SURFACE TRANSPORTATION BOARD DECISION DOCUMENT
    Decision Information

Docket Number:  
EP_552_18

Case Title:  
RAILROAD REVENUE ADEQUACY--2013 DETERMINATION

Decision Type:  
Decision

Deciding Body:  
Entire Board

    Decision Summary

Decision Notes:  
PROVIDED NOTICE THAT FIVE CLASS I RAILROADS (BNSF RAILWAY COMPANY, GRAND TRUNK CORPORATION, NORFOLK SOUTHERN COMBINED RAILROAD SUBSIDIARIES, SOO LINE CORPORATION AND UNION PACIFIC RAILROAD COMPANY) ARE REVENUE ADEQUATE FOR THE YEAR 2013, MEANING THAT FIVE 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

XX

43970                                  SERVICE DATE—SEPTEMBER 2, 2014

EB

 

SURFACE TRANSPORTATION BOARD

 

Docket No. EP 552 (Sub-No. 18)

 

RAILROAD REVENUE ADEQUACY—2013 DETERMINATION

 

Digest:[1]  The Board finds that five Class I railroads (BNSF Railway Company, Grand Trunk Corporation, Norfolk Southern Combined Railroad Subsidiaries, Soo Line Corporation and Union Pacific Railroad Company) are revenue adequate for the year 2013, meaning that five 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:  August 29, 2014

 

            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.[2] 

 

            In Railroad Cost of Capital—2013, EP 558 (Sub-No. 17) (STB served July 31, 2014), we determined that the 2013 railroad industry cost of capital was 11.32%.  By comparing this figure to the 2013 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, 2013. 

 

            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 five carriers (BNSF Railway Company, Grand Trunk Corporation, Norfolk Southern Combined Railroad Subsidiaries, Soo Line Corporation and Union Pacific Railroad Company) to be revenue adequate for 2013.[3]  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 its service date.

 

2.  Notice of this decision will be published in the Federal Register.

 

            By the Board, Chairman Elliott, Vice Chairman Miller, and Commissioner Begeman.

 

 

                                                                                                                                                                                                                                                         


APPENDIX A

 

 

                                            Railroad

 

                    

             ROI  

BNSF Railway Company

          14.01%

CSX Transportation, Inc.

10.00%

Grand Trunk Corporation (including U.S. affiliates of Canadian National Railway)

11.84%

Kansas City Southern Railway Company

8.67%

Norfolk Southern Combined Railroad Subsidiaries

12.07%

Soo Line Corporation (including U.S. affiliates of Canadian Pacific Railway)

12.03%

Union Pacific Railroad Company

15.39%

           


Railroad

BNSF

CSX

GT

KCS

NS

SOO

UP

 

 

 

 

 

 

 

 

 

Combined/Consolidated Net Railway Operating Income For Reporting Entity

4,109,408

1,664,968

833,386

236,020

1,953,722

352,325

4,409,921

 

Add:  Interest Income from Working Capital Allowance – Cash Portion

44

0

8

41

250

63

0

 

Add:  Income Taxes Associated with Non-Rail Income and Deductions

31,550

20,277

8,468

(236)

61,638

670

36,841

 

Add:  Gain or (loss) from transfer/reclassification to nonrail-status (net of income taxes)

17,046

28,087

1,502

381

65,272

16

20,123

 

** Adjusted Net Railway Operating Income **

4,158,048

1,713,332

843,364

236,206

2,080,882

353,074

4,466,885

 

** Calculating the Adjusted Investment in Railroad Property for the Reporting Entity **

 

 

 

 

 

 

 

 

Combined Investment in Railroad Property Used in Transportation Service – Ending Balance

42,487,880

25,409,168

10,427,524

3,651,515

25,481,558

4,193,700

41,693,204

 

Combined Investment in Railroad Property Used in Transportation Service – Beginning Balance

40,489,597

24,433,433

10,055,224

3,117,098

24,572,800

3,958,749

40,102,455

 

Combined Investment in Railroad Property Used in Transportation Service – Average

41,488,739

24,921,301

10,241,374

3,384,307

25,027,179

4,076,225

40,897,830

 

Other Elements of Investment – Ending Balance

0

0

1,788

0

0

1,135

0

 

Other Elements of Investment – Beginning Balance

0

0

1,863

0

0

1,135

0

 

Other Elements of Investment – Average

0

0

1,826

0

0

1,135

0

 

Interest During Construction – Ending Balance

0

0

2,113

4,320

2,580

6,365

43,287

 

Interest During Construction – Beginning Balance

0

0

2,113

4,320

2,580

2,626

43,295

 

Interest During Construction – Average

0

0

2,113

4,320

2,580

4,496

43,291

 

Net Rail Assets of Rail Related Affiliates – Ending Balance

0

0

143,560

5,014

0

0

0

 

Net Rail Assets of Rail Related Affiliates – Beginning Balance

0

0

141,883

4,155

0

0

0

 

Net Rail Assets of Rail Related Affiliates – Average

0

0

142,722

4,585

0

0

0

 

Working Capital Allowance – Ending Balance

1,175,490

244,082

92,522

82,561

825,851

103,227

1,222,302

 

Working Capital Allowance – Beginning Balance

1,150,143

311,484

73,221

92,300

830,664

137,428

972,578

 

Working Capital Allowance – Average

1,162,817

277,783

82,872

87,431

828,258

120,328

1,097,440

 

Accumulated Deferred Income Tax Credits – Ending Balance

13,371,410

8,221,301

3,387,475

816,597

9,090,242

1,323,703

13,383,789

 

Accumulated Deferred Income Tax Credits – Beginning Balance

12,564,227

7,909,716

3,289,708

678,074

8,123,071

1,188,572

12,474,139

 

Accumulated Deferred Income Tax Credits – Average

12,967,819

8,065,509

3,338,592

747,336

8,606,657

1,256,138

12,928,964

 

Tax Adjusted Net Investment Base – Ending Balance

30,291,960

17,431,949

7,272,230

2,918,173

17,214,587

2,965,724

29,488,430

 

Tax Adjusted Net Investment Base – Beginning Balance

29,075,513

16,835,201

6,976,644

2,531,159

17,277,813

2,903,844

28,557,599

 

* Tax Adjusted Net Investment Base *

29,683,737

17,133,575

7,124,437

2,724,666

17,246,200

2,934,784

29,023,015

 

TAX ADJUSTED RETURN ON INVESTMENT

14.01%

10.00%

11.84%

8.67%

12.07%

12.03%

15.39%

 

 

 

 

 

 

 

 

The line item descriptions in this schedule are defined in the instructions to the Schedule 250 appearing in Supplemental Reporting of Consolidated Information for Revenue Adequacy Purposes, 5. I.C.C. 2d 65, 80-82 (1988).  The Schedule 250 form and instructions are not published in the Code of Federal Regulations.

                                                                                                                                                                                   

APPENDIX B



[1]  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).

[2]  In a separate proceeding, the Board announced that it would receive comments in Docket No. EP 722 to explore the Board’s methodology for determining railroad revenue adequacy and the use of revenue adequacy in rate reasonableness cases.  Railroad Revenue Adequacy, EP 722 et al. (STB served Apr. 2, 2014).

[3]  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.