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10/25/2007



Rail News: Rail Industry Trends

STB to hold hearing on proposed changes for calculating railroads' cost of capital



The Surface Transportation Board (STB) has scheduled a public hearing on Dec. 4 to discuss a rulemaking proceeding the board set in motion earlier this year to revise its method for calculating the rail industry's cost of capital.

The hearing will provide interested parties an opportunity to comment on the STB's proposal to use a Capital Asset Pricing Model instead of a discounted cash flow method used since 1982 to estimate railroads' cost of capital.

The board 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 STB previously received public comments on its rulemaking proposal in September.

STB members decided to pursue the rulemaking based, in part, on comments submitted in response to an advanced notice of proposed rulemaking issued in September 2006. Some rail shippers believe the proposed change in calculating railroads' cost of capital will help their cause in rate challenge cases and potentially lead to lower rates.


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