STB Determines Rail Industry's 2016 Cost of Capital

The Surface Transportation Board (STB) has issued Railroad Cost of Capital—2016, Docket No. EP 558 (Sub-No. 20), which determines that the railroad industry’s after-tax cost of capital was 8.88 percent for 2016. This compares to the 2015 cost of capital of 9.61 percent. The cost-of-capital is the Board's estimate of the average rate of return needed to persuade investors to provide capital to the freight rail industry.

The cost-of-capital figure is calculated annually, and the Board uses the figure in evaluating the adequacy of an individual railroad’s revenues each year. The figure is also used by the STB when determining the reasonableness of a challenged rail rate, considering a proposal to abandon a rail line, or valuing a particular railroad operation.