Revisions to the Cost-of-Capital Composite Railroad Criteria, 49295-49297 [2017-22894]

Download as PDF Federal Register / Vol. 82, No. 205 / Wednesday, October 25, 2017 / Rules and Regulations (3) ASTM D5582–14, Standard Test Method for Determining Formaldehyde Levels from Wood Products Using a Desiccator, Approved-August 1, 2014, IBR approved for § 770.20(b). (4) ASTM D6007–14, Standard Test Method for Determining Formaldehyde Concentrations in Air from Wood Products Using a Small-Scale Chamber, Approved October 1, 2014, IBR approved for §§ 770.3, 770.7(a) through (c), 770.15(c), 770.17(a), 770.18(a), and 770.20(b) through (d). (5) ASTM E1333–14, Standard Test Method for Determining Formaldehyde Concentrations in Air and Emission Rates from Wood Products Using a Large Chamber, Approved October 1, 2014, IBR approved for §§ 770.3, 770.7(a) through (c), 770.10(b), 770.15(c), 770.17(a), 770.18(a), and 770.20(c) and (d). (c) * * * (1) BS EN ISO 12460–3:2015 E, Woodbased panels.—Determination of formaldehyde release—Part 3: Gas analysis method, November 2015, IBR approved for § 770.20(b). (2) BS EN ISO 12460–5:2015 E, Wood based panels.—Determination of formaldehyde release—Part 5: Extraction method (called the perforator method), December 2015, IBR approved for § 770.20(b). * * * * * (f) * * * (1) JIS A 1460:2015(E), Determination of the emission of formaldehyde from building boards—Desiccator method, First English edition, published 2015– 10, IBR approved for § 770.20(b). * * * * * (g) * * * (1) PS 1–09, Structural Plywood, May 2010, IBR approved for §§ 770.1(c) and 770.3. (2) PS 2–10, Performance Standard for Wood-Based Structural-Use Panels, June 2011, IBR approved for §§ 770.1(c) and 770.3. [FR Doc. 2017–23062 Filed 10–24–17; 8:45 am] BILLING CODE 6560–50–P SURFACE TRANSPORTATION BOARD 49 CFR Chapter X nlaroche on DSK9F9SC42PROD with RULES [Docket No. EP 664 (Sub-No. 3)] Revisions to the Cost-of-Capital Composite Railroad Criteria Surface Transportation Board. ACTION: Final Action. AGENCY: The Surface Transportation Board (STB or Board) is adopting a final action to update one of the screening SUMMARY: VerDate Sep<11>2014 14:30 Oct 24, 2017 Jkt 244001 criteria used to create the ‘‘composite railroad’’ for the Board’s annual cost-ofcapital determination. This final action requires a company’s stock to be listed on either the New York Stock Exchange (NYSE) or the Nasdaq Stock Market (NASDAQ), rather than on either the NYSE or American Stock Exchange (AMEX), as the AMEX no longer exists. This action is applicable on November 24, 2017. DATES: 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. As one of its regulatory responsibilities, the Board determines annually the railroad industry’s cost of capital.1 The cost-ofcapital figure represents the Board’s estimate of the average rate of return needed to persuade investors to provide capital to the freight rail industry. The cost-of-capital determination is one component used in evaluating the adequacy of railroad revenues each year under the procedures and standards mandated by Congress in the Railroad Revitalization and Regulatory Reform Act of 1976, Public Law 94–210, 90 Stat. 31 (1976) and promulgated in Standards for Railroad Revenue Adequacy, 364 I.C.C. 803 (1981), modified, 3 I.C.C.2d 261 (1986), aff’d sub nom. Consol. Rail Corp. v. United States, 855 F.2d 78 (3d Cir. 1988). The cost-of-capital finding is also an essential component of many other Board regulatory proceedings. 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: SUPPLEMENTARY INFORMATION: —The company is a Class I line-haul railroad; —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 1 The cost of capital is calculated 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). 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. R.R. Cost of Capital—1984, 1 I.C.C.2d at 1003–04. PO 00000 Frm 00019 Fmt 4700 Sfmt 4700 49295 —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). On April 18, 2017, the Board issued a Notice of Proposed Rulemaking (NPRM) that proposed to update the fourth screening criterion used to create the ‘‘composite railroad’’ for the Board’s annual cost-of-capital determination. Specifically, the Board proposed that its fourth screening criterion be modified to require a company’s stock to be listed on either the NYSE or the NASDAQ, rather than on either the NYSE or AMEX, as the AMEX is no longer in existence. See NPRM, slip op. at 1–2. The Board sought comments on the NPRM by May 18, 2017, and replies by June 19, 2017. The Board received comments on the proposed action from the Association of American Railroads (AAR) and the Western Coal Traffic League (WCTL). No reply comments were filed. After consideration of the comments received, the Board is adopting the changes proposed in the NPRM as a final action. Comments In its comments, AAR states that it is supportive of