82 FR 18275 - Revisions to the Cost-of-Capital Composite Railroad Criteria

SURFACE TRANSPORTATION BOARD

Federal Register Volume 82, Issue 73 (April 18, 2017)

To better reflect the current marketplace, the Surface Transportation Board (Board) is proposing to update one of the screening criteria used to create the ``composite railroad'' for the Board's annual cost-of-capital determination. Specifically, the Board proposes that one of its screening criteria now require a company's stock to be listed on either the New York Stock Exchange (NYSE) or the Nasdaq Stock Market (NASDAQ), rather than be listed on either the NYSE or American Stock Exchange (AMEX), as the AMEX is no longer in existence.

[Federal Register Volume 82, Number 73 (Tuesday, April 18, 2017)]
[Proposed Rules]
[Pages 18275-18276]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-07815]


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SURFACE TRANSPORTATION BOARD

49 CFR Chapter X

[Docket No. EP 664 (Sub-No. 3)]


Revisions to the Cost-of-Capital Composite Railroad Criteria

AGENCY: Surface Transportation Board.

ACTION: Notice of proposed rulemaking.

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SUMMARY: To better reflect the current marketplace, the Surface 
Transportation Board (Board) is proposing to update one of the 
screening criteria used to create the ``composite railroad'' for the 
Board's annual cost-of-capital determination. Specifically, the Board 
proposes that one of its screening criteria now require a company's 
stock to be listed on either the New York Stock Exchange (NYSE) or the 
Nasdaq Stock Market (NASDAQ), rather than be listed on either the NYSE 
or American Stock Exchange (AMEX), as the AMEX is no longer in 
existence.

DATES: Comments are due by May 18, 2017. Reply comments are due by June 
19, 2017.

ADDRESSES: Comments and replies may be submitted either via the Board's 
e-filing format or in the traditional paper format. Any person using e-
filing should attach a document and otherwise comply with the 
instructions at the E-FILING link on the Board's Web site, at http://www.stb.gov. Any person submitting a filing in the traditional paper 
format should send an original and 10 copies to: Surface Transportation 
Board, Attn: Docket No. EP 664 (Sub-No. 3), 395 E Street SW., 
Washington, DC 20423-0001. Copies of written comments and replies will 
be available for viewing and self-copying at the Board's Public Docket 
Room, Room 131, and will be posted to the Board's Web site.

FOR FURTHER INFORMATION CONTACT: Amy C. Ziehm, (202) 245-0391. 
Assistance for the hearing impaired is available through the Federal 
Information Relay Service (FIRS) at (800) 877-8339.

SUPPLEMENTARY INFORMATION: One of the Board's regulatory 
responsibilities is to determine annually the railroad industry's cost 
of capital. The cost-of-capital figure represents the Board's estimate 
of the average rate of return needed to persuade investors to provide 
capital to the freight rail industry. This figure is an essential 
component of many of the Board's core regulatory responsibilities.
    The Board calculates the cost of capital as the weighted average of 
the cost of debt and the cost of equity, with the weights determined by 
the railroad industry's capital structure (the fraction of capital from 
debt or equity on a market-value basis). See Methodology to be Employed 
in Determining R.R. Indus.'s Cost of Capital, EP 664, slip op. at 6 
(STB served Jan. 17, 2008). The Board determines the railroad 
industry's cost of capital for a ``composite railroad,'' which is based 
on data from a sample of railroads. Pursuant to Railroad Cost of 
Capital--1984, 1 I.C.C.2d 989 (1985), the sample includes all railroads 
that meet the following criteria:

--The company is a Class I line-haul railroad; \1\
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    \1\ For the definition of a Class I railroad, see fn. 4, infra.
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--If the Class I railroad is controlled by another company, the 
controlling company is primarily a railroad company and is not already 
included in the study frame; \2\
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    \2\ A company is considered to be primarily in the railroad 
business if at least 50% of its total assets are devoted to railroad 
operations. Railroad Cost of Capital--1984, 1 I.C.C.2d at 1003-04.
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--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 NYSE or the AMEX; and
--The company has paid dividends throughout the review year. 1 I.C.C.2d 
at 1003-04; see also R.R. Cost of Capital--2015, EP 558 (Sub-No. 19), 
slip op. at 3 (STB served Aug. 5, 2016).

