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Heinz Binder (SBN 87908)

Robert G. Harris (SBN 124678)

BINDER & MALTER, LLP

2775 Park Avenue

Santa Clara, CA 95050

Tel: (408) 295-1700

Fax: (408) 295-1531

Email: Heinz@bindermalter.com

Email: Rob@bindermalter.com

Attorneys for TURN, the Utility Reform Network

UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN FRANCISCO DIVISION

In re

PG&E CORPORATION

and

PACIFIC GAS AND ELECTRIC 

COMPANY,

 Debtors.

Case Nos. 19-30088 DM (Lead Case)

 19-30089 DM

Chapter 11

Jointly Administered

☐ Affects PG&E Corporation

☐ Affects Pacific Gas and Electric Company

☒ Affects both Debtors

* All papers shall be filed in the Lead Case 

No. 19-30088 DM.

OPPOSITION BY TURN TO MOTION OF 

DEBTORS PURSUANT TO 11 U.S.C. §§ 

105(a), 363(b), AND 503(c) FOR ENTRY OF 

AN ORDER (I) APPROVING DEBTORS’

INCENTIVE PROGRAM FOR CERTAIN 

KEY EMPLOYEES AND (II) GRANTING 

RELATED RELIEF [DKT #2664]

Date: July 24, 2019

Time: 9:30 a.m. (Pacific Time)

Place: United States Bankruptcy Court

Courtroom 17, 16th Floor

San Francisco, CA 94102

 

 RELATED DOC NO. 2664

Case: 19-30088 Doc# 3035 Filed: 07/17/19 Entered: 07/17/19 15:26:44 Page 1 of

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The Utility Reform Network (“TURN”) opposes the approval of a key employee incentive 

plan (“KEIP”) for twelve of the Debtors’ senior executive officers at this time pursuant to the terms 

proposed in the Motion of Debtors Pursuant to 11 U.S.C. §§ 105(a), 363(b), and 503(c) for Entry of 

an Order (i) Approving Debtors’ Incentive Program for Certain Key Employees and (ii) Granting 

Related Relief (the “Motion”). TURN’s reasons for opposing the Motion are as follows: 

1. The Approval of Unreviewable Insider Compensation is Premature.

As the Court is aware, the Debtors have, as yet, not proposed their own plan or filed a 

disclosure statement. The Motion by Ad Hoc Committee of Senior Unsecured Noteholders to 

Terminate the Exclusive Periods Pursuant to Bankruptcy Code Section 1121(d)(1) of the Bankruptcy 

Code describes a vision for the future of the two Debtors at odds with that of the Debtors themselves. 

Little is known of the Debtors’ own plan proposal beyond their desire to burden ratepayers with a 

large portion of the liability for their own corporate malfeasance. It is unlikely that the bondholders 

will support the proposed KEIP. 

It has been held that approval of certain kinds of insider compensation subject to regulation 

under Bankruptcy Code section 503(c), particularly without provisions for review or reconsideration,

may be denied when proposed too early in a case: 

In contrast to Journal Register and Dana, the Debtors here seek the 

Court's approval of this severance payment now, notwithstanding the 

fact that the Debtors' expected effective date of the merger (and plan) 

is some six months away. See Hr'g Tr. 26:3-7. Indeed, a plan and 

disclosure statement have yet to be filed. And there is a real 

consequence to such approval today: the UCC conceded at the 

hearing, and the Debtors did not contest, that approval now would 

resolve this issue for purposes of this bankruptcy case and preclude 

any challenge to the merits of the severance payment during the 

confirmation hearing on a plan of reorganization. Hr'g Tr. 63:24-25; 

64:1-2.

In re AMR Corp., 490 B.R. 158, 168, (Bankr. S.D.N.Y. 2013) (motion under 11 U.S.C. §§ 363, 

503(b), and 105(a) for approval of an agreement to merge the debtors (debtor airline) with another 

airline granted; severance to CEO denied). 

///

Case: 19-30088 Doc# 3035 Filed: 07/17/19 Entered: 07/17/19 15:26:44 Page 2 of

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Absent provisions for reconsideration once a consensual plan has been negotiated, or in the 

event that a creditor plan is confirmed, the estate and creditors should not be burdened with the 

proposed KEIP. The Motion should be denied on this basis alone. 

