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Advisory: One-time Adjustment to Grain Revenue Cap Inflation Index

June 28, 2007

The Canadian Transportation Agency will, as directed by the Minister of Transport, Infrastructure and Communities, adjust the volume-related composite price index required for western grain revenue caps established pursuant to Division VI, Part III of the Canada Transportation Act.

Background

The Canadian Transportation Agency (Agency), in 211-R-2007">Decision No. 211-R-2007 dated April 27, 2007, determined the volume-related composite price index for crop year 2007-2008 to be 1.1611. A crop year begins on August 1 of one year and ends on July 31 of the following year.

The volume-related composite price index is important because it is used, in accordance with the formula in subsection 151(1) of the Canada Transportation Act (CTA), to determine the revenue caps for the movement of western grain for each crop year for the Canadian National Railway Company (hereinafter CN) and the Canadian Pacific Railway Company (CP).

On 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, received Royal Assent. Section 57 of Bill C-11 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 volume-related composite price index 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.

In a letter dated June 26, 2007, the Minister of Transport, Infrastructure and Communities requested the Agency to adjust the volume-related composite price index, in accordance with section 57 of Bill C-11 (now subsection 151(6) of the CTA). The Minister states that given the importance of this matter to the grain transportation sector, the Agency's expeditious determination of these adjustments would be most appreciated, especially if they could become effective for the new 2007-2008 crop year.

A preliminary analysis of the amount of hopper car maintenance that will be embedded within the 2007-08 Revenue Caps and the amount of actual hopper car maintenance that will be attributable to the 2007-08 crop year revealed that the difference is estimated to be in the range of $60 to $75 million. The Agency, in its 211-R-2007">Decision No. 211-R-2007, had announced on April 27, 2007 that the volume-related composite price index for the 2007-08 crop year would be 1.1611. Based on the average of the preliminary estimated range ($67.5 million), the one-time adjustment would reduce the inflation index to about 1.07 for the new crop year.

Time is required to audit information and to conduct an industry consultation on this matter. Before determining the one-time adjustment to the 2007-08 volume-related composite price index as established by the Agency's Decision dated April 27, 2007, as Chairman and Chief Executive Officer, I believe that providing this advance notice to the railway companies of the Agency's preliminary estimate of the probable range for the adjustment will assist them in planning their commercial operations. The Agency plans to make its determination on or before January 31, 2008 and the adjusted index will be effective as of August 1, 2007.

Geoffrey C. Hare
Chairman and Chief Executive Officer
Canadian Transportation Agency

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