mew Doc 4177 Filed 01/28/19 Entered 01/28/19 20:52:47 Main Document Pg 1 of 33

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1 Pg 1 of 33 PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP 1285 Avenue of the Americas New York, New York Telephone: +1 (212) Facsimile: +1 (212) Alan W. Kornberg Kyle J. Kimpler John T. Weber Michael J. Colarossi Counsel to W Wind Down Co LLC UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK x In re : Chapter 11 : WESTINGHOUSE ELECTRIC : Case No (MEW) COMPANY LLC, et al., : : Debtors. 1 : (Jointly Administered) : x WIND DOWN CO S OBJECTION TO GEORGIA POWER COMPANY S ADMINISTRATIVE EXPENSE CLAIM MOTION TO THE HONORABLE MICHAEL E. WILES, UNITED STATES BANKRUPTCY JUDGE: W Wind Down Co LLC ( Wind Down Co ), the company established on the Effective Date (as defined herein) for the benefit of holders of claims against Westinghouse Electric Company LLC ( WEC ) and certain of its affiliates (collectively, the Debtors ), and 1 On September 25, 2018, many of the Debtors Chapter 11 Cases were closed pursuant to the Court s Order (I) Consolidating the Administration of Certain Remaining Matters at the Lead Case; (II) Entering a Final Decree Closing Certain Affiliate Cases; and (III) Granting Related Relief [ECF No. 3956]. The Debtors in the remaining chapter 11 cases, along with the last four digits of each Debtor s federal tax identification number, if any, are: Westinghouse Electric Company LLC (0933), Stone & Webster Services LLC (5448), WEC Carolina Energy Solutions, Inc. (8735), WEC Carolina Energy Solutions, LLC (2002), WECTEC Global Project Services Inc. (8572), WECTEC LLC (6222), and WECTEC Staffing Services LLC (4135). The Debtors principal offices are located at 1000 Westinghouse Drive, Cranberry Township, Pennsylvania

2 Pg 2 of 33 responsible for administering the Debtors obligations pursuant to the Debtors confirmed chapter 11 plan (the Plan ), 2 as directed by the Plan Oversight Board, hereby files this objection (the Objection ) to the Motion of Georgia Power Company for Payment of its Administrative Expense Claim [ECF No. 3815] (the Motion ), seeking an order directing the Debtors to pay administrative expense claims in the aggregate amount of $ million (the Claims ). Georgia Power Company ( GPC ) seeks payment of the Claims on behalf of itself and as an agent for Oglethorpe Power Corporation, Municipal Electric Authority of Georgia and the City of Dalton, Georgia, as joint owners of the Alvin W. Vogtle Electric Generating Plant (collectively with GPC, the Vogtle Owners ). In support of this Objection, Wind Down Co respectfully represents as follows: PRELIMINARY STATEMENT 1. The Vogtle Owners have asserted over $112 million of administrative expense Claims against Wind Down Co (as successor to the Debtors). Their Claims fall into three categories: (i) a $56.4 million administrative expense claim for funds they advanced to the Debtors during the IAA Period (as defined below) that were and still are held by WEC in a segregated account (the Vogtle IAA Deposits ); (ii) $23.88 million of administrative expense claims for alleged payments from the Vogtle IAA Deposits (as defined below) during the Chapter 11 Cases that the Vogtle Owners assert were improper; and (iii) $32.59 million in alleged administrative expense claims for payments that the Vogtle Owners assert are subject to ongoing reconciliation. 2 Modified Second Amended Joint Chapter 11 Plan of Reorganization [ECF No. 2986]. Capitalized terms used but not otherwise herein defined shall have the meanings ascribed to such terms in the Plan. 2

3 Pg 3 of Wind Down Co believes that it is premature to resolve the Vogtle Owners Claims. As Wind Down Co has told the Vogtle Owners, it believes that resolution of the Motion should await, among other things, (i) resolution of Wind Down Co s Motion to Enforce Order Pursuant to 11 U.S.C. 105(a) Approving Interim Assessment Agreements [ECF No. 4067] (the IAA-Enforcement Motion ), which Wind Down Co believes will resolve the Vogtle Owners $56.4 million Claim asserted for the return of the Vogtle IAA Deposits, (ii) resolution of various third-party administrative expense claims that, if allowed, are potentially payable from the Vogtle IAA Deposits or by the Vogtle Owners pursuant to the indemnity provided in the Vogtle IAA (as defined below), and (iii) further reconciliation of the disputed invoices, and in particular, the Claims related to ongoing reconciliation, which could proceed immediately while the IAA-Enforcement Motion and third-party administrative expense claims are being resolved. The Vogtle Owners, however, did not agree. 3. Wind Down Co therefore objects to the Vogtle Owners Motion, which should be denied for several reasons. 4. First, the Vogtle Owners lack standing to assert the claims in the Motion. In particular, in exchange for $3.225 billion, they transferred all claims against the Debtors including claims specifically for payments made pursuant to the Vogtle IAA to Toshiba. Those claims were subsequently allowed and discharged pursuant to the Plan. The Motion therefore seeks to assert Claims that the Vogtle Owners no longer possess. 5. Second, it is not possible to resolve the Vogtle Owners claims without first resolving Wind Down Co s pending IAA-Enforcement Motion and determining whether the Reorganized Debtors and Brookfield acquired the Vogtle IAA Deposits free and clear, despite not paying a dollar for such deposits. Similarly, it is not possible to ascertain the Owners 3

