SURFACE TRANSPORTATION BOARD DECISION DOCUMENT
    Decision Information

Docket Number:  
EP_552_21

Case Title:  
RAILROAD REVENUE ADEQUACY--2016 DETERMINATION

Decision Type:  
Decision

Deciding Body:  
Entire Board

    Decision Summary

Decision Notes:  
DECISION FOUND THAT FOUR CLASS I RAILROADS (BNSF RAILWAY COMPANY, NORFOLK SOUTHERN COMBINED RAILROAD SUBSIDIARIES, SOO LINE CORPORATION, AND UNION PACIFIC RAILROAD COMPANY) ARE REVENUE ADEQUATE FOR THE YEAR 2016, MEANING THAT THOSE 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

45962 SERVICE DATE – SEPTEMBER 6, 2017

EB

 

SURFACE TRANSPORTATION BOARD

 

Docket No. EP 552 (Sub-No. 21)

 

RAILROAD REVENUE ADEQUACY—2016 DETERMINATION

 

Digest:[1] The Board finds that four Class I railroads (BNSF Railway Company, Norfolk Southern Combined Railroad Subsidiaries, Soo Line Corporation, and Union Pacific Railroad Company) are revenue adequate for the year 2016, meaning that those 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: September 5, 2017

 

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 Purposes (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—2016, EP 558 (Sub-No. 20) (STB served Aug. 7, 2017), the Board determined that the 2016 railroad industry cost of capital was 8.88%. By comparing this figure to the 2016 ROI data obtained from the carriers’ Annual Report R-1 Schedule 250 filings, a revenue adequacy figure has been calculated for each of the Class I freight railroads that were in operation as of December 31, 2016.

 

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. The Board finds four carriers (BNSF Railway Company, Norfolk Southern Combined Railroad Subsidiaries, Soo Line Corporation, and Union Pacific Railroad Company) to be revenue adequate for 2016.[2] The Board’s findings will be final on the effective date of this decision.

 

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, Board Members Begeman, Elliott, and Miller.

 

 


APPENDIX A

 

 

Railroad

 

ROI

BNSF Railway Company

10.11%

CSX Transportation, Inc.

8.62%

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

8.60%

Kansas City Southern Railway Company

6.23%

Norfolk Southern Combined Railroad Subsidiaries

9.20%

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

9.58%

Union Pacific Railroad Company

13.39%

 

 

APPENDIX B

 

 


Railroad

BNSF

CSX

GT

KCS

NS

SOO

UP

 

 

 

 

 

 

 

 

 

Combined/Consolidated Net Railway Operating Income for Reporting Entity

4,068,677

1,590,756

707,646

239,671

1,780,821

274,354

4,334,851

 

Add: Interest Income from Working Capital Allowance – Cash Portion

245

112

555

199

1194

99

0

 

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

51,039

45,705

593

(25)

38,900

3,351

109,879

 

Add: Gain or (Loss) from Transfer/Reclassification to Nonrail-status (Net of Income Taxes)

12,407

77,695

3,803

322

24,173

3,888

58,527

 

** Adjusted Net Railway Operating Income **

4,132,368

1,714,268

712,597

240,167

1,845,088

281,692

4,503,257

 

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

 

 

 

 

 

 

 

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

60,328,103

29,147,682

12,120,000

4,935,207

28,507,378

4,155,337

48,238,785

 

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

58,532,225

28,038,967

11,458,830

4,621,857

28,016,570

4,028,441

46,669,861

 

Combined Investment in Railroad Property Used in Transportation Service – Average

59,430,164

28,593,325

11,789,415

4,778,532

28,261,974

4,091,889

47,454,323

 

Interest During Construction – Ending Balance

0

0

2,113

4,320

2,580

10,374

43,253

 

Interest During Construction – Beginning Balance

0

0

2,113

4,320

2,580

13,506

43,272

 

Interest During Construction Average

-

-

2,113

4,320

2,580

11,940

43,263

 

Other Elements of Investment – Ending Balance

0

0

1,788

0

0

1,135

0

 

Other Elements of Investment – Beginning Balance

0

0

1,788

0

0

1,135

0

 

Other Elements of Investment Average

-

-

1,788

-

-

1,135

-

 

Net Rail Assets of Rail Related Affiliates – Ending Balance

0

0

172,089

5,797

0

0

0

 

Net Rail Assets of Rail Related Affiliates – Beginning Balance

0

0

150,297

5,762

0

0

0

 

Net Rail Assets of Rail Related Affiliates Average

-

-

161,193

5,780

-

-

-

 

Working Capital Allowance – Ending Balance

856,162

456,274

111,129

106,125

678,045

60,780

892,689

 

Working Capital Allowance – Beginning Balance

966,930

426,830

108,385

93,808

778,986

85,801

1,131,299

 

Working Capital Allowance Average

911,546

441,552

109,757

99,967

728,516

73,291

1,011,994

 

Accumulated Deferred Income Tax Credits – Ending Balance

19,963,817

9,337,412

3,871,368

1,072,686

8,993,592

1,247,656

15,133,143

 

Accumulated Deferred Income Tax Credits – Beginning Balance

18,936,690

8,950,321

3,668,559

983,190

8,866,522

1,173,997

14,434,358

 

Accumulated Deferred Income Tax Credits Average

19,450,254

9,143,867

3,769,964

1,027,938

8,930,057

1,210,827

14,783,751

 

Tax Adjusted Net Investment Base – Ending Balance

41,220,448

20,266,544

8,527,949

3,970,123

20,189,251

2,956,952

33,955,078

 

Tax Adjusted Net Investment Base – Beginning Balance

40,562,465

19,515,476

8,045,052

3,733,917

19,926,454

2,925,604

33,323,530

 

* Tax Adjusted Net Investment Base *

40,891,457

19,891,010

8,286,501

3,852,020

20,057,853

2,941,278

33,639,304

 

TAX ADJUSTED RETURN ON INVESTMENT

10.11%

8.62%

8.60%

6.23%

9.20%

9.58%

13.39%

 

 

 

 

 

 

 

 

The line item descriptions in Schedule 250 used in this Appendix 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] Pursuant to Standards I, 364 I.C.C. 803, Standards II, 3 I.C.C.2d 261, and Supplemental Reporting, 5 I.C.C.2d 65, revenue adequacy determinations for Class I carriers are made on a system-wide basis, which includes certain railroad affiliates.