|SURFACE TRANSPORTATION BOARD DECISION DOCUMENT|
|RAILROAD REVENUE ADEQUACY—2011 DETERMINATION|
|DECISION FINDS THAT THREE CLASS I RAILROADS (BNSF RAILWAY COMPANY, NORFOLK SOUTHERN COMBINED RAILROAD SUBSIDIARIES, AND UNION PACIFIC RAILROAD COMPANY) WERE REVENUE ADEQUATE FOR THE YEAR 2011, MEANING THAT THREE OF THE CLASS I RAILROADS ACHIEVED A RATE OF RETURN EQUAL TO OR GREATER THAN THE BOARD’S CALCULATION OF THE AVERAGE COST OF CAPITAL TO THE FREIGHT RAIL INDUSTRY.|
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|Full Text of Decision|
43499 SERVICE DATE – JANUARY 2, 2014
SURFACE TRANSPORTATION BOARD
Docket No. EP 552 (Sub-No. 16)
RAILROAD REVENUE ADEQUACY—2011 DETERMINATION
Digest: Taking into consideration BNSF Railway Company’s refiled 2011 R-1 data, the Board finds that three Class I railroads (BNSF Railway Company, Norfolk Southern Combined Railroad Subsidiaries, and Union Pacific Railroad Company) were revenue adequate for the year 2011, meaning that three of the Class I railroads achieved a rate of return equal to or greater than the Board’s calculation of the average cost of capital to the freight rail industry.
Decided: December 31, 2013
This annual determination of railroad revenue adequacy under 49 U.S.C. § 10704(a)(3) is made in accordance with the standards and procedures developed in Standards for Railroad Revenue Adequacy (Standards I), 364 I.C.C. 803 (1981), Standards for Railroad Revenue Adequacy (Standards II), 3 I.C.C.2d 261 (1986), and Supplemental Reporting of Consolidated Information for Revenue Adequacy (Supplemental Reporting), 5 I.C.C.2d 65 (1988). Pursuant to those procedures, which are essentially mechanical, a railroad is considered revenue adequate under 49 U.S.C. § 10704(a) if it achieves a rate of return on net investment (ROI) equal to at least the current cost of capital for the railroad industry.
In Railroad Cost of Capital—2011, EP 558 (Sub-No. 15) (STB served Sept. 13, 2012), we determined that the 2011 railroad industry cost of capital was 11.57%. By comparing this figure to the 2011 ROI data obtained from the carriers’ Annual Report R-1 Schedule 250 filings, we have calculated a revenue adequacy figure for each of the Class I freight railroads that were in operation as of December 31, 2011.
A summary of the ROIs for all Class I railroads is set forth in Appendix A to this decision. Appendix B provides the railroads’ R-1 Schedule 250 data that was used to compute the ROIs. We find three carriers (BNSF, Norfolk Southern Combined Railroad Subsidiaries, and Union Pacific Railroad Company) to be revenue adequate for 2011 and one carrier (CSX Transportation, Inc.) was very nearly so. Our findings will be final on the effective date of this decision.
This action will not significantly affect either the quality of the human environment or the conservation of energy resources.
It is ordered:
1. This decision is effective on January 2, 2014.
2. Notice of this decision will be published in the Federal Register.
By the Board, Chairman Elliott, Vice Chairman Begeman, and Commissioner Mulvey.
VICE CHAIRMAN MULVEY, commenting (on the original October 16, 2012 decision):
Each year the STB issues a finding on how well the individual railroads have performed in achieving sufficient earnings so that they are “revenue adequate.” Although Class I railroads today are profitable, each year few (if any) are found to be revenue adequate by the Board’s regulatory measure. While this is commonly viewed as an inconsistency, it is important to understand that the Board’s revenue adequacy metric takes into account not only the income sufficient to attract capital, but also the revenue necessary over the long term to maintain and improve the large and costly infrastructure over which railroads operate – the interstate rail network – as well as the costs of locomotives and rolling stock.
 The digest constitutes no part of the decision of the Board but has been prepared for the convenience of the reader. It may not be cited to or relied upon as precedent. Policy Statement on Plain Language Digests in Decisions, EP 696 (STB served Sept. 2, 2010).
 The Board determined the revenue adequacy for 2011 of each Class I railroad in a previous decision served in this docket on October 16, 2012. Now that BNSF Railway Company (BNSF) has refiled its R-1 reports for 2010-2012 in compliance with Western Coal Traffic League—Petition for Declaratory Order, FD 35506 (served July 25, 2013), this decision reflects that filing and includes a revised determination of BNSF’s revenue adequacy for 2011. The October 16, 2012 decision remains unchanged in all other respects.
 Pursuant to Standards I, Standards II, and Supplemental Reporting, revenue adequacy determinations for Class I carriers are made on a system-wide basis, which includes certain railroad affiliates.
 See n. 2.