4 Pg 4 of 33 entitlement to any claim for the return of the Vogtle IAA Deposits without first ascertaining the aggregate amount of allowed administrative expense claims that, pursuant to the Vogtle IAA, must be paid by the Vogtle Owners. 6. Finally, to the extent the Court considers, at this time, the merits of the Vogtle Owners Claims, it should conclude that they have failed to meet their burden of proof in asserting such significant administrative expense claims. In particular, the Vogtle Owners have failed to provide sufficient evidence to substantiate their claims, and instead have relied on cursory allegations of alleged improper payments. As set forth herein, the Debtors and Reorganized Debtors have previously responded to the Vogtle Owners allegations, but the Vogtle Owners continue to assert the same unsubstantiated claims notwithstanding the explanations the Debtors and Reorganized Debtors previously provided. 7. For these reasons, and as further provided below, the Motion should be denied. BACKGROUND 8. On March 29, 2017, (the Petition Date ), each Debtor filed a petition (collectively, the Petitions ) commencing a voluntary case before this Court under chapter 11 of the Bankruptcy Code (collectively, the Chapter 11 Cases ). 9. On March 28, 2018, the Court entered an order confirming the Plan (the Confirmation Order ). 3 The Plan became effective on August 1, 2018 (the Effective Date ). 3 Findings of Fact, Conclusions of Law, and Order Confirming Modified Second Amended Joint Plan of Reorganization [ECF No. 2988]. 4

5 Pg 5 of Wind Down Co was created on the Effective Date pursuant to the Plan to, among other things, analyze and reconcile claims filed in these Chapter 11 Cases. Specifically, under sections 5.4(d) and 8.1 of the Plan, Wind Down Co is vested with the authority to object to, seek to subordinate, estimate, compromise or settle claims against the Debtors including administrative expense claims as directed by the Plan Oversight Board. I. The Vogtle Project and Vogtle EPC Agreement 11. The Vogtle Owners jointly own the Alvin W. Vogtle Electric Generating Plant located near Waynesboro in Burke County, Georgia (the Vogtle Plant ) On April 8, 2008, the Debtors entered into an Engineering Procurement and Construction Agreement (the Vogtle EPC Agreement ) with the Vogtle Owners. 5 Pursuant to the Vogtle EPC Agreement, the Debtors were responsible for the design, manufacture, and procurement of two new AP1000 nuclear reactors at the Vogtle Plant (the Vogtle Project ). 6 II. The Vogtle Interim Assessment Agreement 13. Several unexpected challenges arose with respect to the Vogtle Project, causing significant delays and cost overruns to the detriment of the Debtors and jeopardizing the completion of the Vogtle Project. 7 Despite numerous attempts to resolve these issues, the Debtors continued to experience significant cost overruns with respect to the Vogtle Project, leading to a Motion 3. Id. 4. Modified First Amended Disclosure Statement for Joint Chapter 11 Plan of Reorganization [ECF No. 2623] ( Disclosure Statement ) at 17. See id. at

6 Pg 6 of 33 liquidity crisis in early 2017 and the Debtors subsequent decision to seek relief under Chapter 11 of the Bankruptcy Code Prior to the Petition Date, the Debtors and the Vogtle Owners continued to negotiate options to prevent losses associated with, and preserve value under, the Vogtle EPC Agreement. 9 The Debtors explained to the Vogtle Owners that they were no longer able to fund the Vogtle Project and that they would need to reject the Vogtle EPC Agreement effective as of the Petition Date absent a solution that prevented their continued losses thereunder. 10 As a consequence, on the Petition Date, the Debtors and the Vogtle Owners entered into that certain Interim Assessment Agreement (as amended, the Vogtle IAA ) between (i) Westinghouse Electric Company LLC ( WEC ), (ii) WECTEC Staffing Services LLC, (iii) WECTEC Global Project Services, Inc. f/n/a Stone and Webster, and (iv) GPC, for itself and as agent for the other Vogtle Owners (collectively, the Parties ) Id. at 19. Id. at 23. The Vogtle IAA (defined below) expressly recognizes this, stating: WHEREAS absent funding by GPC under this Agreement or by another party, the Debtors will be unable to continue to fund the Vogtle Project, including paying Debtors employees assigned to the Vogtle Project, Subcontractors and Vendors that have performed and are continuing to perform services and provide supplies for the Vogtle Project;... WHEREAS the Debtors would move to reject the EPC effective as of the Petition Date absent this Agreement or funding by another party and would enter into this Agreement only if they would incur no more administrative expense claims than they would if they had rejected the EPC and related contracts as of the Petition Date;.... [ECF No. 68-2] at The Vogtle IAA [ECF No. 68-2] was approved by an order of the Court on the Petition Date [ECF No. 68] and subsequently amended [ECF Nos. 388, 464, 669, 691, 762, 800, and 957]. A conformed version of the Vogtle IAA, reflecting all of the amendments thereto (the Conformed Vogtle IAA ), is Exhibit A to the Declaration of Kyle J. Kimpler in Support of Wind Down Co s Objection to Georgia 6

7 Pg 7 of The Vogtle IAA provided for the continuation of work at the Vogtle Project after the Petition Date during an initial period (the Interim Assessment Period or IAA Period ) so long as the Vogtle Owners paid for the costs associated with ongoing construction. The Vogtle IAA was designed to provide the Debtors and the Vogtle Owners time to explore the continued feasibility of those projects in a manner that is cost-neutral and cash-neutral to the Debtors. 12 The Court approved the Debtors entry into the Vogtle IAA on the Petition Date on that basis, after seeking reassurance that the Vogtle IAA would not increase administrative costs. 13 That essential point was subsequently confirmed by the Parties through an amendment to the Vogtle IAA stating that the Vogtle Owners are responsible for: all administrative expenses accrued by the Debtors during the Interim Assessment Period for services and goods for the Vogtle Project, regardless of whether the administrative expenses become payable during or after the Interim Assessment Period, and including without limitation, all administrative expenses accrued by the Debtors to Fluor, Subcontractors and/or Vendors pursuant to (i) existing purchase orders, vendor contracts and Subcontracts (as defined in the EPC), and (ii) new purchase orders, new vendor contracts, new Subcontracts, or change orders to existing purchase orders, vendor contracts or Subcontracts (items (i) and (ii) collectively, the IAP Contracts ) The amendment further confirmed that the Vogtle Owners would: indemnify and hold harmless the Debtors against any administrative expenses accrued by the Debtors during the Interim Assessment Period for services and goods for the Vogtle Project, regardless of Power Company s Administrative Expense Claim Motion filed substantially contemporaneously herewith. Declaration of Lisa J. Donahue Pursuant to Rule of the Local Bankruptcy Rules for the Southern District of New York [ECF No. 4] (the First Day Declaration ) 8 (emphasis added). Order Pursuant to 11 U.S.C. 105(a) Approving Interim Assessment Agreements [ECF No. 68]. Vogtle Amendment No. 2 [ECF No. 464, Ex. A] ( Vogtle Amendment No. 2 ) 2 (emphasis added) (amending paragraph 5 of the Vogtle IAA). 7

