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No Shareholders to answer to?

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Posted by route_rock on Saturday, December 5, 2009 9:26 PM

  Not only what blue says,but will BNSF keep some diesels for running over trackage rights route miles? Then along with the flooding, Spring in the midwest is not fun. Lets look at some of Blues stuff.

  K line is going to be a problem,easy to flood and right along the river.Bridge in Burlington is getting revamped but its still old.Yards will be fun to do up.I wouldnt want to be in galesburg figuring that mess of wire out,let alone Argentine.Someone on here brought up CTC, and a lot of the BNSF is NON CTC.There is a lot of ABS and dark territory out there. Do you keep those routes or sell them off?FRS is one where there is a lot of curves and ups and downs. Ar eyou going to want to fix that up to super high quality standards?

  I think about that and then look at all your money going out! Sheesh Ill take 2% and retire tomorrow.

Yes we are on time but this is yesterdays train

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Posted by blue streak 1 on Saturday, December 5, 2009 8:49 PM

If and it is a very big if:  BNSF under BH plowed all its net income back into the company infrastructure for say the next 5 years there are many projects that need to be completed before any electrification can even be considered.

The possible electrification routes first need curve straightening, maybe higher speed switches in CTC territory, planned double/triple tracking, grade easing, eliminating all clearance problems, raise critical trackage out of flood danger (more possible clearance problems) ,  a big item --- any bridges and tunnels that are near the end of their useful life, yards that will take the 10,000 - 15,000 ft trains that BNSF is already tending towards and electrification would make more viable, signal systems compatible with PTC and electrification, eliminate problem grade crossings that quiet electric motors would make more of a problem, etc.

All the above items really need to be addressed first so any electrification will cost less and the number of motors needed would be less. Another way to reduce the high initial capital costs.

Any other thoughts?

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Posted by jeaton on Saturday, December 5, 2009 7:50 PM

Dale

Given yesterday's closing price of a share of Berkshie A at $99,689 and B's at $3320, I suspect that BH Shareholders trust Buffett much more than the average CEO.  Never-the-less, his letters to shareholders in the annual reports are probably longer than the next 10 put together.  So if he isn't answering specific questions, he sure does a lot of 'splainin'.

 

"We have met the enemy and he is us." Pogo Possum "We have met the anemone... and he is Russ." Bucky Katt "Prediction is very difficult, especially if it's about the future." Niels Bohr, Nobel laureate in physics

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Posted by schlimm on Saturday, December 5, 2009 7:47 PM

Railway Man

So what else does it almost make you wonder?  Isn't that just another way of saying it never once crossed your mind?  But it did cross your mind?  Ay-yi-yi, a paradox.

RWM

 

 

Touche!

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Posted by Railway Man on Saturday, December 5, 2009 7:40 PM

schlimm

The degree of almost frantic naysaying on electrification in this and other strings almost makes me wonder if some work for our diesel manufacturers!

After 30 years in the railway business I have a long list of things I've been accused of, but "frantic naysayer" is novel.  I'll add it to my wall of fame!

So what else does it almost make you wonder?  Isn't that just another way of saying it never once crossed your mind?  But it did cross your mind?  Ay-yi-yi, a paradox.

RWM

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Posted by schlimm on Saturday, December 5, 2009 6:52 PM

The degree of almost frantic naysaying on electrification in this and other strings almost makes me wonder if some work for our diesel manufacturers!

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Posted by nanaimo73 on Saturday, December 5, 2009 6:45 PM

billio
Moreover, as a publicly traded entity itself, Berkshire Hathaway (meaning Warren Buffett and his trusted lieutenants) has its own set of shareholders to whom it management must answer.

Do Berkshire Hathaway shareholders question Mr Buffett? Don't they fully trust him before they buy in?

Dale
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Posted by billio on Saturday, December 5, 2009 6:28 PM

passengerfan

passengerfan opines, in part,

"Now that the BNSF has no shareholders to answer to..."

