STB found that, for 2013, the cost of railroad long-term debt was 3.68%; the cost of common equity was 12.96%; the cost of preferred equity was 3.87%; and the capital structure mix of railroads was 17.69% long-term debt, 82.31% common equity, and 0.004% preferred equity. These figures are used in determining the cost-of-capital figure.
Calculated annually, the cost-of-capital figure “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 individual railroads’ 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.”
Last year, for 2012, STB found that only Norfolk Southern and Union Pacific were revenue-adequate, based on their individual cost of capital figures.