Coal shippers win only partial relief in BNSF/Berkshire case

Basin Electric Power Cooperative said Aug. 9 that a recent U.S. Surface Transportation Board (STB) decision regarding Berkshire Hathaway’s 2010 acquisition of the BNSF Railway is of some benefit to coal shippers, but not enough.

The STB reviewed whether to allow BNSF Railway to pass through a $8.1bn “acquisition premium” to rail customers. Basin Electric and its fuel supplier, the Western Fuels Association, joined the Western Coal Traffic League in a petition for a declaratory order in May 2011 seeking to exclude the premium from BNSF’s regulatory rate base.

The acquisition premium was implemented by BNSF in January 2012 for all shippers. Berkshire then informed the STB that it had failed to seek prior regulatory approval of the acquisition in 2010, which was required due to Berkshire’s ownership of two smaller railroads. Berkshire, which said it belatedly realized that its ownership of these two small railroads would have pushed the BNSF buy into the STB approval process, divested itself of ownership of the railroads in December 2012.

Western Fuels and Basin Electric again filed comments with other groups, stating 2010 should no longer be used as the baseline for calculating the costs of the premium since the purchase at that time was technically not permitted.

In its July order, the STB mandated that BNSF may not revalue its railroad assets to reflect a markup during 2010, 2011 and 2012, the years when Berkshire had unauthorized control of BNSF. The STB did permit, however, BNSF to transition to the full asset markup over a four-year period, starting Jan. 1, 2013, for all shippers that did not have their rates set by an existing STB prescription.

The decision impacts Basin Electric, which relies on BNSF to transport coal to the Laramie River Station near Wheatland, Wyo., which is owned by the Missouri Basin Power Project and operated by Basin Electric. In 2009, the STB established maximum rates that BNSF can charge for shipping coal to the plant. Due to the acquisition premium, Basin Electric and Western Fuels have been paying higher prescribed rates since 2012.

In its July decision, the STB directed Basin Electric and Western Fuels to work with BNSF Railway on a formula that will adjust the existing rate prescription to hold coal shipments to the plant “harmless” from any markup in the railroad’s valuation due to the acquisition premium. The parties have been asked to submit their proposals to the STB in September.

“While the decision is positive for Basin Electric and Western Fuels, the STB did allow the acquisition premium to stand, after the phase-in period, for other shippers that don’t have a rate prescription,” said Basin in its Aug. 9 statement. “Consumers United for Rail Equity (CURE), a coalition of rail-dependent shippers seeking rail-to-rail competition in the national freight rail system, wasn’t pleased with the STB’s allowance of the gradual full asset markup.”

“The STB’s decision allows BNSF to inflate its costs by part of the premium Berkshire Hathaway paid for BNSF. This artificial inflation of costs raises the jurisdictional threshold for challenging rates at the STB, thus making it harder or even impossible for some ‘captive’ BNSF customers to challenge the ‘take it or leave it’ rates that BNSF charges them,” CURE President Steve Sharp said.

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.