Thursday, August 10, 2017

STB sets 2016 cost of capital

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The U.S. Surface Transportation Board has issued a decision determining the railroad industry's cost of capital for 2016. In Railroad Cost of Capital—2016, Docket No. EP 558 (Sub-No. 20), the Board found that the rail industry's after-tax cost of capital was 8.88% for 2016. For 2015, the cost of capital was 9.61%.

The cost of capital figure represents the Board's estimate of the average rate of return needed to persuade investors to provide capital to the freight rail industry. Calculated annually, it “is an essential component of many of the agency’s core regulatory responsibilities,” STB said. “The Board uses the cost-of-capital figure in evaluating the adequacy of an individual railroad’s revenues each year. It also uses the figure when determining the reasonableness of a challenged rail rate, considering a proposal to abandon a rail line, or valuing a particular railroad operation.”

The Board's decision in Docket No. EP 558 (Sub-No. 20) can be downloaded at the link below.