BNSF Says Earnings Hit Covers Legal Decision

By Beacon Staff

HELENA – BNSF Railway told Gov. Brian Schweitzer Tuesday that it took a $175 million earnings hit this month in order to prepare for environmental lawsuits in Montana.

The company said it estimated the figure after evaluating the potential effect of a 2007 Montana Supreme Court decision dealing with liability in environmental cases.

Last summer, the Supreme Court ruled that damages for environmental cleanup could, in some cases, exceed the value of the property before it was damaged.

“It’s a standard we have not seen in any other state,” BNSF Chief Executive Matt Rose told the governor in a meeting Tuesday night.

In April, a U.S. magistrate denied an effort by BNSF Railway to limit the potential effect of the Supreme Court decision, which was made in an unrelated environmental lawsuit filed by the Sunburst School District against Texaco.

Rose told Schweitzer that Montana now has a much higher potential cleanup standard in lawsuits than in other states.

He said most places require cleanup to a level found acceptable by state regulators. The Montana Supreme Court decision, Rose complained, allows judges to require cleanup back to a pristine level. This is much more expensive, he said.

“We are concerned, obviously. Having to return something to a pristine condition is difficult,” Rose said.

Schweitzer didn’t offer any solutions, and said the decision was made by the courts.

“That’s why we have the black robes,” he said.

BNSF Railway said in recent financial filings that the legal situation in Montana led the company to record additional pretax expenses of $175 million in the second quarter of 2008 “for environmental liabilities primarily related to the effect of the … Montana Supreme Court decision on certain of BNSF Railway’s Montana sites,” the company wrote in documents filed with the Securities and Exchange Commission.

The company says the $175 million has been placed in reserves to pay for future lawsuits over cleanup. Rose said the company arrived at the “humongous” figure by estimating potential liability at all of its sites in the state.

BNSF officials pointed out that it is cleaning up pollution left over from ages ago, when environmental standards were not nearly so high. Rose told Schweitzer, however, that the company wants to make sure cleanup is done right and done once.

“The last thing we would want to do is spend a bunch of money not doing it right,” Rose said.

In last Thursday’s earnings report, BNSF said its earnings fell 19 percent compared with the second quarter of 2007, mostly due to the $175 million charge related to environmental matters in Montana.

BNSF faces lawsuits from by the city of Livingston, six businesses and 100 residents, as well as lawsuits in Helena and Havre.