Rail industry's cost of capital contracted in 2012, STB says

The Surface Transportation Board (STB) on Friday announced it rendered a decision that calculated the rail industry's composite after-tax cost of capital at 11.11 percent in 2012 compared with 11.57 percent in 2011.

The cost-of-capital figure represents the STB's estimate of the average rate of return needed to persuade investors to provide capital to the freight-rail industry. Calculated annually, the figure is an essential component of many of the board's core regulatory responsibilities, STB members said in a press release.

The STB uses the cost-of-capital figure when evaluating the adequacy of individual railroads' revenues each year; determining the reasonableness of a challenged rail rate; considering a proposal to abandon a rail line; or valuing a particular railroad operation.

The STB also determined that in 2012, the cost of railroad long-term debt was 3.29 percent, the cost of common equity way 13.4 percent, and the capital structure mix of railroads was 22.62 percent for long-term debt and 77.38 percent for common equity.