The AAR’s calculations (download filing below) find that:
- The 2022 cost of common equity capital is 11.99%.
- The 2022 cost of preferred equity capital is 0.00%.
- The 2022 cost of debt capital is 4.28%.
- The capital structure of the railroad industry is 18.29% debt, 0.00% preferred equity, and 81.71% common equity.
From these data, the association concluded that the STB should find that the overall railroad industry cost of capital is 10.58% for 2022; it noted that there is no preferred equity in 2022.
According to the AAR, the STB “has adopted a composite railroad approach to computing an industry-wide cost of capital. This approach relies upon data from a sample of railroads meeting criteria established by the Board and its predecessor, the Interstate Commerce Commission, in Ex Parte No. 458, Railroad Cost of Capital — 1984, 1 I.C.C.2d 989, 1003-04 (1985), and Revisions to the Cost-ofCapital Composite Railroad Criteria, EP 664 (Sub-No. 3) (STB served Oct. 25, 2017).”
Those criteria are:
- The company is a Class I line-haul railroad.
- If the Class I railroad is controlled by another company, the controlling company is primarily a railroad company (at least 50% of its total assets are devoted to railroad operations), and it is not already included in the study frame.
- The company’s bonds are rated at least BBB by Standard & Poor’s and Baa by Moody’s.
- The company’s stock is listed on either the New York Stock Exchange or the NASDAQ.
- The company has paid dividends throughout the year (2022).
According to AAR, this year there are three railroad corporations or holding companies in the sample meeting the STB’s criteria: CSX, Norfolk Southern (NS) and Union Pacific (UP). These are the same companies included in the 2021 sample.
The STB last August found that the cost of capital for the railroad industry was 10.37% in 2021.
