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MACDONALD | FERNANDEZ LLP

IAIN A. MACDONALD (SBN 051073) 

221 Sansome Street, Third Floor 

San Francisco, CA 94104-2323 

Telephone: (415) 362-0449 

Facsimile: (415) 394-5544 

Attorneys for Creditor U.S. TELEPACIFIC CORP. 

dba TPx COMMUNICATIONS 

UNITED STATES BANKRUPTCY COURT 

NORTHERN DISTRICT OF CALIFORNIA 

IN RE 

PG&E CORPORATION, 

 Debtor. 

Case Nos. 19-30088-DM 

 19-30089-DM 

 

Chapter 11 

IN RE: 

PACIFIC GAS AND ELECTRIC 

COMPANY, 

 Debtor. 

OBJECTION OF U.S. TELEPACIFIC CORP. dba 

TPX COMMUNICATIONS TO DEBTOR’S 

MOTION TO PROVIDE ADQUATE 

ASSURANCE TO UTILITY PROVIDERS (DKT. 

NO. 32); DEMAND FOR ADEQUATE 

PROTECTION 

Date: February 27, 2019 

Time: 9:30 a.m. 

Place: Courtroom 17, 16th Flr. 

 450 Goldengate Avenue 

 San Francisco, CA 

 Hon. Dennis Montali 

 

 COMES NOW U.S. TelePacific Corp. dba TPx Communications (“U.S. TelePacific”) and 

objects to the Motion of PG&E, Debtor herein, for Approval of Its Proposal for Adequate Assurance 

Payment to Utility Providers (Dkt. No. 32) (“Motion”) and respectfully represents: 

INTRODUCTION 

U.S. TelePacific Corp. dba TPx Communications is party to a Master Agreement dated 

March 11, 2015 (the “Agreement”) with the PG&E to provide high quality and extensive IDM, 

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internet and related services (Neal Declaration, Ex. “A”). The average monthly billing is 

approximately $53,000.00 (Id. at 2:1). On the Petition Date, PG&E was indebted to U.S. TelePacific 

in the amount of $51,711.00 (Id.). Pursuant to the Agreement, and course of dealing between the 

parties, the average billing cycle is monthly, payable net sixty (60) days from the date of the bill, and 

PG&E generally pays within thirty (30) days. Accordingly, U.S. TelePacific finds the proposed twoweek adequate protection “deposit” inadequate to protect U.S. TelePacific in the event of a default at 

the end of the 60-day period, during which time two months’ additional charges will have accrued. 

U.S. TelePacific proposes that PG&E be ordered to pay within thirty (30) days, and that the amount 

of the “deposit” be increased to sixty (60) days’ charges. Average monthly charges are $57,000.00, 

a deposit of $114,000.00 (two months’ charges) will protect U.S. TelePacific in the event that PG&E 

defaults at the end of the proposed reduced billing cycle. 

Equally significant, U.S. TelePacific objects to PG&E’s proposal to “deposit” a two-week 

payment with itself. A commercially acceptable security deposit must be perfected in accordance 

with the California Commercial Code, that is, either place the deposit directly with U.S. TelePacific 

or place U.S. TelePacific in a position of “control” over the account. California Commercial Code 

Sections 9312(b)(1), 9314, 9104(a)(2). 

ARGUMENT 

I. LACK OF EVIDENTIARY SUPPORT FOR ADEQUATE PROTECTON. 

PG&E’s only attempt to provide evidence to support its Motion is an oblique reference to the 

voluminous “Wells Declaration”, which does not direct the reader to the particular part of the Wells 

Declaration upon which it relies. (PG&E’s Motion, 6:14-18). There is no evidence to support the 

contention of PG&E’s “good payment history,” although this is irrelevant, 11 U.S.C. §366(3)(B)(ii). 

(PG&E’s Motion, 7:1-6). There is no evidence to support the contention that the thirty (30) day cost 

of utility service will be approximately $8.6 million (PG&E’s Motion, 7:6), that the appropriate 

Adequate Assurance Deposit is $4.8 million (PG&E’s Motion, 8:16), or that PG&E has adequate 

funds for day-to-day expenses and post-petition amounts for utility services and the deposit. 

(PG&E’s Motion, 8:4-6). PG&E provides no information about the terms and conditions under 

which the deposits will be held by them, nor whether U.S. TelePacific will be freely able to enforce 

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its rights, without interference, in the event of default. Nor is there any indication that U.S. 

TelePacific will be able to seek modification should circumstances change. U.S. TelePacific notes 

that PG&E bounced its last check to it in the amount of $51,711.00 (Neal Declaration, 2:2-3). 

The significance of the evidentiary gaps in PG&E’s Motion is that it renders its 

representations regarding Adequate Protection dubious because they cannot be verified. It is for this 

reason that U.S. TelePacific demands that a cash deposit equal to sixty (60) days’ charges be 

deposited with U.S. TelePacific. 

II. THE PG&E MOTION DOES NOT COMPLY WITH CURRENT LAW. 

In the absence of an agreement with the utility, PG&E must provide either a cash deposit, a 

letter of credit, a certificate of deposit, a surety bond or a pre-payment. 11 U.S.C. §366(c)(1). 

