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Railroad Cost of Capital-2005

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Surface Transportation Board. DOT.


Notice of decision.


On August 28, 2006, the Board served a decision to update its computation of the railroad industry's cost of capital for 2005. The composite after-tax cost-of-capital rate for 2005 is found to be 12.2%, based on a current cost of debt of 5.36%; a cost of common equity capital of 15.18%; and a capital structure mix comprised of 30.41% debt and 69.59% common equity. The cost-of-capital finding made in this proceeding will be used in a variety of Board proceedings.


Effective Date: This action is effective August 28, 2006.

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Paul Aguiar, 202-565-1527. (Federal Information Relay Service (FIRS) for the hearing impaired: 1-800-877-8339).

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The cost-of-capital finding in this decision may be used for a variety of regulatory purposes. Based upon Western Coal Traffic League reply comments, we will institute a separate advance notice of proposed rulemaking to explore the most suitable methodology to calculate the cost of capital. That proceeding will provide all interested parties an opportunity to comment on the discounted cash flow (DCF) model, the proper source for the inputs to that model, and whether the Board should adopt an alternative to that method, such as the Capital Asset Pricing Model (CAPM), for future cost-of-capital determinations. The Board's decision is posted on the Board's Web site, In addition, copies of the decision may be purchased from ASAP Document Solutions by calling 202-306-4004 (assistance for the hearing impaired is available through FIRS at 1-800-877-8339), or by e-mail at

Environmental and Energy Considerations

This action will not significantly affect either the quality of the human environment or the conservation of energy resources.

Regulatory Flexibility Analysis

Pursuant to 5 U.S.C. 605(b), we conclude that our action in this proceeding will not have a significant economic impact on a substantial number of small entities. The purpose and effect of this action are to update the annual railroad industry cost-of-capital finding by the Board. No new reporting or other regulatory requirements are imposed, directly or indirectly, on small entities.

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Authority: 49 U.S.C. 10704(a).

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Decided: September 15, 2006.

By the Board, Chairman Nottingham, Vice Chairman Mulvey, and Commissioner Buttrey.

Vernon A. Williams,


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[FR Doc. 06-8097 Filed 9-21-06; 8:45 am]