Letter Decision No. 2015-05-20 RIL

BACKGROUND

[1] In a confidential decision issued December 18, 2014 (Decision), the Canadian Transportation Agency (Agency), among other things, ordered the Canadian National Railway Company (CN) to:

• Restore to Richardson International Limited (RIL) the number of rail cars equal to the cumulative shortfall of rail cars spotted by CN to RIL over weeks 23 to 47 of the 2013‑2014 crop year. The shortfall was to be measured based on RIL’s entitlement to a specified share of CN’s Average Total Weekly Car Spots, adjusted to reflect cars that were not available for general allocation. Based on the information available at the time of the Decision, the shortfall was estimated to be 2,891 cars.
• Show cause why the Agency should not order CN to make up a shortfall of that amount, by providing data on the actual number of Fleet Integration Program (FIP) cars and Louis Dreyfus Commodities (LDC) Interim Order and arbitration decision cars spotted each week that were included in CN’s Average Total Weekly Car Spots for grain weeks 23 to 47, as well as specifying the number of FIP cars spotted to RIL weekly during the same period.
• Provide any information relative to any adjustments that may be required to account for any reduction in the shortfall to RIL that may have already taken place.
• Propose a schedule for making up the shortfall, taking into consideration RIL’s requirement for service, while mitigating the impact on other shippers.
• Implement certain communication protocols.

ISSUES

1. What is the total shortfall to RIL, based on the complaint period set out in the Decision?
2. What is the scope of the remedy? (i.e., Which shippers and time periods should be involved? How much of the shortfall should be restored?)
3. How should the remedy be implemented?
4. What remedy, if any, should be ordered with respect to the communication protocols?

ISSUE 1: WHAT IS THE TOTAL SHORTFALL TO RIL, BASED ON THE COMPLAINT PERIOD SET OUT IN THE DECISION?

Positions of the parties

CN

[2] CN submits that the Decision measures the number of cars shipped by RIL against the number of cars spotted by CN at the industry level, which leads to an inaccurate market share determination because:

• the number of spotted cars overstates the service received (some cars spotted by CN are not ultimately waybilled, as in the case of ‘bad ordered’ cars); and,
• spotted cars are based on operational estimates, without granular backups that would facilitate scrutiny and verification, as required by the Decision.

[3] CN submits that the most accurate market share determination is derived from using waybill data because:

• no cars move without a waybill, and no waybill is created unless a car is moving; and,
• CN and RIL both have access to their respective granular data for waybilled cars, allowing for audit and validation.

[4] Based on this approach, CN submits that the total service shortfall for RIL for weeks 23 to 47 is 1,702 cars. CN also indicates that none of this shortfall has been restored.

RIL

[5] RIL agrees with the waybill methodology proposed by CN, but takes issue with CN’s calculation of the shortfall (1,702 cars). RIL submits that CN’s data contain the following errors:

• CN erroneously fails to count [REDACTED] FIP cars provided by [REDACTED] that were loaded at and shipped from RIL elevators. RIL therefore places the number of RIL FIP cars at [REDACTED] and the number of other shippers’ FIP cars at [REDACTED]; a total of [REDACTED], not [REDACTED] as calculated by CN.
• CN erroneously counts [REDACTED] rail cars in RIL shipments that should not have been included in the general allocation data because they relate to shipments of oat groats in cars that were part of a private CN pool of cars exclusively assigned to RIL (and previously to Viterra Inc.) RIL states that these cars were not available for general allocation through the normal ordering process.
• CN erroneously counts [REDACTED] carloads of canola meal shipped from a facility operated by Richardson Oilseed Processing (ROP), which places car orders separately from RIL. RIL submits that waybills for these shipments incorrectly identify RIL as the shipper and should be removed from CN’s total shipments and RIL’s shipments.

[6] Accordingly, RIL takes into account adjustments to the total number of cars shipped, RIL’s general allocation entitlement and the number of cars received by RIL and submits a total shortfall of 1,836 rail cars in weeks 23 to 47.

[7] RIL submits that a final shortfall number cannot be determined until the historical market shares are recalculated to redistribute the market shares of shippers receiving regulatory order cars. RIL submits that CN’s shortfall calculation is premised on RIL’s entitlement to a certain historical market share ([REDACTED] percent). However, RIL claims that, according to paragraphs 127 and 186 of the Decision, for those weeks in which LDC and other shippers received regulatory order cars “off the top,” the historical market share of those shippers must be redistributed to all other shippers, including RIL. RIL points out that it does not have the information required to make this adjustment.

[8] Finally, RIL agrees with CN that the shortfall has yet to be restored.

CN reply

[9] With respect to FIP cars, CN submits that:

• the cars RIL claims to have received as FIP cars are in fact additional base allocation, because RIL’s FIP contract did not come into force until week 51;
• CN erroneously calculated RIL’s credit as [REDACTED] FIP cars when, in fact, it is [REDACTED] FIP cars (but given that this is a de minimis discrepancy in CN’s opinion, CN does not consider an adjustment necessary); and,
• RIL cannot argue that shipments made “on behalf of” another party should not be taken into account to determine its share of the weekly general allocation, when shipments made “on behalf of” other parties were used to calculate its historical shipping percentage.

