Decision No. 114-R-2016

BACKGROUND

[1] On October 2, 2015, CP filed with the Canadian Transportation Agency (Agency) an application, pursuant to paragraph 151(4)(c) of the CTA, for an adjustment to the VRCPI related to cars obtained from its U.S. subsidiary companies to replace withdrawn Canadian Wheat Board (CWB) hopper cars. The application was supported by a Commitment Agreement (CA) which was filed on October 7, 2015 (October 2015 CA).

[2] In Agency 374-R-2015">Decision No. 374-R-2015 issued on December 2, 2015, the Agency ruled that the October 2015 CA was not fully acceptable in that it committed the entire fleet of its U.S. subsidiary companies for use in Canadian regulated grain service. The Agency found that the arrangement proposed at the time did not distinguish between cars that are normally available on an as needed basis and a stock of cars that are truly “committed” to regulated grain service.

[3] The Agency, for reasons outlined in 374-R-2015">Decision No. 374-R-2015, and pursuant to paragraph 151(4)(c) of the CTA, allowed the adjustment to the 2014-2015 VRCPI based on CP’s submission, but stated that an adjustment to the 2015-2016 VRCPI would not be allowed unless a revised CA was filed by CP, one acceptable to the Agency in that it would not commit the use of the entire U.S. subsidiary fleet.

[4] On January 29, 2016, CP filed an application for an adjustment to the 2015-2016 VRCPI. In support, CP filed an agreement amending the October 2015 CA (amended CA). The amended CA commits a subset of its U.S. subsidiaries’ fleet of cars for use by CP in regulated grain service.

ISSUE

[5] Is the amended CA acceptable to the Agency and consequently, have all of the conditions for an adjustment to the 2015-2016 VRCPI pursuant to paragraph 151(4)(c) of the CTA now been met?

ANALYSIS AND FINDINGS

[6] The conditions to be met for an adjustment under paragraph 151(4)(c) of the CTA were established in Agency 8-R-2013">Decision No. 8-R-2013 and 304-R-2015">Decision No. 304-R-2015. In Agency 374‑R‑2015">Decision No. 374‑R‑2015, the Agency restated these conditions as follows:

• Government hopper cars have been sold, leased, disposed of or otherwise withdrawn from service. This is to be demonstrated by third-party evidence indicating the specific car identification number of each car withdrawn and when they were withdrawn, specifically an official letter from the rightful owner of the withdrawn hopper cars.

• The railway company has obtained hopper cars as a result of the above.

• When the replacement cars are obtained from a U.S. subsidiary, the use of those cars is governed by a CA between the prescribed railway company and its U.S. subsidiary company for the commitment of a specific number of the U.S. subsidiary’s identified owned or leased hopper cars (designated replacement cars) for Canadian regulated grain service for a minimum of one year. The CA must also:

1. 1. be made in writing;
   2. be entered into by the prescribed railway company and its U.S. subsidiary prior to the actual use of the designated replacement cars in a given crop year;
   3. provide specific car identification numbers of the U.S. subsidiary cars committed for use in Canadian service in replacement of the withdrawn government hopper cars (designated replacement cars);
   4. specify a commitment of the U.S. subsidiary to make the designated replacement cars available for use by the prescribed railway company in Canadian service for a minimum of one year; and,
   5. specify a commitment of the prescribed railway company to use the designated replacement cars in a manner similar to the average historical usage of the government hopper cars in regulated grain service in the year during which the agreement is in effect.

[7] In 374-R-2015">Decision No. 374-R-2015, the Agency determined that CP had provided adequate third-party evidence of the number of cars withdrawn and the return date of these cars for the 2014-2015 crop year.

[8] With respect to the condition requiring a CA, the Agency found that the October 2015 CA was not acceptable for the following reasons:

[21] ... the Agency finds that one aspect of the CA does not meet the requirements of 304-R-2015">Decision No. 304-R-2015 in that the RUA designates the entire fleet of the U.S. subsidiary companies as replacement cars for the purpose of replacing withdrawn CWB hopper cars…

[23] The Agency finds that the RUA does not reflect a true commitment of a specified number of cars to be used in regulated grain service in a manner similar to the historical use of the withdrawn CWB cars. It is, rather, an arrangement for the use of hopper cars on an as‑needed basis at established Association of American Railroads per-diem rates. The Agency notes that subsidiary cars obtained through per-diem rentals have been in use since the beginning of the maximum revenue entitlement (MRE) program and that freight car per-diem rental and leasing costs are already included in the MRE cost base. As noted above, for the purpose of a cost adjustment under paragraph 151(4)(c) of the CTA, costs incurred to obtain cars to replace withdrawn government hopper cars must be distinguishable from costs already included in the base year costs. The RUA does not allow for such a distinction.

[9] The Agency has examined the amended CA filed by CP on January 29, 2016 and finds that it now reflects a true commitment of a specified number of cars to be used by CP in regulated grain service in a manner similar to the historical use of the withdrawn CWB cars. The Agency is now satisfied that the amended CA is acceptable for the purposes of making an adjustment to the 2015-2016 VRCPI pursuant to paragraph 151(4)(c) of the CTA, and that all of the conditions precedent for such an adjustment have now been met.

CONCLUSION

[10] In keeping with the methodologies set out in 304-R-2015">Decision No. 304-R-2015 and 374‑R‑2015">Decision No. 374‑R‑2015, the Agency adjusts the 2015-2016 VRCPI upwards to 1.2571 (0.4 percent from its value of 1.2517 set out in 120-R-2015">Decision No. 120-R-2015) and makes this adjustment effective on August 1, 2015 pursuant to subsection 151(6) of the CTA.