10/17/2012

Federal Legislation & Regulation Article
Norfolk Southern, Union Pacific were revenue adequate for 2011, STB says

In a decision that took effect yesterday, the Surface Transportation Board (STB) determined that Norfolk Southern Railway and Union Pacific Railroad were the only Class Is that were revenue adequate for 2011. The designation means NS and UP achieved a rate of return equal to or greater than the board's calculation of the average cost of capital to the freight-rail industry.

In a previous decision, the STB determined that the 2011 railroad industry cost of capital was 11.57 percent. By comparing that figure to 2011 return on investment (ROI) data obtained from the Class Is, the STB calculated a revenue adequacy figure for each large railroad.

"Although Class I railroads today are profitable, each year few (if any) are found to be revenue adequate by the board's regulatory measure," STB officials said in the decision. "While this is commonly viewed as an inconsistency, it is important to understand that the board's revenue adequacy metric takes into account not only the income sufficient to attract capital, but also the revenue necessary over the long term to maintain and improve the large and costly infrastructure over which railroads operate — the interstate rail network — as well as the costs of locomotives and rolling stock."

The STB calculated the following ROI percentages for each Class I:
• BNSF Railway Co., 9.86 percent;
• CSX Transportation, 11.54 percent;
• Grand Trunk Corp. (including CN's U.S. affiliates), 8.74 percent;
• Kansas City Southern Railway Co., 10.76 percent;
• NS, 12.87 percent;
• Soo Line Corp. (including Canadian Pacific's U.S. affiliates), 7.13 percent; and
• UP, 13.11 percent.