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XAVIER BECERRA, SBN 118517

Attorney General of California 

CHRISTINA BULL ARNDT, SBN 175403 

Supervising Deputy Attorney General 

ERICA B. LEE, SBN 288151 

Deputy Attorney General 

Land Law Section 

California Department of Justice 

300 S. Spring Street 

Los Angeles, CA 90013 

Telephone: (213) 269-6386 

STEVEN H. FELDERSTEIN, SBN 059678 

PAUL J. PASCUZZI, SBN 148810 

FELDERSTEIN FITZGERALD 

WILLOUGHBY & PASCUZZI LLP 

400 Capitol Mall, Suite 1750 

Sacramento, CA 95814 

Telephone: (916) 329-7400 

Fax: (916) 329-7435 

sfelderstein@ffwplaw.com 

ppascuzzi@ffwplaw.com 

Attorneys for High Speed Rail Authority and 

California Air Resources Board

XAVIER BECERRA, SBN 118517

Attorney General of California 

DANETTE VALDEZ, SBN 141780 

ANNADEL ALMENDRAS, SBN 192064 

Supervising Deputy Attorneys General 

455 Golden Gate Avenue, Suite 11000 

San Francisco, CA 94102-7004 

Telephone: (415) 510-3367 

Fax: (415) 703-5480 

Danette.Valdez@doj.ca.gov 

Annadel.Almendras@doj.ca.gov 

UNITED STATES BANKRUPTCY COURT 

NORTHERN DISTRICT OF CALIFORNIA 

SAN FRANCISCO DIVISION 

In re: 

PG&E CORPORATION 

- and – 

PACIFIC GAS AND ELECTRIC 

COMPANY, 

Debtors.

Bankruptcy Case

No. 19-30088 (DM) 

Chapter 11 

(Lead Case) 

(Jointly Administered) 

 Affects PG&E Corporation 

 Affects Pacific Gas and 

Electric Company 

 Affects both Debtors 

Date: June 11, 2019 

Time: 9:30 a.m. 

Ctrm: 17 

Judge: Dennis Montali 

OBJECTION OF HIGH SPEED RAIL AUTHORITY AND CALIFORNIA AIR 

RESOURCES BOARD TO DEBTORS’ APPLICATION TO EMPLOY KPMG 

[DOCKET NO. 2171] 

Case: 19-30088 Doc# 2384 Filed: 06/04/19 Entered: 06/04/19 14:58:10 Page 1 of

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High Speed Rail Authority and the California Air Resource Board, by and through its 

undersigned counsel, hereby file this objection to the Application Pursuant to 11 U.S.C. §§ 

327(a) and 328(a) and Fed. R. Bankr. P. 2014(a) and 2016 For Authority to Retain and Employ 

KPMG LLP as Information Technology, Risk and Legal Support Consultants to the Debtors Nunc 

Pro Tunc to Petition Date. This Objection is supported by the following memorandum of points 

and authorities and any argument the Court may permit. 

PRELIMINARY STATEMENT 

High Speed Rail Authority’s (“HSRA”) mission is to build and maintain an electric, highspeed, rail system in the State of California. KPMG LLP (“KPMG”) currently provides financial 

advisor services to HSRA under a $40 million, four-year contract that terminates June 14, 2020. 

Due to its work for HSRA, KPMG has an actual and potential conflict. Currently, KPMG 

provides for all of HSRA’s accounting and financial planning needs, and includes the following 

services: 

a. Coordinates funding requests and assists in the production of funding 

requests; 

b. Provides financial analysis of all bidders in HSRA’s procurement process 

to determine whether bidders are financially qualified; 

c. Preparing financial statements for HSRA’s board of directors. 

 In the future, HSRA will purchase electricity from Pacific Gas &Electric Company (the 

“Utility”), either directly or indirectly but through PG&E’s grid system. HSRA therefore 

anticipates entering into long-term energy purchasing agreements with PG&E. HSRA will rely on 

KPMG for advice when it drafts and negotiates those contracts with PG&E. 

 The California Air Resources Board (“CARB”) is charged with protecting the public from 

the harmful effects of air pollution and developing programs and actions to fight climate change. 

CARB designed and implements the Cap-and-Trade Program, a market-based regulation that 

reduces greenhouse gas emissions from the State’s major emission sources. The Cap-and-Trade 

Program establishes a hard, declining cap on approximately 80 percent of total statewide 

emissions, and it creates a strong economic incentive for investments in cleaner, more efficient 

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technologies. There are no facility-specific emissions reduction requirements; rather, each 

covered entity must acquire and surrender compliance instruments in an amount equal to its total 

covered emissions. A market exists where compliance instruments may be sold and traded 

among Program participants. 

 Between March 1, 2010, and August 31, 2012, KPMG provided CARB with information 

technology planning and support, project planning and management, risk management support, 

and other services in support of CARB’s development of a cap-and-trade market tracking system. 

This tracking system – known as the Compliance Instrument Tracking System Service (CITSS) – 

allows CARB to track regulated entities’ cap-and-trade trading and compliance activities. As a 

regulated entity, the Utility is a market participant in the Cap-and-Trade Program and utilizes 

CITSS to hold and surrender compliance instruments and to participate in transactions of 

compliance instruments with other market participants. Although KPMG concluded its work for 

CARB nearly seven years ago, KPMG acquired confidential and sensitive information regarding 

the Cap-and-Trade Program from CARB and was directly involved in the preliminary 

development of the cap-and-trade market tracking system. CARB regulates the Utility, and the 

Utility is a registered user in the cap-and-trade market tracking system. 

