OTTAWA - December 30, 2008 - The Canadian Transportation Agency today announced that both the Canadian National Railway Company (CN) and the Canadian Pacific Railway Company (CPR) have exceeded their revenue caps for crop year 2007-2008 for the movement of Western grain.
For 2007-2008, CN's grain revenue of $409,267,319 was $25,961,880 above its revenue cap of $383,305,439 while CPR's grain revenue of $407,440,160 was $33,806,200 above its cap of $373,633,960. This is the largest amount that any railway has exceeded its revenue cap as well as the second time that both railways are over their caps in the same year.
The railways now have 30 days to pay the amounts which were over their respective caps plus a fifteen-percent penalty of $3,894,282 for CN and $5,070,930 for CPR. As per government regulations, payment will be made to the Western Grains Research Foundation, a farmer-funded and directed organization set up to fund research that benefits Prairie farmers.
These amounts are based on the Agency's final adjustment to the volume-related composite price index (VRCPI) in February 2008 as per a legislative change. The final adjustment changed the VRCPI from 1.1611 announced in April 2007 to 1.0639 for crop year 2007-2008. This adjustment reflects the actual costs incurred by CN and CPR for the maintenance of grain hopper cars and reduces the historical maintenance costs that were "embedded" in the revenue caps.
While it was a once-only adjustment, its impact began in crop year 2007-2008 and carries forth into future years. Given that the amount of Western grain traffic for 2007-2008 was 26.8 million tonnes, slightly less than forecasted by the Agency, the actual reduction to the revenue caps was $69.6 million, or $2.60 per tonne.
The Canada Transportation Act requires the Agency to determine each railway company's revenue cap annually and whether each cap has been exceeded by the railway companies. The revenue caps apply to revenue the railways derive from the movement of grain from Prairie origins to terminals at Vancouver, Prince Rupert, Thunder Bay and Churchill. In the course of its determinations for 2007-2008, the Agency examined and verified detailed railway company submissions of grain traffic and revenue information.
The Canadian Transportation Agency is an independent quasi-judicial tribunal which operates like a court. It regulates various modes of transportation under Government of Canada jurisdiction, including air, marine and rail. The Agency deals with, among other things, rate and service complaints arising in the rail industry; disputes between railway companies and other parties; applications for certificates of fitness for the proposed construction and operation of railways; approvals for railway line construction; regulated railway interswitching rates; and revenue caps for the movement of Western grain by rail.
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For more information on the revenue caps, VRCPI and hopper car maintenance, please visit the Agency's Web site at www.cta.gc.ca
For further information, please contact:
News Media Enquiries: Marc Comeau 819-953-9961
General Public Enquiries: info@otc-cta.gc.ca; 1-888-222-2592
To keep up-to-date with our latest news releases and other information, subscribe to our electronic mail service.
Chronology on Revenue Caps and Hopper Car Maintenance Costs
1970s
Government of Canada begins purchasing covered hopper cars for the benefit of Western producers. It provides these cars free of charge to the Canadian National Railway Company (CN) and the Canadian Pacific Railway Company (CPR) for the movement of Western grain.
1995
Legislative change removes the subsidy for Western grain movement and gives the Canadian Transportation Agency the mandate to establish maximum freight rates.
2000
Other legislative amendments change the Agency's mandate from determining freight rates to setting yearly revenue caps. This change embeds grain hopper car maintenance costs into the revenue caps. The revenue caps are calculated using a formula containing numerous factors. One such factor is the volume-related composite price index (VRCPI), which annually adjusts the revenue caps to reflect the railway input costs. The VRCPI is determined by the Agency by April 30 for the coming crop year.
May 4, 2006
Minister of Transport announces proposed amendments to the Canada Transportation Act that would take into account adjusting the hopper car maintenance costs.
April 27, 2007
Agency determines the VRCPI of 1.1611 for crop year 2007-2008.
June 22, 2007
Bill C-11, an Act to amend the Canada Transportation Act and the Railway Safety Act and to make consequential amendments to other Acts , receives Royal Assent. Clause 57 states: Despite subsection 151(5) of the Canada Transportation Act , the Canadian Transportation Agency shall, once only, on request of the Minister of Transport and on the date set by the Agency, adjust the VRCPI to reflect the costs incurred by the prescribed railway companies, as defined in section 147 of that Act, for the maintenance of hopper cars used for the movement of grain, as defined in section 147 of that Act.
June 26, 2007
As per the legislative requirement, the Agency is requested by the Minister of Transport to make an adjustment to the VRCPI to remove the "embedded" grain hopper car maintenance costs and replace with costs incurred.
June 28, 2007
Agency issues an Advisory providing advance notice to the railways, in order to assist them in planning their commercial operations, of the Agency's preliminary estimate of the probable range for the adjustment which could reduce the VRCPI to about 1.07 for the new crop year. The Agency indicates that it plans to make its determination on or before January 31, 2008, and the adjusted index will be effective for the 2007-2008 crop year starting August 1, 2007.
July 2007
CN and CPR question whether the Advisory has any legal effect and maintain that the change to the statutory index can only be changed by way of a formal order or decision.
July 31, 2007
Agency issues
Decision No. 388-R-2007 setting an interim VRCPI of 1.0884 effective immediately for revenue caps for crop year 2007-2008. The interim index adjustment is equal to a $2 per tonne reduction from the VRCPI established April 27, 2007.
September 2007
CN and CPR file for leave to appeal on the interim Decision to the Federal Court of Appeal.
October and November 2007
Federal Court of appeal grants leave to appeal for both CN and CP. The Court grants a stay of the July Decision.
September 2007 to
February 2008
Agency undertakes consultations with CN, CPR and 30 other organizations including the grain industry and provincial governments on the Bill C-11 Clause 57 Adjustment. The Agency verifies, analyzes and audits the data provided by CN and CPR.
February 18, 2008
Agency announces a final adjusted VRCPI of 1.0639 for railway revenue caps for crop year 2007-2008. This removes the historical "embedded" hopper car maintenance costs and replaces it with "actual" costs incurred. While the adjustment is a once-only process, its impact starts for crop year 2007-2008 and carries forward into future years.
March 2008
CN and CPR file for leave to appeal on the final adjusted VRCPI Decision to the Federal Court of Appeal.
April 24, 2008
Agency announces the VRCPI of 1.1493 for crop year 2008-2009. This index carries forth the adjustment calculations.
May 14, 2008
Federal Court of Appeal grants CN & CPR leave to appeal the Agency's February VRCPI adjustment of 1.0639. The Court also grants a stay of the adjusted VRCPI.
November 24, 2008
Federal Court of Appeal dismisses the railways' appeal of the adjusted VRCPI. The Agency's adjusted VRCPI of 1.0639 for crop year 2007-2008 stands.
December 30, 2008
Agency issues the revenue caps Decision for crop-year 2007-2008 using the adjusted VRCPI of 1.0639. Both railways are over their revenue caps. This is the largest amount that any railway has exceeded its cap as well as the first time a penalty of fifteen percent is applicable. This is the second time that both railways were over their caps in the same year.
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For more information on the revenue caps, VRCPI and hopper car maintenance, please visit the Agency's Web site at www.cta.gc.ca
For further information, please contact:
News Media Enquiries: Marc Comeau at 819-953-9961
General Public Enquiries: info@otc-cta.gc.ca; 1-888-222-2592
To keep up-to-date with our latest news releases and other information, subscribe to our electronic mail service.