the Board’s proposal to update the ‘‘composite railroad’’ screening criteria to better reflect the current state of the marketplace. (AAR Comment 2.) AAR requests that the Board move expeditiously to adopt the proposal and prohibit any party from expanding the scope of this proceeding by offering proposals that would ‘‘manipulate’’ the cost-of-capital process. (Id.) WCTL generally supports the Board’s proposal and states that expanding the screening criteria to include NASDAQlisted companies, i.e., CSX Corporation (CSX),3 would result in a larger composite sample. (WCTL Comment 1– 2.) WCTL, however, argues that the ‘‘composite railroad’’ sample is still rather small, consisting of just four companies—CSX; Kansas City Southern Corporation (KCS); Norfolk Southern Corporation (NSC); and Union Pacific Corporation (UPC)—that have 3 In the Board’s cost of capital calculation for 2016, the Board waived its requirement that a company’s stock be listed on either the NYSE or the AMEX, noting that CSX Corporation transferred its stock exchange listing from the NYSE to the NASDAQ in 2015. R.R. Cost of Capital—2016, EP 558 (Sub-No. 20), slip op. at 2 n.4 (STB served Aug. 7, 2017). E:\FR\FM\25OCR1.SGM 25OCR1 49296 Federal Register / Vol. 82, No. 205 / Wednesday, October 25, 2017 / Rules and Regulations nlaroche on DSK9F9SC42PROD with RULES significant differences. (Id. at 2.) WCTL also notes that the composite sample omits BNSF Railway Company (BNSF)—which, it asserts, is by some measures the largest railroad in the United States—because BNSF constitutes less than 50% of the assets of its parent company, Berkshire Hathaway. (Id.) According to WCTL, by including CSX in the composite sample (but omitting BNSF), the industry average cost of capital reflects roughly 59% western and 41% eastern railroads, even though in actuality western railroads—UPC, BNSF, and KCS— account for 73% of the industry, and the two eastern railroads—CSX and NSC— account for only 27%. (Id.) 4 WCTL argues that excluding CSX, along with BNSF, from the composite sample would actually result in an average that is more representative of the regional division (75% western and 25% eastern). (Id.) WCTL asserts that the Board’s proposal could result in an average that is less representative of the industry as a whole, and a cost-ofcapital figure that is more distorted. (Id. at 2–3.) Additionally, WCTL states that a ‘‘complicating factor’’ is that the second stage of the Board’s Multi-Stage Discounted Cash Flow model (MSDCF) uses a simple average of the growth rates of the individual carriers, such that KCS counts just as much as UPC. (Id.) Despite its criticisms, WCTL recommends that the Board adopt the proposed change, but ‘‘on a tentative or qualified basis that would allow the Board to revisit the matter, and allow parties to present relevant evidence, if inclusion of NASDAQ-traded carriers turns out to undermine the representativeness of the composite sample, or the accuracy of the cost-ofcapital’’ figure. (Id.) The Final Action To reflect the current marketplace, the Board will adopt the changes proposed in the NPRM and now require, as its fourth screening criterion, that a company’s stock be listed on either the NYSE or the NASDAQ. Commenters generally support the Board’s proposal and agree that the NASDAQ is a suitable replacement for the AMEX in the costof-capital determination. As noted in the NPRM, when the Board’s predecessor adopted the fourth screening criterion, it did so to ‘‘insure the availability of stock price data.’’ R.R. 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 will continue to 4 WCTL’s figures appear to be percentages of the total market capitalization of the railroad industry. VerDate Sep<11>2014 14:30 Oct 24, 2017 Jkt 244001 ensure the availability of stock price data for use in the Board’s computation of the rail industry’s cost of capital. Although WCTL supports the Board’s proposal and states that expanding the screening criteria to include NASDAQlisted companies, i.e., CSX, would result in a larger composite group, it argues that the Board’s proposed change could result in an average cost-of-capital figure that is less representative of the regional division of rail assets than it is now. The Board, however, is unpersuaded by WCTL’s argument. The purpose of including only carriers listed on particular stock exchanges in the ‘‘composite group’’ is to ensure the availability of stock price data for the annual cost-of-capital determinations for carriers that satisfy the other criteria. See R.R. Cost of Capital—1984, 1 I.C.C.2d 989, 1004 (1984). Here, there is no debate that CSX meets the other criteria and that NASDAQ is a reliable source of stock price data. Excluding a carrier that meets the other criteria and has a reliable source of stock data, in an effort to achieve a ‘‘balance’’ between eastern and western carriers, is