[10] With respect to oat groat cars, CN submits that:

• it furnished RIL with CN general fleet cars when the delivery of hopper cars procured by RIL to support its oat processing activities was delayed. CN adds that these cars, being classified as CN general hopper cars for waybill purposes, should be counted towards RIL’s base allocation.

[11] With respect to ROP cars, CN submits that:

• RIL requests CN general hopper cars for ROP when there are shortages in availability of its private fleet.

[12] With respect to the redistribution of the historical market share of LDC and other shippers who received regulatory order cars “off the top,” CN submits that it did not redistribute market share in the week 41 to 47 period, but rather supplied the regulatory order cars in addition to the general allocation. CN contends that this approach enabled CN to keep the general allocation pool balanced and, as such, a redistribution is not required.

Analysis and findings

Use of waybill data acceptable?

[13] The parties agree that the use of waybill data is superior to using “cars spotted” data, because it is more accurate and allows for audit and verification.

[14] Subsection 113(2) of the Canada Transportation Act (CTA) specifies that a railway company’s service obligation is to take, carry and deliver traffic “on the payment of the lawfully payable rate.” Therefore, the Agency agrees with the parties and finds that because issuing a waybill is a tangible step leading to invoicing and payment, waybill data is more closely aligned with subsection 113(2) of the CTA than data reflecting cars spotted, which tends to overstate the totals.

[15] Therefore, the Agency finds that the use of waybill data is more appropriate than “cars spotted” data and will proceed to recalculate the shortfall on that basis.

Data adjustments required?

1. FIP cars shipped by RIL

[16] CN is willing to credit RIL for [REDACTED] FIP cars. The issue is therefore whether RIL should also be credited for the additional [REDACTED] FIP cars it claims, which would bring the total of RIL FIP cars to [REDACTED], as RIL requests.

[17] RIL has submitted a spreadsheet showing the shipment of these cars from RIL facilities. However, RIL also identified those cars as belonging to other shippers. Based on this, it is unclear whose product was shipped, which shipper was waybilled, and why these cars should be credited to RIL’s FIP total.

[18] For these reasons, the Agency finds against adjusting the data submitted by CN to account for the FIP car discrepancies submitted by RIL.

2. Private oat groat cars counted in RIL’s general allocation cars

[19] All but one of these cars fall in weeks 9 to 22, outside the complaint period. Therefore, the Agency considers this discrepancy immaterial and will make no adjustment to the data submitted by CN to account for oat groat car discrepancies submitted by RIL.

3. ROP private cars counted in RIL’s general allocation cars

[20] Although RIL claims a total discrepancy for ROP cars of [REDACTED] cars for weeks 9 to 47, the total discrepancy falling in the complaint period is [REDACTED] cars, with [REDACTED] occurring in week 23 and [REDACTED] occurring in week 39.

[21] CN submitted e-mail correspondence dated December 18, 2013 and April 14, 2014 from RIL to CN requesting CN General Hoppers for ROP. In particular, in the April 14 correspondence, RIL refers to a shortage in its private hoppers due to “delays in lifting traffic from the plant and the delays through the yards,” that are increasing private hopper cycle times. The dates of these e-mails coincide with the planning horizon for grain weeks 23 and 39 respectively.

[22] Therefore, the Agency’s finds that the evidence supports CN’s position (i.e., that RIL periodically requests general allocation cars for ROP) and will therefore make no adjustment to the data submitted by CN to account for the ROP private car discrepancies submitted by RIL.

Retroactive market share redistribution required?

[23] RIL is correct that, in several places in the Decision, the Agency supports, as a general principle for future rationing methodologies, the redistribution of any portion of a shipper’s historical market share that is represented by a guaranteed “off the top” car supply. (See paragraphs 127, 186 and 187 of the Decision).

[24] However, the Decision does not contemplate a retroactive recalculation of market shares to determine the total shortfall in the present case.

[25] Indeed, with respect to this and other general methodological principles, the Agency held as follows, at paragraph 189:

However, for greater clarity, this application, as articulated by RIL, only required the Agency to assess CN’s performance against CN’s selected methodology for rationing cars for crop year 2013-2014. Therefore, the Agency did not assess whether the method used by CN was consistent with the principles enunciated above. The Agency only investigated CN’s implementation of the methodology it had chosen. Therefore, validation of the selection and design of the methodology used by CN during the period reviewed in this Decision is outside the scope of the Decision, and the Agency therefore makes no finding in this regard. [Emphasis added.]

[26] Accordingly, the Agency ordered CN to calculate the final shortfall for RIL as follows:

1. Deduct FIP cars and regulatory order cars from CN’s Average Total Weekly Car Spots. This yields the Total Weekly Car Pool.
2. Apply RIL’s historical market share entitlement to the Total Weekly Car Pool. (i.e., [REDACTED] percent.) This yields the Service Entitlement.
3. Deduct Actual Service Received by RIL from its Service Entitlement. This yields the final shortfall for RIL.

