|SURFACE TRANSPORTATION BOARD DECISION DOCUMENT|
|RAILROAD REVENUE ADEQUACY—2011 DETERMINATION|
|DECISION FINDS THAT NORFOLK SOUTHERN COMBINED RAILROAD SUBSIDIARIES AND UNION PACIFIC RAILROAD COMPANY WERE REVENUE ADEQUATE IN 2011.|
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|Full Text of Decision|
42676 SERVICE DATE – LATE RELEASE OCTOBER 16, 2012
SURFACE TRANSPORTATION BOARD
Docket No. EP 552 (Sub-No. 16)
RAILROAD REVENUE ADEQUACY—2011 DETERMINATION
Digest: The Board finds that two Class I railroads (Norfolk Southern Combined Railroad Subsidiaries and Union Pacific Railroad Company) are revenue adequate for the year 2011, meaning that two 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: October 15, 2012
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.
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 two carriers (Norfolk Southern Combined Railroad Subsidiaries 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 October 16, 2012.
2. Notice of this decision will be published in the Federal Register.
By the Board, Chairman Elliott, Vice Chairman Mulvey, and Commissioner Begeman.
Vice Chairman Mulvey commented with a separate expression.
VICE CHAIRMAN MULVEY, commenting:
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.
 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).
 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.
 BNSF’s 2010 and 2011 revenue adequacy calculations are currently at issue in Western Coal Traffic League—Petition for Declaratory Order, Docket No. FD 35506.