SURFACE TRANSPORTATION BOARD CALCULATES RAIL INDUSTRY'S COST OF CAPITAL & REVENUE ADEQUACY FOR 2007

[STBNews@xxxxxxxxxxx]

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>From the Surface Transportation Board, Washington, D.C.
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The Surface Transportation Board announced today that it has issued its
decision calculating the railroad industry's cost of capital for 2007 and
its decision determining the revenue adequacy for the seven Class I freight
railroads for 2007.


 In Railroad Cost of Capital—2007, STB Ex Parte No. 558 (Sub-No. 11), the
 Board found that the rail industry's after-tax cost of capital for 2007
 was 11.33 percent, a 1.39-percent increase from the 2006 cost of capital.
 The Board uses the cost of capital figure in evaluating the adequacy of
 individual railroads' revenues each year, as well as 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).
 Today's decision was the second one to use the Capital Asset Pricing
 Method (CAPM) to calculate the cost of equity, a key component of the cost
 of capital.  This methodological change was adopted in the Board's January
 17, 2008 decision in Methodology to be Employed in Determining the
 Railroad Industry's Cost of Capital, STB Ex Parte No. 664.


 In a separate decision, also issued today, Railroad Revenue Adequacy—2007
 Determination, STB Ex Parte No. 552 (Sub-No. 12), the Board found that two
 Class I railroads, the Norfolk Southern Railway Company and the Soo Line
 Railroad Company (a subsidiary of Canadian Pacific Railway Company), were
 revenue adequate for 2007.  All other Class I freight railroads were found
 to be revenue inadequate for that year.  The Board considers a railroad
 revenue adequate if it achieves a rate of return on net investment (ROI)
 equal to at least the current cost of capital (i.e., the cost of
 borrowing) for that railroad.  Congress has directed the Board to conduct
 a revenue adequacy determination annually.


 Below is a summary of the 2007 ROIs for all Class I freight railroads is
 as follows:




                                                       Railroad


                                                                     ROI
           BNSF Railway Company
                                                                      9.97%
           CSX Transportation, Inc.
                                                                      7.61%
           Grand Trunk Corporation Consolidated (including all Canadian
           National U.S. affiliates)
                                                                     10.11%
           Kansas City Southern Railway Company
                                                                      9.37%
           Norfolk Southern Railway Company
                                                                     13.55%
           Soo Line Railroad Company (including all Canadian Pacific U.S.
           affiliates)
                                                                     15.25%
           Union Pacific Railroad Company
                                                                      8.90%


 The Board's cost of capital decision in Ex Parte 558 (Sub-No. 11)(
 http://www.stb.dot.gov/decisions/readingroom.nsf/WebDecisionID/39276?OpenDocument
 )
  and its [<a
 href="http://www.stb.dot.gov/decisions/readingroom.nsf/WebDecisionID/39363?OpenDocument";>revenue
 adequacy decision in STB Ex Parte No. 552 (Sub-No. 12)</a>] are 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 "9/26/08."


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