PG&E proposes none of those things. Indeed, PG&E did not contact U.S. TelePacific at any time 

prior to or after the filing of the Motion to discuss an agreement. Based on the statute, U.S. 

TelePacific is entitled to a cash deposit or something similar. PG&E is well familiar with this 

practice as it receives and holds cash deposits from new customers. (See, PG&E’s Motion 

Authorizing Debtors to (A) Maintain and Administer Customer Programs, Including Public Purpose 

Programs, and (B) Honor any Prepetition Obligations Relating Thereto; and (II) Authorizing 

Financial Institutions to Honor and Process Related Checks and Transfers regarding customer 

deposits, Dkt. No. 16). Segregating the money in an interest-bearing account which PG&E holds itis 

not what is contemplated by a “cash deposit.” To constitute a “deposit” it should be paid to and held 

by the party to be benefited, here, U.S. TelePacific. 

Moreover, Va. Elec. & Power Co. v. Caldor, Inc., 117, F3d 646 (2nd Cir. 1997), is not a 

statement of current law, having been legislatively overruled by the enactment of Section 366(c). 

This case was a statement of pre-2005 amendments law and recognize the right of the Bankruptcy 

Court to dispense with the requirement of a deposit as adequate assurance of payment. (PG&E 

Motion, 11:22-25). 

Section 366 was amended by the 2005 Amendments to the Bankruptcy Code, which added 

Section 366(c) and made a conforming amendment to 366(a). Section 366(c) created new limits on 

the methods by which a chapter 11 debtor may provide adequate assurance and gave utilities greater 

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rights in chapter 11 cases. (Pub. L. No. 109-8 (2005) effective with respect to cases filed on or after 

October 17, 2005.) However, as also noted by PG&E, 366(c) does not give the Bankruptcy Court 

discretion to modify the express requirements of 366(b). 

Moreover, PG&E’s reference to its alleged pre-payment history is irrelevant, as 

366(c)(3)(B)(ii) prohibits the court from taking this into consideration. 

III. THE PROPOSED “DEPOSIT” IS ILLUSORY BECAUSE IT DOES NOT 

PROVIDE U.S. TELEPACIFIC CORP. WITH A PERFECTED SECURITY 

INTEREST. 

A commercially acceptable security deposit must be perfected in accordance with the 

California Commercial Code, that is, either place the deposit directly with U.S. TelePacific or place 

U.S. TelePacific in a position of “control”. California Commercial Code Sections 9312(b)(1), 9314, 

9104(a)(2). The PG&E proposal provides that PG&E will retain custody and control of the deposit, 

giving neither to U.S. TelePacific. This does not comply with the California statutes with respect to 

perfection of a security interest, nor does it comply with the definition of “cash deposit,” because 

PG&E is not depositing the money with anyone, simply keeping it in its possession. 

There is no procedure for U.S. TelePacific to retrieve the amount of the unpaid charges and, 

moreover, nothing to assure that the amount of the deposit will cover the unpaid charges of the many 

utilities because, as indicated in the following section, the proposed deposit does not take into 

account additional unpaid charges that may arise during the billing cycle. 

IV. THE PROPOSED ADEQUATE PROTECTION PAYMENT IS INADEQUATE. 

PG&E’s proposal to make an adequate protection payment equal to a two-week charge is 

inadequate because, as indicated above, the average billing cycle is monthly, with payments not due 

for sixty (60) days. PG&E generally pays in less than thirty (30) days. Additional charges accrue in 

the meantime to all utilities. For this reason, it will be sixty (60) days before PG&E might default, 

leaving U.S. TelePacific at risk for the unpaid payment plus two additional months. At monthly 

billing of $57,000.00, the total exposure to U.S. TelePacific is as much as $228,000.00. (Neal 

Declaration). A deposit of anything less is not “adequate” for purposes of Section 366. 

/// 

/// 

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CONCLUSION 

PG&E is a good customer of U.S. TelePacific and it is hoped that it continues as such. U.S. 

TelePacific desires what it is entitled to under Section 366, and requests the following relief: 

1. That PG&E be ordered to pay invoices within thirty (30) days; 

2. For a cash deposit of $114,000.00, to be held by U.S. TelePacific Corp., as security 

for payment of statements unpaid after thirty (30) days; 

3. PG&E must timely pay all of its post‐petition charges in full, when due, including the 

amount of the dishonored check of $51,711.00 and all charges on other post‐petition Service 

Invoices thereafter; and 

4. If PG&E does not pay all amounts due and all charges on other post‐petition Service 

Invoices, then U.S. TelePacific Corp. may collect such amounts from the cash deposit and terminate 

service. 

Dated: February 20, 2019 MACDONALD | FERNANDEZ LLP 

 By: /s/ Iain A. Macdonald 

 Iain A. Macdonald, Attorneys for Creditor 

U.S. TELEPACIFIC CORP. 

dba TPx COMMUNICATIONS 

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