STB revises cost of capital methodology

Written by Administrator 

The Surface Transportation Board has issued a final decision on its method for calculating the railroad industry's cost of capital. STB has adopted a simple average of a Capital Asset Pricing model (CAPM) and a multi-stage Discounted Cash Flow (DCF) model to calculate the cost of equity, which is one component of the cost of capital. STB said this methodology “will yield a more precise determination than relying on CAPM alone.”

In January 2008, STB replaced its single-stage DCF model with a CAPM model. During the CAPM rulemaking process, “several parties urged the Board to use a multi-stage DCF model in conjunction with CAPM to obtain a more stable and precise estimate of the cost of equity,” STB said. “The record in that rulemaking, however, did not provide a suitable multi-stage DCF model for the Board to consider. In February 2008, the Board began to explore whether it could further improve its methodology for estimating the cost of equity by incorporating a multi-stage DCF model. Today’s decision concludes this effort.”

STB uses the cost of capital figure in evaluating the adequacy of individual railroads’ revenues each year. The figure is also used in maximum rate cases, feeder-line applications, rail line abandonments, trackage rights cases, rail-merger reviews, and more generally in STB’s Uniform Rail Costing System. STB will use this new approach to estimate the railroad industry’s 2008 cost of capital.

STB’s decision was issued in a proceeding entitled “Use of a Multi-Stage Discounted Cash Flow Model In Determining the Railroad Industry’s Cost of Capital.” Ex Parte No. 664 (Sub-No. 1), is available for viewing and downloading at the STB website at under “E-Library,” then under “Decisions & Notices,” beneath the date “1/28/09.”

January 30, 2009

Third week not the charm for U.S. freight traffic

Freight traffic on U.S. railroads continued slipping in the third week of 2009, according to the Association of American Railroads. Carload freight dropped 14.6% from the comparable week in 2008, with loadings down 9.2 percent in the West and 22.1 percent in the East. Intermodal volume fell 7.1% from they year-ago period. Total volume of an estimated 28.4 billion ton-miles was down 13.4%.

Only the miscellaneous category of “all other carloads” showed a gain, up 4.1%; AAR’s other 18 categories all showed declines.

Canadian railroads reported weekly volume declined 13.9% compared with the third week of last year, while intermodal fell 12.3%.

Mexico’s two major railroads reported a modest carload volume decline of 0.2% compared with the third week of 2008. Mexican intermodal traffic was down 6.1%.

Combined North American rail volume for the three weeks of 2009 on 14 reporting U.S., Canadian, and Mexican railroads was down 17.3% from the first three weeks of 2008; intermodal was down 12.3% for the comparable period.

January 30, 2009

New York MTA has high hopes for stimulus funding

Elliott G. Sander, executive director of the New York Metropolitan Transportation Authority, says MTA expects to receive between $1.5 billion and $2 billion from the Obama Administration’s economic stimulus program if it clears Congress, and plans to spend $497 of the new money to complete the Fulton Street Transit Center.

Originally funded with $700 in federal aid designated for rebuilding downtown Manhattan after terrorists destroyed the Wall Trade Center, the transit center project has been delayed by spiraling costs, and an acclaimed architectural design has been scaled down. The cost is now estimated at $1.4 billion.

Sander’s comments on the size of the stimulus package expected by the MTA were made at a New York State Assembly hearing in lower Manhattan and reported by The New York Times on Jan. 30.

January 30, 2009

Casinos market ACES New York-Atlantic City service

New York and New Jersey media were offered a sneak preview of Atlantic City Express Service (ACES) Friday in its namesake city, courtesy of its joint-venture partners backing the run in conjunction with New Jersey Transit: Caesars Atlantic City, Harrah’s Resort Atlantic City, the Borgata Hotel Casino & Spa, and the New Jersey Casino Reinvestment Development Authority.

A roundtrip demonstration run to New York and back Friday followed the static morning tour of the service-specific equipment, offering two classes of service on board modified Bombardier multilevel cars. The return train made one intermediate stop, at Newark, N.J., which will be the sole intermediate station stop for the service.

Revenue service begins Feb. 6 and will operate on Friday, Saturday, and Sunday, with trains running from Atlantic City to New York’s Penn Station along the Northeast Corridor to Frankfort Junction, Pa., where the consist will reverse access NJ Transit’s Atlantic City Line. Trip time is carded at 2 hours, 40 minutes.

