Depreciation Message to Class I Railroads

SURFACE TRANSPORTATION BOARD
OFFICE OF ECONOMICS
DEPRECIATION MESSAGE TO CLASS I RAILROADS
March 2, 2012

49 U.S.C. 11143 provides that the Surface Transportation Board (STB) is charged with
prescribing depreciation rates for Class I railroads. A rail carrier may not charge to operating
expenses a depreciation charge on a class of property other than that prescribed by the Board.
Railroads are required to submit a depreciation study to the Board every 3 years for equipment
and every 6 years for other property [49 CFR Part 1201, §4-2(b)]. The depreciation study report
and supporting working papers should be filed electronically. Depreciation rate prescriptions
state the period for which the depreciation rates are applicable. Continued application of rates
after the prescription period is in non-compliance with effective regulations. Railroads are urged
to monitor their submission schedules and submit depreciation studies in advance of the
expiration of their current depreciation rates.
To minimize impacts of regulatory lag in completing our review of proposed rates, we adopt the
following practice. The Office of Economics (OE), upon receipt of a railroad’s depreciation
study, will permit the railroad to implement the proposed rates on an interim basis. The study
must be submitted directly by the railroad to the attention of the Director, OE with a cover letter
indicating the railroad’s intention to implement the proposed rates and the date the railroad
wishes the rates to become effective. Interim depreciation rates will remain in effect until the
Board completes its analysis of the railroad’s Depreciation Study and formally prescribes the
depreciation rates. OE will complete its analysis of the study within 90 days of its submission by
the railroad and advise the railroad of adoption, adoption with modification, or rejection of the
proposed rates. Proposed rates may be rejected on the basis of methodology or for lack of
supporting documentation, including failure to timely provide requested information.
To expedite our review, the study must include the following data and information.
1) Table showing the impact of the proposed depreciation rates for each
subaccount using the previous year’s end-of-year ledger balances.
2) Comparison of the proposed depreciation rates, average service lives (ASLs),
Iowa Curves, and salvage ratios to those currently used by the railroad.

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Depreciation Message to Class I Railroads
March 2, 2012

3) Discussion of any significant issues affecting the railroad’s ASLs, salvage,
and accumulated depreciation.
4) All life and salvage analyses performed for the subject property.
5) Calculation of the variance between the calculated accumulated depreciation
(CAD) and the book accumulated depreciation for each subaccount.
6) Calculations supporting the CAD for each subaccount.
7) Amortization of the variance in accumulated depreciation over the average
remaining life (ARL) for each subaccount.
8) Calculations supporting the ARL for each subaccount.
9) All Excel files used to prepare tables in the submitted Depreciation Study.
Historical property records with adequate retirement and salvage history by subaccount shall be
maintained for a sufficient period of time to enable analyses to yield usable indications of the
service life and expected salvage for each class of property. The detail required in the historical
property records is listed below by category of property:
1) Equipment property records must include the following information by vintage within
each subaccount: additions (classified as new or secondhand), betterments,
retirements (classified as regular, sales, reimbursable, for rebuilding, or outliers),
transfers (in and out), and acquisitions.
2) Track property records must include annual additions and retirements by density
within each account.
3) Other road property records must include annual additions and retirements for each
account.
Paul A. Aguiar
Branch Chief
Data Collection & Auditing Team