In re Pacific Gas & Electric Company

• Decision Date: 15 May 2003
• Docket Number: No. 01-30923DM.,01-30923DM.
• Citation: 295 B.R. 635
• Court: U.S. Bankruptcy Court — Northern District of California
• Parties: In re PACIFIC GAS & ELECTRIC COMPANY, Debtor.

Page 635

295 B.R. 635

In re PACIFIC GAS & ELECTRIC COMPANY, Debtor.

No. 01-30923DM.

United States Bankruptcy Court, N.D. California.

May 15, 2003.

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Benjamin Hoch, Dianne Coffino, Marc Hirschfield, Michael C. Hefter, Robert C. Myers, Law Offices of Dewey Ballantine, New York City, David Agay, Stacy D. Justic, Law Offices of Winston and Strawn, Chicago, IL, Adam M. Cole, Heller, Ehrman, White and McAuliffe, J. Michael Kelly, Martin S. Schenker, Law Offices of Cooley Godward, James L. Lopes, Janet A. Nexon, Jeffrey L. Schaffer, Kimberly A. Bliss, William J. Lafferty, Howard, Rice, Nemerovski, Canady, Jon B. Streeter, Robert A. Van Nest, Law Offices of Keker and Van Nest, San Francisco, CA, Jamie L. Edmonson, Richard Levin, Skadden, Arps, Slate, Meagher and Flom, Los Angeles, CA, John S. Moot, Skadden, Arps, Slate, Meagher and Flom, Washington, DC, for debtor.

Patricia A. Cutler, Stephen L. Johnson, Office of the U.S. Trustee, San Francisco, CA, for Office of the U.S. Trustee.

Lorie A. Ball, Michael I. Sorochinsky, Paul S. Aronzon, Robert J. Moore, Milbank, Tweed, Hadley & McCloy, Los Angeles, CA, for Official Committee of Unsecured Creditors.

MEMORANDUM DECISION ON ESTIMATION OF ANTITRUST CLAIMS

DENNIS MONTALI, Bankruptcy Judge.

I. Introduction

A. Procedural Background

In November 2002, the Northern California Power Agency ("NCPA") and the City of Palo Alto ("Palo Alto") (together, "Objectors") and Debtor, Pacific Gas & Electric Company ("PG & E"), entered into (and the California Public Utilities Commission (the "CPUC") approved) the Amended Stipulation And [Proposed] Order Re Procedures For Estimating Certain Disputed And Unliquidated Claims of the Northern California Power Agency And City of Palo Alto For Feasibility Purposes Only ("Estimation Stipulation"). As set forth in the Estimation Stipulation, Objectors contend that:

the PG & E Plan and the CPUC Plan are not feasible ... because they both fail to appropriately provide for damages attributable to certain disputed and unliquidated claims (the "Municipal Claims") of NCPA and Palo Alto based on PG & E's alleged breaches of the "Stanislaus Commitments," Section 2 of the Sherman Act and related alleged wrongs, which claims are described in the Opposition Of The City of Palo Alto To Motion of Pacific Gas & Electric Company For A Protective Order ... the Palo Alto Objection and the NCPA Objection. (Estimation Stipulation at 1.)

The Estimation Stipulation provides a process for estimation of Objectors' Municipal Claims for purposes of determining plan feasibility. It is to serve no other purpose. It does not estimate any claim of NCPA, Palo Alto, or any other party for allowance, distribution, or any other purpose. The sole reason the court has undertaken this analysis is to ascertain what amount of damages, if any, PG & E should include in its forecasts for meeting obligations that "pass through," i.e., are not dealt with, under its proposed Plan Of Reorganization (as amended, the "Plan").

The Estimation Stipulation provided for a three-day estimation trial, with a maximum of five percipient witnesses, and three expert witnesses, per party (NCPA and Palo Alto being one "party" for these purposes), together with such written exhibits (including deposition testimony and declarations) and demonstrative exhibits as each party offered. Because of the abbreviated nature of the estimation trial, the parties also agreed that the witnesses' testimony would be presented in writing and that cross-examination would be by way of deposition testimony taken of the witnesses before trial. Finally, all agreed that the evidence offered by the parties would be received subject to the Court's rulings on written objections the parties were permitted to file.¹

Trial was conducted on January 27, 28 and 29, 2003. Proposed findings of fact and conclusions of law were submitted on March 26, 2003, after which the matter was considered submitted for decision.

Although the "Municipal Claims" were defined in the Estimation Stipulation to include a broader range of contingent claims, Objectors chose to limit their evidence and presentation to their alleged claims arising under Section 2 of the Sherman Act (15 U.S.C. § 2) ("Section 2") and related state antitrust and unfair competition claims (together, the "Antitrust Claims").²

Because the Court's estimation of the Antitrust Claims of Objectors bears not only upon the feasibility of the Plan, but also upon the feasibility of the competing plan filed by CPUC (the "CPUC Plan"), CPUC was given a full opportunity to participate in the estimation trial.³ CPUC did not designate any witnesses or allow them to be deposed before trial, and did not offer any evidence at the estimation trial.

