Rail Deal Is Bet on Obama's Infrastructure, Climate Policies

By JOSH MITCHELL 

WASHINGTON--Berkshire Hathaway Inc.'s planned purchase of Burlington Northern Santa Fe Corp. represents a bet that upcoming Washington policies to improve infrastructure and combat climate change will be a boon to the freight-railroad industry.

President Barack Obama has said railroad investment will be a cornerstone of his transportation policies, given the environmental benefits and improved mobility that come with taking cars and trucks off roads.

The White House set aside $8 billion in the economic-recovery act to improve passenger railroads--money that will directly benefit freight railroads since they own almost all of the lines used by Amtrak and regional commuter-rail operators.

Another $1.5 billion in discretionary spending in the stimulus is expected to finance many rail projects, including a plan to reduce congestion in Mr. Obama's native Chicago, the nation's busiest freight-rail hub. That project has already won $322 million in funding from Illinois that is expected to attract federal dollars.

Mr. Obama has also said he would seek to budget $5 billion over the next five years for high-speed rail projects and to set up a national infrastructure bank to finance regional projects like rail improvements.

"I haven't seen an administration as enthusiastic about expansion of the country's rail network" as the Obama White House, said Patricia Reilly, spokeswoman for the Association of American Railroads, a trade group representing the four major freight-rail operators, including Burlington Northern. "The administration has put its money where its mouth is."

Rail customers and industry executives indicated that the Burlington Northern deal could make Berkshire Chairman and Chief Executive Warren Buffett a key broker in the rail industry's battle against pending legislation that would toughen railroad antitrust laws.

As an Obama supporter and an informal adviser to the president on the economy, Mr. Buffett could become the advocate for freight rail inside the administration that the Republican-leaning rail industry now lacks. "It's a positive for the rail industry because of Buffett's influence in Washington," said Henry Lampe, president of the Chicago, South Shore & South Bend, a short-haul railroad in northwest Indiana.

On the horizon, U.S. House lawmakers are expected to debate early next year a $450 billion, six-year bill that would boost federal transportation spending by nearly 40%--while also setting aside $50 billion for high-speed rail projects.

Equally as significant, the railroad industry expects to benefit from a renewed focus by the Obama administration and the Democratic-controlled Congress to combat climate change by reducing greenhouse-gas emissions. Executives expect more attention to be focused on reducing commercial truck traffic.

The administration released a national railroad plan last month touting a recent government study that found that railroads are up to 5.5 times more fuel-efficient than trucks in carrying goods.

"All the trend lines point toward more freight on the freight railroads," said Robert Szabo, executive director and counsel for Consumers United for Rail Equity, which represents shippers in Washington.

But railroads are also bracing for a period of stepped-up regulation. Passenger and freight railroads are under a new federal mandate to install safety hardware, called "positive train control," by 2015. Installing the collision-avoidance technology is expected to cost the industry billions of dollars.

Congressional Democrats are considering legislation to toughen railroad antitrust laws and give more leverage to shippers when bringing rate disputes against railroads before the federal Surface Transportation Board.

The House Judiciary Committee passed a bill in September that would repeal legal provisions which make certain railroad transactions exempt from review by antitrust regulators. Lawmakers from both parties have said the bill needs additional work and would be altered before it appears on the House floor.

In the Senate, Commerce Committee Chairman John D. Rockefeller (D., W.Va.) is drafting legislation that he has indicated would address railroad antitrust concerns. The bill could also include provisions to make it easier for shippers to bring rate disputes before the Surface Transportation Board and allow regulators to be more proactive in preventing railroads from charging exorbitant rates, said Mr. Szabo, who has spoken with lawmakers on the coming proposal.