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9/29/2008



Rail News: Rail Industry Trends

STB: NS, CPR's Soo Line made 'revenue adequacy' grade last year


Last year, only two Class Is were "revenue adequate," according to the Surface Transportation Board (STB): Norfolk Southern Railway and Canadian Pacific Railway subsidiary Soo Line Railroad Co.

The board recently made that determination after calculating the rail industry's cost of capital in 2007. The STB considers a railroad to be revenue adequate if it achieves a rate of return on net investment (ROI) equal to at least its current cost of capital. Congress mandates that the board determine railroads' revenue adequacy annually.

For 2007, the STB determined the Class Is attained the following ROIs:
• BNSF Railway Co., 9.97 percent;
• CSX Transportation, 7.61 percent;
• Canadian National Railway Co.'s U.S. affiliates, 10.11 percent;
• Kansas City Southern Railway Co., 9.37 percent;
• NS, 13.55 percent;
• Soo Line Railroad (CPR), 15.25 percent; and
• Union Pacific Railroad, 8.9 percent

The STB also calculated the rail industry's after-tax cost of capital for 2007 at 11.33 percent, a 1.39 percent increase compared with 2006's cost of capital. The board uses the cost-of-capital figure when evaluating railroads' revenue adequacy and during various regulatory proceedings, such as rate challenges and line abandonment proposals.


Contact Progressive Railroading editorial staff.

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