Opinion ID: 388140
Heading Depth: 2
Heading Rank: 6

Heading: Return on Locomotive and Caboose Investment.

Text: 26 The railroads next argue that the rate of return figured on locomotive investment should have taken into account the railroads' need to raise equity capital as provided for by the ratemaking provisions of the 4-R Act. 49 U.S.C. § 10704(a)(2). The Commission applied a 9.34% cost of capital rate to locomotives and cabooses, representing the interest rate of the railroads' current trust certificates. The railroads argue that the cost of capital in railroad equipment is the overall cost of capital rate of the railroad, including equity and debt, and not the particular financing rate of debt instruments that use the equipment as collateral. The railroads would apply to this equipment the same cost of capital as that applied to other investments, here 10.6%. 27 The Commission reasoned that the 10.6% rate of return needed on general corporate funds was inapplicable because locomotive and caboose equipment is not purchased with general corporate funds. Evidence in the record shows that all of the locomotives in the pool acquired by BN in 1977 and 1978 were obtained by leasing. The railroads did not rebut this evidence of large-scale leasing. Accordingly, the Commission with reason declined to accept a cost of capital not necessarily incurred, applying instead a rental payment costing methodology to this equipment. 9 We note also that the cost of capital determinations now challenged by the railroads were presented to the Commission by the railroads as an alternative. 28 In sum, the Commission's treatment of locomotive capital costs withstands the arbitrary and capricious standard of review which applies to its ratemaking. Burlington Northern, Inc. v. United States, 555 F.2d at 640; see also Atchison, Topeka and Santa Fe Railway v. Wichita Board of Trade, 412 U.S. at 806, 93 S.Ct. at 2374 (plurality opinion); Arizona Grocery Co. v. Atchison, Topeka and Santa Fe Railway, 284 U.S. 370, 387-88, 52 S.Ct. 183, 185, 76 L.Ed. 348 (1932). 29