How Much Money Do Railroads Need?

Posted By Steven Johnson On August 3, 2015 @ 4:00 am
A coalition of freight rail customers says it’s time for the Surface Transportation Board to change the way it looks at the industry’s bottom line so they can get a fairer shake in dealing with railroads.

Railroad customers want regulators to change the way they calculate how profitable the freight rail business is. (Photo By: Getty Images/iStockphoto)

Consumers United for Rail Equity told the board that its system of assessing the costs and revenues of major carriers is so outdated that it hinders the ability of shippers to challenge unfair rail rates.
“CURE has long been concerned that the STB’s annual determinations of the ‘revenue adequacy’ for Class I carriers does not reflect the true health of the industry and its members,” said David Sauer, president of the group. [2]
The comments came as part of a July 22-23 hearing into the board’s revenue adequacy formula, a complicated system that it uses to determine whether railroads are making a sufficient return on their investments. [3]
Sauer said that CURE supports eliminating a legal requirement that calls for the annual revenue adequacy determination.
“CURE believes that the carriers’ falsely perceived lack of adequate revenues has served to shield the railroads’ exercise of their monopoly pricing power from STB scrutiny and prevented shippers from obtaining appropriate relief,” said Sauer, also chief operating officer and senior vice president of Dakota Gasification Co. in Bismarck, N.D.
Absent that change, the board must at least include an accurate cost of capital and other measures of financial health when it checks the railroads’ books, he said.
“CURE is particularly concerned that the promotion of effective rail competition and implementation of effective rate regulation has been impeded by the unfounded perception that the railroad industry has not achieved revenue adequacy on a long-term basis,” Sauer said.
STB Chairman Daniel R. Elliott III said the hearing was important given the improving financial picture for Class 1 railroads, which are dominated by four major carriers.  However, “the board’s re-examination of its economic regulatory policies does not mean that significant changes to these policies are in order,” he cautioned.

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