8 Pg 8 of 33 whether the administrative expenses become payable during or after the Interim Assessment Period, including for the avoidance of doubt, prior to the execution of Amendment No. 2 to the Interim Assessment Agreement The Debtors primary duty under the Vogtle IAA was to continue work under the Vogtle EPC Agreement during the IAA Period. The manner in which the Debtors satisfied such obligations, however, was subject to a handful of additional obligations contained in the Vogtle IAA, including requirements that the Debtors: (1) execute any new IAP Contracts dated as of May 13, 2017 or later on Vogtle-Owner forms and only with the prior written approval of the Vogtle Owners; 16 and (2) obtain written consent from the Vogtle Owners prior to making or giving representations or warranties beyond those contained in, or agreeing to terms which deviated substantially from, the Vogtle Owners standard terms and conditions In addition, the Debtors were required to provide the Vogtle Owners with weekly estimates of costs to be incurred in connection with the Vogtle Project (the Weekly Estimates ). The Vogtle Owners paid corresponding weekly advances to the Debtors in the amount of the Weekly Estimates (the Vogtle IAA Deposits). 18 Such advances were to be used solely to pay Subcontractors and Vendors (as defined in the Vogtle IAA). 19 The Debtors deposited the Vogtle IAA Deposits in a segregated account, and the Reorganized Debtors continue to hold the Vogtle IAA Deposits therein. In turn, the Debtors were required to provide the Vogtle Id. 4 (emphasis added) (amending paragraph 11 of the Vogtle IAA). Id. 2 ( From and after May 13, 2017, entry into IAP Contracts in subsection (ii) shall be agreed to by the Parties in writing. ), Id. 3.d ( The Debtors shall not, without GPC s prior written consent, make or give any representations or warranties beyond those contained in, or agree to terms which deviate substantially from, GPC's standard terms and conditions. ). Conformed Vogtle IAA 5. Id. 8

9 Pg 9 of 33 Owners with evidence of such payments within five business days, in addition to a copy of the underlying invoices In addition to pre-funding and reimbursing the Debtors expenses under the EPC Agreement, the Vogtle IAA required the Vogtle Owners to compensate the Debtors for their services through a weekly advance of $5.4 million (the Weekly Fixed Payments ) Following the IAA Period, the Vogtle IAA provided for a reconciliation of the payments made by the Vogtle Owners to the Debtors and by the Debtors to Subcontractors and Vendors. To the extent the Vogtle Owners paid the Debtors an amount in excess of the costs incurred by the Debtors, the Vogtle IAA provides that the Debtors return the excess amount to the Vogtle Owners. 22 In the event the Vogtle IAA Deposits are not returned, the Vogtle IAA provides the Vogtle Owners with an administrative expense claim against the Debtors for the excess amount. 23 III. The Services Agreement and Rejection of the Vogtle EPC Agreement 21. During the Interim Assessment Period, the Debtors and the Vogtle Owners negotiated a longer-term engineering, procurement, and construction-support agreement (the Services Agreement ) pursuant to which the Debtors would transfer control of the Vogtle Project to the Vogtle Owners by, among other things, assuming and assigning thousands of subcontracts to the Vogtle Owners, seconding employees to the Vogtle Owners, transferring regulatory permits to the Vogtle Owners, providing agreed engineering, procurement, and construction support Id. 5. Id. 6. Id. 5. Id. 9

10 Pg 10 of 33 services, and maintaining and delivering the intellectual property necessary to complete the Vogtle Project The parties executed the Services Agreement on June 9, The effectiveness of the Services Agreement was subject to, among other things, (i) the Debtors rejection of the Vogtle EPC Agreement and (ii) approval of the Services Agreement by this Court. On July 20, 2017, this Court entered an order authorizing the Debtors entry into the Services Agreement and rejection of the Vogtle EPC Agreement. 26 On July 27, 2017, after satisfying the remaining conditions to effectiveness, the Debtors filed a Notice of Effective Date of Services Agreement, rendering the Services Agreement and rejection of the Vogtle EPC Agreement effective. 27 As of the date thereof, the Vogtle EPC Agreement was deemed rejected, all ongoing work performed by the Debtors in connection with the Vogtle Project became governed exclusively by the Services Agreement, and the Parties allowed the Vogtle IAA to expire. 28 IV. Reconciliation of IAA Payments 23. Consistent with the terms of the Vogtle IAA, following the end of the Interim Assessment Period, the Debtors began the process of working with the Vogtle Owners to reconcile the advances made to the Debtors against payments made by the Debtors to Subcontractors and Vendors Disclosure Statement at Id. at 26. Order Pursuant to 11 U.S.C. 363(b), 365(a), and 105(a) Authorizing Debtors to (I) Enter Into Services Agreement with Vogtle Owners, (II) Assume and Assign Certain Executory Contracts to Vogtle Owners, (III) Assume and Amend Certain Executory Contracts, and (IV) Reject the Vogtle EPC Contract [ECF No. 954]. [ECF No. 1020]. Disclosure Statement at

