Decision No. 19-R-2003

January 13, 2003

APPLICATION by Prairie Alliance for the Future Inc., pursuant to section 91 of the Canada Transportation Act, S.C., 1996, c. 10, for a certificate of fitness for a proposed rail operation in the province of Saskatchewan through a lease agreement with the Canadian National Railway Company.

File No. R 8005/P2

On September 19, 2002, Prairie Alliance for the Future Inc. (hereinafter PAFF) applied to the Canadian Transportation Agency (hereinafter the Agency) for the certificate set out in the title.

PAFF proposes to operate a railway in the province of Saskatchewan as set out below:

1. Through a lease agreement with the Canadian National Railway Company (hereinafter CN):
   • on the Blaine Lake Subdivision between Denholm (mileage 116.5) and Speers Junction (mileage 93.90);
   • on the Robinhood Subdivision between Speers Junction (mileage 0.0) and Glaslyn (mileage 69.9);
   • on the Amiens Spur, extending 25.6 miles from England to Spiritwood;
   • on the Bolney Spur, extending 15.42 miles from Spruce Lake Junction to Paradise Hill; and
   • on the Turtleford Subdivision between North Battleford Junction (mileage 0.0) and St. Walburg (mileage 77.00) and all connecting branch lines and spurs.

There are a number of statutory provisions in Part III of the Canada Transportation Act (hereinafter the CTA) that are relevant to the Agency's consideration of this matter.

Section 87 of the CTA sets out the definition of a "railway" as follows:

"railway" means a railway within the legislative authority of Parliament and includes

1. branches, extensions, sidings, railway bridges, tunnels, stations, depots, wharfs, rolling stock, equipment, stores, or other things connected with the railway, and
2. communications or signalling systems and related facilities and equipment used for railway purposes.

Subsection 90(1) of the CTA provides that no person shall construct or operate a railway without a certificate of fitness.

Subsection 92(1) of the CTA provides that the Agency issue a certificate of fitness for the proposed construction or operation of a railway if the Agency is satisfied that there will be adequate liability insurance coverage for the proposed construction or operation.

Therefore, in order to obtain a certificate of fitness, an applicant must demonstrate that the certificate of fitness applied for relates to a railway that is within the legislative authority of Parliament. If it falls within the legislative authority of Parliament, then subsection 92(1) of the CTA provides that the Agency shall issue a certificate of fitness for the proposed construction or operation of a railway if the Agency is satisfied that the applicant has adequate liability insurance coverage for the proposed construction or operation, as determined in accordance with the Railway Third Party Liability Insurance Coverage Regulations, SOR/96-337.

In the present matter, the Agency must first determine whether the proposal identified in the application constitutes PAFF as a railway. In making such a determination, the Agency notes that, among other things, the information on file shows that although the lines of railway upon which PAFF proposes to operate are owned by CN, they are to be leased by PAFF. Furthermore, to varying degrees, PAFF will manage and operate the leased lines. PAFF proposes to transport freight by rail on these lines and, on this account, is a railway.

The Agency must then determine whether the railway to be operated by PAFF is a railway within the legislative authority of Parliament. In this particular matter, the Agency refers to paragraph 88(2)(b) of the CTA which provides that Part III - Railway Transportation of the CTA applies to "a railway, or a portion of a railway, whether or not constructed under the authority of an Act of Parliament, that is owned, controlled, leased or operated by a person who operates a railway within the legislative authority of Parliament."

Generally, control as expressed in paragraph 88(2)(b), can be viewed as the ongoing power or ability, whether exercised or not, to determine or decide the strategic decision-making activities of an enterprise. It can also be viewed as the ability to manage and run the day-to-day operations of an enterprise. Every review of control is unique and, when determining where control lies, the Agency may need to examine, among other matters, all actual and proposed operational, managerial and financial matters relating to the applicant.

In this matter, in order to determine whether PAFF is a railway company that is controlled by a person that operates a railway under the jurisdiction of the Parliament of Canada pursuant to paragraph 88(2)(b) of the CTA, the Agency has considered, among other things: the marketing and sales arrangements between the companies; dispatching arrangements and day-to-day operations, including car allocation; level of service and performance standards and enforcement; revenue sharing arrangements; use, access and control of assets; management arrangements; and responsibilities and obligations following discontinuance or termination of agreement where applicable.

Pursuant to this review and based on the material filed with the Agency, the Agency finds that PAFF is under the control of CN for the purposes of paragraph 88(2)(b) of the CTA and as such, is eligible to be considered for a certificate of fitness pursuant to section 92 of the CTA.

With respect to the adequacy of the insurance coverage, the Agency has reviewed the material filed and is satisfied that there will be adequate third party liability insurance coverage, including self-insurance, for the proposed railway operation.

The Agency's review of PAFF's financial capability to self-insure for the amount of the self-insured retention was based on the indemnity agreement with CN, in respect of the amount of self-insurance.

Accordingly, pursuant to subsection 92(1) of the CTA, the Agency shall issue a certificate of fitness to PAFF permitting it to operate a railway in the province of Saskatchewan through a lease agreement with CN as set out below:

• on the Blaine Lake Subdivision between Denholm (mileage 116.5) and Speers Junction (mileage 93.90);
• on the Robinhood Subdivision between Speers Junction (mileage 0.0) and Glaslyn (mileage 69.9);
• on the Amiens Spur, extending 25.6 miles from England to Spiritwood;
• on the Bolney Spur, extending 15.42 miles from Spruce Lake Junction to Paradise Hill; and
• on the Turtleford Subdivision between North Battleford Junction (mileage 0.0) and St. Walburg (mileage 77.00) and all connecting branch lines and spurs.

In a letter dated December 13, 2002, CN has confirmed that its current obligations for the affected lines, under the transfer and discontinuance provisions of Division V of Part III of the CTA, will remain undisturbed as a result of the CN/PAFF arrangements.