BACKGROUND 

1. On January 29, 2019 (the “Petition Date”), the Debtors commenced the above 

captioned cases by filing voluntary petitions for relief under Chapter 11 of the Bankruptcy Code. 

See ECF No. 1. 

2. On May 21, 2019, the Debtors filed the Application to Retain and Employ KPMG. 

See ECF No. 2171. 

3. As disclosed in the Application and related declaration of Geno Armstrong (ECF No. 

2172), KPMG would provide information technology, risk and legal support consulting services, 

asset management services, data security services, and legal support services. KPMG may 

provide additional services and seek separate retention orders with regard to any additional 

services. 

/// 

Case: 19-30088 Doc# 2384 Filed: 06/04/19 Entered: 06/04/19 14:58:10 Page 3 of

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MEMORANDUM OF POINTS AND AUTHORITIES 

I. LEGAL FRAMEWORK 

11 U.S.C. section 327 governs employment of professionals. Section 327(a) requires 

employment of “disinterested persons” and section 327(c) requires disqualification if a creditor 

objects and there is an “actual conflict of interest”. Whether an actual conflict of interest exists is 

a case- and fact-specific inquiry. In re AFI Holding, Inc., 530 F.3d 832, 848 (9th Cir. 2008). 

“‘Actual’ conflict occurs when the professional serves two presently competing and adverse 

interests.” In re Am. Printers & Lithographers, Inc., 148 B.R. 862, 866 (Bankr. N.D. Ill. 1992). 

“‘Potential’ conflict is said to occur where the competition does not presently exist, but may 

become active if certain contingencies arise.” Id. “There is a trend to make no distinction between 

potential and actual conflicts.” In re AFI Holding, Inc., 530 F.3d 832, 843 n.5 (9th Cir. 2008). 

II. ARGUMENT 

A. The Application Should Be Denied Because KPMG Has an Actual and

Potential Conflict of Interest. 

 An actual conflict may arise when dual representation creates a conflict of interest. See In 

re Internet In a Mall, Inc., 216 F.3d 1083 (9th Cir. 2000). Here, KPMG would have an actual and 

potential conflict of interest if it provides information technology, risk and legal support 

consulting services, asset management services, data security services, and legal support services 

to the Debtors. KPMG concurrently provides financial services to HSRA, a creditor in this 

bankruptcy case with two active contracts with PG&E for $27 million and $36 million, 

respectively. These contracts contain a requirement to reconcile payments with true costs, which 

may lead to a claim. The types of services that KPMG would provide to PG&E could easily fall 

within the scope of these contracts, in which case KPMG would have a dual representation of 

both PG&E and HSRA. 

 In addition, KPMG would have a potential conflict of interest because, in the future, a 

major component of HSRA’s objective will be to obtain electricity from PG&E to operate the 

high-speed rail. The parties will need to enter into long-term contracts between HSRA and 

PG&E. And because of the unique nature of the future contracts—this project will be the state’s 

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first high-speed rail—market rates and terms for the contracts will likely not be readily 

ascertainable. HSRA will therefore heavily rely on KPMG’s financial advice in negotiating and 

drafting these contracts. And again, KPMG would find itself on both sides of the negotiating 

table. 

 Although KPMG’s work on CARB’s cap-and-trade market tracking system ended in 

August 2012, a potential conflict still exists because KPMG helped with the initial development 

of the market system in which the Utility is an active participant. KPMG also acquired 

confidential and sensitive program information from CARB. Thus, having done work for the 

regulator and now proposing to do work for the regulated entity, KPMG may find itself in a 

situation that could lead to the disclosure of CARB’s confidential program information to the 

Utility, which raises the prospect of a conflict of interest. 

B. Alternatively, the Court Should Impose an Ethical Wall. 

 In the alternative, if the Court does not deny the Debtors’ application to retain KPMG, the 

Court should require an ethical wall that would (a) prohibit KPMG from sharing any information 

about HSRA’s financials and CARB’s cap-and-trade program and market tracking system with 

Debtors and (b) prohibit the same KPMG personnel that currently work or previously worked for 

HSRA and CARB to ever work for PG&E either in this bankruptcy case, or in the future. The 

Court also should require that KMPG and the Debtors establish protocols to protect against 

disclosures of HSRA and CARB information. 

Dated: June 4, 2019 Respectfully submitted, 

XAVIER BECERRA 

Attorney General of California 

ANNADEL ALMENDRAS 

Supervising Deputy Attorney General 

ERICA B. LEE 

Deputy Attorney General 

By:/s/ Paul J. Pascuzzi 

STEVEN H. FELDERSTEIN 

PAUL J. PASCUZZI 

FELDERSTEIN FITZGERALD 

WILLOUGHBY & PASCUZZI LLP 

Attorneys for High Speed Rail Authority and California Air Resources Board 

Case: 19-30088 Doc# 2384 Filed: 06/04/19 Entered: 06/04/19 14:58:10 Page 5 of

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PROOF OF SERVICE 

I, Sabrina M. Cisneros, declare: 

I am a resident of the State of California and over the age of eighteen years, and not a 

party to the within action; my business address is 400 Capitol Mall, Suite 1750, Sacramento, CA 

95814. On June 4, 2019, I served the within documents: 

OBJECTION OF HIGH SPEED RAIL AUTHORITY AND CALIFORNIA AIR 

RESOURCES BOARD TO DEBTORS’ APPLICATION TO EMPLOY KPMG 

[DOCKET NO. 2171] 

By Electronic Service only via CM/ECF. 

/s/ Sabrina M. Cisneros 

Sabrina M. Cisneros 

Case: 19-30088 Doc# 2384 Filed: 06/04/19 Entered: 06/04/19 14:58:10 Page 6 of

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