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ERMUSR INFORMATION 03-19-2013 AL FRANKEN S11Tt MINNESOTA SH-309 202-224-5641 United /Sum s *matt WASHINGTON,DC 20510-2309 March 4, 2013 The Honorable Daniel R. Elliott III Chairman Surface Transportation Board 395 E Street, SW Washington, DC 20423 Dear Chairman Elliott: We write to express our concerns with Berkshire Hathaway, Inc.'s (Berkshire) announcement that it did not realize that its acquisition of BNSF Railway (BNSF) in February 2010 was subject to the jurisdiction of the Surface Transportation Board (STB) under 49 U.S.C. 11323(a)(5). Under existing law, Berkshire is not authorized to own or control multiple rail carriers without the Board's approval, and this transaction should have only been allowed to proceed after a determination by the Board that it was in the public interest. The fact that this did not occur and is just now coming to light—more than two and a half years after Berkshire acquired BNSF—is very concerning, especially since BNSF is the second largest freight railroad in North America. We have written to you previously to express our concern that the $8 billion acquisition premium that was paid by Berkshire to BNSF could be used to artificially inflate the railroad's regulatory rate base and could also be passed on to captive shippers in the form of higher rates. Since Berkshire's acquisition of BNSF, we have heard from a number of shippers that have complained of elevated rates. As railroads have consolidated over the last several decades, captive shippers have become more and more vulnerable to excessive rates and unreliable service. If BNSF is able to include the $8 billion acquisition premium in its capital asset base, we are concerned that fewer shippers will be eligible to file rate cases with the STB. This is unacceptable to us. We urge the Board to exclude the acquisition premium for the two years that the transaction was not approved by the Board, as well as all subsequent years that the railroad is owned by Berkshire. Additionally, we think it is very significant that Berkshire was able to pay such a substantial premium when it acquired BNSF—more than 30 percent above the trading price of BNSF's shares—and yet, BNSF is still considered to be revenue inadequate by the Board. Over the last two years, Berkshire Hathaway has sent shareholder letters noting the strength of BNSF's financial performance and that it"delivered record operating earnings." If Berkshire Hathaway is able to assure its investors that BNSF will be able to cover its operating costs and will remain a strong financial investment, and yet the formula used by the Board continues to indicate that BNSF is "revenue inadequate," then we can only conclude that something is amiss with the formula. We urge the Board to carefully examine this information when considering BNSF's revenue adequacy. R'WWPRA NKEN.SENAiL.COV Thank you for your consideration of our views on this subject. We look forward to your response. Sincerely, Al Franken David Vitter United States Senator United States Senator Mark Pryor Amy Kls United States Senator United States Senator %ow's...52 iteln Tay Bald in j Tim Johnson United Stat Senator United States Senator �� M drieu� United State Senator AL FRANKEN SUITE MINNESOTA SH-309 202-224-5641 united *taten OSenate WASHINGTON,DC 20510-2309 February 19, 2013 The Honorable Barack Obama President of the United States of America The White House 1600 Pennsylvania Ave NW Washington, DC 20500-0003 Dear Mr. President, I am writing you about a matter of great importance to the economy of my state and the nation: the freight railroad monopoly power over customers that must use a freight railroad for transportation. There are several ongoing executive branch activities regarding our transportation system,and I respectfully request that you direct them to consider the railroad monopoly problem in their proceedings. You mentioned in your Inaugural Address the importance of railroads, highways, and other infrastructure to the strength of our national economy. I agree. But to really serve our nation, that infrastructure must be available to all prospective users on a competitive basis,and unfortunately that is not currently happening. Recent analysis indicates that 78% of the 28,000 "stations" in the continental United States where a major freight railroad picks up or delivers freight are served by a single railroad. Of the remaining 22% of rail stations that are nominally served by a second railroad, a significant number are served by a short line or regional rail carrier that is dominated by the major railroad serving the location. This lack of competition in our national freight rail transportation system and the resulting railroad monopoly power over a significant portion of annual railroad freight movement create significant problems for our state and national economies. The freight railroads are exempt from our nation's antitrust laws for any issue that is jurisdictional to the Surface Transportation Board. This treatment of railroads is different from our treatment of interstate electric transmission lines, interstate natural gas pipelines, and telecommunications companies, all of which must comply with both federal economic regulation and the provisions of the nation's antitrust laws. The Surface Transportation Board is charged with the responsibility of ensuring that the freight railroads do not exercise their market power to the detriment of their customers. This small and under-funded agency is attempting to apply federal law adopted in 1980 that presumes that the relationship between the railroad and its customers will be governed by market competition instead of by regulatory policy. This 1980 presumption does not match current reality, where there are very limited opportunities for rail dependent shippers to have access to more than one major railroad. In March 2011,your Export Council wrote you a letter setting forth federal actions that could be taken to increase American exports that will create more American jobs. Addressing this freight rail monopoly power was listed as one of the five actions that could increase American exports. 1 W\MN FRANKEN SENATE GOV Those of us who are concerned about this problem need your help. There are several ongoing activities in the Executive Branch that provide opportunities either to produce information that will illuminate this problem or to produce policies to address this problem. They include: • The Surface Transportation Board has several policy proceedings pending that address both the level of competition in the national freight rail system and the discredited and burdensome procedures by which rail customers without access to transportation competition can challenge their rail rates for being excessive. Other executive branch agencies who have identified the lack of rail competition as a problem should engage in these proceedings and advocate for increased competition in the national freight rail system and a less burdensome rate challenge process. • The Department of Transportation has an ongoing effort to develop a national freight rail plan, and recently established a Freight Policy Council. The rail plan and the work of the Council must address the freight rail monopoly problem. • The Department of Agriculture worked with the Department of Transportation to produce an excellent report in April 2010 on transportation issues in rural America. This report highlighted railroad monopoly problems in rural America that adversely affect agriculture input costs, the marketing of agricultural products,the price of electricity in rural America, and economic development in rural America. This study needs to be updated as a source of reliable information on this important issue. • Finally, an Advisory Committee on Logistical Supply Chain Competitiveness was established recently in the Department of Commerce. This Committee needs to focus on the freight rail monopoly that exists in our domestic supply chain and its impact on the competitiveness of American industries and producers. To help address this significant problem, I also request that you appoint a senior official to coordinate these ongoing efforts, to analyze the freight rail monopoly problem, and to suggest federal policies that can be adopted to ensure a competitive national freight rail transportation system. I believe strongly that efforts to grow our national economy and create jobs are hampered by the freight rail monopoly problem. I look forward to working with you to address this problem in the coming Congress. Please do not hesitate to contact me with any questions. Sincerely, Al Franken United States Senator 2