unwarranted. In any event, railroads operating in different parts of the United States may confront different markets, traffic mixes, densities, and topography. As a consequence, there are differences in the cost structures of eastern and western carriers. These physical and cost structure differences, however, do not imply variances in the cost of capital on a regional basis. Investors deploy capital around the world, looking to obtain the highest possible return, while incurring the lowest possible risk. WCTL has not provided evidence to demonstrate that there is any difference in the rate of return investors demand—i.e., the cost of capital—when investing in eastern and western rail carriers. Therefore, the Board believes that it is better to include CSX in the composite-industry cost of capital, as it was in previous years when it was listed on NYSE, to ensure a larger sample size. With respect to WCTL’s argument that another ‘‘complicating factor’’ is that the second stage of the Board’s MSDCF uses a simple average of the growth rates of individual carriers, such that KCS counts as much as UP, the Board finds such an argument to be outside the scope of this proceeding. The core issue here is whether, for purposes of the cost-of-capital calculation, it is appropriate to replace a defunct stock exchange (AMEX) with a stock exchange in current and prevalent use (NASDAQ). WCTL’s growth rate argument does not relate to that issue and is a collateral PO 00000 Frm 00020 Fmt 4700 Sfmt 4700 attack on other components of the Board’s approved methodology. Finally, the Board declines WCTL’s request to adopt the final action on a conditional or tentative basis, purportedly to allow parties to present additional evidence after implementation. If parties have concerns in the future that inclusion of NASDAQ-traded carriers ultimately results in a less representative composite sample, they may file a petition to modify or revisit the composite group criteria regulation. Regulatory Flexibility Act Statement The Regulatory Flexibility Act of 1980 (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. 5 U.S.C. 601–604. Under § 605(b), an agency is not required to perform an initial or final regulatory flexibility analysis if it certifies that the proposed or final rules will not have a ‘‘significant impact on a substantial number of small entities.’’ 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). An agency has no obligation to conduct a small entity impact analysis of effects on entities that it does not regulate. United Distrib. Cos. v. FERC, 88 F.3d 1105, 1170 (D.C. Cir. 1996). In the NPRM, the Board already certified under 5 U.S.C. 605(b) that the proposed change would not have a significant economic impact on a substantial number of small entities within the meaning of the RFA. The Board explained that a change in the listing requirement for inclusion in the composite railroad would not have a significant economic impact on the railroads included; likewise, the Board articulated that, whether or not a railroad would be included in the composite group would have no significant economic impact on that individual railroad. A copy of the E:\FR\FM\25OCR1.SGM 25OCR1 Federal Register / Vol. 82, No. 205 / Wednesday, October 25, 2017 / Rules and Regulations NPRM was served on the U.S. Small Business Administration (SBA). The final action changes one of the criteria for a railroad’s inclusion in the data sample that the Board uses to calculate the annual cost of capital. By definition, that group of railroads is limited to Class I carriers, which are not small businesses under the Board’s definition for RFA purposes.5 Thus, the action does not place any additional burden on small entities. Therefore, the Board certifies under 5 U.S.C. 605(b) that the final action will not have a significant economic impact on a substantial number of small entities within the meaning of the RFA. A copy of this decision will be served upon the Chief Counsel for Advocacy, Office of Advocacy, U.S. Small Business Administration, Washington, DC 20416. It is ordered: 1. The final action described above is adopted and will be applicable on November 24, 2017. 2. Notice of the action adopted here will be published in the Federal Register. 3. A copy of this decision will be served upon the Chief Counsel for Advocacy, Office of Advocacy, U.S. Small Business Administration. 4. This decision is effective on the date of service. Decided: October 17, 2017. By the Board, Board Members Begeman and Miller. Kenyatta Clay, Clearance Clerk. [FR Doc. 2017–22894 Filed 10–24–17; 8:45 am] nlaroche on DSK9F9SC42PROD with RULES BILLING CODE 4915–01–P 5 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 part 1201. 