SURFACE TRANSPORTATION BOARD DECISION DOCUMENT
    Decision Information

Docket Number:  
EP_552_17

Case Title:  
RAILROAD REVENUE ADEQUACY--2012 DETERMINATION

Decision Type:  
Decision

Deciding Body:  
Entire Board

    Decision Summary

Decision Notes:  
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 2012, 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

XX

43500                                    SERVICE DATE – JANUARY 2, 2014

EB

 

SURFACE TRANSPORTATION BOARD

 

UPDATED DECISION

 

Docket No. EP 552 (Sub-No. 17)

 

RAILROAD REVENUE ADEQUACY—2012 DETERMINATION

 

Digest:[1]  Taking into consideration BNSF Railway Company’s refiled 2012 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 2012, 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—2012, EP 558 (Sub-No. 16) (STB served Aug. 30, 2013), we determined that the 2012 railroad industry cost of capital was 11.12%.  By comparing this figure to the 2012 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, 2012.[2] 

 

            A summary of the ROIs for all Class I railroads is set forth in Appendix A to this decision.  Appendix B provides those railroads’ R-1 Schedule 250 data that was used to compute the ROIs.  We find three carriers (BNSF, Norfolk Southern Combined Railroad Subsidiaries,[3] and Union Pacific Railroad Company) to be revenue adequate for 2012.  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.

 

 

                                                                                                                                                                                                                                                         


APPENDIX A

 

 

                                            Railroad

 

                    

             ROI  

BNSF Railway Company[4]

                       13.47%

CSX Transportation, Inc.

10.81%

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

10.19%

Kansas City Southern Railway Company

9.54%

Norfolk Southern Combined Railroad Subsidiaries

11.48%

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

5.15%

Union Pacific Railroad Company

14.69%

           


Railroad

BNSF

CSX

GT

KCS

NS

SOO

UP

 

 

 

 

 

 

 

 

 

Combined/Consolidated Net Railway Operating Income For Reporting Entity

3,542,140

1,757,154

696,009

227,333

1,866,382

159,458

4,039,060

 

															
APPENDIX B

Add:  Interest Income from Working Capital Allowance – Cash Portion

643  

16

132

239

533

43

0

 

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

               33,964

18,257

1,531

44

33,978

(737)

67,788

 

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

32,830

31,062

216

43

2,941

(12,608)

13,003

 

** Adjusted Net Railway Operating Income **

3,609,577

1,806,489

697,888

227,659

1,903,834

146,156

4,119,851

 

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

 

 

 

 

 

 

 

 

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

37,389,135

24,470,837

10,055,224

3,117,098

24,572,800

3,958,749

40,102,455

 

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

35,554,772

23,920,332

9,760,234

2,841,407

23,346,518

3,889,931

38,392,908

 

Combined Investment in Railroad Property Used in Transportation Service – Average

36,471,954

24,195,585

9,907,729

2,979,253

23,959,659

3,924,340

39,247,682

 

Other Elements of Investment – Ending Balance

0

0

1,863

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

1,863

0

0

1,135

0

 

Interest During Construction – Ending Balance

0

0

2,113

4,320

2,580

2,626

43,295

 

Interest During Construction – Beginning Balance

0

0

2,113

4,320

2,580

21,504

43,302

 

Interest During Construction – Average

0

0

2,113

4,320

2,580

12,065

43,299

 

Net Rail Assets of Rail Related Affiliates – Ending Balance

340,188

0

141,883

4,155

0

0

0

 

Net Rail Assets of Rail Related Affiliates – Beginning Balance

331,245

0

143,737

3,246

0

0

0

 

Net Rail Assets of Rail Related Affiliates – Average

335,717

0

142,810

3,701

0

0

0

 

Working Capital Allowance – Ending Balance

1,150,143

289,227

73,221

92,300

830,664

137,428

972,578

 

Working Capital Allowance – Beginning Balance

1,032,167

239,548

36,233

73,782

479,292

38,109

971,985

 

Working Capital Allowance – Average

1,091,155

264,388

54,727

83,041

654,978

87,769

972,282

 

Accumulated Deferred Income Tax Credits – Ending Balance

11,373,891

7,924,005

3,289,708

678,074

8,123,071

1,188,572

12,474,139

 

Accumulated Deferred Income Tax Credits – Beginning Balance

10,835,189

7,576,556

3,217,372

673,659

7,943,800

1,132,870

11,789,873

 

Accumulated Deferred Income Tax Credits – Average

11,104,540

7,750,281

3,253,540

675,867

8,033,436

1,160,721

12,132,006

 

Tax Adjusted Net Investment Base – Ending Balance

27,505,575

16,836,059

6,976,644

2,531,159

17,277,813

2,903,844

28,557,599

 

Tax Adjusted Net Investment Base – Beginning Balance

26,082,995

16,583,324

6,718,856

2,240,456

15,879,430

2,772,531

27,531,718

 

* Tax Adjusted Net Investment Base *

26,794,285

16,709,692

6,847,750

2,385,808

16,578,622

2,838,188

28,044,659

 

TAX ADJUSTED RETURN ON INVESTMENT

13.47%

10.81%

10.19%

9.54%

11.48%

5.15%

14.69%

 

 

 

 

 

 

 

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.

 



[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]  The Board determined the revenue adequacy for 2012 of each Class I railroad except BNSF Railway Company (BNSF) in a decision served in this docket on October 17, 2013.  Now that BNSF has refiled its R-1 reports for 2010-2012 in compliance with Western Coal Traffic League—Petition for Declaratory Order, FD 35506 (STB served July 25, 2013), this decision reflects that filing and includes a determination of BNSF’s revenue adequacy for 2012.  The October 17, 2013 decision remains unchanged in all other respects.

[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.

[4]  See n. 2.