[27] There is no reference in the Decision to adjusting RIL’s market share. This reflects the fact that when RIL filed its application, it chose to ask the Agency to assess level of service by examining whether CN delivered to RIL the cars that CN committed to deliver – i.e., a [REDACTED] percent share of the total. RIL chose not to challenge the methodology used by CN, which established RIL’s market share at [REDACTED] percent.

[28] The Decision explicitly noted that RIL did not challenge the validity of the rationing methodology chosen by CN, at paragraph 59:

Since RIL has not challenged the validity of CN’s decision to use a market share based rationing methodology, the Agency will assess the merits of RIL’s application by examining what level of service RIL should have received, having regard to RIL’s car entitlement under CN’s market share-based rationing. [Emphasis added.]

[29] The entire pleadings process for RIL’s application unfolded on the premise, established by RIL in its application, that CN’s market share-based rationing program was not being challenged based on the methodology employed. RIL only challenged the implementation of the methodology employed.

[30] Ultimately, the Agency determined that the number of cars delivered to RIL did not reflect the market share produced by the methodology employed by CN and, as a result, ordered CN to deliver the shortfall of cars required to restore that market share.

[31] Having assessed level of service against CN’s car allocation methodology in the Decision, it would be inappropriate and unfair to CN at this point to alter the entire premise of the application and substitute the remedy ordered in the Decision with a remedy that would assume, as a starting point, a recalculated market share.

[32] Furthermore, to accept RIL’s proposition that market shares should be redistributed would necessarily imply that CN erred in delivering cars to other shippers that were over and above those shippers’ market shares. This issue has not been decided.

[33] Therefore, the Agency finds no retroactive market share redistribution is required.

Adjustment required to account for any shortfall already restored?

[34] The parties agree that none of the shortfall has been restored. Therefore, the Agency finds that no adjustment to the final shortfall is required in this regard.

Final shortfall

[35] Based on the foregoing, the Agency finds that, in respect of weeks 23 to 47 of the 2013-2014 crop year, the final service shortfall that must be repaid to RIL by CN is 1,702 rail cars.

ISSUE 2: WHAT IS THE SCOPE OF THE REMEDY?

Positions of the parties

CN

[36] CN submits that, to be fair and consistent, it should restore the losses experienced, not just by RIL, but by all shippers that have been underserved by CN’s implementation of its historical market share rationing methodology. Accordingly, CN proposes to correct the rail car allocations from either weeks 9 to 47 of the 2013-2014 crop year or from weeks 9 (2013-2014) to 6 (2014-2015) for all affected customers. CN submits that doing otherwise would necessarily lead to further inconsistencies. If CN corrects RIL only, the cars taken “off the top” to do so will be taken from the cars that would otherwise be available to all customers, penalizing other customers. CN submits that if all participants have the same right to be corrected, it would be inappropriate to only reward those who have exercised those rights. Accordingly, CN proposes that those who had been overserved should be the ones to contribute additional cars out of the increased market share they should not have received.

[37] CN also submits that service to those that have been allocated more than CN’s target allocation guidelines must be reduced to repay those who have been underserved.

[38] Below are the remedy options presented by CN. All options involve all CN grain shippers and use the same methodology for calculating a correction. The options differ only with respect to the time period corrected, the percentage of correction made and the length of the cure period.

CN Options	Weeks corrected	Percentage of corrections	Length of cure period
1	9-47 (2013-14)	100%	39 weeks
2	9-47 (2013-14	50%	39 weeks
3	9 (2013-14) – 6 (2014-15)	50%	52 weeks

Amount of cars

[39] CN’s analysis indicates that for weeks 9 to 47, 6,147 rail cars must be reconciled, and for weeks 9 (2013-2014) to 6 (2014-2015), 7,847 rail cars must be reconciled.

Time period corrected

[40] Even though RIL’s application was based on weeks 23 to 47, CN suggests that the service should be assessed for all grain shippers, at a minimum, from weeks 9 to 47 of the 2013-2014 crop year for the following reasons:

• week 9 represents the beginning of CN’s rationing approach;
• week 9 to 47 is a period when the Agency has found CN did not properly implement its rationing methodology;
• while RIL’s application started in week 23, RIL was also allocated less than its market share during weeks 9 to 22; and,
• CN has entered into an agreement with another major shipper to correct its market share loss in a similar fashion as for RIL, but for weeks 9 to 47.

[41] CN also suggests that the same rationale could justify correcting all grain shippers up to the end of week 6 of the 2014-2015 crop year, at which time CN adopted a rationing approach that closely follows the Agency’s guidance. CN submits that correcting up to week 6 (2014-2015) would remedy the entire period where CN was judged to be in breach of its obligations for not implementing its rationing approach with sufficient rigour.

Percentage of correction to be made

[42] CN submits that the standard to which the Agency is holding CN is far in excess of the standard developed by the Supreme Court of Canada, which CN describes as a standard of reasonableness, that recognizes the dynamic nature of rail networks and the global context in which railways operate.

