SURFACE TRANSPORTATION BOARD DECISION DOCUMENT
    Decision Information

Docket Number:  
EP_552_16

Case Title:  
RAILROAD REVENUE ADEQUACY—2011 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 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

XX

43499                                    SERVICE DATE – JANUARY 2, 2014

EB

 

SURFACE TRANSPORTATION BOARD

 

UPDATED DECISION

 

Docket No. EP 552 (Sub-No. 16)

 

RAILROAD REVENUE ADEQUACY—2011 DETERMINATION

 

Digest:[1]  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.[2] 

 

            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,[3] 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.        

                                                                                                                                                                      


APPENDIX A

 

 

                                            Railroad

 

                    

             ROI  

BNSF Railway Company[4]

12.39%

CSX Transportation, Inc.

11.54%

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

8.74%

Kansas City Southern Railway Company

10.76%

Norfolk Southern Combined Railroad Subsidiaries

12.87%

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

7.13%

Union Pacific Railroad Company

13.11%

           


Railroad

BNSF

CSX

GT

KCS

NS

SOO

UP

 

 

 

 

 

 

 

 

 

Combined/Consolidated Net Railway Operating Income For Reporting Entity

3,141,931

1,883,505

568,033

231,347

1,954,829

193,817

3,474,941

 

Add:  Interest Income from Working Capital Allowance – Cash Portion

303

0

16

453

1,830

93

0

 

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

              7,540

5,742

16,658

(2)

28,241

(62)

51,353

 

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

23,790

(1,052)

1,305

345

21,721

(99)

26,703

 

** Adjusted Net Railway Operating Income **

3,173,564

1,888,195

586,012

232,143

2,006,621

193,749

3,552,997

 

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

 

 

 

 

 

 

 

 

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

35,554,772

23,920,332

9,760,234

2,844,653

23,346,518

3,889,931

38,392,908

 

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

33,766,455

22,927,514

9,433,123

2,572,767

22,141,872

3,703,035

36,912,303

 

Combined Investment in Railroad Property Used in Transportation Service – Average

34,660,614

23,423,923

9,596,679

2,708,710

22,744,195

3,796,483

37,652,606

 

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

21,504

43,302

 

Interest During Construction – Beginning Balance

0

0

2,113

4,320

2,580

21,504

43,309

 

Interest During Construction – Average

0

0

2,113

4,320

2,580

21,504

43,306

 

Net Rail Assets of Rail Related Affiliates – Ending Balance

331,245

0

143,737

0

0

0

0

 

Net Rail Assets of Rail Related Affiliates – Beginning Balance

318,021

0

200,443

0

0

0

0

 

Net Rail Assets of Rail Related Affiliates – Average

324,633

0

172,090

0

0

0

0

 

Working Capital Allowance – Ending Balance

1,032,167

239,548

36,233

73,782

479,292

38,109

971,985

 

Working Capital Allowance – Beginning Balance

662,693

218,469

51,939

65,931

649,032

86,135

900,106

 

Working Capital Allowance – Average

847,430

229,009

44,086

69,857

564,162

62,122

936,046

 

Accumulated Deferred Income Tax Credits – Ending 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 – Beginning Balance

9,613,174

7,010,537

2,985,545

558,326

7,489,154

1,105,164

11,092,135

 

Accumulated Deferred Income Tax Credits – Average

10,224,182

7,293,547

3,101,459

615,993

7,716,477

1,119,017

11,441,004

 

Tax Adjusted Net Investment Base – Ending 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 – Beginning Balance

25,133,995

16,135,446

6,695,984

2,076,052

15,299,170

2,661,367

26,676,965

 

* Tax Adjusted Net Investment Base *

25,608,495

16,359,385

6,707,420

2,158,254

15,589,300

2,716,949

27,104,342

 

TAX ADJUSTED RETURN ON INVESTMENT

12.39%

11.54%

8.74%

10.76%

12.87%

7.13%

13.11%

 

 

 

 

 

 

 

 

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]  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.

[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.