2. The Debtors Have Failed to Meet Their Burden as Proponents of the KEIP.

“The proponent of the KEIP bears the burden of proving that the plan is not a retention plan 

governed by § 503(c)(1).” In re Hawker Beechcraft, Inc., 479 B.R. 308, 313 (Bankr, S.D.N.Y.

2012). “Attempts to characterize what are essentially prohibited retention programs as ‘incentive’

programs in order to bypass the requirements of section 503(c)(1) are looked upon with disfavor, as 

the courts consider the circumstances under which particular proposals are made, along with the 

structure of the compensation packages, when determining whether the compensation programs are 

subject to section 503(c)(1). In re Borders Group, Inc., 453 B.R. 459, 470 (Bankr. S.D.N.Y. 2011). 

A Court cannot defer to the labels used by a debtor when determining whether a KEIP's true purpose 

is to either incent or retain. See id. (‘A debtor's label of a plan as incentivizing to avoid the strictures 

of section 503(c)(1) must be viewed with skepticism . . ..’). Instead, a court must conduct its own 

holistic analysis to determine whether the performance goals in the KEIP constitute meaningful and 

challenging targets for the debtor. ... [citation omitted]. A KEIP that proposes performance goals 

that are a sure-thing, and easily achieved through minimal effort by the debtors, should be recharacterized as a KERP that is primarily retentive and subject to §503(c)(1). [citation omitted]” In 

re Alpha Natural Res., Inc., 546 B.R. 348, 357 (Bankr. E.D. Va. 2016) (KEIP approved under 

Bankruptcy Code section 503(c)(3)).

The Debtors offer as evidence that achievement of the performance goals in the proposed 

KEIP are not easily achievable two opinions, neither of which fulfill their evidentiary burden. First, 

the Debtors offer the following from John Lowe, Senior Director of Total Rewards of the Debtors: 

It is clear to me that the Performance Metrics are not easily achievable 

or “layups.” Rather, the Performance Metrics are intended to be 

challenging yet achievable. The Performance Metrics are largely 

based on the metrics used in the 2019 STIP, but with an added 

condition that automatically reduces the aggregate awards if either 

threshold or target performance is not achieved with respect to the PSI 

metric, thereby further demonstrating that achieving a KEIP Award is 

hardly a layup. The Debtors have only achieved their target STIP 

Case: 19-30088 Doc# 3035 Filed: 07/17/19 Entered: 07/17/19 15:26:44 Page 3 of

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metrics in five of the past nine years and have never achieved a 

maximum score, providing further evidence that historically the 

Debtors have not established metrics that are easily achievable. By its 

design, the KEIP is a true incentive plan not only because of the 

Performance Metrics, but also because awards are not guaranteed. 

Rather, as with the 2019 STIP, the KEIP is an “at-risk” plan, which 

provides no guaranty of payment, but is comprised of weighted 

metrics, each designed specifically to motivate the KEIP Participants

to achieve the Debtors’ safety, financial, and operational goals, and 

with complete final discretion left with the Compensation Committee 

and Board, as applicable.1

Mr. Lowe’s premise that achievement of the Performance Metrics are not a “lay up” is 

rooted in his opinion that “[t]he Debtors have only achieved their target STIP metrics in five of the 

past nine years and have never achieved a maximum score, providing further evidence that 

historically the Debtors have not established metrics that are easily achievable.” However, Mr. 

Lowe admits that “[t]he Performance Metrics are largely based on the metrics used in the 2019 

STIP.” Mr. Lowe’s analysis is rendered fatally imprecise by his failure to describe what the 

differences between the two sets of metrics are and the extent to which they impact the potential for 

achievement of the new Performance Metrics. More importantly, Mr. Lowe does not say whether 

the threshold level for any of the proposed KEIP Performance metrics would have been met over the 

nine-year period reviewed. Without the foregoing information, neither the Court nor creditors can 

determine whether achievement of the Performance Metrics at any level is sufficiently likely that the

KEIP must be viewed as a retention rather than a performance plan.

The Debtor’s independent consultant offers more detail as to the differences between the 

2019 STIP and proposed KEIP Performance Metrics2. Mr. Friske helpfully explains that “ ...the 

 

1 Declaration of John Lowe in Support of Motion of Debtors Pursuant to 11 U.S.C. §§ 

105(a), 363(b), And 503(c) for Entry of an Order (i) Approving Debtors’ Incentive Program for 

Certain Key Employees and (ii) Granting Related Relief, 10:4-16. 