11 Pg 11 of As a result of that process, the Debtors determined that the remaining Vogtle IAA Deposits were $50 million larger than the outstanding claims that they were intended to satisfy. Thus, in accordance with the Vogtle IAA, the Debtors returned $50 million of the Vogtle IAA Deposits to the Vogtle Owners on January 8, The reconciliation process continued through the Summer of 2018, when in early August 2018, the Vogtle Owners sent a file providing high-level reasons why the Vogtle Owners were questioning certain categories of payments (the First Dispute Notice ). The First Dispute Notice did not dispute any payments under $50,000, and the Vogtle Owners told the Reorganized Debtors and their advisors to not review invoices for amounts under $50, In August 2018, the Reorganized Debtors sent the Vogtle Owners a document (the Response Document ) that included responses to the Vogtle Owners concerns (the Reorganized Debtors Responses ), including the basis on which such payments were proper and additional supporting materials. The Response Document also disclosed certain payments made from the Vogtle IAA Deposits that were not identified in the Vogtle Owners First Dispute Notice and that the Debtors, through their independent reconciliation efforts, had already identified as improper payments (the Debtor-Identified Payments ). 27. On August 30, 2018, the Vogtle Owners filed their Motion asserting the administrative expense Claims. The Claims are in excess of the aggregate amount of the payments identified in either of the First Dispute Notice or Response Document. The Motion does not incorporate, or attempt to respond to, any of the Debtors Responses to the Vogtle Owners First Dispute Notice. 29 Motion

12 Pg 12 of In response to Wind Down Co s request for an explanation for the Claims asserted by the Motion, the Vogtle Owners sent Wind Down Co s advisors a new dispute notice in early November 2018 (the Second Dispute Notice ). The Second Dispute Notice (i) repeated the First Dispute Notice without providing responses to the Reorganized Debtors Responses; (ii) added the Debtor-Identified Payments; and (iii) added numerous invoices, with an aggregate amount of approximately $5.1 million, for payments of amounts under $50,000 that were not included in either the First Dispute Notice or the Debtors Response Document (and which the Vogtle Owners had told the Debtors not to review). 29. As of the filing of this Objection, the Vogtle Owners have not provided the Reorganized Debtors or Wind Down Co with responses to most of the Reorganized Debtors Responses. Thus, Wind Down Co does not know exactly which payments the Vogtle Owners continue to dispute or the Vogtle Owners rationale for such dispute. 30. Notably, the reconciliation process remains ongoing, both with respect to payments already made from the Vogtle IAA Deposits as well as payments to be made from the Vogtle IAA Deposits (or otherwise indemnified by the Vogtle Owners). For example, Wind Down Co continues to resolve administrative expense claims asserted by third parties that, pursuant to the Vogtle IAA, are the responsibility of the Vogtle Owners. Based on Wind Down Co s ongoing reconciliation of pending administrative expenses asserted against the Debtors, there are at least $11.5 million of asserted administrative expense claims that, to the extent allowed, would potentially be payable from the Vogtle IAA Deposits. 30 Wind Down Co is working to resolve 30 For the avoidance of doubt, Wind Down Co reserves all rights to the extent there are more than $11.5 million of unpaid administrative expense claims payable from the Vogtle IAA Deposits and/or the Vogtle Owners. 12

13 Pg 13 of 33 pending administrative claims for work done on the Vogtle Project as efficiently as possible. Until such claims are resolved, however, Wind Down Co and the Vogtle Owners will not be able to accurately reconcile the amounts payable from the Vogtle IAA Deposits. V. The Vogtle Owners Alleged Claims 31. The Motion seeks payment of administrative expense Claims in the aggregate amount of not less than $ million. 31 The Claims fall into three categories: (i) (ii) Return of the Vogtle IAA Deposits: $56.4 million administrative expense claim for the return of the Vogtle IAA Deposits 32 Allegedly Improper Payments: $23.88 million of administrative expense claims for the Debtors use of the Vogtle IAA Deposits to make allegedly improper payments, including approximately: (a) (b) (c) Affiliate Payments: $9.67 million of payments to affiliates of the Debtors for services rendered in connection with the Vogtle Project, Alleged Prepetition Expenses: $9.88 million of payments for expenses that allegedly arose prior to the Petition Date, and Other Allegedly Improper Payments: $4.22 million of other allegedly improper payments, including (1) an unspecified amount of costs that have been or will be paid by the Vogtle Owners under the Vogtle Services Agreement, (2) an unspecified amount of duplicative payments to vendors, (3) a $700,000 overpayment to a vendor, and (4) approximately $120,000 in payments on account of costs related to the V.C. Summer Project. (iii) Ongoing Reconciliation: Approximately $32.59 million on account of payments made by the Debtors using the Vogtle IAA Deposits because such payments are, according to the Vogtle Owners, subject to ongoing reconciliation Motion 20. Motion

14 Pg 14 of 33 ARGUMENT 32. The Motion s request for payment of the Claims fails for two principal reasons. First, the Motion asserts Claims that the Vogtle Owners sold long ago and thus lack any standing to assert. Second, the Motion fails to include allegations (much less point to evidence) sufficient to satisfy the Vogtle Owners burden to establish the Claims. Accordingly, the Motion should be denied. I. The Vogtle Owners Lack Standing to Assert the Claims. 33. For a claimant to have a right to payment that qualifies as a claim under section 101(5)(a) of the Bankruptcy Code, the claimant must have legal standing to file and seek allowance of the proof of claim. In re Carssow-Franklin, 213 F. Supp. 3d 577, 592 (S.D.N.Y. 2016); see also 11 U.S.C. 101(10)(A) (defining creditor ). A claimant will only have standing to file or seek allowance of a proof of claim if the claimant is a creditor or the creditor s authorized agent. In re Minbatiwalla, 424 B.R. 104, 108 (Bankr. S.D.N.Y. 2010) (quoting Fed. R. Bankr. P. 3001(b)). Accordingly, Bankruptcy Rule 3001(e) states that [i]f a claim has been transferred other than for security before proof of the claim has been filed, the proof of claim may be filed only by the transferee or an indenture trustee. See also In re Viencek, 273 B.R. 354, 358 (Bankr. N.D.N.Y. 2002) (recognizing that, to have standing to assert a proof of claim, a creditor must have a direct pecuniary interest in the debt); In re Summerman, 463 B.R. 47, 58 (Bankr. S.D. Ohio 2011) (holding that certainly it is true that a debtor may object to a proof of claim when the debtor has a valid basis for questioning the creditor s alleged ownership of the claim ). A claimant bears the burden of proof with respect to its own standing. In re Veal, 450 B.R. 897, 921 (B.A.P. 9th Cir. 2011); In re Minbatiwalla, 424 B.R. 104, 111 (Bankr. S.D.N.Y. 2010). 14

