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Cost of Capital Rates
The Agency determines the appropriate cost of capital rates to be used:
1) in the composite price index calculation under subsection 151(1) of the Canada Transportation Act (maximum grain revenue entitlement). These rates are determined in March of each year for the upcoming crop year.
2) as a costing component in the setting of interswitching rates, a rate-setting function granted the Agency under section 128 of the Canada Transportation Act. These rates are determined in June of each year for the upcoming calendar year.
3) as a costing component in proceedings before the Agency for regulatory purposes other than for calculating the composite price index and establishing interswitching rates. These rates are determined on a case-by-case basis.
The determination of the cost of capital rate consists of four distinct steps:
1) determination of net rail investment;
2) determination of capital structure;
3) determination of the cost rates for each component of the capital structure which includes the cost of common equity rate; and
4) calculation of the weighted average cost of capital rate, which includes an allowance for income tax.
For more detailed information, please refer to Calculating a Cost of Capital Rate.