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Parking our car is not an option

Rail customers should not pay for BSNF’s acquisition

Basin Electric Power Cooperative - June 8, 2011

Once in a great while, I come across a quote that stays with me. The latest made me reflect on both our past successes and our current challenges with rail delivery in rural America: “The road to success is dotted with many tempting parking places.”

You’ve heard me talk about the rail issue for years. You’ve been with us through the long, slow-moving battle we waged and continue to wage against BNSF Railway Company surrounding unfair and unprecedented rate hikes and service issues affecting captive shippers, particularly coal deliveries to the Laramie River Station. We encountered multiple setbacks during the process. While it would’ve been easy to pull into a variety of tempting parking places, we knew taking that path would cost you, the members, and rural America too much. To date, we’ve been successful before the federal Surface Transportation Board (STB). Though the case is under appeal, I’m confident fairness will prevail.

Our story doesn’t end there. Today, we face a new challenge from BNSF. It has to do with the acquisition of BSNF by Berkshire Hathaway Inc. and complicated accounting and rate-making practices. The result could mean another serious cost shift to rural America. I’m delighted that many supporters of rural America are saying “Not on my watch,” and we are all working hard to prevent this from happening.

Let me explain. In 2010 Berkshire, founded and led by billionaire Warren Buffett, acquired BNSF paying an estimated $7.6-billion premium above the company’s book value for BNSF’s assets. This “acquisition premium” for regulatory purposes is typically calculated as the difference between the book value of a company’s assets and the write-up in price a buyer actually pays to obtain control of those assets. Left unchecked, this artificially inflates the railroad’s costs and subsequently the rates it charges its customers. Typically the STB has regulatory jurisdiction over railroad mergers, and during review, pays close attention to how the merger and associated costs will affect rates. But because this was not a merger, but a private acquisition by a non-railroad, the STB never reviewed the purchase of BNSF. As expected, BNSF appears to be trying to pass this $7.6-billion acquisition premium directly to its customers. The STB has tolerated this during mergers, claiming larger savings and “synergies” as a result of the mergers, therefore minimizing the rate impact. That is not the case with BNSF; again, this is not a merger.

While the STB did not have jurisdiction over the purchase, it does have the responsibility to protect the integrity of the rate-making process and ensure BSNF’s costs are legitimate. Right now, what BNSF is proposing, in our estimation, fails that test. In other words, Mr. Buffett decided he wanted to buy a railroad, and now wants to place a surcharge on shippers in order to recoup his investment.

This obviously is not fair. Why should rural America pay higher rates to ensure that Mr. Buffett recoups his investment and profits in the years ahead? That may be how they do business on Wall Street, but that’s not how we do things in rural America.

So we’re going to keep driving. No one is parking this car. We’ve engaged NRECA, the Consumers United for Rail Equity, and our delegations in the U.S. Congress to support this effort. Sen. Al Franken of Minnesota, together with nine other senators, has already sent a letter to the chairman of the STB. Sen. John Thune of South Dakota sent a letter as well. We believe more letters may be coming from members of Congress once they understand the philosophical fairness surrounding the issue.

In addition, I recently had the opportunity to visit with the U.S. Department of Agriculture. They have an interest in any transportation issue that would adversely impact rural America. We have started a dialog with them to shine a light on this issue, and have kept them apprised through letters, meetings and phone calls. Clearly the STB needs to fulfill its role as a regulatory agency to resolve this issue. Too much is at stake for rural America. The goods and services on which our nation runs should not be held captive to monopolistic pricing practices, or by a railroad that wants us to pay more just to recover a premium paid for the stock of a company.

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