(The following column by Richard Piersol appeared on the Lincoln Journal Star website on November 7, 2009.)
LINCOLN, Neb. — There was an almost euphoric tone to the news last week when the nation’s beloved sugar daddy, Warren Buffett, sprung for the rest of Burlington Northern Santa Fe Corp., a big part of Lincoln’s economy, Nebraska’s and the nation’s.
The guys on CNBC acknowledged they just couldn’t get enough of their videos of BNSF Railway trains chugging mightily across America’s TV screens.
A hard-headed business decision can pull at least a couple of carloads of railroad nostalgia, if the whistle is far enough away.
Some don’t see the deal so fondly, though.
Among them is Robert Szabo, executive director of Consumers United for Rail Equity (CURE), a coalition of captive freight rail customers seeking changes in federal law and policy that CURE says would require railroads to provide more competitive pricing and reliable service.
CURE represents captive shippers, such as utilities, and those in agriculture, timber and other industries that have little or no option but to depend on railroads.
“The announcement of Berkshire Hathaway’s purchase of BNSF highlights some of the key reasons consumers need rail reform now: The current oversight system is broken and railroad monopoly pricing results in excessive rates for consumers,” Szabo said in a response to the BNSF deal.
Case in point: The U.S. Surface Transportation Board’s decision in favor of Lincoln Electric System and its partners in the Laramie River Station, who accused BNSF Railway of charging way too much to deliver coal to the captive generating plant.
That’s worth $119 million up front in rate refunds, plus $245 million in future rate reductions. BNSF is appealing in federal court.
Szabo went on: “The Surface Transportation Board recently found BNSF to be ‘revenue inadequate,’ meaning the board found that BNSF is not earning enough money to attract and retain adequate capital.
“Despite the recent STB finding, America’s savviest investor is not only purchasing BN stock, but purchasing all of BN’s stock and at a 30 percent premium!
“Consumers suffer from this consistent STB record of underestimating the financial strength of the freight railroads, which results in board toleration of every escalating captive rail rate,” Szabo wrote.
“If the BN becomes the first privately held large freight railroad in the history of the nation, BN will become even less transparent in its activities because it will not be required to file reports with the SEC,” Szabo wrote. “The risk in a transaction like this is that consumers end up paying the premium paid for BN through excessive rates that BNSF can charge because of monopoly pricing protections.”
Shelly Sahling-Zart, LES vice president and assistant counsel, is on the executive committee of CURE. She didn’t have anything to add to Szabo’s statement on the BNSF deal.
“While LES believes that federal legislative change is necessary to provide rail shippers a fair and equitable process, LES does not have a position or comment on Mr. Buffett’s purchase,” she said in an email.
According to a study released in May by the Consumer Federation of America, U.S. consumers pay roughly $3 billion per year in higher costs on everything from utilities to groceries because of “artificially high rates” charged by railroads.
The study is available at http://www.consumerfed.org/pdfs/rail_report_2009.pdf.
It found that:
• Shippers without competitive options pay 75 to 100 percent more for rail shipments compared to similar movements in competitive markets, and the cost of captivity has been rising substantially over the past five years.
• Over one quarter of all traffic carried by the rails does not cover the industry’s variable costs, which causes higher rates for captive shippers to subsidize this below-cost traffic. “This increases the burdens on captive shippers and results in a cross-subsidy of over $2 billion per year,” the federation said.
Szabo said he hopes Buffett will put BNSF on a more pro-competitive and consumer-friendly path.
“Whether or not he does so, there is a compelling need to restore fairness to railroad pricing for all rail consumers,” Szabo said. “We’re hopeful Congress will move quickly to remove the monopoly protections that railroads like BNSF have been exploiting and strengthen the regulatory oversight of the railroads by the STB.”
To that end, in September, the House Judiciary Committee approved H.R. 233, the Railroad Antitrust Enforcement Act of 2009. A Senate version would combine that bill with reform of Surface Transportation Board procedures.
“Freight rail companies enjoy a major loophole which exempts them from U.S. antitrust laws, setting them apart from every other American industry,” CURE explained. “Railroads are instead regulated solely by the Surface Transportation Board, which has historically allowed the railroad industry to exploit antitrust exemptions at the expense of their customers, and ultimately, consumers across the nation.”
The Railroad Antitrust Enforcement Act has won support from U.S. Assistant Attorney General for Antitrust Christine Varney, 20 state attorneys general, (not including Nebraska’s,) the American Bar Association, the National Industrial Transportation League and the Consumer Federation of America.