STB Sets Cost of Capital at 10.37%

The cost of capital for railroads in 2021 has been calculated by the U.S. Surface Transportation Board to be 10.37 percent.

In a news release, the agency said that was the estimate of its Office of Economics of the average rate of return needed to persuade investors to provide capital to the industry.

In 2020, the cost of capital was 7.89 percent. It is a figure that is calculated annually as an aggregate measure and is “not intended to measure the desirability of any individual capital investment project.”

The STB said the cost of capital “is one component used in evaluating the adequacy of a railroad’s revenue each year . . . [and] may also be used in other regulatory proceedings, including (but not limited to) those involving the prescription of maximum reasonable rate levels, the proposed abandonment of rail lines, and the setting of compensation for use of another carrier’s lines.”

During 2021, the agency said the cost of railroad long-term debt was 2.63 percent (vs. 2.54 percent in 2020).

The cost of common equity was 12.03 percent (compared with 9.33 percent in 2020).

The cost of preferred equity was 0 percent (vs. 3.42 percent in 2020).

The capital structure mix of the railroads was 17.71 percent long-term debt (21.16 percent in 2020); 82.29 percent common equity (78.84 percent in 2020); and 0.00 percent preferred equity (0.00 percent for 2020).

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