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IN RE PENN CENT. TRANSP. CO.

May 28, 1974

In the Matter of PENN CENTRAL TRANSPORTATION COMPANY, Debtor. Petition of CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.

Fullam, District Judge.


The opinion of the court was delivered by: FULLAM

FULLAM, District Judge.

 Consolidated Edison Company of New York, Inc. (hereinafter "ConEd") supplies to the Debtor electricity, steam and related utilities service, under approximately 123 different accounts. The present application involves services charged to seven major accounts, in which the average monthly billings are approximately $825,000.

 Order No. 1 in these proceedings authorized the Debtor and, after their appointment, the Trustees of the Debtor, to pay operating expenses, including utilities bills. Shortly after Order No. 1 was entered, and before the Trustees had been appointed, ConEd filed a petition seeking immediate payment of all pre-bankruptcy billings (approximately $1.2 million remained unpaid for pre-bankruptcy utility services furnished by ConEd) and seeking to require a security deposit of approximately $1.7 million in cash as a guarantee against future billings.

 By Order No. 18, I denied most of ConEd's petition, but modified Order No. 1 to the extent that the Debtor and its Trustees were directed, rather than merely authorized, to pay ConEd's bills during reorganization, within 15 days after presentation. This Order has been, and is being, fully complied with.

 After the Trustees were appointed, ConEd renewed its petition for a security deposit. The request was denied, in Order No. 263, 328 F. Supp. 1276 (E.D. Pa. 1971). The Court of Appeals affirmed, 467 F.2d 100 (3d Cir. 1972), but expressed some concern about possible unfairness which might arise from the time lag between the furnishing of utility services by ConEd and its receipt of compensation from the Trustees, in view of the large amounts of money involved. The Court expressed the view that "upon proper application by [ConEd], the district court should consider possible expedients for shortening the interval between the appellant's supplying of energy and the trustees' payment for it" (467 F.2d at 104).

 Thereafter, ConEd filed a petition (Document No. 4607) asking this Court to direct the Trustees to make weekly payments to ConEd, on an estimated basis, with appropriate adjustments on a monthly basis to reflect actual usage. A further evidentiary hearing was held, and the issues were briefed and argued, but for a variety of reasons, including in large measure inadvertence, the petition was not formally disposed of. Counsel for ConEd have recently renewed their request for a final decision of the matter.

 At present, the billing arrangements are substantially as follows: The monthly billing period closes as of the 26th of each month. It takes ConEd about 10 to 15 days to prepare and submit its bills, and a like period for the Debtor to make payment. Generally, payment is made on or before the 20th day of the following month.

 Utilities services are provided to the Debtor by nearly 1200 utility companies, *fn1" submitting bills to approximately 193 separate accounts. The accounting centers handling these accounts are located at New York City, Altoona, Pennsylvania, and Detroit, Michigan. The Detroit office makes payments to approximately 1144 utility companies, including ConEd (these payments total approximately $37,362,000 annually, of which approximately $2,695,000 goes to ConEd). The New York office handles payments to approximately 44 utility companies, including ConEd (payments total approximately $8,180,000 annually, of which approximately $7,697,000 goes to ConEd). The Altoona office makes payments to approximately 18 utility companies, at the rate of approximately $1,753,000 annually. The Debtor's total payments for utilities services aggregate approximately $47,295,000 annually. The Detroit office handles approximately 116,000 separate invoices for utility services each year, and the New York office handles approximately 1940 such invoices annually.

 The utilities accounts handled by the Detroit office are completely computerized. The computers are programmed to weed out duplicate bills, call attention to bills which appear inconsistent with the pattern of previous billings to that account, and perform a variety of bookkeeping and accounting functions. In the New York office, apparently because of certain special conditions imposed by passenger service contracts, the actual processing of invoices for payment is accomplished manually.

 Direct labor costs involved in processing each utility invoice in the Detroit office average 66 cents per invoice; in the New York office, the cost per invoice is $4.14.

 The present method of handling billings and payments, as between ConEd and the Debtor, follows the same pattern which has been in effect between the two companies for many, many years. The only difference is that the Debtor's bills are now paid more promptly than they were before bankruptcy, and that there is a court order requiring such payment.

 In any continuous course of dealings between major business corporations, it is to be expected that a pattern of billings and payments will evolve which the parties find reasonable and mutually convenient. Only in a very technical sense can these dealings be regarded as extensions of credit; and the longer the course of business continues, the less like credit transactions they become. So long as rail service over the Debtor's properties is being provided by the Debtor or its successors, the railroad will, in the nature of things, be acquiring energy from ConEd or its successors. Whether payments are to be made monthly, or weekly or daily or annually, is primarily a matter of accounting convenience. Obviously, more frequent billings (i.e., covering shorter spans of time) would theoretically reduce the risk to ConEd, if there were any risk, and would increase the benefit to ConEd through increasing the availability of the money for its use; but there would be corresponding disadvantages to both sides, by reason of the increased expense and bother of processing the greater number of invoices. Over the many years of dealings between the railroad and ConEd, it is apparent that the ...


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