Transportation Regulation

Shippers: Railroad Purchase Illegal

By Steven Johnson | ECT Staff Writer Published: December 3rd, 2012

Did investment behemoth Berkshire Hathaway act illegally when it acquired BNSF Railway Co. in 2010?

Shippers’ groups warn that a write-up on the purchase of BNSF Railway could lead to unnecessary transportation costs. (Photo By: Index Stock Imagery)

Shippers’ groups warn that a write-up on the purchase of BNSF Railway could lead to unnecessary transportation costs. (Photo By: Index Stock Imagery)

That’s what coal shippers contend, and they want federal regulators to take steps they say would even out an imbalance between the railroad and its customers.

“The law is clear that BNSF cannot ‘retain the fruits of its unlawful conduct,’” according to a filing by a coalition that includes NRECA and Basin Electric Power Cooperative, Bismarck, N.D.

Their Nov. 28 petition to the Surface Transportation Board is the latest step in a dispute that started when Berkshire Hathaway, controlled by billionaire Warren Buffett, bought BNSF for an estimated $43 billion in February 2010.

Subsequently, Berkshire Hathaway told the board that it owned two small short-line railroads. The company said it plans to divest those by the end of 2012, since STB rules prohibit a firm from holding multiple carriers without authorization.

Shippers say the fact that Berkshire has improperly owned BNSF and the small lines since 2010 is a reason the board should disallow a controversial $8.1 billion purchase write-up from inclusion in BNSF’s asset base.

They maintain that including the acquisition premium has inflated the railroad’s cost base, which then increases the rates they pay to haul coal.

“Berkshire should not have acquired BNSF in 2010, should not have paid any acquisition premium in 2010, and should not have been excluded from the Board’s cost of capital computation starting in 2010,” according to the shippers’ filing.

It also was signed by the Western Coal Traffic League, Western Fuels Association, American Public Power Association, Edison Electric Institute and National Association of Regulatory Utility Commissioners.

The group also called on the STB to change an important financial finding for 2010 and 2011 by declaring BNSF to be revenue adequate. The revenue adequacy test is a key part of challenges to excessive freight railroad rates.

Adding an acquisition premium gained via an illegal deal made the railroad look less well-off than it really was, shippers said.

Also asking for STB relief in separate filings were Consumers United for Rail Equity and Arkansas Electric Cooperative Corp., Little Rock.

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