[43] CN proposes reducing the shortfall by 50 percent because this would:

• still bring all customers within less than one percent of their historical market shares (which is within the ambit of reasonableness that permeates level of service obligations);
• decrease the impact of significant adjustments to some customers; and,
• allow CN to retain a certain degree of flexibility.

RIL

[44] RIL agrees with CN’s suggested time period of week 9 to 47 for measuring RIL’s shortfall. It includes these weeks in its submitted adjustments to CN’s data, and based on those adjustments concludes that it has incurred a shortfall of at least 2,309 rail cars.

[45] RIL strongly opposes CN’s suggested 50 percent reduction to the shortfall as RIL considers that this would inadequately mitigate the damages RIL has suffered as a result of CN’s breach of its level of service obligations. RIL points out that the Decision requires CN to restore to RIL a number of rail cars equal to the cumulative shortfall of rail cars spotted by CN to RIL and nowhere is it contemplated that RIL would be entitled to anything less than the full amount of the shortfall suffered.

[46] RIL submits that while other shippers’ allocations may be affected by the repayment of the rail car shortfall to RIL, those effects can be mitigated by expanding the length of time in which the rail cars are to be repaid, rather than reducing the amount of the remedy to which RIL is rightfully entitled.

[47] RIL contends that there is no reasonable basis on which to prevent the full recovery of the shortfall so as to allow RIL’s competitors to retain the portion of RIL’s market share that they obtained as a result of CN’s service breach. RIL submits that it should not be disadvantaged simply because CN has continuing obligations to other shippers.

Analysis and findings

Which parties should be included in the remedy?

[48] CN proposes that it completely reconcile its market share rationing system for all shippers retroactively for the 2013-2014 crop year. The Agency is of the opinion, however, that CN’s proposal raises several issues related to the concept of recouping service from allegedly “overserved” shippers.

[49] Foremost is procedural fairness, which requires that all parties directly affected by a judicial remedy be given an opportunity to be heard. This would require input from all grain shippers, whose views have not been canvassed in this case.

[50] Second, the Agency’s powers in relation to level of service applications are complaint-specific and not systemic. It is not open to the Agency to expand the scope of a level of service application, to add additional shippers, on its own motion.

[51] Third, although CN claims that the rail cars given to RIL will necessarily have to be taken away from other shippers, this is only true to the extent that CN does not inject new resources into the system (or reallocate existing resources not currently used in the transportation of western grain). In other words, it is only a “zero sum game” if CN chooses for it to be.

[52] Fourth, according to the data submitted by CN, the alleged “overserved” shippers were predominantly smaller shippers (representing 21.3 percent of the market), while the “underserved” shippers were the larger shippers. Therefore, CN’s proposals would cause service to be allocated away from these smaller shippers in favour of the large grain companies that make up the remaining portion of the market. This does not comply with the Agency’s direction in the Decision that the remedy must mitigate the impact on other shippers.

[53] Fifth is the issue of responsibility. The situation examined in the Decision arose due to CN’s failure to adequately implement the rationing methodology it unilaterally imposed. The solutions CN proposes would offload the burden of rectifying its errors onto its “overserved” customers, who were merely the unwitting beneficiaries of CN’s mistakes.

[54] Ultimately, the Agency is of the opinion that expanding the scope of the remedy to include all of CN’s western grain customers would not only be beyond the scope of the Agency’s jurisdiction, but also would unjustifiably delay resolution of RIL’s application.

[55] Therefore, the Agency rejects CN’s proposal to reconcile all western grain shippers’ market shares as part of the remedy to be ordered in this decision. It does not fall to the Agency to rectify problems of CN’s own making.

What past service time periods should the remedy take into consideration?

[56] In paragraph 191 of the Decision, the Agency ordered CN to restore the shortfall from grain weeks 23 to 47 of the 2013-2014 crop year. This corresponded to the complaint period considered in the Decision. The Agency finds that it would be inappropriate to now expand the remedy period to account for weeks that were not examined by it in the level of service application considered in the Decision. The Agency should only order a remedy in respect to weeks for which a breach of level of service has been alleged, demonstrated and found. Therefore, the Agency finds that it must reject any remedy related to time periods other than those in the Decision.

Should the remedy restore 50 percent or 100 percent of the shortfall?

[57] The Decision orders CN to restore the entire shortfall. There is no evidence of any change in the facts or circumstances pertaining to the Decision that would allow the Agency to vary that order and reduce the restoration requirement by 50 percent. Therefore the Agency rejects the proposal to reduce the remedy by 50 percent.

ISSUE 3: HOW SHOULD THE REMEDY BE IMPLEMENTED?

1. Should the shortfall be made up by allocating a fixed number of cars “off the top” or by adopting an adjusted market share percentage?
2. Should repayment of the shortfall be continuous over a certain span of time or should there be certain periods of the year or certain operational circumstances during which the shortfall cannot be made up? How long should it take to effect the cure?
3. If an “off the top” allocation is implemented, should the shortfall amount be adjusted to ensure that repayment of the shortfall does not reduce RIL’s general allocation entitlement?

