Coal shippers complain about Berkshire takeover of BNSF

Arguments about whether BNSF Railway customers should pay higher rates due to the high pricetag that Berkshire Hathaway paid to buy BNSF were filed Nov. 8 at the U.S. Surface Transportation Board, including by a group that included the Western Coal Traffic League (WCTL).

The filing was from WCTL, American Public Power Association, Edison Electric Institute, National Association of Regulatory Utility Commissioners, National Rural Electric Cooperative Association, Western Fuels Association and Basin Electric Power Cooperative.

In February 2010, Berkshire Hathaway acquired BNSF, paying an acquisition premium which, for regulatory purposes, equals $8.1bn, said the WCTL filing. “Coal Shippers/NARUC have demonstrated in their prior submissions in this case that the $8.1 billion premium must be excluded from BNSF’s Uniform Railroad Costing System (‘URCS’) and revenue adequacy net investment bases starting in calendar year 2010 and continuing in all future years,” the coal shippers said. The total purchase price for the BNSF was $35bn.

The arguments on the acquisition premium had already been filed with the board. But in September, Berkshire informed the board that it had obtained control of BNSF unlawfully, because it already controlled two short-line carriers, the shippers noted. Berkshire has told the board it is fixing the problem by selling the two short lines. By having those short lines, Berkshire needed to seek board approval of the BNSF, which it did not do. The board decided to reopen this docket to new testimony based on the issues raised related to the short lines.

“Berkshire has been in non-compliance with § 11323 since February 2010 – when it unlawfully obtained BNSF – and will continue to be in non-compliance until it properly disposes of its two non-BNSF common carrier subsidiaries,” said the coal shippers. “Berkshire has benefitted from its non-compliance in two ways that are germane to the issues raised in this case: (1) the Board has included the premium in BNSF’s URCS and revenue adequacy net investment bases, pending the outcome of this proceeding; and (2) BNSF has been removed from the composite group the Board uses to calculate the cost-of capital return factor the Board applies to BNSF’s URCS and BNSF’s revenue adequacy net investment bases.”

The shippers added: “The Board has broad equitable powers to enforce § 11323 to ensure that an entity does not retain benefits from unlawful control of a railroad. The Board should first exercise these broad powers by removing the acquisition premium from BNSF’s URCS and revenue adequacy net investment bases during the unlawful control years. The unlawful control began in 2010 and will continue until Berkshire properly divests the two non-BNSF common carrier subsidiaries. This § 11323-based relief supplements Coal Shippers/NARUC’s prior demonstration that the Board must remove the premium from both investment bases in all years starting with calendar year 2010. Coal Shippers/NARUC emphasize that the overall relief they have sought, and continue to seek, in this proceeding is the removal of the $8.1 billion premium from BNSF’s URCS and revenue adequacy net investment bases for all years starting in calendar year 2010 (not just the unlawful control years).”

Also filing critical Nov. 8 testimony was Arkansas Electric Cooperative, which said a “clear threat” of competitive harm is that Berkshire also controls two coal-fired utilities, PacifiCorp and MidAmerican Energy. It said this could mean that the Union Pacific, the only other major western railroad competing against the BNSF, will be cut out of any business where these two utility companies have any choice between moving coal via either of the carriers.

In its Nov. 8 brief, BNSF said that Berkshire having the two short lines, which Berkshire thought of as “minor entities” that weren’t common carriers under board authority, was an accident that is being remedied through their imminent sale. It said there was no reason to repeat in the Nov. 8 filing its prior arguments that the so-called acquisition premium is not an issue.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.