The Case for Rail Regulation Reform
Change is overdue. The current methodology used by the Surface Transportation Board to assess the financial performance of the railroads by comparing, in isolation, the railroads’ accounting rates of return to their market-based cost of capital is inadequate and does not consider the railroads’ ability to compete for capital.
Investment. A new methodology proposed before the Surface Transportation Board for evaluating the railroads’ financial performance ensures railroads can compete with other unregulated firms for investment capital. Misguided regulation of railroad rates based on a financial metric uninformed by comparison with financial performance of other private businesses could make the railroad industry less attractive for investment capital and endanger the industry’s success.
The railroad industry’s returns are in line with other companies. While some interest groups have argued that the railroads are earning outsized profits, empirical evidence shows that railroads’ financial performance is in line with that of other companies in the S&P 500 with which railroads compete for investment capital. The railroad industry’s improved financial performance over the years benefits its customers and is not a sign of outsized profits that require regulatory intervention.
Rail Regulation Reform Fact Sheet
The 80’s are calling. They think it is time to update the methodology used to measure the financial performance of railroads.
Read the Joint Petition for Rulemaking to Modernize Annual Revenue Adequacy Determinations
Read our latest blog: Capital Access at Risk for the Freight Rail Industry
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