Transportation Regulation

New Math Boosts Railroad Revenues

By Steven Johnson | ECT Staff Writer Published: January 28th, 2014

After applying some corrective math, federal regulators say the freight railroad business is doing better than they first thought.

Revised figures show three railroads met regulatory revenue tests in 2012. (Photo By: Washington State DOT)

Revised figures show three railroads met regulatory revenue tests in 2012. (Photo By: Washington State DOT)

The Surface Transportation Board declared that three of the nation’s major freight carriers passed an important revenue adequacy test in 2012, with a fourth coming close.

Last October, the board said Union Pacific and Norfolk Southern surpassed its benchmark for return on investments.

In a separate decision, it directed BNSF Railway Co. to recalculate its assets to include an $8.1 billion acquisition premium paid when Berkshire Hathaway bought the carrier in 2010.

On the basis of those numbers, BNSF’s rate of return was more than adequate to cover the average cost of capital to the freight rail industry, the board concluded.

“We find three carriers (BNSF, Norfolk Southern Combined Railroad Subsidiaries and Union Pacific Railroad Company) to be revenue adequate for 2012,” according to the board’s decision.

Captive shippers, such as electric cooperatives, pay close attention to STB’s revenue reports because they figure into rate challenges. If the railroads’ bottom lines are growing, shippers contend there is no reason to saddle them with exorbitant shipping rates that have to be passed on to consumers.

The final numbers show BNSF achieved a 13.5 percent return on investment in 2012. That’s a big jump from the 9.9 percent that the board found in its first review of 2012 rail revenues.

It also surpasses the 11.1 percent standard that the three-member panel set for that year. Union Pacific checked in at 14.7 percent and Norfolk Southern at 11.5 percent.

CSX Transportation just missed the cut at 10.8 percent, the board said.

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