|SURFACE TRANSPORTATION BOARD DECISION DOCUMENT|
|RAILROAD REVENUE ADEQUACY--2013 DETERMINATION|
|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|
43970 SERVICE DATE—SEPTEMBER 2, 2014
SURFACE TRANSPORTATION BOARD
Docket No. EP 552 (Sub-No. 18)
RAILROAD REVENUE ADEQUACY—2013 DETERMINATION
Digest: 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.
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. 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.
 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).
 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).
 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.