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Rail News Home Federal Legislation & Regulation

May 2008

Rail News: Federal Legislation & Regulation

STB computes railroads’ cost of capital in ’06, makes other procedural moves

Last month, the Surface Transportation Board (STB) calculated the rail industry’s cost of capital for 2006 using a methodological change for the first time. The board determined the industry had an after-tax cost of capital of 9.94 percent, a 2.26 percent drop from 2005’s 12.2 percent.

In a final decision issued in January, the STB changed its method for calculating the industry’s cost of equity, a key cost of capital component. The board now uses a capital asset pricing model instead of a single-stage discounted cash flow method applied since 1982.

The STB uses a cost of capital figure to evaluate the adequacy of individual railroads’ revenues each year. The board also uses the figure in various regulatory proceedings, such as determining the reasonableness of a challenged rail rate.

Decisions, decisions

Meanwhile, the board adopted a procedural schedule to review the U.S. Department of Energy’s (DOE) proposed 300-mile Yucca Mountain line in Nevada and issued a final scope of study decision, enabling its Section of Environmental Analysis to begin preparing an Environmental Impact Statement regarding Canadian National Railway Co.’s acquisition of a major portion of the Elgin, Joliet & Eastern Railway Co.

The DOE line would connect to a Union Pacific Railroad line near Caliente and be used to transport spent nuclear fuel and other radioactive waste to a geologic repository.

The STB also merged the offices of compliance/consumer assistance and governmental/public affairs, and created a new office of public assistance, governmental affairs and compliance. The office will house governmental affairs, communications and compliance functions, as well as internal operations, such as rail operations analysis, tariffs, a library and mediation coordination.


Browse articles on cost of capital Surface Transportation Board STB revenue adequacy

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