Proposed Rule

    The Board proposes to revise the fourth screening criterion, which 
currently requires that a company's stock be listed on either the NYSE 
or the AMEX. The AMEX was acquired in October 2008 by NYSE Euronext, a 
now defunct Euro-American multinational financial services corporation 
that operated multiple securities exchanges. As a result, the Board's 
screening criteria used to determine the composite railroad should be 
updated to reflect the current marketplace. The Board therefore 
proposes that the fourth screening criterion be amended to remove the 
AMEX listing and instead require that a company's stock be listed on 
either the NYSE or the NASDAQ, the primary competitor to the NYSE.
    The NASDAQ is a robust and reputable stock exchange, and the Board 
believes that it is a suitable replacement for the AMEX in the cost-of-
capital determination. The NASDAQ is the world's second-largest stock 
exchange, behind only the NYSE, and the NYSE and NASDAQ combined 
account for the major portion of all equities trading in North America. 
When the Board's predecessor adopted the fourth screening criterion, it 
did so to ``insure the availability of stock price data.'' Railroad 
Cost of Capital--1984, 1 I.C.C.2d at 1004. By requiring applicable 
carriers to trade on either the NYSE or the NASDAQ, the Board would 
ensure the availability of stock price data for use in the Board's 
computation of the rail industry's cost of capital.\3\ Therefore, the 
Board seeks public comment on its proposal to require the listing of a 
company's stock on either the NYSE or the NASDAQ for a railroad to be 
included in the composite group to determine the industry's cost of 
capital.
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    \3\ For its 2015 cost of capital calculation, the Board waived 
its requirement that a company's stock be listed on either the NYSE 
or the AMEX, noting that CSX Corporation (CSX) transferred its stock 
exchange listing from the NYSE to the NASDAQ in 2015. R.R. Cost of 
Capital--2015, EP 558 (Sub-No. 19), slip op. at 2 n.5 (STB served 
Mar. 10, 2016).
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    Regulatory Flexibility Act. The Regulatory Flexibility Act of 1980

[[Page 18276]]

(RFA), 5 U.S.C. 601-612, generally requires a description and analysis 
of new rules that would have a significant economic impact on a 
substantial number of small entities. In drafting a rule, an agency is 
required to: (1) Assess the effect that its regulation will have on 
small entities; (2) analyze effective alternatives that may minimize a 
regulation's impact; and (3) make the analysis available for public 
comment. Sections 601-604. In its notice of proposed rulemaking, the 
agency must either include an initial regulatory flexibility analysis, 
section 603(a), or certify that the proposed rule would not have a 
``significant impact on a substantial number of small entities.'' 
Section 605(b).
    Because the goal of the RFA is to reduce the cost to small entities 
of complying with federal regulations, the RFA requires an agency to 
perform a regulatory flexibility analysis of small entity impacts only 
when a rule directly regulates those entities. In other words, the 
impact must be a direct impact on small entities ``whose conduct is 
circumscribed or mandated'' by the proposed rule. White Eagle Coop. 
Ass'n v. Conner, 553 F.3d 467, 478, 480 (7th Cir. 2009).
    This proposal will not have a significant economic impact upon a 
substantial number of small entities within the meaning of the RFA. A 
change in the listing requirement for inclusion in the composite 
railroad does not have a significant economic impact on the railroads 
included; likewise, whether or not a railroad is included in the 
composite group has no significant economic impact on that individual 
railroad. The proposed rule would therefore have no significant impact 
on small railroads (small entities).\4\
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    \4\ Effective June 30, 2016, for the purpose of RFA analysis for 
rail carriers subject to our jurisdiction, the Board defines a 
``small business'' as a rail carrier classified as a Class III rail 
carrier under 49 CFR 1201.1-1. See Small Entity Size Standards Under 
the Regulatory Flexibility Act, EP 719 (STB served June 30, 2016) 
(with Board Member Begeman dissenting). Class III carriers have 
annual carrier operating revenues of $20 million or less in 1991 
dollars, or $36,633,120 or less when adjusted for inflation using 
2015 data. Class II carriers have annual carrier operating revenues 
of less than $250 million but in excess of $20 million in 1991 
dollars, or $457,913,998 and $36,633,120 respectively, when adjusted 
for inflation using 2015 data. The Board calculates the revenue 
deflator factor annually and publishes the railroad revenue 
thresholds on its Web site. 49 CFR 1201.1-1.
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    Paperwork Reduction Act. The Board's proposal does not contain a 
new or amended information collection requirement subject to the 
Paperwork Reduction Act of 1995, 44 U.S.C. 3501-3521.
    It is ordered:
    1. Comments are due by May 18, 2017. Reply comments are due by June 
19, 2017.
    2. A copy of this decision will be served upon the Chief Counsel 
for Advocacy, Office of Advocacy, U.S. Small Business Administration.
    3. Notice of this decision will be published in the Federal 
Register.
    4. This decision is effective on its service date.

    Decided: April 12, 2017.

    By the Board, Board Members Begeman, Elliott, and Miller.
Brendetta S. Jones,
Clearance Clerk.
[FR Doc. 2017-07815 Filed 4-17-17; 8:45 am]
 BILLING CODE 4915-01-P