(The Associated Press circulated the following on August 14.)
Gov’t Plans New Railroad Cost Formula
Associated Press 08.14.07, 6:23 PM ET
WASHINGTON, D.C. — Federal regulators on Tuesday proposed a new method for calculating how much railroads are allowed to earn when their prices are subject to government review – a development that could be good for shippers who have complained that prices are too high.
The federal Surface Transportation Board said it would consider changing its method for calculating the cost of the railroad industry’s capital investments – a figure used when rail shippers challenge whether a rate they are charged is reasonable.
Railroad rates are only regulated by the government in areas where one freight railroad operator dominates service.
In 2005, using the new methodology, railroads would have been entitled to a 6.8 percent rate of return, rather than a 12.2 percent rate under the current formula, according to the government’s proposal.
Bob Szabo, executive director of Consumers United for Rail Equity, a group representing shippers railroads, welcomed the proposal.
“It doesn’t mean lower prices immediately,” Szabo said “But it may mean over time that they will adopt a rate process that will lead to lower rates.”
A spokesman for the Association of American Railroads, which represents railroads such as Union Pacific Corp., Burlington Northern Santa Fe Corp., Norfolk Southern Corp. and CSX Corp. declined to comment.