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4/16/2008



Rail News: Rail Industry Trends

STB computes rail industry's '06 cost of capital, creates new office


The Surface Transportation Board (STB) has 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, considering a proposal to abandon a rail line or valuing a particular railroad operation.

The STB also announced it 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.

"One of the main goals of the reorganization is to expand the board's Rail Consumer Assistance program, which will now seek to reach a much broader audience," STB officials said in a prepared statement. "Instead of a Rail Consumer Assistance Program and a separate Public Assistance hotline, this new, merged program will address both operational and service issues among all board stakeholders."

The STB named Matthew Wallen director of the new office and announced Mel Clemens assumed the new position of senior advisor to the board.


Contact Progressive Railroading editorial staff.

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