STB orders BNSF to delay asset revaluation from Berkshire acquisition

The Surface Transportation Board (STB) late last week took several actions to delay the revaluation of BNSF Railway Co.'s assets, in part because Berkshire Hathaway Inc. purchased BNSF in 2010 "without prior board authorization," STB officials said in a press release.

The board reaffirmed that Generally Accepted Accounting Principles (GAAP), which must be followed in rail carrier acquisitions, permit the revaluation of BNSF's assets. But because of the unique circumstances of the BNSF transaction, the STB directed the Class I to transition the revaluation over seven years to reduce the possible impact on captive shippers.

Berkshire "failed to obtain agency authorization for its purchase of BNSF" as required under federal law, STB officials said. So, the board directed BNSF to refile its annual financial reports for 2010, 2011 and 2012, or the years when Berkshire had "unauthorized control" of the Class I.

The STB also required BNSF to remove the approximate $8.1 billion net markup of its rail assets derived from Berkshire's purchase over its book value, which often is referred to as a "premium." In addition, the board ordered BNSF to transition in the markup of its rail assets equally over a four-year period beginning in 2013, until full recognition of the markup under GAAP.

As a result of the actions, the STB reopened rate prescriptions in two rail rate reasonableness cases involving BNSF. Western Fuels Association Inc. (EFA) and the Basin Electric Power Cooperative, which are plaintiffs in a coal-rate complaint proceeding against BNSF, must confer with BNSF on an adjustment of the current rate prescription to ensure WFA isn't harmed by BNSF's markup of its rail assets, STB officials said.

In another case, Arizona Electric Power Cooperative Inc., which is a plaintiff in a coal-rate complaint case against BNSF and Union Pacific Railroad, must confer with the Class Is on ways to reinstitute the rate prescription.