(The following appeared on the Journal of Commerce website on March 28, 2011.)
Last week, 10 U.S. senators sent a letter to Surface Transportation Board (STB) Chairman Daniel Elliott III expressing concerns about the STB’s treatment of acquisition premiums when assessing a Class I’s asset base. As an example, they cited Berkshire Hathaway’s acquisition last year of BNSF Railway Co., which involved a purchase price about $7.3 billion higher than BNSF’s book value, the senators said.
“Allowing this and future acquisition premiums to be included in a railroad’s regulatory rate base raises a serious concern for captive rail shippers. Put simply, Berkshire Hathaway could pay an inflated price for BNSF, and then pass that cost onto its captive customers in the form of higher rates,” wrote the senators, including Al Franken (D-Minn.), Michael Enzi (R-Wyo.), Tom Harkin (D-Iowa), Tim Johnson (D-S.D.), Mary Landrieu (D-La.), Amy Klobuchar (D-Minn.), Herb Kohl (D-Wis.), Mark Pryor (D-Ark.), Jon Tester (D-Mont.) and David Vitter (R-La.).
By including an acquisition premium in the capital asset base, a railroad is able to “artificially inflate” the revenue-to-variable cost ratio of 180 percent that is required by statute for a shipper to bring a rate dispute before the STB, they wrote. The senators urged the STB to re-examine its accounting policies to better protect shippers.
The full story is on the Journal of Commerce website.