If railroads serve as the arteries of the U.S. economy, then freight rates represent the sensitive factor that affects industries across the board. A recent dispute over BNSF Railway Company's asset revaluation has drawn fierce opposition from coal shippers, exposing complex tensions between railroad regulation, market valuation, and shipper interests.
Coal Shippers Challenge URCS Calculations
The Western Coal Traffic League (WCTL), an association of coal producers west of the Mississippi River, has petitioned the Surface Transportation Board (STB) to adjust BNSF's Uniform Railroad Costing System (URCS) calculations dating back to 2010.
URCS serves as STB's standardized method for estimating variable and total unit costs for Class I railroads. The coalition specifically seeks to exclude the increased net investment basis resulting from Berkshire Hathaway's 2010 acquisition premium from URCS calculations, along with corresponding adjustments to BNSF's annual depreciation figures.
Berkshire Acquisition Becomes Focal Point
Berkshire Hathaway's $34.5 billion acquisition of BNSF in February 2010, which took the railroad private, has unexpectedly become central to the current URCS dispute. The Railroad Fairness Coalition (CURE) argues that allowing BNSF to incorporate Berkshire's acquisition premium into its regulatory asset base would ultimately burden shippers through higher rates.
Potential Rate Increases Concern Shippers
WCTL's petition warns that BNSF's asset revaluation would significantly impact shippers eligible to file rate complaints with STB. The adjustment would raise BNSF's variable costs, consequently increasing the jurisdictional threshold for rate cases—currently set at 180% of variable costs.
Furthermore, the revaluation would elevate maximum rates for shippers qualifying for STB's maximum rate relief, as higher variable costs translate to increased rate floors. Even successful rate relief petitions would yield smaller reductions under this scenario.
BNSF Defends Market-Based Valuation
BNSF countered in its filing that STB and its predecessor agencies have consistently recognized acquisition cost as "an economically accurate measure of current market value." The railroad contends that WCTL failed to present sufficient evidence to warrant reconsideration of using acquisition costs for URCS calculations or other regulatory purposes.
The company maintains its asset revaluation properly reflects market value and aligns with established regulatory principles, warning that WCTL's challenge could negatively impact railroad investment and development.
Regulatory Anomaly in Railroad Accounting
Anthony B. Hatch of ABH Consulting noted that BNSF stands alone among Class I railroads in being permitted to value assets at market prices. "Its cost basis increased while everything else remained constant and depreciated," Hatch observed. "This creates greater accuracy but also makes BNSF different from other carriers—a peculiar regulatory artifact best resolved by eliminating all such regulations."
Hatch's comments highlight the tension between protecting shippers from monopoly pricing and ensuring railroads earn adequate returns to maintain infrastructure. Despite uncertain economic forecasts, he noted all Class I railroads continue making substantial capital investments, with rate increases playing a key role in funding these expenditures.
URCS: The Engine of Rate Regulation
At the controversy's core lies URCS—STB's primary tool for assessing railroad operating costs. The system allocates a carrier's total expenses between fixed and variable costs across various transportation activities, serving as the foundation for reasonable rate determinations.
However, URCS relies heavily on estimates and assumptions, making its calculations susceptible to accounting interpretations and potential disputes like the current BNSF case.
Balancing Competing Interests
STB now faces the delicate task of balancing railroad profitability against shipper protections. Its decision will evaluate whether BNSF's market-based asset valuation represents sound accounting practice or an unjustified rate increase mechanism, with implications extending beyond individual shippers to overall industry competitiveness.
The outcome could influence whether other railroads pursue similar asset revaluations, potentially triggering broader rate increases affecting coal, agriculture, and manufacturing sectors crucial to U.S. employment and exports.
Broader Implications for Rail Regulation
The dispute raises fundamental questions about URCS's effectiveness as a regulatory tool. Some industry observers suggest the system may require modernization to better reflect contemporary railroad economics while maintaining fair oversight.
As STB deliberates, its ruling will not only determine BNSF's rate-setting flexibility but could also shape the future trajectory of U.S. rail regulation—affecting everything from infrastructure investment to the global competitiveness of American industries dependent on rail transportation.