SURFACE TRANSPORTATION BOARD DECISION DOCUMENT
    Decision Information

Docket Number:  
EP_552_22

Case Title:  
RAILROAD REVENUE ADEQUACY--2017 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 2017, 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

46756 SERVICE DATE – DECEMBER 21, 2018

EB

 

SURFACE TRANSPORTATION BOARD

 

Docket No. EP 552 (Sub-No. 22)

 

RAILROAD REVENUE ADEQUACY—2017 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 2017, 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: December 17, 2018

 

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—2017, EP 558 (Sub-No. 21) (STB served Dec. 6, 2018), the Board determined that the 2017 railroad industry cost of capital was 10.04%. By comparing this figure to the 2017 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, 2017.[2]

 

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 2017.[3] 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 and Miller.

 

 

 


APPENDIX A

 

 

Railroad

 

ROI

BNSF Railway Company

10.70%

CSX Transportation, Inc.

8.84%

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

7.69%

Kansas City Southern Railway Company

7.09%

Norfolk Southern Combined Railroad Subsidiaries

10.05%

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

10.71%

Union Pacific Railroad Company

14.08%


APPENDIX B

 

Railroad

BNSF

CSX

GT

KCS

NS

SOO

UP

 

 

 

 

 

 

 

Combined/Consolidated Net Railway Operating Income For Reporting Entity

4,299,653

1,743,027

668,730

281,220

1,933,798

315,815

4,571,323

Add: Interest Income from Working Capital Allowance – Cash Portion

1,498

1,179

539

0

4,021

7

0

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

102,070

44,662

578

50

56,397

2,711

159,185

Add: Gain or (loss) from transfer/reclassification to nonrail-status (net of income taxes)

32,106

9,996

3,459

2,639

42,750

1,162

83,563

** Adjusted Net Railway Operating Income **

4,435,327

1,798,864

673,306

283,909

2,036,966

319,695

4,814,071

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

 

 

 

 

 

 

 

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

61,383,025

29,612,357

12,654,069

5,196,420

29,075,615

4,296,271

49,456,306

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

60,855,564

29,380,020

12,387,035

5,065,814

28,791,497

4,225,804

48,847,546

Interest During Construction – Ending Balance

0

0

0

4,320

2,580

4,684

43,251

Interest During Construction – Beginning Balance

0

0

2,113

4,320

2,580

10,374

43,253

Interest During Construction – Average

-

-

1,057

4,320

2,580

7,529

43,252

Other Elements of Investment – Ending Balance

0

0

0

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

-

-

894

-

-

1,135

-

Net Rail Assets of Rail Related Affiliates – Ending Balance

0

0

186,295

5,949

0

0

0

Net Rail Assets of Rail Related Affiliates – Beginning Balance

0

0

172,089

5,797

0

0

0

Net Rail Assets of Rail Related Affiliates – Average

-

-

179,192

5,873

-

-

-

Working Capital Allowance – Ending Balance

1,100,717

379,715

140,712

95,600

683,547

63,320

1,026,029

Working Capital Allowance – Beginning Balance

856,162

456,274

111,129

106,125

678,045

60,780

892,689

Working Capital Allowance – Average

978,439

417,995

125,921

100,863

680,796

62,050

959,359

Accumulated Deferred Income Tax Credits – Ending Balance

20,835,003

9,549,038

3,998,160

1,257,619

9,391,268

1,342,982

16,005,995

Accumulated Deferred Income Tax Credits – Beginning 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 – Average

20,399,410

9,443,225

3,934,764

1,165,153

9,192,430

1,295,319

15,569,569

Tax Adjusted Net Investment Base – Ending Balance

41,648,739

20,443,034

8,982,916

4,036,030

20,365,314

3,010,790

34,433,089

Tax Adjusted Net Investment Base – Beginning 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 *

41,434,593

20,354,789

8,755,433

4,003,077

20,277,283

2,983,871

34,194,084

TAX ADJUSTED RETURN ON INVESTMENT

10.70%

8.84%

7.69%

7.09%

10.05%

10.71%

14.08%

 

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] By decision served on July 27, 2018, the Board explained that its revenue adequacy determination, among other calculations for 2017, would be affected by the carriers’ revaluation of their deferred tax liabilities as a result of the Tax Cuts and Jobs Act. R.R. Revenue Adequacy—2017 Determination, EP 552 (Sub-No. 22) et al., slip op. at 2, 4 (STB served July 27, 2018). The Board sought comment on whether it would be appropriate to make one-time adjustments to remove the accounting impacts and proposed, with respect to revenue adequacy, an adjustment to the Class I carriers’ Schedule 250 filings. The Board adopted this proposal in Railroad Revenue Adequacy—2017 Determination, EP 552 (Sub-No. 22) et al., slip op. at 6-9 (STB served Dec. 6, 2018), and, consistent with that decision, the revenue adequacy determination here reflects the adjustments made in the carriers’ Schedule 250 filings.

[3] Pursuant to Standards I, 364 I.C.C. at 803, Standards II, 3 I.C.C.2d at 261, and Supplemental Reporting, 5 I.C.C.2d at 65, revenue adequacy determinations for Class I carriers are made on a system-wide basis, which includes certain railroad affiliates.