advertisement

---

Shippers have spoken, and the Surface Transportation Board (STB) listened.

Last month, the board announced it began a rulemaking proceeding to revise the agency’s method for calculating the rail industry’s cost of capital based, in part, on public comments received after issuing a September 2006 advanced rulemaking notice.

The STB uses cost of capital data to evaluate the adequacy of each railroad’s annual revenue, as well as determine the reasonableness of a challenged rail rate, analyze a proposal to abandon a rail line or estimate the value of a particular railroad’s operation.

The board proposes to change its method for calculating the cost of equity — a key cost-of-capital component. The STB would use a Capital Asset Pricing Model (CAPM) instead of a discounted cash flow method used since 1982. Many rail shippers believe the change would help their cause in rate challenge cases and potentially lead to lower rates.

“CAPM has become the private-sector norm for measuring cost of capital, although there are different methods of applying the model,” STB officials said in a rulemaking announcement.