15 Pg 15 of Here, the Vogtle Owners lack standing to assert the Claims because they long-ago sold them. On June 9, 2017, the Vogtle Owners and Toshiba Corporation ( Toshiba ) entered into a settlement agreement (the Toshiba Settlement Agreement ), settling Toshiba s guaranty obligations related to the Vogtle EPC Agreement at $3.68 billion In accordance with the terms of the Toshiba Settlement Agreement, Toshiba began to make scheduled monthly payments to the Vogtle Owners (or their assignees, as applicable). 34 In late 2017, however, Toshiba and the Vogtle Owners entered into an amendment to the Toshiba Settlement Agreement (the Amendment ) pursuant to which Toshiba would voluntarily prepay the entirety of its obligations under the Toshiba Settlement Agreement in exchange for, among other things, all rights and interest in the Vogtle Owners proofs of claims against the Debtors. 36. On December 14, 2017, the Vogtle Owners announced that Toshiba had paid them $3.225 billion, representing the unpaid balance owed by Toshiba pursuant to the Toshiba Settlement Agreement. On December 21, 2017, notices were filed with this Court disclosing that the Vogtle Owners had transferred all of their proofs of claim (the Transferred Claims ) to Toshiba in accordance with the Amendment The Transferred Claims included the following: any and all claims, whether known or unknown, liquidated or unliquidated, choate or inchoate, disputed or undisputed, and contingent or fixed that the [Vogtle] Owners have or may have pursuant to the [Vogtle] EPC Agreement or arising from the [Vogtle] Project, including, without limitation: claims for abandonment, breach of contract, rejection of the [Vogtle] EPC Disclosure Statement at 30. Id. ECF Nos (notices of transfer of the Transferred Claims). 15

16 Pg 16 of 33 Agreement, contribution, indemnification, gross negligence, and willful misconduct; recovery of all direct, liquidated, consequential, or indirect or other damages arising therefrom, as well as prejudgment interest, expenses, and attorneys fees; and reimbursement of all amounts due under the [Vogtle] EPC Agreement (including, without limitation, all interest, fees, late charges, and other costs and expense due, owing, or accruing pursuant to the [Vogtle] EPC Agreement) The addendums further explained that the Abandonment Damages asserted in the Transferred Claims included, among other things, Payments under the Interim Assessment Agreement, which [were] estimated to total approximately $620 million. 37 Thus, the Vogtle Owners transferred their claims for Payments under the Interim Assessment Agreement to Toshiba, and such payments under the Vogtle IAA include the very payments that the Motion now asserts were improper. 39. On the same day, Toshiba caused all of the Transferred Claims to be withdrawn (the Withdrawn Claims ) other than Claim No. 2132, against WECTEC Global Project Services Inc., and Claim No. 2222, against Westinghouse Electric Company LLC (together, the Non-Withdrawn Claims ), because the Withdrawn Claims were duplicative 38 of the Non-Withdrawn Claims Toshiba subsequently transferred the Non-Withdrawn Claims to Nucleus Acquisition LLC ( Nucleus ) pursuant to that certain Assignment and Purchase Agreement, dated See, e.g., Claim No. 2132, Addendum 10. See, e.g., id. 13. The Transferred Claims included addendums explaining that the Withdrawn Claims were intentionally duplicative: Out of an abundance of caution, each [Vogtle] Owner is also filing its own separate claim for its percentage of the damages based on its ownership percentage in the Project. By filing this group claim and the individual claims, none of the Owners seeks double recovery. See, e.g., id. 29. See ECF Nos (notices of withdrawal of the Withdrawn Claims). 16

17 Pg 17 of 33 as of January 17, 2018, 40 and such claims were ultimately allowed and discharged pursuant to the Plan. 41. In short, the Vogtle Owners agreed to accept a lump-sum payment of $3.225 billion (rather than payments spread over five years), and in exchange they agreed to relinquish their Claims including claims for Payments under the Interim Assessment Agreement against the Debtors. They did not bargain for the right to retain additional claims against the Debtors, including claims for payments under the Interim Assessment Agreement. Upon information and belief, the relevant documents effecting the transfer of the Transferred Claims also provided that Toshiba (and then Nucleus) acquired all rights to any supplements or any amendments to the Transferred Claims, which would capture any subsequent attempt by the Vogtle Owners to reassert the Claims (as they now do in the Motion). Accordingly, the Vogtle Owners Motion asserts Claims that have been transferred and discharged under the Plan, and in which the Vogtle Owners lack any right, title, or interest. Although the Vogtle Owners lack standing to assert claims against the Debtors, they did not assign their interests in the IAA Deposits to Toshiba, and therefore may seek the return of the IAA Deposits (subject to any restrictions imposed by the Interim Assessment Agreement) to the extent such deposits constitute property of the Vogtle Owners. They cannot, however, continue to assert Claims that they no longer possess, and therefore the Motion should be denied. II. The Vogtle Owners Claim for Return of the Vogtle IAA Deposits is Premature. 42. The Vogtle Owners request for Claims for the return of the Vogtle IAA Deposits is premature at this time and should be denied. The status of the Vogtle IAA Deposits is 40 See ECF Nos. 2222, 2223 (notices of transfer of the Non-Withdrawn Claims). 17