Positions of the parties

CN’s proposal

[58] CN proposes to implement the remedy by subtracting FIP cars, regulatory order cars, and certain other cars from its projected Maximum Sustainable Capacity to create a Base Allocation pool. This Base Allocation Pool would then be allocated on an adjusted market share basis, such that “overserved” shippers would have their market shares temporarily reduced and “underserved” shippers (such as RIL) would have their market shares temporarily increased until shortfalls for all shippers were restored.

[59] CN suggests that RIL’s concerns about CN’s proposal can be addressed by adjusting the cure period, which also mitigates the impact of the remedy on other shippers. CN initially proposes a cure period of 39 weeks, to match the length of the period used to measure the market share shortfall (i.e., week 9 to 47).

[60] If a decision in this matter were rendered in week 30 of the current crop year (February 27), and allowing for a four week notice period to the industry for CN to meet its existing commitments, CN proposes that its plan could be implemented by week 35, and be finished by week 22 of the 2015-2016 crop year.

[61] As an alternative to its proposal to correct 50 percent of the week 9 to 47 (2013-2014) market share deviation over 39 weeks, CN proposes a total correction period of 64 weeks. This plan involves restoring 50 percent of RIL’s market share in weeks 23 to 47 of crop year 2015-2016, with 50 percent of all market share deviations for other shippers being corrected over 39 weeks, beginning on or around week 35 of crop year 2014-2015 through week 22 of crop year 2015‑2016. CN contends this approach would:

• correct RIL’s shortfall in the same period CN was found to be in breach;
• minimize the impact on other shippers by correcting over a longer period; and,
• obviate the need to address RIL’s request not to receive cars during certain periods.

[62] CN’s submission acknowledges that the Western Grain Elevator Association claims a weekly maximum practical capacity for the grain handling system of 13,767 (CN’s share - 6,883) for non-winter and 10,418 (CN’s share - 5,209) for winter, but contends that this claim has not been validated. Further to this, CN submits that, in its opinion, the grain supply chain gets to its maximum end-to-end capacity at around 5,500 to 5,700 cars per week. CN also submits that in the summer of 2014, when conditions were optimized and all gateways were open for service, it would have been able to move up to 6,000 cars every week, but for issues caused by other supply chain participants that limited the throughput to no more than 5,700 cars.

[63] Finally, CN requests that, under any circumstances, the Agency refrain from ordering CN to cure the shortfall to the last decimal.

RIL’s proposal

[64] RIL proposes that the Agency order that:

• there be no rail cars repaid to RIL by CN in the months of June, July, or August; and,
• in each week of all the other months during which CN is rationing grain industry rail cars, CN is required to repay to RIL 100 rail cars in one block (i.e., “off the top,”) in addition to RIL’s share of the general allocation pool rail cars, until the entire shortfall has been repaid.

[65] RIL also submits that the general allocation pool should not be reduced by the cars being repaid to it. Otherwise, under the guise of a remedy, RIL would receive cars that it would have received anyway, even if there had never been any level of service breach by CN.

[66] RIL contends that the time period for repaying the shortfall should be such that the value of the rail cars repaid is similar to the value of the rail cars lost as a result of the breach. RIL indicates that additional rail cars provided to it in June, July, or August would be of limited value because, as a function of lower grain stocks and reduced international demand resulting from crop availability elsewhere in the world, the grain industry typically has less demand for rail cars during those months.

CN’s comments on RIL’s proposal

[67] CN argues that taking cars “off the top,” as RIL suggests, would:

• further penalize other “underserved” shippers who are in the same position as RIL; and,
• not recover rail cars from “overserved” shippers.

[68] Regarding RIL’s request to be guaranteed a minimum repayment of 100 cars per week, CN submits that:

• the size of the general allocation pool cannot be predicted with absolute certainty;
• such a guarantee would not mitigate the impact on other shippers;
• the cumulative impact of all such requests before the Agency would result in a significant adverse effect on the allocation guideline for various customers; and,
• this would result in a vicious cycle of regulatory interventions, as affected shippers would protect their market shares by filing level of service complaints to secure “off the top” preferential allocation.

[69] CN disagrees with RIL’s argument that it be guaranteed “the value of the repaid cars is similar to the value of the rail cars lost as a result of CN’s service breach,” alleging that this ignores the railway’s operating challenges and the impact on other shippers.

RIL’s comments on CN’s proposal

[70] RIL rejects CN’s proposal to repay the rail car shortfall using an increased allocation percentage, because the actual number of rail cars provided pursuant to that approach will depend entirely on the size of CN’s general allocation pool, which cannot be predicted with any certainty. If the pool shrinks, the actual number of cars RIL will receive will be reduced such that RIL will not receive the full amount of the shortfall. RIL submits that it must receive each of the rail cars to which it is entitled, pursuant to the Decision.

[71] RIL also disputes CN’s assertions that it is maximizing its supply chain capacity as it relates to RIL and that its “hopper car fleet and rail assets are now well in sync with demand and the end‑to-end supply chain.”