The ACES consists will include a diesel locomotive at one end and an electric engine on the other to minimize delays at Frankfort Junction. NJ Transit crews will staff the trains; Amtrak will provide ticketing and reservations. Compass Group is providing all food and beverage service. STV Inc. acted as the overall project manager.

January 30, 2009

Oregon readies revenue debut of WES rail line

The Portland, Ore., area, usually a trailblazer for U.S. passenger rail development (light rail and streetcars), finds itself in an unusual “catch-up” mode as it prepares to launch its first commuter rail line Monday, Feb. 2.

The 14.7-mile, $166 million Westside Express Service (WES) runs north from Wilsonville to Beaverton, serving five stations, and connecting with existing MAX light rail service at Beaverton to offer access to downtown Portland.

TriMet will use four diesel multiple-unit (DMU) cars originally produced by now-bankrupt Colorado Railcar Manufacturing, LLC, with some light finishing work conducted by TriMet’s own shop workers. The DMUs will operate over freight right-of-way on headways of 30 minutes during morning and evening rush hours.

WES, originally set to begin last September, was delayed several times due to problems with the DMU units production and delivery, with critics questioning TriMet’s decision to provide bailout funds to the manufacturer until it could take delivery.

TriMet scheduled an inaugural run of WES today from 11:30 a.m. to 3:30 p.m. Pacific Time, with celebrations at each station along the route.

January 29, 2009

FRA letter on CSXT “culture” kindles controversy

CSX Transportation issued a statement Jan. 28 saying it “respectfully disagrees” with conclusions about CSXT’s “corporate culture” that were reached by the Federal Railroad Administration and communicated to the railroad in a letter dated Jan. 16. Acting FRA Administrator Clifford C. Eby expressed concern that “CSXT has not made sufficient progress to remediate its culture of harassment and intimidation with injury reporting.” Eby asked CSX Chairman, President, and CEO Michael Ward for “a letter by Jan. 30 detailing the measures CSXT has taken to address these issues, which of these measures you have found to be effective, and what additional steps you plan to pursue.”

The “culture” issue is not a new one. Eby reminded CSXT that in a Nov. 17, 2007, letter to FRA, the railroad said it believed “one issue of intimidation is too many.”

The FRA did not put out a press release on its letter, but the United Transportation Union did. CSXT called it “an inflammatory news release” that “is flat-out wrong in every characterization of CSXT. The UTU leadership is using the letter as an opportunity for propaganda by posting a news release on its website. CSXT employees should be offended. In CSXT’s response to the FRA later this week, the company plans to demonstrate the consistent and significant efforts and progress that CSXT has made in addressing the FRA’s concerns.”

The UTU release said that CEO Ward “has been in denial that his officers and supervisors have created a system-wide chilling culture of harassment and intimidation intended to discourage injured CSXT employees from reporting on-duty injuries or from receiving proper medical treatment—and then retaliating against employees who reported injuries.”

The railroad’s response: “CSXT just recorded its safest year ever in employee safety, and in the other key measures of a safe railroad—train accidents and grade classing safety. It is disappointing that some UTU officials would rather score news headlines than safety gains. Here is a compelling example: The UTU release makes much of 10-year-old issues in framing CSXT’s culture and approach, but it completely fails to mention a groundbreaking peer intervention agreement that the UTU has just signed with CSXT.”

The agreement is an open letter to CSX employees from UTU International President M. B. Futhey, Jr. and CSX Executive Vice President and Chief Operating Officer Tony Ingram.

January 29, 2009

Canada identifies funds for improving VIA Rail

VIA Rail Canada could receive C$407 million (US$333 million) in additional aid in the federal fiscal year 2009 budget to advance infrastructure and other capital improvements. A high priority for such funding: spot triple-tracking along VIA’s key corridor linking Montreal, Ottawa, and Toronto, allowing additional frequencies and higher speeds.

Funding will also be made available for fleet modernization, upgrading both locomotives and passenger cars, and for key VIA stations, including (from east to west) Belleville, Toronto, Hamilton, and Windsor, all in Ontario. Stations in Montreal and Vancouver also would be upgraded.