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 operating revenues of $20 million or less in 1991 dollars, or $35,809,698 or less when adjusted for inflation using 2016 data. Class II carriers have annual operating revenues of less than $250 million in 1991 dollars or $ less than $447,621,226 when adjusted for inflation using 2016 data. The Board calculates the revenue deflator factor annually and publishes the railroad revenue thresholds on its Web site. 49 CFR part 1201. VerDate Sep<11>2014 14:30 Oct 24, 2017 Jkt 244001 DEPARTMENT OF COMMERCE National Oceanic and Atmospheric Administration 50 CFR Part 648 [Docket No. 170301213–7869–02] RIN 0648–BG70 Fisheries of the Northeastern United States; Atlantic Sea Scallop Fishery; State Waters Exemption National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce. ACTION: Final rule. AGENCY: NMFS approves and implements an exemption for vessels with Federal Limited Access General Category Individual Fishing Quota permits from the State of Maine and the Commonwealth of Massachusetts. This exemption enables the vessels to continue fishing in their respective state waters once NMFS has announced that the Federal Northern Gulf of Maine total allowable catch has been fully harvested in a given year. Additionally, Massachusetts has requested that Federal Limited Access General Category Northern Gulf of Maine permits also be included in its exemption. Both states have requested this exemption as part of the Scallop State Water Exemption Program. This program specifies that a state may be eligible for a state waters exemption to specific Federal regulations if it has a scallop fishery and a scallop conservation program that does not jeopardize the biomass and fishing mortality/effort limit objectives of the Atlantic Sea Scallop Fishery Management Plan. Based on the information that Maine and Massachusetts have submitted, NMFS has determined that both states qualify for this exemption and that this exemption will not have an impact on the effectiveness of Federal management measures for the scallop fishery overall or within the Northern Gulf of Maine management area. DATES: Effective October 25, 2017. ADDRESSES: Documents supporting this action, including the State of Maine and Commonwealth of Massachusetts requests for the exemption, the Categorical Exclusion, and Framework Adjustment 28 to the Atlantic Sea Scallop Fishery Management Plan (FMP) are available upon request from John K. Bullard, Regional Administrator, NMFS, Greater Atlantic SUMMARY: PO 00000 Frm 00021 Fmt 4700 Sfmt 4700 49297 Regional Fisheries Office, 55 Great Republic Drive, Gloucester, MA 01930. Copies of the Permit Holder Letter are available from John K. Bullard, Regional Administrator, NMFS, Greater Atlantic Regional Fisheries Office, 55 Great Republic Drive, Gloucester, MA 01930– 2298, or available on the Internet at http://www.greateratlantic.fisheries. noaa.gov/sustainable/species/scallop/. FOR FURTHER INFORMATION CONTACT: Shannah Jaburek, Fisheries Management Specialist, 978–282–8456. SUPPLEMENTARY INFORMATION: Background The Scallop State Waters Exemption Program, described at § 648.54, specifies that a state with a scallop fishery may be eligible for state waters exemptions if it has a scallop conservation program that does not jeopardize the biomass and fishing mortality and effort limit objectives of the Scallop FMP. Under the Program, if NMFS determines that a state is eligible, federally permitted scallop vessels fishing in state waters may be exempted from specific Federal scallop regulations. One of these exemptions enables some scallop vessels to continue to fish in state waters within the Northern Gulf of Maine (NGOM) management area once the Federal NGOM total allowable catch (TAC) is reached. Any state interested in applying for this exemption must identify the scallop-permitted vessels that would be subject to the exemption (i.e., limited access, limited access general category (LAGC) individual fishing quota (IFQ), LAGC incidental, or LAGC NGOM). No vessel is permitted to fish for scallops in the Federal portion of the NGOM once the TAC is harvested. We provided a broader description of the Scallop State Waters Exemption Program in the preamble of the proposed rule (82 FR 29470; June 29, 2017) for this action. We are not repeating that information here. We received a request from Maine to expand its current exemptions to allow the four IFQ-permitted vessels with Maine state-waters permits to fish in the Maine state-waters portion of the NGOM management area once we project the Federal TAC to be fully harvested. Massachusetts also sent a request to exempt LAGC IFQ and NGOM-federally permitted vessels that also hold a state permit. Only the northern portion of Massachusetts state waters, approximately Boston and north, fall within the NGOM management area. The fishery in this area has traditionally been split between a handful of stateonly vessels and 12 vessels with both Federal and state permits to fish for E:\FR\FM\25OCR1.SGM 25OCR1

