SURFACE TRANSPORTATION BOARD ADOPTS REVISIONS TO ITS COST OF CAPITAL METHODOLOGY

[STBNews@xxxxxxxxxxx]

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>From the Surface Transportation Board, Washington, D.C.
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The Surface Transportation Board (Board) today issued its final decision
revising its method for calculating the railroad industry's cost of
capital. The Board uses the cost of capital figure in evaluating the
adequacy of individual railroads' revenues each year, and in various types
of regulatory proceedings (such as determining the reasonableness of a
challenged rail rate, considering a proposal to abandon a rail line, or
valuing a particular railroad operation in certain other types of cases).


 In today's decision, the Board changed its method for calculating a key
 component of the cost of capital—the cost of equity. The Board will use a
 Capital Asset Pricing Model (CAPM), rather than the single-stage
 discounted cash flow (DCF) method that it has applied since 1982.  As
 discussed in today's decision, CAPM is a well-known, widely used and
 theoretically sound model that is simple and transparent compared to other
 approaches to calculating the cost of equity.  Today's decision also
 announced the Board's intention to begin a new proceeding to seek public
 comments on how to construct a useable, multi-stage DCF for future use in
 conjunction with CAPM.


 The Board's decision today in the proceeding entitled Methodology To Be
 Employed in Determining the Railroad Industry's Cost of Capital, STB Ex
 Parte No. 664(
 http://www.stb.dot.gov/decisions/readingroom.nsf/WebDecisionID/38721?OpenDocument
 )
 , is based upon comments received in response to the Board's August 14,
 2007, notice of proposed rulemaking in STB Ex Parte No. 664.  Today's
 decision is available for viewing and downloading via the Board's Web site
 at http://www.stb.dot.gov, under "E-Library," then under "Decisions &
 Notices," beneath the date "1/17/08." A printed copy of the Board's
 decision also is available for a fee by contacting ASAP Document
 Solutions, 9332 Annapolis Rd., Suite 103, Lanham, MD 20706, telephone
 (202) 306-4004 or via asapdc@xxxxxxxxxxxx


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