STB orders reworking of BNSF asset valuation, impacting coal cases

In light of a simultaneous decision by the U.S. Surface Transportation Board in another proceeding regarding the markup of BNSF Railway’s assets, the parties in a dispute between Arizona Electric Power Cooperative and BNSF were on July 25 directed by the board to confer and comment on approaches to reinstituting the rate prescription in this proceeding.

In 2008, Arizona Electric (AEPCO) filed a complaint challenging the reasonableness of the joint rates established by BNSF Railway and Union Pacific Railroad (UP) for unit train coal transportation service from New Mexico and the northern portion of the Powder River Basin in Wyoming and Montana to AEPCO’s Apache station located near Cochise, Ariz.

In a decision served in November 2011, the board found that AEPCO had shown that BNSF and UP have market dominance over those movements, and that their rates exceeded the level defendants needed to charge to earn a reasonable return on the full replacement cost of the facilities used to serve AEPCO. In that decision, the board prescribed the maximum lawful rate that BNSF could charge, 180% of variable cost.

Berkshire takeover of BNSF raised issues of BNSF valuation

In 2010, BNSF was acquired by Berkshire Hathaway. Subsequently, BNSF submitted to the board an annual report for 2010, in which it revalued its railroad assets to reflect their fair market values in light of the acquisition as required by Generally Accepted Accounting Principles and the board’s regulations. Some of the increases in the value of BNSF’s railroad assets are also reflected in the Uniform Railroad Costing System (URCS) data for 2010 and 2011.

In May 2011, the Western Coal Traffic League (WCTL) filed a petition asking the board to adjust BNSF’s URCS data for 2010 and subsequent years to exclude the revaluation of BNSF’s railroad assets attributable to Berkshire’s acquisition of BNSF, and to make corresponding changes in BNSF’s annual URCS depreciation calculations. The Board subsequently instituted a proceeding to consider the issues raised in WCTL’s petition.

In December 2011, the board issued a decision in the Western Coal proceeding advising parties with BNSF rate prescriptions in effect in January 2012 that, if they believed the board should temporarily lift the prescriptive effect of their 2012 rate prescription pending final resolution of the issues in Western Coal, they should petition the board to reconsider or reopen relevant board decisions.

In response, AEPCO filed a petition to reopen this proceeding. In January 2012, the board concluded that changed circumstances relating to the purchase of BNSF by Berkshire justified the reopening of this proceeding. It temporarily lifted the prescriptive effect of the prior rate order, and instructed the parties to keep account of the amounts paid during the pendency of the reopening and to make the other party whole, at the conclusion of the reopening, with respect to the amounts paid during the interim. The board then held the proceeding in abeyance pending final resolution of Western Coal.

In a decision served July 25 in Western Coal, the board concluded that BNSF may not revalue its railroad assets to reflect a markup during the years 2010, 2011, and 2012. The board also held that, for 2013 and beyond, BNSF is required to mark up its rail assets in accordance with Generally Accepted Accounting Principles, but subject to a four-year transition period. In that decision, the board discusses the two current BNSF rate prescriptions.

In the AEPCO case, the board could reinstate the rate prescription at this time, or the board could defer reinstituting the prescription until after the board issues revised URCS data for 2010 and 2011. “We ask the parties to confer and comment on these approaches, or an alternate approach within the Board’s jurisdiction, by September 23, 2013,” said the board.

WFA, Basin Electric case draws a similar order

The board served a similar decision, asking the parties to confer about the Western Coal decision, on July 25 in a second case involving the Western Fuels Association and the Basin Electric Power Cooperative.

In 2004, Western Fuels Association, which acquires and produces coal for its members, and Basin Electric filed a complaint challenging the reasonableness of the rates charged by BNSF for movements of coal from origins in the Powder River Basin in Wyoming to the Laramie River Station coal-fired plant at Moba Junction, Wyo. In a decision served in February 2009, the board found that WFA had shown that BNSF has market dominance over those movements, and that its rates exceeded the level BNSF needed to charge to earn a reasonable return on the full replacement cost of the facilities used to serve WFA.

“[W]e are now directing WFA and BNSF to confer regarding a suitable mechanism to adjust the current rate prescription to hold WFA harmless from the markup of BNSF’s rail assets,” said the board decision. “We have identified two potential approaches. The existing rate prescription could be revised to fixed rates per ton for the 20-year stand-alone cost analysis period. This would lose the flexibility of our current approach, but seems to be the simplest way to hold WFA harmless. Alternatively, the rate prescription could be restated using updated URCS data that reflect the gradual markup of rail assets beginning in 2013. The parties shall confer in order to settle upon a mutually agreeable solution, which may be one of these approaches or another of their choosing, and advise the Board of how to adjust the prescribed rates by September 23, 2013. If the parties cannot agree on an approach, the parties shall so advise the Board by September 23, 2013, and the Board will decide on an appropriate approach.”

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.