Agencies

[Federal Register Volume 82, Number 205 (Wednesday, October 25, 2017)]
[Rules and Regulations]
[Pages 49295-49297]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-22894]


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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: Final Action.

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SUMMARY: The Surface Transportation Board (STB or Board) is adopting a 
final action to update one of the screening criteria used to create the 
``composite railroad'' for the Board's annual cost-of-capital 
determination. This final action requires a company's stock to be 
listed on either the New York Stock Exchange (NYSE) or the Nasdaq Stock 
Market (NASDAQ), rather than on either the NYSE or American Stock 
Exchange (AMEX), as the AMEX no longer exists.

DATES: This action is applicable on November 24, 2017.

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: As one of its regulatory responsibilities, 
the Board determines annually the railroad industry's cost of 
capital.\1\ 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. The cost-of-capital determination 
is one component used in evaluating the adequacy of railroad revenues 
each year under the procedures and standards mandated by Congress in 
the Railroad Revitalization and Regulatory Reform Act of 1976, Public 
Law 94-210, 90 Stat. 31 (1976) and promulgated in Standards for 
Railroad Revenue Adequacy, 364 I.C.C. 803 (1981), modified, 3 I.C.C.2d 
261 (1986), aff'd sub nom. Consol. Rail Corp. v. United States, 855 
F.2d 78 (3d Cir. 1988). The cost-of-capital finding is also an 
essential component of many other Board regulatory proceedings.
---------------------------------------------------------------------------

    \1\ The cost of capital is calculated 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;
--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\
---------------------------------------------------------------------------

    \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. R.R. Cost of Capital--1984, 1 I.C.C.2d at 1003-04.
---------------------------------------------------------------------------

--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).
    On April 18, 2017, the Board issued a Notice of Proposed Rulemaking 
(NPRM) that proposed to update the fourth screening criterion used to 
create the ``composite railroad'' for the Board's annual cost-of-
capital determination. Specifically, the Board proposed that its fourth 
screening criterion be modified to require a company's stock to be 
listed on either the NYSE or the NASDAQ, rather than on either the NYSE 
or AMEX, as the AMEX is no longer in existence. See NPRM, slip op. at 
1-2.
    The Board sought comments on the NPRM by May 18, 2017, and replies 
by June 19, 2017. The Board received comments on the proposed action 
from the Association of American Railroads (AAR) and the Western Coal 
Traffic League (WCTL). No reply comments were filed. After 
consideration of the comments received, the Board is adopting the 
changes proposed in the NPRM as a final action.