The federal government also would provide added support for remote passenger rail services not operated by VIA, including C$7.9 million for new capital projects of two First Nations railways: the Keewatin Railway Company in Manitoba, and Tshiuetin Rail Transportation in Quebec and Labrador.

January 29, 2009

MTA postpones opening new South Ferry subway station

For New York’s Metropolitan Transportation Authority, “mind the gap” will cost it at least a month, and up to $200,000, before it can open its $500 million South Ferry subway station in lower Manhattan. An apparent oversight has left the station platforms with gaps at times exceeding three inches, the maximum mandated by federal law.

An MTA spokesman says the platform gap ranges from four-hundredths of an inch to almost an inch too wide at some platform locations. MTA will replace the newly installed rubbing boards with a wider model, which will move the station’s opening date back to early March.

The new station will replace the current South Ferry terminal, served by the No. 1 subway line, which has a curved platform that also is too short for existing consists, limiting passenger flows.

January 29, 2009

Montgomery County backs Purple Line as LRT

Marking a milestone in a 20-year political debate, Maryland’s Montgomery County Council has approved light rail transit as the mode to link it and neighboring Prince George’s County, both north of Washington, D.C., in a circumferential route tied to Washington’s Metrorail system.

The 16-mile route will run from Bethesda to New Carrollton, Md., offering access to the University of Maryland’s College Park, among other locations. LRT advocates say the route will help revitalize numerous suburban locations, including Langley Park and Riverdale Park.

“It represents a case study for how suburban areas are going to remake themselves for the 21st century,” said Robert Puentes, a transportation specialist and senior fellow at the Brookings Institution. “It’s not just the old notion of moving people from point A to point B, but about remaking those places.”

Maryland Gov. Martin O’Malley is expected to submit a Purple Line project to the Federal Transit Administration for funding in the spring. The project is estimated to cost $1.2 billion.

January 29, 2009

Stimulus seen reviving circumferential STAR line

Chicagoland congressional representatives, in a bipartisan effort, seek to tap the Obama Administration’s federal stimulus plan to revive the 55-mile STAR line route connecting numerous area suburbs by passenger rail, The circumferential Suburban Transit Access Route (STAR), linking the city of Joliet and Chicago’s O’Hare International Airport via numerous communities, would also intersect with existing Metra service at four locations.

The move also is seen as one way to force additional review of proposed freight train traffic increases on the Elgin, Joliet & Eastern Railway, which Canadian National is set to acquire following conditional approval by the Surface Transportation Board.

January 28, 2009

Norfolk Southern sets fourth-quarter, full-year records

Despite a downturn in volume, Norfolk Southern set fourth-quarter and full-year 2008 records in operating revenue and net income.

Norfolk Southern reported record fourth-quarter 2008 net income of $452 million, an increase of 13% compared with $399 million for fourth-quarter 2007. Diluted earnings per share were $1.21, up 19% compared with the $1.02 per diluted share earned in the prior-year quarter. For full-year 2008, net income was a record $1.7 billion, up 17%, compared with $1.5 billion in 2007. Diluted EPS for 2008 increased 23%, or 84 cents, to $4.52.

Operating revenues were a fourth-quarter record $2.5 billion, up 2% compared with the same period a year earlier, even though per-unit revenue improvements were “somewhat tempered” by an 8% decline in traffic volume, NS said. For 2008, railway operating revenues improved to a record $10.7 billion, up 13% compared with 2007, while volumes declined 3%. General merchandise revenues were $1.2 billion, down 10% compared with fourth-quarter 2007, primarily as the result of a 19% decline in traffic volume. For 2008, general merchandise revenues reached a record $5.5 billion, a 6% increase over 2007, despite an 8% decline in volume.

Coal revenues climbed 33% to $798 million, a fourth-quarter record, and increased 34% to a record $3.1 billion for the year, compared with 2007. Traffic volume rose 5% in the quarter and 4% for the year compared with 2007. Intermodal revenues were $480 million, down 3% compared with fourth-quarter 2007. For 2008, intermodal revenues were a record $2.1 billion, up 7% compared with last year. Intermodal volume decreased 5% in the quarter and 3% for 2008.

Operating expenses of $1.7 billion for the quarter were 4% lower compared with 2007, largely due to lower fuel costs. For 2008, operating expenses of $7.6 billion were 11% higher compared with 2007.

