Buffett bets on coal and the economy

Berkshire Hathaway Inc.'s $44 billion deal to buy Burlington Northern Santa Fe Corp. is basically a huge bet on coal, a fuel that powers Warren Buffett's power plants at his MidAmerican Energy utility and plays a major role in the railroad business.

While regulatory delays and uncertainty over climate-change legislation has slowed the addition of new U.S. coal plants, plenty of new facilities are expected to come on line in the United States, becoming prospects for future growth for the railroads.

Nine new coal plants have been permitted in the United States, and 25 are under construction, for a combined generation capacity of nearly 15,000 megawatts, according to an Oct. 9 report by the National Energy Technology Laboratory. (Santee Cooper has shelved plans for a Pee Dee coal-fuel power plant.)

Moves by the Obama administration to curb emissions in proposed climate-change legislation are also anticipated to push the generation industry toward wider use of carbon-capture and storage technology at coal plants, which still supply nearly half of America's electricity.

With the U.S. economy poised for a rebound, both the coal-fired electricity industry and the railroads that haul the black rock are primed for growth, leading Buffett to describe his huge purchase as "an all-in wager on the economic future of the United States."

To be sure, the mega merger doesn't necessarily signal a wave of deal-making until the economy shows more signs of improvement.

George Ackert, senior managing director at Evercore Partners, said financing remains more difficult for other deals amid a mixed but improving outlook for transportation mergers and acquisitions.

Hauling coal made up about a quarter of Burlington Northern Santa Fe's third-quarter revenue of $3.6 billion. A total of 604,000 of the Fort Worth, Texas-based railroad's fleet of train cars shipped coal during the third quarter - a bigger share than any other single material.

Through its network of 30,000 miles of track that crosses the lower 48 states, the company hauled 297 million tons of coal last year, enough to produce more than 10 percent of the nation's total electricity.