B. Objectors' Contentions

Objectors' principal contention is that PG & E has attempted illegally to maintain a monopoly in the market for the distribution of electricity to residential and business customers in PG & E's Northern California service territory in violation of Section 2 (and analogous state law doctrines) by failing to provide transmission services over PG & E's transmission facilities in Northern California on just and reasonable terms. A substantial part of PG & E's Northern California transmission system is a "strategic bottleneck" facility, particularly the PG & E lines that transmit electricity into and within the Greater Bay Area ("GBA"). In particular, Objectors contend that under the "Stanislaus Commitments" PG & E is required to provide them with "firm transmission," which Objectors define to mean transmission free from costs associated with congestion. PG & E is required by Section 2 to transmit ("wheel") electricity to Palo Alto and NCPA's other members "on fair and reasonable terms that do not disadvantage them."

The primary exclusionary acts alleged by Objectors include the following: PG & E's alleged reliance upon costly local generation to supplement, and thereby avoid the need to improve, an allegedly deficient transmission system; PG & E's failure to designate the existing interconnection agreements between PG & E and Objectors as "existing transmission contracts" ("ETCs") that might be protected from future market reforms; PG & E's alleged improper termination of those contracts; PG & E's failure to negotiate replacement agreements or an alternative resolution that would ensure that Objectors would not incur congestion charges (including PG & E's refusal to sell Objectors a portion of PG & E's transmission system); and PG & E's divestiture of generation assets without taking steps to ensure that this would not increase Objectors' exposure to increased congestion charges.

Objectors also allege that, by raising its local distribution rivals' costs, PG & E is attempting to place Objectors in an anti-competitive price squeeze and maintain its local distribution monopoly in a manner forbidden by Section 2.

C. Ruling

For the reasons explained below, the court concludes that Objectors have not established that the Antitrust Claims will affect the Plan's feasibility. Therefore, solely for feasibility purposes, the court will estimate the Antitrust Claims as having no value.

II. Estimation Procedures

No complaint asserting the Antitrust Claims has been filed. Thus, the court cannot approach the matter at hand in the traditional way a United States district court would deal with a motion for a judgment on the pleadings (Fed.R.Civ.P. 12(c)), a motion for failure to state a claim upon which relief can be granted (Fed.R.Civ.P. 12(b)(6)), a motion for summary judgment (Fed.R.Civ.P. 56), or any other case-dispositive motion.

Nevertheless, the Estimation Stipulation lets the court engage in the little make believe, viz., to act as if the court were determining Antitrust Claims at a future date after the Plan had become effective, to accept the undisputed facts, to find facts where there are material disputes, to consider the legal principles advanced by Objectors to support their Antitrust Claims, and to consider the defenses tendered by PG & E. Then, unlike the more conventional estimation "for purpose of allowance" (11 U.S.C. § 502(c)), the court is to glean from all before it what PG & E should presume are its liabilities to Objectors on account of the Antitrust Claims in order to determine whether the Plan is feasible under Section 1129(a)(11).⁴ If the Antitrust Claims are too high, then the Plan may not be feasible; if they are too low — as the court has determined — then PG & E (and CPUC) need not worry about the Antitrust Claims for Plan confirmation purposes.⁵

There are relatively few guidelines for the court. Section 502(c) provides little direction and the cases interpreting that section give the court wide discretion.

Section 502(c) requires the court to estimate "for purpose of allowance" any contingent or unliquidated claim, "the fixing or liquidation of which, as the case may be, would unduly delay the administration of the case[.]" 11 U.S.C. § 502(c)(1). Section 502(c) additionally requires the court to estimate (for purposes of allowance) "any right to payment arising from a right to an equitable remedy for breach of performance." 11 U.S.C. § 502(c)(2).

An estimation under section 502(c) may be for broad or narrow purposes. For example, the court may estimate a claim solely for the purpose of determining a creditor's ability to vote on a plan of reorganization or solely for the purpose of determining feasibility of a plan. See Pizza of Hawaii, Inc. v. Shakey's, Inc. (In re Pizza of Hawaii, Inc.), 761 F.2d 1374, 1382 (9th Cir.1985) (estimation necessary for a determination of plan feasibility); In re Trident Shipworks, Inc., 247 B.R. 513, 514 (Bankr.M.D.Fla.2000) ("the estimation proceeding may be used for the purpose of voting on a Plan of Reorganization, and also to determine the allowed amount for distribution...