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Jun. 15, 2002
PG&E Fees in Bankruptcy Top $46 Million
SAN FRANCISCO - Professional fees for the first year of the Pacific Gas and Electric Co. bankruptcy exceeded $46 million, with nearly three-quarters of that amount going to eight law firms representing the utility and its creditors.
The figures were compiled in an analysis that the U.S. Trustee's Office in San Francisco filed this week with the U.S. Bankruptcy Court. In it, the bankruptcy watchdog agency raised questions about more than $1 million in charges that law firms, consultants and accounting firms have asked for in the third and latest round of fee applications in the case.
"It is heavy," U.S. Trustee Linda Stanley said Thursday of the total costs of the case for the first year. "It's running about $1 million a week."
She noted that the records were complete only up to March 31 of this year. That means they do not include billings for all the work done by lawyers for PG&E and the creditors on such controversial issues as the debate over an alternative bankruptcy reorganization plan proposed by the California Public Utilities Commission. The PUC is footing its own legal costs in developing the plan.
"I wonder how much [more] is out there," Stanley said.
For the first time in the case, Stanley also objected to some of the fees that PG&E's lead bankruptcy firm is charging in the case, and she questioned hundreds of thousands of dollars in potential charges for the lawyers representing creditors.
Stanley's filing, which was dated June 12, included a breakdown of fees charged to the case since PG&E filed for bankruptcy in April 2001. Also included was an analysis of where the money has gone.
PG&E - and ultimately its ratepayers - is responsible for footing all the legitimate legal bills and costs for other experts hired to advise both the utility and the official committee representing creditors in the case. It is up to U.S. Bankruptcy Judge Dennis Montali to approve the fees.
Stanley's analysis showed that to date lawyers and other professionals have billed $46.1 million. Of that, $32.8 million has gone to law firms.
More than a third of the money has been spent on work related to PG&E's controversial plan of reorganization, Stanley's analysis showed. Another 21 percent of the fees and costs were attributable to what she called the "impasse" between PG&E and the PUC and other government agencies.
Since almost the beginning of the case, the utility and government entities, including the PUC, have fiercely battled over the company's bankruptcy proposals, which involve divorcing the utility from much of the state's regulatory authority. The dispute has resulted in the unprecedented filing by the PUC of a rival bankruptcy reorganization plan.
A variety of other issues, including regulatory matters and analyzing creditor claims, took up much of the rest of the money spent in the case, the analysis showed.
San Francisco's Howard, Rice, Nemerovski, Canady, Falk & Rabkin, PG&E's chief bankruptcy firm, led the pack with nearly $12.9 million in billings so far. That was followed by the $7 million charged by another San Francisco firm, Heller, Ehrman, White & McAuliffe, which is representing PG&E in its dealings with the PUC and other government agencies.
Stanley asked Montali to reduce Heller's latest fee request of nearly $2.5 million by $87,483, saying the money was spent on work that primarily benefited PG&E's parent corporation, rather than the utility. The parent, PG&E Corp., is not in bankruptcy.
Third on the cumulative list was Milbank, Tweed, Hadley & McCloy, which is representing the official committee of creditors. The firm has charged nearly $5.9 million so far in the case, although Stanley questioned more than $850,000 the law firm billed for participating in the lengthy process of developing PG&E's plan to reorganize itself and emerge from Chapter 11, as well as an accompanying statement describing the plan for creditors.
Cumulative totals for other law firms, all employed by PG&E in the case, included Cooley Godward with nearly $2.1 million in billings; Winston & Strawn, almost $1.9 million; Steefel, Levitt & Weiss, $576,313; and Keker & Van Nest, $367,898.
The amount of Milbank's billings questioned by Stanley represented more than half the nearly $1.7 million the firm billed in the latest period from December through March.
Stanley said the firm did not adequately describe the work it did to earn $816,345 under a category the firm called "plan and disclosure statement." Stanley objected because she said the category actually "contains time spent on disparate topics only slightly related to the drafting" of the document.
In reality, she said the firm incurred $431,977 in fees on the plan and statement, an amount Stanley still called "excessive." She said other work included in the category apparently involves Milbank's representation of the creditors in mediation talks to resolve differences between the PUC and the utility, as well as other work.
It was not clear how much, if any, Stanley wanted Montali to shave from the request.
"The value of the committee's involvement in the extensive disclosure statement process is not immediately clear or established by Milbank's application," Stanley's filing said, however.
Stanley also asked for a $41,568 reduction in Milbank's request for work on implementing the plan.
She also raised concerns about several increases in billing rates for individual attorneys that apparently raised some nonpartner lawyers to as high as $520 an hour. In one case, she noted an attorney who originally billed at $200 was bumped to $350, a 62 percent increase.
"It is difficult to believe associates and of counsel lawyers are regularly billed to other clients at $465 to $520 an hour," Stanley's brief said.
In response, Milbank lawyer Robert Jay Moore said he had not seen the objections.
Stanley also urged Montali to reject $228,000 of Howard Rice's billings, the first time in the case she has objected to any of the millions of dollars that firm has charged for its representation of PG&E. Primarily she criticized the firm for its hard line in dealing with objections to the utility's bankruptcy disclosure statement, a fight that consumed at least six hearings.
"The sheer number of hearings conducted on the disclosure statement suggest the process was unnecessarily prolonged and too costly," Stanley wrote.
James Lopes, the lead Howard Rice attorney on the case, said Thursday he had not seen the objections but that the firm would file an "appropriate response." Noting that Stanley had never before asked for the firm's billings to be reduced, he said, "I feel fortunate."
Stanley also urged a number of other reductions in fee requests, including recommending a $5,202 cut from a PG&E consultant, The Brattle Group, for air fares that exceeded coach class.
In addition, Stanley objected to $42,000 the accounting firm PricewaterhouseCoopers billed for sending copies of its time records to other parties in the bankruptcy case. The firm is advising the creditors committee.
Dennis Pfaff
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