(Dow Jones Newswires circulated the following story by Doug Cameron on May 27, 2009.)
CHICAGO — The head of Union Pacific Corp. (UNP) warned Wednesday railroads face inflated funding costs because of uncertainty about future industry regulation.
James Young, chief executive, intensified his criticism of the planned reauthorization of the Transportation Act later this year, which he said could damage future industry investment.
“It’s bad law,” said Young in remarks to a rail shippers conference in Chicago.
Last week, a member of Young’s senior management team testified to Congress against some of the proposed new regulations, saying they would discourage private investment in the railroad industry and harm the public.
Young reiterated the view Wednesday, adding uncertainty over pricing and potential changes to antitrust laws was inflating risk premiums on debt issued by railroad operators.
He also warned any unraveling of industry deregulation could have a profound impact on the freight sector that, in “a worst case,” could force integrated operators to “unravel.”
Railroads have been enjoying substantial pricing power despite depressed freight demand amid the economic downturn. The trend has fueled a backlash from some railroad customers and fueled calls for Congress to reinstate tighter industry regulations.
Among them, pending federal legislation would strip longstanding antitrust exemptions for freight railroad companies.
But Young said Wednesday the rail industry faces significant challenges despite its pricing success. He noted that U.S. operators have idled $20 billion in assets, including 460,000 rail cars, or some 25% of the fleet.
Meanwhile, Young also predicted the first U.S. high-speed rail line would be completed between Chicago and St. Louis.
The Obama administration has made a high-profile push to encourage investment in new passenger lines, with Florida and California viewed as frontrunners to secure $12 billion in government funds.
Rail executives have cautioned of the need to find a balance between the competing needs of freight and passenger lines, and also suggested the government support should be focused on a single project to ensure its completion.