Operating income set records as well, climbing 19% to $813 million for the quarter and increasing 19% to $3.1 billion for the year, compared with the same periods of 2007. The fourth-quarter operating ratio reached a record 67.5%, a 4.5 percentage point improvement compared with the same period last year. For the year, the operating ratio improved by 1.5 percentage points to a record 71.1%.

“Norfolk Southern delivered strong financial results in the fourth quarter, despite economic conditions that reduced freight volumes,” said CEO Wick Moorman. “While it is unclear how long the downturn will last, long-term trends point to freight railroads as the preferred way to move goods and relieve highway congestion. We will continue to make investments in our company and, in 2009, plan to invest $1.4 billion in capital improvements to maintain the safety and quality of our franchise, improve operational efficiency and service, and support the business growth we expect in future years.”

January 28, 2009

MBTA cancels locomotive order

The following is a correction to a story that appears in the Jan. 28 edition of Rail Group News:

The Massachusetts Bay Transportation authority has indefinitely shelved awarding a contract worth up to $280 million to acquire up to 56 new commuter rail locomotives (an initial order of 28, plus options for up to 28 more).

There were two bidders on the procurement, Wabtec Corp. subsidiary MotivePower, and Spain’s Vossloh Espana S.A. Vossloh wanted to build two prototype locomotives outside of the U.S., and requested that MBTA apply to the Federal Transit Administration for a waiver of Buy America rules. MotivePower lobbied against the waiver, and in November won a decision from the FTA to exclude Vossloh from eligibility for federal funding. FTA said MBTA must comply with the Buy America Act because it is using 80% federal matching funds to acquire the locomotives.

“Given the current uncertainty of the MBTA’s future financial condition and the near-certainty of protracted and expensive litigation, the MBTA is canceling the procurement for new locomotives and will assess the possibility of re-advertising for bids over the next several months,” MBTA spokesman Joe Pesaturo said in a statement. The Massachusetts state legislature is currently considering a financial assistance package for MBTA and other state transportation agencies.

January 27, 2009

MTA embarks on joint procurement program

In an effort to reduce procurement costs, the New York Metropolitan Transportation Authority has devised a five-year, $256.7 million joint purchase plan for MTA Metro-North Railroad and MTA Long Island Rail Road for M7 electric multiple-unit cars, which the two commuter roads both operate. Seven single-source, original equipment manufacturers are participating in this agreement, providing both railroads with parts for HVAC and electrical systems, toilets, couplers, trucks, brakes, and doors—parts specified as part of the original railcar design. MTA says this is the largest joint procurement of this type ever executed by both railroads.

Metro-North and LIRR say they anticipate administrative and economic benefits including better pricing and volume discounts that may result in overall savings of 2-3%. To ensure that each railroad has enough parts available for scheduled and unscheduled maintenance needs, the agreement allows them to reallocate funds to support any changes. The dollar amounts allocated to individual agreements can be varied by 15% as long as the $256.7 million total is not exceeded. The agreement provides for off-site storage with just-in-time delivery requirements.

MTA says such long-term, joint agreements benefit the suppliers: The manufacturers are able to maintain their tooling and manufacturing capabilities necessary to produce the parts, which are not available from other sources. However, while this provides long-term security for them, it does not preclude the railroads from identifying and evaluating any alternative suppliers that may be available and deemed qualified.

The plan will be presented to the MTA Board for approval.

January 27, 2009

Truck tonnage index down 11.1% in December

The American Trucking Association announced that its truck tonnage index in December 2008 was down ll.1% from November, the steepest month-to-month drop since April 1994, when the unionized portion of the industry was in the midst of a strike. The association said December’s drop was the the third-largest single month decline since it began collecting and interpreting the data in 1973.

January 27, 2009

CPR profit tops analysts’ forecast

Canadian Pacific Railway shares rose 5.63% in afternoon trading on the New York Stock Exchange Tuesday following the railroad’s announcement that before special items, it earned C$1.15 per share in fourth-quarter 2008, topping Wall Street expectations of C$1.11.

Total revenues in the fourth quarter increased to C$1.3 billion, operating expenses increased to C$995 million, and (excluding foreign exchange gains and losses on long-term debt and other specified items), diluted earnings per share decreased to C$1.15 from C$1.20. Net income declined 4% to C$178 million.