Analysis and findings

1. Adjusted market shares or “off the top” allocation

Adjusted market shares

[72] CN proposes to adjust shippers’ 2014-2015 historical market shares to reconcile all cars misallocated in 2013-2014 to all shippers. However, the Agency finds that the appropriate remedy to be ordered in this case should involve service corrections only for RIL. If the Agency were to fashion a remedy based on a historical market share adjustment, it would involve adjusting the 2014-2015 historical market shares for all shippers to account for the market share that is represented by the shortfall to RIL only.

[73] Because the size of the general allocation pool varies, CN’s adjusted market share proposal is inappropriate because:

• Shippers should not be told they are losing “market share” because CN chose to remedy another shipper’s shortfall by reducing their entitlement rather than adding capacity in the system.
• The weekly impact on all shippers, in terms of actual car supply, would vary from week to week, and their allocations would differ from the projections for the 2014-2015 crop year previously communicated to them by CN.
• The portion of the shortfall remedied would also vary from week to week, making tracking and verifying the shortfall balances difficult and the total number of weeks required to restore the shortfall unknown.
• The remedy represents repayment of a defined service shortfall which, once the shortfall is repaid, will expire. It is not an ongoing service requirement and no current portion of RIL’s historical market share is being represented or replaced by the remedy. As such, this is not a type of guaranteed car supply that is suited to market share redistribution.
• Market shares would have to be readjusted at some point in the middle of the crop year once repayment is completed, creating uncertainty and instability.

Off the top allocation

[74] CN claims that if the remedy were to involve an “off the top” guaranteed minimum number of cars there would be a considerable adverse effect on other shippers. However, this is belied by CN’s August 29, 2014 correspondence to shippers, in which it communicated its Maximum Sustainable Capacity and a weekly Base Allocation forecast for the 2014-2015 crop year.

[75] The Agency cannot accept CN’s position for the following reasons.

[76] First, CN’s forecasts were disclosed to shippers while the LDC Interim Order was in effect. However, the LDC Interim Order ceased to be in effect on October 3, 2014, and no further regulatory order cars were required to be allocated to LDC. Therefore, it can be assumed that the cars that CN was providing to LDC during the period of the LDC Interim Order are now freed up.

[77] Second, CN has spare “off the top” capacity built into its forecasts. The Base Allocation projections communicated to shippers in the Maximum Sustainable Capacity Allocation table included in its correspondence, allowing for the number of FIP cars projected by CN and an assumed 7.5 percent of the maximum car supply for the special allocation pool, indicate that CN’s table includes an average of 80 cars per week over and above the capacity allocated for the LDC Interim Order, which is no longer even in effect.

[78] These two considerations are bolstered by the submissions of the parties:

• RIL submits that in 2013-2014 there was unused capacity at both ends of the supply chain; and,
• CN submits that it could handle more than the maximum sustainable capacity it has projected.

[79] Taking all this into account, it is reasonable to expect that, if CN were required to furnish RIL “off the top” with a maximum number of cars no greater than its spare capacity, CN could do so without having to alter the expectations communicated to shippers on August 29, 2014. This would significantly mitigate the impact of the remedy on other shippers.

[80] Accordingly, the Agency is of the opinion that CN has sufficient spare capacity to accommodate a maximum of 100 cars per week for RIL without CN having to alter the general allocation projections it conveyed to grain shippers in its August 2014 correspondence.

[81] In light of this, the Agency finds that:

• the remedy should consist of an “off the top” allocation of a maximum 100 cars per week, in addition to the RIL’s market share entitlement to the general allocation pool; and,
• no changes should be made as a result of this remedy to shippers’ market share allocations communicated by CN in its August 29, 2014 correspondence.

2. Timing of repayment

[82] CN’s proposals involve varying lengths of “cure periods,”, all of which are continuous, and CN indicates that such a period could begin approximately four weeks after this decision is issued.

[83] On the other hand, RIL argues for a repayment period that includes only those weeks in which rationing is in effect; excludes certain months of the year, (June, July and August); and restores cars equal in value to those cars it was shorted, where value is derived from the timing of the service.

[84] According to CN’s projections, it would appear that rationing was anticipated to continue throughout the 2014-2015 crop year and beyond. If CN’s continuous repayment approach was adopted and implementation of repayment of the 100 cars per week maximum began towards the end of the 2014-2015 crop year, the 17 week repayment period for RIL would span the months RIL seeks to exclude; would be nearly finished by the time the 2015-2016 harvest is starting to move; and would miss all recognized seasonal peaks in grain movement. As such, that approach would be of limited benefit to RIL.

[85] The Agency is of the opinion that allowing the shipper to control when (within a defined period) repayment will take place, in the context of its unique business circumstances, is the most reasonable approach. This more closely resembles the service options that could be expected in a competitive environment. The Agency is also of the opinion that RIL should be allowed to use repayment cars in weeks it selects, at its discretion, during the remedy period. The Agency also notes that repayment during normal service, where capacity is sufficient to meet all shippers’ demand, may be of no benefit to RIL.

[86] Therefore, the Agency finds that the shipper should be permitted to choose the weeks when repayment will occur, subject to:

• weekly limitations on the maximum allowable repayment of rail cars, which mitigates the impact on other shippers; and,
• a defined period of time during which the shipper must use its entitlement to repayment and instructions governing proper notice, which mitigate the impact on CN.

