ?would make no sense.? Harvey added that California has restrictive affiliate rules that prohibit utilities from sending income to support a nonutility relation and thus that moving the money in the opposite direction was presumably also prohibited. Lisa Weinzimer also contributed to this report.

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Tug of War over PG&E Millions in Bankruptcy Fees

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