For full-year 2008, revenue increased 5% to C$4.9 billion; operating expenses increased 9% to C$3.9 billion; and income decreased 6% to C$632 million, excluding currency exchange fluctuations and special items.

CP announced that capital investment in 2009 is expected to be in the range of C$800 million to C$820 million, a reduction of approximately C$200 million when compared with the combined capital investment in 2008 of CP and the Dakota, Minnesota & Eastern. CP assumed control of DM&E at the end of October. For the first 10 months of 2008, DM&E was accounted for on an equity basis; the results for the final two months are consolidated on a line-by-line basis.

January 26, 2009

Montreal’s AMT eyes purchasing Deux-Montagnes line

Montreal’s Agence Metropolitaine de Transport (AMT) reportedly is near agreement with Canadian National to acquire the Deux-Montagnes line. AMT operates electric rail service covering 18 miles between Montreal and the line’s namesake city.

Should AMT make the purchase, the 4.5-mile Doney Spur may be included in any deal. AMT has studied possible use of the Doney Spur for light rail operations.

AMT has offered CN C$45 million (US$37 million)to buy the Deux-Montagnes line. The line is the AMT’s most heavily used.

January 26, 2009

Port of Coos Bay struggles to buy short line

Oregon’s International Port of Coos Bay has raised just $4 million in its effort to raise $16.6 million to buy short line Central Oregon & Pacific Railroad. Port officials seek to use $8 million Congress allocated for bridge repairs to the line, but those funds are not approved for purchase.

The port has less than a month to raise adequate funding; should it fail to do so, current parent RailAmerica can abandon 111 miles of line, selling the property. RailAmerica in turn is owned by private equity firm Fortress Group, Inc.

CORP discontinued freight service in September 2007.

January 26, 2009

Austin Cap Metro service to begin March 30

Austin, Tex.’s Capital Metropolitan Transportation Authority says it plans to begin revenue passenger service Monday, March 30, on its 32-mile trip linking the state capital with Leander, Tex., and initially serving seven stations. Two stations are still under construction.

Service will commence with seven trips inbound from Leander each weekday morning starting at 5:40, with the last inbound train departing at 8:40 a.m. Seven trips outbound from Austin begin at 3:45 p.m., with the last outbound train departing at 6:45 p.m.

Three reverse rush-hour trains will be scheduled for both morning and evening. No weekend service will be offered.

Capital Metro cautioned that it could adjust schedules after evaluating real-time practice runs on the line scheduled to begin Feb. 12.

Capital Metro had hoped to launch service by the end of last year, but squabbled with the Federal Railroad Administration over a waiver submitted to exempt the its rolling stock from temporal separation rules. Austin’s six Stadler-Bussnag diesel units are similar to diesel light railway transit (DLRT) gear used elsewhere in the U.S., but FRA ruled that it would exercise jurisdiction over Capital Metro, classifying the latter as a “commuter” rail line and not a DLRT service.

January 26, 2009

LA streetcar group appoints executive director

Los Angeles Streetcar Inc., a non-profit organization of public officials, property owners, and others, has appointed a project manager, Dennis Allen, as it moves to secure funding for restored streetcar service.

LASI, in a statement, says it is “being modeled after successful public-private/non-profit partnerships in Portland and Seattle, cities that pioneered modern streetcar systems in the Western United States. LASI is a sole purpose non-profit, which will function as a fundraising and advocacy entity focused on advancing the Los Angeles streetcar effort.” The group was created last August by Bringing Back Broadway, a not-for-profit land-use revitalization group.

“I’m excited to be a part of such a catalytic project in the continued resurgence of Downtown Los Angeles,” Allen said. “We will work extremely hard to deliver this much-needed public transportation link to all the stakeholders and visitors of Downtown.”

January 26, 2009

Stamford, Conn., gets trolley study update

Stamford, Conn., can generate enough ridership on a trolley line to offer an alternative to traffic congestion and even recovering construction costs through increased economic development, according to study results released by URS Corp.

The engineering company told city legislators that while buses could provide comparable service, light rail transit would draw more riders and generate substantially more economic development opportunities.

The $141,000 study, commissioned by the city last August, evaluates a route stretching from Stamford’s South End to namesake Metro-North train station and on to Bulls Head. to South End. URS provided city officials with an update.