 ...Al - in - Stockton

Strictly speaking, this is correct.  In the sense you probably mean it, not quite so.  That BNSF is now a wholly owned subsidiary of BNSF and its stock is no longer publicly traded means that it has no shareholders.  HOWEVER, if you accept the proposition that shareholders are owners, then their ownership has been replaced by Berkshire Hathaway, itself a publicly traded company with its own set of shareholders.  Just like BNSF had.   The confluence of economic fortune and managerial acumen that brought BNSF to the point that Warren Buffett was willing to tender for all of its common had NOTHING, REPEAT NOTHING to do with expenditures on the electrification of all major mainlines.  Moreover, as a publicly traded entity itself, Berkshire Hathaway (meaning Warren Buffett and his trusted lieutenants) has its own set of shareholders to whom it management must answer.

From the foregoing, I suspect the process by which BNSF went through its annual capital budgeting process, wherein the portfolio of projects under consideration is carefully considered and winnowed down to what the company plans to spend next year -- not all projects up for consideration get funded; some are deferred to some future period, and some are unceremoniously given the thumbs-down -- will go substantially unchanged under BNSF ownership.  Instead of having a board of directors approve what BNSF management has selected, Berkshire Hathaway must do so.  Berkshire Hathaway's thinking has to be colored by the use to which they put their capital.  If a good company becomes attracxtively valued, then that purchase will compete with what the boys at BNSF wish to accomplish.

Barring sudden, enormous structural changes in the market for energy, I suspect Barkshire Hathaway management has better (more financially promising) claims on the scarce capital it has available, and that the subject of electrification, is it comes up at all, will be given an unceremonious thumbs-down.

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Posted by Railway Man on Saturday, December 5, 2009 5:50 PM

Bucyrus
 
I think this is part of what made BNSF attractive to Buffet. 
 
The government wants the following:
 
1)      Electrification of rail.
2)      Use of rail corridors for new grid transmission to rail electrification and other uses.
3)      Wind farms where the wind blows and land is available.
 

The use of rail corridors for electrical transmission will minimize the NIMBYS and speed up the transmission line approval process.  The whole thing will be financed more by public money than by private capital.  I bet it will begin within five years unless we have a complete economic collapse in the meantime.

1.  Electrification is not a federal policy.  There is no funding.  There is no law.  California might enact air emissions policies that might make electrification an economically lowest-cost option -- presuming that it didn't just price substantial volumes of rail service out of existence altogether -- but there is no "electrification policy" specifically in California, either.

2.  Use of rail corridors for electric transmission corridors will not be any guarantee of a speed up of the transmission line approval process.  There is no provision in the law that enables this to be an end-around on NEPA, nor any other environmental law.  It might eliminate the need for land acquisition, but not necessarily, as rail corridors don't always have a spare, contiguous, strip of land available exactly where you want it to be available.  Also, you have a last-mile problem, because eventually the utility corridor has to depart from the rail corridor and tie into existing substations.  That can be sufficient to make the entire corridor a connected action, and enter NEPA.

3.  Use of rail corridors for electric transmission might reduce local opposition.  Then again it might not.  The claim that it would is speculative and not supported in my experience in rail environmental assessment work.  The opposition might in fact be even more fierce because the rail corridor is more likely to pass through built-up areas than a electrical corridor. 

4.   Electrification is a substantial net financial negative for a railroad company unless someone else is paying for the capital costs.  Even then, it might still be a net negative unless the electrification is pervasive because partial electrification creates some real operating inefficiencies at the handoffs, and uninterruptible power can be very expensive, too.  The more this ripples outward, the worse it gets: if power isn't available, and new generation capacity has to be constructed, then you have to find the natural gas, which might require a pipeline, which might create more NEPA nightmares, ad infinitum.

RWM

 

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Posted by schlimm on Saturday, December 5, 2009 5:15 PM

Bucyrus
 
I think this is part of what made BNSF attractive to Buffet. 
 
The government wants the following:
 
1)      Electrification of rail.
2)      Use of rail corridors for new grid transmission to rail electrification and other uses.
3)      Wind farms where the wind blows and land is available.
 

