- Jun 15, 2022
You have to realize that the baseline for their ROI isn't just other rail projects, its the S&P 500 / investment market. If a railroad has a dollar in profit, they need to either reinvest it into their own business or to pay it out via dividend. The discount rate used by the shareholders of the railroads basically determines that unless your reinvestment can beat 9-10% returns per year in the S&P 500, then the railroads are obligated as a steward of their investors capital to pay it out in dividends. To make it clear, If BSNF announces their intention to electrify, they are getting sued by Warren Buffet and Berkshire that exact same day, and Buffett wins that suit and disposes of management. Essentially the formula now says to take the minimum amount to keep profits flat and to pay the rest out in dividends.I'm aware the report isn't perfect but over 1/2 the cost savings come from much lower operations cost of electric locos
Even with an ROI of 20-25 years thats still decent in the slow moving world of rail
Why invest $10B into a project that returns that capital in 20-30 years when that money will double in the market in 7 years? The day this formula changes is when a RR determines that they will cease to operate without reinvestments, at which point they cut the dividend and reinvest, but almost certainly not via electrification.
The alternative is that the government does it themselves and leases the track or electricity access back to railroads serving them in a capital light model (similar to a mortgage lender who securitizes and sells off their mortgage loans to investors in order to make more loans. This is a good thing because if lenders kept all their loans on their books, you wouldn't be able to buy a home in the US because you couldn't ever find a lender with cash).
At the end of the day to tie this all back home, electrification really isn't what is holding back Amtrak's growth and improvements. Amtrak really just needs to have access to track without railroad interference that they can maintain and dispatch over themselves. Ideally they can do this by building right next to the existing freight right of way or buying the track from them outright over time. The issue Americans have with rail travel isn't that you cant go 150mph, its that you go 20mph for a good amount of the route and show up 5 hours late.