18 Pg 18 of 33 subject to ongoing dispute with Brookfield in its capacity as the Plan Investor. See IAA-Enforcement Motion. As set forth in the IAA-Enforcement Motion, Wind Down Co agrees with the Vogtle Owners that the Vogtle IAA Deposits should be returned to the Vogtle Owners (subject to payment of other valid administrative expense claims). If the Court resolves the IAA-Enforcement Motion in Wind Down Co and the Vogtle Owners favor, then the Vogtle Owners will have no basis to assert a claim for the deposits against Wind Down Co. Adjudicating the Vogtle Owners Claims for the Vogtle IAA Deposits now would improperly put the cart before the horse. 43. Similarly, if this Court orders that Brookfield is entitled to retain the Vogtle IAA Deposits, then the Vogtle Owners Claims (if any) for return of the Vogtle IAA Deposits would constitute Assumed Liabilities within the meaning of the Plan and the Plan Funding Agreement. Those documents define Assumed Liabilities to include, among others, Liabilities... in the amounts that have been reserved against and to the extent taken into account in the calculation of the items set forth in the Final Closing Statement. Plan, Ex. I; Plan Funding Agreement, Schedule 2.02(b). Accordingly, if Brookfield retains the Vogtle IAA Deposits, then the obligation to return such deposits will have been reserved against (i.e., Brookfield will have the exact amount necessary to satisfy such liability) and therefore constitute an Assumed Liability. Under the Confirmation Order, the Plan, and the Plan Funding Agreement, Assumed Liabilities are exclusively the obligation of Brookfield as the Plan Investor not Wind Down Co, which is only responsible for Excluded Liabilities. See, e.g., Conf. Order at KK, 9, 12, 14, 15; Plan at 2.1, 5.4(c), 5.4(d)(viii), 7.1; PFA at 2.02(b), Schedule 2.02(b). Thus, if the Court orders that Brookfield is to retain the Vogtle IAA Deposits, then the Vogtle Owners Claims against the Vogtle IAA Deposits would be against Brookfield not Wind Down Co or the Debtors. 18

19 Pg 19 of 33 As a result, this Court should adjudicate Wind Down Co s pending IAA-Enforcement Motion regarding the Vogtle IAA Deposits prior to ruling on the Vogtle Owners Claims regarding the same. III. The Vogtle Owners Have Not Satisfied Their Burden. 44. Even if the Vogtle Owners had standing to assert the Claims and it was not premature to address such Claims, the Vogtle Owners have failed to meet their burden of establishing that the Claims are valid administrative expense claims. Indeed, the Vogtle Owners failed to submit a declaration or other evidence in support of their Motion. 45. It needs no elaborate discussion that the burden of proof is on the party who is claiming the administrative expense. In re Cabot, No CIV, 2011 WL , at *4 (S.D. Fla. Aug. 30, 2011) (quoting In re Fulwood Enterprises, Inc., 149 B.R. 712, 715 (Bankr. M.D. Fla. 1993)); see also In re Bethlehem Steel Corp., 479 F.3d 167, 172 (2d Cir. 2007) ( The burden of proving entitlement to priority payment as an administrative expense... rests with the party requesting it. ). The presumptive validity accorded to a filed or a properly-scheduled claim by F.R.B.P is not applicable to a request for payment of administrative expenses. Fulwood Enterprises, 149 B.R. at 715 (citing Fed. R. Bankr. P. 3003; 11 U.S.C. 503). Thus, the burden is on the moving party to establish first, that there is a valid claim, and second, whether or not that claim should be charged as a cost of administration under 503 of the Bankruptcy Code. Id.; see also In re Midway Airlines, Inc., 221 B.R. 411, (Bankr. N.D. Ill. 1998) (holding that an administrative claimant has the burden of establishing each of the elements of its administrative expense claim and that the evidentiary burden never shifts to the debtor). Importantly, An administrative claimant does not meet its burden of proof where the proof of claim is supported by 19

20 Pg 20 of 33 estimates and where accurate documentation relating to the proof of claim is not before the court. Midway Airlines, 221 B.R at Further, the Vogtle Owners Motion presumes that they have a unilateral right under the Vogtle IAA to second-guess each and every invoice that the Debtors paid pursuant to the Vogtle IAA, and therefore may assert an administrative expense claim where they disagree with the Debtors business judgment. The Vogtle IAA, however, does not contemplate such second guessing. Instead, the Vogtle IAA provides that the if the amounts paid by [the Vogtle Owners] to the Debtors exceed the actual costs incurred by the Debtors, the Debtors shall pay such amounts to [the Vogtle Owners], and if such amounts are not paid, then the Vogtle Owners shall have an administrative claim for such amounts. 41 Other than their claim for the remaining balance of the IAA Deposits, the Vogtle Owners do not contest that the amounts paid from the IAA Deposits were actual costs incurred by the Debtors in connection with the Vogtle Project during the IAA Period; rather they argue that such payments were improper. But the Vogtle Owners do not have the right to second guess each and every payment the Debtors made from the Vogtle IAA Deposits, especially where the Vogtle Owners were notified of the payments in advance and failed to object to the payments as they were being made. 47. As discussed in more detail below, the Vogtle Owners have failed to satisfy their burden with respect to any of the categories of Claims asserted in the Motion. a. Return of the Vogtle IAA Deposits 48. The Motion requests a $56.4 million administrative expense claim for the return of the Vogtle IAA Deposits. The Vogtle Owners have failed to satisfy their burden of 41 Conformed Vogtle IAA 5 (emphasis added). 20