3. Adjust to account for the part of the remedy satisfied using a portion of RIL’s base allocation

[87] An “off the top” allocation reduces the number of cars available for general allocation, which effectively reduces the number of cars that can be allocated to any given shipper on the basis of market shares. For example, for every 100 cars given to RIL “off the top,” [REDACTED] percent (RIL’s 2014-2015 market share) would have gone to RIL under general allocation, if that “off the top” allocation was not required.

[88] In other words, as RIL points out, RIL would be forced to contribute its own cars (i.e., cars which it would otherwise have been entitled to receive) towards repayment of its own shortfall. RIL argues that this would be unfair: it should not have to repay part of its own loss. RIL asks that the Agency order that it be repaid a number of cars that exceeds its actual car shortfall during the complaint period sufficient to compensate it for the [REDACTED] percent of the “off the top” cars it would have received through general allocation, if no remedy was required.

[89] There are a number of issues with RIL’s request:

• First, RIL is not (and has never been) allocated a set number of cars under CN’s rationing methodology. Rather, it is allocated a set percentage of cars, based on the pool available for general allocation. Accordingly, the impact of remedying its shortfall (taking cars off the top, which reduces the number of cars in the general allocation pool) is technically irrelevant. RIL is only guaranteed a set percentage of that pool, whatever it may be. It is not (and never has been) guaranteed that the pool will be a certain size. Therefore, the premise for its request is flawed, as it assumes that it will miss out on a set number of cars that, in fact, it was never guaranteed to receive (shortfall or not).
• Another way to characterize RIL’s request is that it is presuming CN will breach its level of service to it during the repayment period by providing it with fewer cars than it is entitled to. However, it would be premature, based on the record of this proceeding, for the Agency to find that CN will breach its level of service obligations to RIL during the repayment period. The Agency cannot predetermine that CN will fail to fulfill RIL’s reasonable requests for service in the remedy period, nor can the Agency deny CN an opportunity to demonstrate justification for service failure, should one actually occur.
• In periods of rationing, the delivery of cars “off the top” pursuant to a regulatory order inevitably results in a reduction of the remaining number of cars available for general allocation to all CN customers. This means that each of CN’s shippers will necessarily contribute to the repayment of cars to RIL ordered by the Agency in these proceedings. For this to be fair, the contribution to the repayment should be proportional to each shipper’s market share. If RIL is exempt from making a contribution, each of the remaining shipper’s contributions will be greater than its market share. This would result in RIL receiving differential and more favourable treatment in car rationing during the remedy period. The full restoration of cars on a net benefit basis is simply incompatible, by definition, with a market share-based rationing system.
• RIL submits that it should “receive cars of similar value” to those it was shorted. In being able to choose in which weeks it wants to access the remedy, RIL is actually compensated in excess of “receiving cars of similar value.” Control lies with RIL during the remedy period, whereas during the complaint period it had no control over the weeks or the degree to which it was shorted, so the remedy cars have a potentially greater “value” than the shortfall cars did. Consequently, accommodating RIL’s request in combination with that benefit is unnecessary and could result in avoidable overcompensation.

[90] These considerations demonstrate that if the remedy is to be fair, it cannot focus on absolute restoration to RIL, irrespective of the impact on other shippers and on CN. While the provision is complaint-based, which limits the scope of the remedy to the complainant, it is still permeated by a requirement for reasonableness. Based on this, the Agency finds that the total number of cars to be repaid to RIL will not be increased to accommodate RIL’s request.

[91] The Agency finds that the repayment of 1,702 rail cars, which results in a net restoration of RIL’s market share shortfall to within a half a percent of its entitlement, is a reasonable remedy. It compensates RIL’s loss while mitigating the impact of the remedy on other shippers. It also addresses CN’s request that the Agency refrain from ordering CN to cure the shortfall to the last decimal by allowing a degree of market share tolerance of 0.5 percent in the net repayment.

Summary - Agency findings – Issue 3

[92] The Agency directs that RIL be permitted to decide in which weeks it receives repayment, during the period that begins four weeks after this decision issues and ends in week 52 of the 2015-2016 crop year, and at a rate of no more than 100 cars per week in excess of its normal allocation. Further to this, the Agency directs that RIL provide CN with as much advance written notice as possible, with a minimum of two weeks, regarding which weeks it will require repayment.

ISSUE 4: WHAT REMEDY, IF ANY, SHOULD BE ORDERED WITH RESPECT TO THE COMMUNICATION PROTOCOLS?

Positions of the parties

[93] RIL submits that it did not and currently does not have access to industry-wide waybill information, other than that provided by CN in Appendix 3 to its submission. To ensure that measurable metrics are available, RIL argues that CN must provide it with the information required by the Agency at paragraph 190 of the Decision (i.e., communication protocols), except that it must now relate to waybills instead of cars spotted.

[94] RIL also submits that, despite its request for CN to provide the information noted at paragraph 190 of the Decision, CN has not yet done so. RIL indicates that it requires the information to be provided by CN without further delay and for CN to continue to provide that information throughout the repayment period and beyond.