2 Declaration of Douglas J. Friske in Support of Motion of Debtors Pursuant to 11 U.S.C. §§ 

105(a), 363(b), and 503(c) for Entry of an Order (i) Approving Debtors’ Incentive Program for 

Certain Key Employees and (ii) Granting Related Relief (the “Friske Decl.”).

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target awards for the KEIP are based on 100% of the 2019 target STIP percentage opportunity for 

each participant plus 75% of the percentage opportunity of the 2019 target LTIP award for each 

participant ....in each case subject to adjustment based on the Public Safety Index modifier....”

3

 

Unfortunately, Mr. Friske offers no view as to whether the KEIP Performance Metrics would have 

been met for the period prior to the filing of these cases or evidence as to the likelihood of them 

being met or not met post-filing, though the data for such an opinion surely exists given that these 

cases were filed in January, 2019.

“BAPCPA changes impose a high standard that requires challenging goals that insiders must 

meet in order to earn a bonus under an incentive plan that is not subject to § 503(c)(1). The targets at 

the higher end of the KEIP meet this requirement but the goals at the lower end do not. Because the 

SLT members will likely earn some bonus under the KEIP merely by remaining with the Debtors 

and regardless of the road the Debtors take, approval of the KEIP must be denied. Because the 

burden of proof has not been met, Judge Bernstein never reached and did “... not decide whether 

the KEIP is an appropriate exercise of business judgment or satisfies the ‘facts and circumstances’

test imposed under § 503(c)(3).” In re Hawker Beechcraft, Inc., supra, 479 B.R. 308, 315-316. 

Similarly, this Court need not reach the business judgment test and should deny the Motion 

because the Debtors have failed to meet their evidentiary burden as proponent of the KEIP. 

3. The Motion Also Lacks Basic Information About Its Proposed Beneficiaries.

In In re Hawker Beechcraft, Inc., 479 B.R. 308 (Bankr, S.D.N.Y. 2012), the Court also 

found, in denying approval of the KEIP proposed in that case, that “... the Debtors have failed to 

sustain their burden of proof. At the outset, they did not identify the roles of each member of the 

SLT or why, individually or as part of a team, they will contribute services that are necessary to 

achieve the targets.” Id. at 313. While the names and corporate positions of each of the twelve 

insiders to benefit from the Motion are set forth, what each will do to assist the Debtors in achieving 

the KEIP Performance Metrics and how they will contribute is not described. Given the failure of 

 

3 Friske Decl., 5:17-21. 

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the Debtors to meet their burden of proof in this most basic regard, the Court should deny the 

Motion.

4. The Request for Offender PG&E to Supply Information Bears a Response Before the 

Motion Can Be Considered. 

On July 10, 2019, the U.S. District Court, responding to reports in the media, issued the 

following directive: 

a. The Court has learned from ABC news that PG&E has made large

campaign contributions to political candidates, even quite recently. 

The offender shall set forth the full amount of campaign 

contributions and to whom such contributions were made to by 

PG&E since January 1, 2017, and shall explain why those 

campaign contributions were more important that replacing or 

repairing the aging transmission lines described by the Wall Street 

Journal article and removing or trimming the backlog of hazard 

trees, and increasing vegetation management.

b. PG&E has distributed almost five billion dollars in dividends prior 

to seeking the protection of the Bankruptcy Court. Please also 

explain why so much was paid out in dividends at a time when 

PG&E was aware of the problems named in the Wall Street 

Journal report and knew of its hazard tree backlog.

Both responses by the offender are due JULY 31, 2019 AT NOON.

4

TURN respectfully submits that this Court should not award persons who may be directly 

involved in the conduct about which Judge Alsup is inquiring KEIP compensation to incentive them 

“... to place a greater emphasis on safety.” Motion, 7:11. The Motion, if not denied, should at least 

be continued until such time as the District Court has made findings following responses to the 

Request. 

Dated: July 17, 2019 BINDER & MALTER, LLP

By: /s/ Robert G. Harris 

Robert G. Harris

Attorneys for TURN, the Utility Reform 

Network

 

4 Request for Offender PG&E to Supply Information, United States of America, Plaintiff, v. Pacific 

Gas and Electric Company, Defendant., Case 3:14-Cr-00175-Wha [Dkt #1075] (the “Request”).

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