21 Pg 21 of 33 establishing what portion of the Vogtle IAA Deposits, if any, will remain after satisfaction of all of the pending administrative claims against the Debtors that are payable from the Vogtle IAA Deposits in accordance with Vogtle IAA. 49. The reconciliation of amounts payable from the Vogtle IAA Deposits necessarily remains ongoing. Importantly, the Administrative Expense Claims Objection Bar Date (January 28, 2019) has just now passed, and therefore there are significant pending administrative expense claims asserted against the Debtors that may be payable from the Vogtle IAA Deposit but have not yet been allowed. Based on Wind Down Co s ongoing reconciliation of pending administrative expenses asserted against the Debtors, there are approximately twenty-five pending administrative expense claims seeking, in aggregate, approximately $11.5 million that if allowed, would be payable from the Vogtle IAA Deposits. 42 The Motion fails to explain how the Vogtle Owners Claim for return of the Vogtle IAA Deposits can be honored before such third-party claims are resolved. The Vogtle Owners acknowledge that there are at least $6.7 million in administrative expense claims that could be arguably payable by the [Vogtle] Owners under the Interim Assessment Agreement and that the Parties are continuing to discuss (i.e., reconcile) certain invoices. 43 That is necessarily the case since, until Wind Down Co settles, or this Court adjudicates, the pending administrative expense claims, Wind Down Co and the Vogtle Owners cannot accurately reconcile the remaining amount of the Vogtle IAA Deposits The Vogtle IAA makes clear that administrative expenses claims that accrued against the Debtors in connection with the Vogtle Project are to be paid from the Vogtle IAA Deposits, regardless of whether the administrative expenses become payable during or after the Interim Assessment Period, provided that the Vogtle Owners shall directly pay all costs accrued by the Debtors for Fluor to Fluor (in contrast to all other administrative expenses). See, e.g., Conformed Vogtle IAA 5. Response of Georgia Power Company to Wind Down Co s Motion to Enforce Order Pursuant to 11 U.S.C. 105 Approving Interim Assessment Agreements [ECF No. 4089] 9 & Ex. B; Motion 13 n.3. 21

22 Pg 22 of In addition to resolving pending third-party administrative expense claims, further reconciliation of payments shows that the Vogtle IAA Deposits should be reduced by an additional $8.3 million due to the Debtors payments of the following Vogtle Project costs: (i) approximately $3.5 million of claims entitled to administrative expense priority pursuant to section 503(b)(9) of the Bankruptcy Code; (ii) approximately $0.2 million of retainage claims that did not accrue against the Debtors until certain IAA-Period deliveries of the final goods required under the relevant contracts; (iii) approximately $0.52 million of PPE/PPM sales taxes; (iv) approximately $0.25 million of Vogtle Project costs mistakenly paid from the V.C. Summer IAA Deposits; and (v) approximately $3.81 million of other payments that remain reimbursable from the Vogtle IAA Deposits. 51. In sum, the Vogtle Owners have not, and cannot at this time, satisfy their burden of establishing what portion of the Vogtle IAA Deposits, if any, will remain after satisfaction of all of the pending administrative claims against the Debtors from the Vogtle IAA Deposits in accordance with Vogtle IAA. The Motion should be denied accordingly. b. Affiliate Payments 52. The Motion asserts Claims for $9.67 million of alleged payments to certain of the Debtors affiliates for services rendered by them in connection with the Vogtle Project (the Affiliate Payments ), which, according to the Motion, were prohibited by the Vogtle IAA. The Vogtle Owners do not dispute that the Affiliate Payments reflect actual costs incurred by the Debtors on the Vogtle Project during the IAA Period or that the services underlying the Affiliate Payments were necessary and beneficial to the Vogtle Owners. The Motion provides no evidence in support of that contention. Rather, the Motion relies on two allegations. 22

23 Pg 23 of First, the Motion alleges that the Affiliate Payments were made to the Debtors or their affiliates. But nothing in the Vogtle IAA prohibits payments to the Debtors or their affiliates. To the contrary, the Vogtle IAA required the Debtors to use the Vogtle IAA Deposits to pay Subcontractors and Vendors, which were defined as the subcontractors (collectively, the Subcontractors ) and material and equipment suppliers and other counterparties (collectively, the Vendors ) with whom the Debtors entered into agreements to perform their obligations under the Vogtle EPC Agreement. 44 Importantly, the Vogtle IAA confirmed, for the avoidance of doubt, that Vendors may include the Debtors affiliates providing equipment and construction services (i.e. welding), including Shoreview, Newington, CES, and PCI Energy Services, LLC Second, the Motion alleges that that the Vogtle Owners had already paid for [the Affiliates Payments] via the negotiated $5.4 million weekly amount (the Weekly Fixed Payment) paid to WEC under the Vogtle IAA. The amount of the Weekly Fixed Payment was based on an average of the Debtors historical costs for providing certain but not all services under the Vogtle EPC Agreement. The Affiliate Payments, however, related to services that were not included in the calculation of the Debtors historical costs on the Vogtle Project. 55. In particular, Wind Down Co understands that the Affiliate Payments disputed by the Vogtle Owners include the following payments: (i) approximately $2.9 million of payments to WEC Cyber Security for cyber security services, including cyber security audits of key digital assets of the Vogtle Project (the Cyber Security Services ), and Conformed Vogtle IAA at 1. Id. at 1 n.1. 23

24 Pg 24 of 33 (ii) approximately $6.7 million of payments to WEC I&C Hardware for design, engineering and procurement services for AP1000 plant control systems (together with the Cyber Security Services, the Additional Services ). The historical cost of these Additional Services was not incorporated into the calculation of the $5.4 million Weekly Fixed Amount, although such services were routinely performed on the Vogtle Project. Rather, the Debtors historically accounted for such Additional Services in separate systems together with other third-party services, and not as internal labor costs that were used to calculate the Weekly Fixed Payment. Consistent with that historical practice, such services were incorporated in both (a) the estimates of expected IAA-Deposit payments to Subcontractors and Vendors provided to the Vogtle Owners during their negotiation of the terms of the Vogtle IAA and (b) as a separate line item the Weekly Estimates and invoices provided to the Vogtle Owners during the Interim Assessment Period, to which the Vogtle Owners did not object. Payment of the Additional Services from the Vogtle IAA Deposits was therefore contemplated from the beginning and repeatedly noticed to the Vogtle Owners throughout the Interim Assessment Period. 56. Moreover, the Vogtle IAA was intended to be cost-neutral and cashneutral to the Debtors. 46 The Vogtle IAA expressly recognized this by, among other things, (i) stating that absent funding by GPC under this Agreement or by another party, the Debtors will be unable to continue to fund the Vogtle Project, including paying Debtors employees assigned to the Vogtle Project, Subcontractors and Vendors 47 and (ii) requiring the Vogtle Owners to pay and indemnify and hold harmless the Debtors against any administrative expenses accrued by the First Day Declaration 8. Conformed Vogtle IAA at 1. 24