Comments

    In its comments, AAR states that it is supportive of the Board's 
proposal to update the ``composite railroad'' screening criteria to 
better reflect the current state of the marketplace. (AAR Comment 2.) 
AAR requests that the Board move expeditiously to adopt the proposal 
and prohibit any party from expanding the scope of this proceeding by 
offering proposals that would ``manipulate'' the cost-of-capital 
process. (Id.)
    WCTL generally supports the Board's proposal and states that 
expanding the screening criteria to include NASDAQ-listed companies, 
i.e., CSX Corporation (CSX),\3\ would result in a larger composite 
sample. (WCTL Comment 1-2.) WCTL, however, argues that the ``composite 
railroad'' sample is still rather small, consisting of just four 
companies--CSX; Kansas City Southern Corporation (KCS); Norfolk 
Southern Corporation (NSC); and Union Pacific Corporation (UPC)--that 
have

[[Page 49296]]

significant differences. (Id. at 2.) WCTL also notes that the composite 
sample omits BNSF Railway Company (BNSF)--which, it asserts, is by some 
measures the largest railroad in the United States--because BNSF 
constitutes less than 50% of the assets of its parent company, 
Berkshire Hathaway. (Id.) According to WCTL, by including CSX in the 
composite sample (but omitting BNSF), the industry average cost of 
capital reflects roughly 59% western and 41% eastern railroads, even 
though in actuality western railroads--UPC, BNSF, and KCS--account for 
73% of the industry, and the two eastern railroads--CSX and NSC--
account for only 27%. (Id.) \4\ WCTL argues that excluding CSX, along 
with BNSF, from the composite sample would actually result in an 
average that is more representative of the regional division (75% 
western and 25% eastern). (Id.) WCTL asserts that the Board's proposal 
could result in an average that is less representative of the industry 
as a whole, and a cost-of-capital figure that is more distorted. (Id. 
at 2-3.) Additionally, WCTL states that a ``complicating factor'' is 
that the second stage of the Board's Multi-Stage Discounted Cash Flow 
model (MSDCF) uses a simple average of the growth rates of the 
individual carriers, such that KCS counts just as much as UPC. (Id.)
---------------------------------------------------------------------------

    \3\ In the Board's cost of capital calculation for 2016, the 
Board waived its requirement that a company's stock be listed on 
either the NYSE or the AMEX, noting that CSX Corporation transferred 
its stock exchange listing from the NYSE to the NASDAQ in 2015. R.R. 
Cost of Capital--2016, EP 558 (Sub-No. 20), slip op. at 2 n.4 (STB 
served Aug. 7, 2017).
    \4\ WCTL's figures appear to be percentages of the total market 
capitalization of the railroad industry.
---------------------------------------------------------------------------

    Despite its criticisms, WCTL recommends that the Board adopt the 
proposed change, but ``on a tentative or qualified basis that would 
allow the Board to revisit the matter, and allow parties to present 
relevant evidence, if inclusion of NASDAQ-traded carriers turns out to 
undermine the representativeness of the composite sample, or the 
accuracy of the cost-of-capital'' figure. (Id.)

The Final Action

    To reflect the current marketplace, the Board will adopt the 
changes proposed in the NPRM and now require, as its fourth screening 
criterion, that a company's stock be listed on either the NYSE or the 
NASDAQ. Commenters generally support the Board's proposal and agree 
that the NASDAQ is a suitable replacement for the AMEX in the cost-of-
capital determination. As noted in the NPRM, when the Board's 
predecessor adopted the fourth screening criterion, it did so to 
``insure the availability of stock price data.'' R.R. 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 will continue to ensure the 
availability of stock price data for use in the Board's computation of 
the rail industry's cost of capital.
    Although WCTL supports the Board's proposal and states that 
expanding the screening criteria to include NASDAQ-listed companies, 
i.e., CSX, would result in a larger composite group, it argues that the 
Board's proposed change could result in an average cost-of-capital 
figure that is less representative of the regional division of rail 
assets than it is now. The Board, however, is unpersuaded by WCTL's 
argument. The purpose of including only carriers listed on particular 
stock exchanges in the ``composite group'' is to ensure the 
availability of stock price data for the annual cost-of-capital 
determinations for carriers that satisfy the other criteria. See R.R. 
Cost of Capital--1984, 1 I.C.C.2d 989, 1004 (1984). Here, there is no 
debate that CSX meets the other criteria and that NASDAQ is a reliable 
source of stock price data. Excluding a carrier that meets the other 
criteria and has a reliable source of stock data, in an effort to 
achieve a ``balance'' between eastern and western carriers, is 
unwarranted.
    In any event, railroads operating in different parts of the United 
States may confront different markets, traffic mixes, densities, and 
topography. As a consequence, there are differences in the cost 
structures of eastern and western carriers. These physical and cost 
structure differences, however, do not imply variances in the cost of 
capital on a regional basis. Investors deploy capital around the world, 
looking to obtain the highest possible return, while incurring the 
lowest possible risk. WCTL has not provided evidence to demonstrate 
that there is any difference in the rate of return investors demand--
i.e., the cost of capital--when investing in eastern and western rail 
carriers. Therefore, the Board believes that it is better to include 
CSX in the composite-industry cost of capital, as it was in previous 
years when it was listed on NYSE, to ensure a larger sample size.
    With respect to WCTL's argument that another ``complicating 
factor'' is that the second stage of the Board's MSDCF uses a simple 
average of the growth rates of individual carriers, such that KCS 
counts as much as UP, the Board finds such an argument to be outside 
the scope of this proceeding. The core issue here is whether, for 
purposes of the cost-of-capital calculation, it is appropriate to 
replace a defunct stock exchange (AMEX) with a stock exchange in 
current and prevalent use (NASDAQ). WCTL's growth rate argument does 
not relate to that issue and is a collateral attack on other components 
of the Board's approved methodology.
    Finally, the Board declines WCTL's request to adopt the final 
action on a conditional or tentative basis, purportedly to allow 
parties to present additional evidence after implementation. If parties 
have concerns in the future that inclusion of NASDAQ-traded carriers 
ultimately results in a less representative composite sample, they may 
file a petition to modify or revisit the composite group criteria 
regulation.