[95] CN considers RIL’s request either inappropriate or premature. CN submits that it is inappropriate, in that it does not relate to the information required by the Agency in the context of the Decision and is therefore beyond the scope of an answer to that Decision. CN also contends that it is premature, in that CN cannot and should not be expected to comply with the Agency’s order at paragraph 190 before the Agency has had an opportunity to consider submissions made in response to the Decision.

[96] CN adds that it cannot, on the basis of waybill data, provide written notice in advance of car order deadlines regarding either the number of general distribution cars available for allocation by market share or the number of cars to be allocated by all means, because:

• the number of waybills that will be generated for a specific week cannot be provided in advance of cars being spotted, let alone being planned for spotting;
• CN does not control the number of cars that a shipper will release with a waybill within a specific week;
• there may be delays in loading and releasing cars due to operational challenges surrounding physical loading at country elevators;
• estimates of future waybill volumes cannot be reliably generated when shippers can cancel orders, immediately creating a variance between estimated shipments and actual waybills; and,
• actual car placements vary from estimated car placements due to factors outside the control of CN, such as inclement weather and the efficiency of the supply chain at any point in time.

[97] CN concedes that such waybill information is available after the fact, with a short lag and within an appropriate weekly rolling average framework.

[98] CN indicates that, in an effort to provide timely and transparent information, it is in the process of designing a new report, based on waybills and made available on its Web site to all shippers. CN explains that the report, updated weekly, will include a table showing the six week rolling average of its western Canadian covered hopper shipments, broken down as to: total; commercial FIP; “off the top” shipments; and general allocation.

[99] In addition, CN indicates that all major shippers will have their percentage of general allocation communicated to them periodically, following the format of CN’s August 29, 2014 letter to grain shippers. CN states that, as such, all customers will be able to measure market shares by calculating their expected number of general allocation shipments against their own shipping records. CN also indicates that shippers will be responsible for auditing any variability in their market share calculation subject to issues stemming from supply chain fluidity or other shipper-related causes, which result in fewer cars being allocated to their loading facilities.

Analysis and findings

[100] The Decision stipulates that there should be forward-looking communication regarding the number of cars expected to be available for allocation by historical market share, and backward-looking, performance-monitoring communication regarding the number of cars actually provided to RIL, using the term “number of cars spotted.” Having accepted that waybills (instead of cars spotted) should be a proxy for the number of cars shipped, the Agency finds that the words “number of cars spotted” are no longer an accurate representation of the information required for the backward-looking, performance-monitoring communications.

[101] Therefore, the Agency will include a direction in this decision to account for the backward looking/performance-monitoring communication protocols required when waybills are used as a proxy for the number of cars shipped.

[102] Further to this, the Agency has no expectation that forward-looking estimates of planned service and a post-service account of waybills generated will necessarily be identical in all cases.

Compliance issue

[103] The compliance issue raised by RIL should have, more properly, been raised in a process separate from the show cause process, because it does not pertain to the focussed requirements of the direction to show cause in the Decision. However, CN is reminded that the order set out in paragraph 190 was a final order of the Agency and has been in effect since the Decision was issued on December 18, 2014. CN was required to comply with that order from that date, and is required to continue to comply with that order each week in which grain service is rationed. CN is also reminded that the communication protocols ordered prescribe specifically that weekly data must be provided; therefore, providing only a weekly updating of six week rolling averages would not be sufficient.

ORDER

1. The final shortfall for RIL is 1,702 rail cars.

2. Repayment by CN to RIL of the shortfall, as ordered by RIL using CN’s car ordering system, is to be made at a rate of a maximum of 100 cars per week, in addition to RIL’s market share entitlement of the general allocation pool. The shortfall repayment cars will be taken “off the top” of CN’s projected total weekly grain service. The cars will be provided to RIL in any weeks chosen by RIL during the period beginning four weeks from the issuance of this Order and ending in week 52 of the 2015-2016 crop year. RIL must provide CN with a minimum of two weeks’ written notice in order to receive shortfall repayment cars.

3. When waybills are used as a proxy for the number of cars shipped, CN is to provide RIL on a weekly basis with a written performance-monitoring report indicating for the previous week:

• if rationing was in effect;
• the market share applicable to RIL;
• the number of general allocation cars waybilled by CN for RIL and the market share those cars represent; and,
• the total number of grain cars waybilled by CN and the total number of general allocation grain cars waybilled by CN via rationing.

Where applicable, this direction varies the backward-looking, performance-monitoring communication requirement set out in the Decision, replacing the obligation to report on the numbers of cars spotted with the number of cars waybilled. This direction does not alter the forward-looking communication requirement set out in the Decision.

4. The parties must keep track of the shortfall repayments made in terms of number of cars repaid, date repaid and remaining shortfall balance. RIL will forfeit any shortfall balance that it has not requested to be repaid by the end of the 2015-2016 crop year.

This is a public redacted version of a confidential decision that issued on May 20, 2015 which cannot be made publicly available.