25 Pg 25 of 33 Debtors during the Interim Assessment Period for services and goods for the Vogtle Project. 48 It would be inconsistent with the Vogtle IAA s purpose to require the Debtors to bear the cost of the Additional Services, which were not covered by the Weekly Fixed Payments. Indeed, the Vogtle Owners position is that the Debtors were required to perform the Additional Services and to take a loss in providing such services. Accordingly, the Motion should be denied to the extent it seeks an administrative expense claim for the Affiliate Payments. 49 c. Alleged Prepetition Expenses 57. The Motion also asserts Claims based on the Debtors alleged payment of $9.88 million of expenses that arose prior to the Interim Assessment Period (the Alleged Prepetition Expenses ). That allegation cannot satisfy the Vogtle Owners burden to establish that they have an administrative expense claim, and the Motion includes no other allegation (much less evidence) in support of such Claims. The Vogtle Owners do not dispute that the Alleged Prepetition Expenses were actually incurred by the Debtors, or that such work was necessary and beneficial to the Vogtle Owners. The Motion must be denied accordingly. 58. Based on its ongoing reconciliation efforts, including discussions with the Vogtle Owners, Wind Down Co understands that the majority of the Alleged Prepetition Expenses were for the costs associated with (i) goods that were shipped and/or delivered after the Petition Date (i.e., the beginning of the Interim Assessment Period) or (ii) services that were rendered after the Petition Date. The Vogtle Owners appear to argue that, because the Subcontractors and Id. 5, 11. In the absence of the Debtors use of the Vogtle IAA Deposits to pay amounts owing to WEC Cyber Security, the Vogtle Owners would have, at the very least, been liable for the administrative claims that would have accrued to the Debtors employees in connection with their work providing the Additional Services for the Vogtle Project. 25

26 Pg 26 of 33 Vendors built the products or otherwise performed a portion of their work prepetition, their claims do not constitute administrative expense claims payable under the Vogtle IAA. This Court, however, has already entered a final order (the Critical Vendors Order ) confirming that such costs are entitled to administrative expense priority under section 503(b)(1)(A) of the Bankruptcy Code notwithstanding that they may arise under prepetition purchase orders, 50 which necessarily means such costs are postpetition administrative expense claims. The Vogtle Owners have submitted no reason why the analysis is any different here. 51 The Motion should thus be denied to the extent it seeks Claims for such administrative expenses. 59. Wind Down Co s ongoing reconciliation efforts also lead it to believe that a certain amount of the Alleged Prepetition Expenses relate to the Debtors payment of claims of Vendors and Subcontractors that accrued postpetition but reflected services that were at least partially performed prepetition. The Debtors use of the Vogtle IAA Deposits to pay such claims was permissible for at least three reasons. 60. First, certain of the claims derived from contractual provisions providing for milestone payments on postpetition dates (the Postpetition Milestone Claims ). Regardless of whether the Postpetition Milestone Claims partially reflected prepetition work, such claims did Final Order Pursuant to 11 U.S.C. 105(a), 363(b), and 503(b)(9) for Authorization (I) to Pay Prepetition Obligations to Critical Vendors, Shippers, Warehousemen, Other Lien Claimants, and Foreign Creditors, (II) Confirming Administrative Status for Certain Goods Delivered and Services Provided Postpetition, and (III) Authorizing Financial Institutions to Honor and Process Related Checks and Transfers [ECF No. 640] at 11 ( ORDERED that the undisputed obligations of the Debtors arising from postpetition delivery, shipment, or provision of services under the Prepetition Purchase Orders shall be afforded administrative expense priority status pursuant to section 503(b)(1)(A) of the Bankruptcy Code.... ). C.f. United States v. Tenzer, 213 F.3d 34, 39 (2d Cir. 2000) ( We have stated that we will not depart from this sound policy [of adhering to our prior ruling in a case] absent cogent or compelling reasons. ). 26

27 Pg 27 of 33 not accrue until after the Petition Date when additional work was done that triggered payment under the applicable purchase order or subcontract. The Vogtle IAA makes clear that the relevant question is when administrative claims accrued against the Debtors not when the underlying work was performed. See, e.g., Vogtle IAA 5, 12 (requiring the Vogtle Owners to pay and indemnify and hold harmless the Debtors against any administrative expenses accrued by the Debtors during the Interim Assessment Period for services and goods for the Vogtle Project, regardless of whether the administrative expenses become payable during or after the Interim Assessment Period (emphasis added)). Thus, the Postpetition Milestone Claims are postpetition administrative expense claims compensable from the Vogtle IAA Deposits. 61. Second, payment of the Alleged Prepetition Expenses (including the Postpetition Milestone Claims) was necessary for the continued construction of the Vogtle Project and, therefore, critical to the entire purpose of entering into the Vogtle IAA. Indeed, it would have been impossible for the Debtors and the Vogtle Owners to explore the continued feasibility of [the Vogtle Project] in a manner that is cost-neutral and cash-neutral to the Debtors, if the Debtors could not pay expenses that became due post-petition on the sole basis that some portion of the work was performed prepetition. 52 If the Debtors had not paid amounts under such contracts many of which became due shortly after the Petition Date the counterparties would have been entitled to stop performance and/or reclaim previously delivered goods, which would have ground the entire Vogtle Project to a halt. In addition to leading to immediate work stoppages, the Debtors would have been required to find replacements that would have charged similar or higher fees (resulting in similar or higher administrative expense claims payable from the Vogtle IAA 52 See First Day Declaration 8. 27