Regulatory Flexibility Act Statement

    The Regulatory Flexibility Act of 1980 (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. 5 U.S.C. 601-604. Under 
Sec.  605(b), an agency is not required to perform an initial or final 
regulatory flexibility analysis if it certifies that the proposed or 
final rules will not have a ``significant impact on a substantial 
number of small entities.''
    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). An agency has 
no obligation to conduct a small entity impact analysis of effects on 
entities that it does not regulate. United Distrib. Cos. v. FERC, 88 
F.3d 1105, 1170 (D.C. Cir. 1996).
    In the NPRM, the Board already certified under 5 U.S.C. 605(b) that 
the proposed change would not have a significant economic impact on a 
substantial number of small entities within the meaning of the RFA. The 
Board explained that a change in the listing requirement for inclusion 
in the composite railroad would not have a significant economic impact 
on the railroads included; likewise, the Board articulated that, 
whether or not a railroad would be included in the composite group 
would have no significant economic impact on that individual railroad. 
A copy of the

[[Page 49297]]

NPRM was served on the U.S. Small Business Administration (SBA).
    The final action changes one of the criteria for a railroad's 
inclusion in the data sample that the Board uses to calculate the 
annual cost of capital. By definition, that group of railroads is 
limited to Class I carriers, which are not small businesses under the 
Board's definition for RFA purposes.\5\ Thus, the action does not place 
any additional burden on small entities. Therefore, the Board certifies 
under 5 U.S.C. 605(b) that the final action will not have a significant 
economic impact on a substantial number of small entities within the 
meaning of the RFA. A copy of this decision will be served upon the 
Chief Counsel for Advocacy, Office of Advocacy, U.S. Small Business 
Administration, Washington, DC 20416.
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    \5\ 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 part 1201. 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 operating revenues of $20 million or less in 1991 
dollars, or $35,809,698 or less when adjusted for inflation using 
2016 data. Class II carriers have annual operating revenues of less 
than $250 million in 1991 dollars or $ less than $447,621,226 when 
adjusted for inflation using 2016 data. The Board calculates the 
revenue deflator factor annually and publishes the railroad revenue 
thresholds on its Web site. 49 CFR part 1201.
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    It is ordered:
    1. The final action described above is adopted and will be 
applicable on November 24, 2017.
    2. Notice of the action adopted here will be published in the 
Federal Register.
    3. A copy of this decision will be served upon the Chief Counsel 
for Advocacy, Office of Advocacy, U.S. Small Business Administration.
    4. This decision is effective on the date of service.

    Decided: October 17, 2017.

    By the Board, Board Members Begeman and Miller.
Kenyatta Clay,
Clearance Clerk.
[FR Doc. 2017-22894 Filed 10-24-17; 8:45 am]
BILLING CODE 4915-01-P