(The following story by Angela Greiling Keane appeared on the Bloomberg website on September 16, 2010.)
U.S. railroads such as Berkshire Hathaway Inc.’s Burlington Northern Santa Fe may need closer rate regulation, given their profitability, the chairman of the Senate Commerce Committee said.
Senator Jay Rockefeller, a West Virginia Democrat, cited railroads’ share buybacks, dividend increases and Berkshire Chief Executive Officer Warren Buffett’s industry investment in a report today concluding the companies are able to charge some customers too much.
“Railroads have been able to maintain their high profit margins even during the sustained economic downturn of 2008-10,” Rockefeller said in the report, released before a hearing on rail regulation. “Freight railroads have been assuring their investors the companies will take advantage of this ‘robust pricing environment’ and continue to push rate increases on their customers.”
Rockefeller is sponsoring legislation that would increase rail regulation and give customers, such as electric utilities and agricultural producers, more power to challenge rates. He criticized railroads for notifying the Surface Transportation Board, the regulator, that they don’t have adequate funds while telling investors they have pricing leverage.
The Standard and Poor’s 500 Railroads Index has climbed 20 percent this year compared with an increase of less than 1 percent for the overall S&P index.
Industry Faults Report
The Association of American Railroads, the Washington-based trade group, criticized the report, saying rail profitability helps freight customers, passengers as well as investors.
“This report is aimed not at leveling the playing field, but at justifying attempts to regulate lower rates for some large shippers, like chemical companies, agribusiness and electric utilities,” Chief Executive Officer Edward Hamberger said in an e-mailed statement. “The railroad industry’s return to financial health has resulted in private capital, not taxpayer dollars, getting turned back into building and maintaining the nation’s rail network.”