The use of rail corridors for electrical transmission will minimize the NIMBYS and speed up the transmission line approval process.  The whole thing will be financed more by public money than by private capital.  I bet it will begin within five years unless we have a complete economic collapse in the meantime.

 

I think your analysis is spot on.

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Posted by Anonymous on Saturday, December 5, 2009 2:26 PM
 

I think this is part of what made BNSF attractive to Buffet. 

 

The government wants the following:

 

1)      Electrification of rail.

2)      Use of rail corridors for new grid transmission to rail electrification and other uses.

3)      Wind farms where the wind blows and land is available.

 

The use of rail corridors for electrical transmission will minimize the NIMBYS and speed up the transmission line approval process.  The whole thing will be financed more by public money than by private capital.  I bet it will begin within five years unless we have a complete economic collapse in the meantime.

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Posted by jeaton on Saturday, December 5, 2009 2:20 PM

I wouldn't bet on it.

While BNSF is no longer a "pure play" railroad in the parlence of the street they will still be a big part of a well watched publicly traded corporation.  While Buffett may not be concerned about yesterday's closing of BH stock or an analyst's forcaste for the next quarter, don't think for a minute that he would make a move that would have a high risk for a long term negative impact on the value of the stock. 

It is not a question of whether Bufffett would "encourage" electirfication.  In fact he specificly notes in his annual report that he and his number two man make the final decisions on the capital budgets for the wholly owned subsidiaries.  From all I read, it doesn't appear that he is inclined to over rule the capital budget recommendations from his operating company managers, nor is there any indication that he that he stops sound capital proposals just to strip cash from the operating subs.

On the other hand, there are some big questions attendant to a project in the magnitude of electrification of BNSF's heavy mainlines.  Could the railroad itself generate the cash necessary for the project?  If not, would Buffett even consider using "extra" cash generated by other subsidiaries to finance the project?  I guess the answer to both is maybe, at least it is not clear to me, but if both answers are no, forget it.

While Buffett say his acquisition of BNSF is an all in bet on the future of railroading, many think that at $100 a share, it is a reasonably safe bet.  Frankly, I think electrification would have to be a financial slam dunk before he approved the project. 

"We have met the enemy and he is us." Pogo Possum "We have met the anemone... and he is Russ." Bucky Katt "Prediction is very difficult, especially if it's about the future." Niels Bohr, Nobel laureate in physics

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Posted by schlimm on Saturday, December 5, 2009 2:15 PM

Al in Stockton: I suspect Buffett may share your vision.  Perhaps that is why he has been such a success.

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Posted by diningcar on Saturday, December 5, 2009 2:07 PM

Al, where do you think the electricity is going to come from?

Even 1/3 of what you suggest will be a huge investment by the BNSF and then with the electricity shortage which occurs from time to time independent generation plants will be needed for much of this..Where will they be built? And will we lock up all of the 'bananas' and 'nimbys' while this is happening?

This is all much to complex for any meaningful solutions to be generated by those of us at this site.

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Posted by mudchicken on Saturday, December 5, 2009 1:59 PM

Sorry Al - That huge waste of capital won't happen any time soon.

Mudchicken Nothing is worth taking the risk of losing a life over. Come home tonight in the same condition that you left home this morning in. Safety begins with ME.... cinscocom-west
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No Shareholders to answer to?
Posted by passengerfan on Saturday, December 5, 2009 12:21 PM

Now that the BNSF has no shareholders to answer to I would just about bet they will be the first of todays RRs to electrify at least there major mainlines. I believe the government will do it with the BNSF using tax credits to repay the government. They are the only RR in this position. All of the others have shareholders to answer to while Warren Buffet would probably encourage electrification. It sure would mean a lot of new jobs installing and producing everything necessary for electrification. I believe they would only need to electrify the major mainlines such as the transcontinental LA to Chicago, Seattle to Chicago. Powder River to Texas and midwest. Chicago to Denver and Kansas City to Texas. They have enough newer diesel power to handle all other lines that would not have the traffic to warrant electrification at the present time and could slowly electrify other lines as the twenty year lifespan of the diesels wear out. Al - in - Stockton

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