Decision No. 21-R-2013
APPLICATION by the Regional District of North Okanagan, pursuant to section 146.3 of the Canada Transportation Act, S.C., 1996, c. 10, as amended, for a determination of the net salvage value of the Canadian Pacific Railway Company’s Okanagan Subdivision between mileages 16.4 and 31.63, in the province of British Columbia.
APPLICATION
[1] The Regional District of North Okanagan (RDNO) has applied to the Canadian Transportation Agency (Agency) for a determination of the net salvage value for a railway line owned by the Canadian Pacific Railway Company (CP) on the Okanagan Subdivision located between mileages 16.4 and 31.63 (Line), in the province of British Columbia.
LEGISLATION
[2] Sections 140 to 146 of the Canada Transportation Act (CTA) outline a process that must be followed by a federally-regulated railway company when transferring and discontinuing the operation of railway lines. Section 146.3 of the CTA provides that a person to whom a railway line is offered under section 145 may apply to the Agency for a determination of the net salvage value of the railway line before the expiry of the period available to the person to accept the offer. For specific legislative references, refer to the Appendix.
BACKGROUND
[3] The complete Okanagan Subdivision runs from Sicamous (mileage 0.3) to Armstrong (mileage 31.63,) in the province of B.C. The Line runs from mileage 16.4 at Grindrod to mileage 31.63 in Armstrong, with the portion from Sicamous to Grindrod being disposed of separately through a different transfer and discontinuance process. The Line has been owned by CP since 1891 and was most recently operated and maintained from November 1998 until August 2009 by OmniTRAX Inc. pursuant to a lease agreement with CP. There have been no railway operations on the Line since OmniTRAX Inc. ceased its operations in August 2009.
[4] When control of the Line was returned to CP following the expiration of its lease agreement with OmniTRAX Inc. in August 2009, CP, in accordance with subsection 146.01(2) of the CTA, began the transfer and discontinuance process under section 143 of the CTA. Pursuant to subsection 143(1) of the CTA, CP advertised the Line for transfer for continued rail operations on October 7, 2009. As no agreement was reached with an interested person within the required time, CP offered to transfer all of its interest in the Line to the federal, provincial and municipal governments on June 18, July 18 and August 18, 2010 respectively, as indicated in section 145 of the CTA.
[5] RDNO, which is composed of six municipalities, five electoral areas and two First Nations Bands within the northern portion of the Okanagan Valley, having an interest in acquiring the Line, submitted an application for a determination of net salvage value of the Line, pursuant to section 146.3 of the CTA, on September 15, 2010.
[6] RDNO estimates a net salvage value of between $3,371,529 and $3,643,629, an amount that includes the land value, legal and other administrative costs and its estimated value of the track assets, but does not include environmental remediation costs, which will be discussed later in this Decision. CP submits a net salvage value of $18,663,734, which includes its estimate of the land value and the market value of the salvaged track materials net of disposal costs.
PRELIMINARY MATTER
[7] On December 8, 2010, RDNO submitted that the Line had not been included in CP’s Three Year Plan for the required 12-month period prior to discontinuance, in accordance with subsection 142(2) of the CTA. Citing the Canadian National Railway Co. v. Greenstone et al. 2008 FCA 395 precedent, RDNO maintained that the discontinuance process must therefore begin anew to fully comply with subsection 142(2) of the CTA.
[8] The Agency concurs that the Line had not been included in CP’s Three Year Plan as set out in subsection 142(2) of the CTA. However, as CP had leased operations on the Line to a third party and control of the Line was returned to CP following the expiration of the lease agreement in August 2009, in accordance with subsection 146.01(2) of the CTA, CP was required to, within 60 days, either resume operations on the Line or follow the process set out in sections 143 to 145 of the CTA. Subsection 146.01(2) of the CTA states that if a railway line or operating interest in a railway line returns to a railway company that transferred it and the company decides to follow the process set out in sections 143 to 145 in respect of the railway line or operating interest, the company is not subject to subsection 142(2) of the CTA.
[9] CP chose to follow the process set out in sections 143 to 145 of the CTA and advertise the Line for transfer for continued operations within the 60 days as set out in subsection 146.01(1) of the CTA. The Agency finds that CP complied with the necessary requirements of that subsection and had no obligations under subsection 142(2) of the CTA with respect to the Line.
DEFINITION OF NET SALVAGE VALUE
[10] In previous Decisions issued by the Agency regarding the net salvage value of a railway line to be used for any purpose, the Agency has determined that the expression “net salvage value” refers to the market value of an asset less the costs associated with its disposal. These costs can include, but are not limited to, sales commissions, excavation, disposal, and environmental remediation. In essence, net salvage value is the realizable value of the assets – the track, land and other structures – less the costs associated with their disposal.
PROCESS
[11] The process for arriving at a net salvage value for a railway line involves several elements. The quantities and condition of the track and other materials forming part of the railway line are first determined. The market value is then established for each component of the track structure. The product of the values and the quantities results in the gross salvage value of the track and other materials. The next element is the determination of the cost of removal and salvage of the track and other materials. This cost is then deducted from the gross salvage value for track materials to arrive at the net salvage value for track materials.
[12] The valuation of the land component of the railway line is the usual next step. The land value is generally determined by evaluating the submissions of the parties and any supporting documentation. In some cases, the Agency may request an independent accredited land appraiser to provide an opinion on the submissions of the parties and/or to conduct an assessment.
[13] Depending on the case and the positions of the parties, the Agency may take additional factors into consideration with respect to its valuation of the land component of the railway line, such as the existence and extent of any environmental contamination and any projected environmental costs. The final element in the valuation exercise is the Agency’s consideration of any benefit, financial or otherwise, resulting from leases or agreements that may impact on the calculation of the net salvage value.
[14] When these values are determined, they are added to the net salvage value for track assets to arrive at the net salvage value of the railway line.
Relevant time frame for asset valuations
[15] The Agency assesses values or costs based upon best evidence. In cases of volatile commodity prices like those for reusable steel, the Agency has discretion in determining an appropriate value, especially when the net salvage value determination itself takes months to conclude. As part of the process, the Agency has consistently researched and established the market value for each component of the track structure subsequent to confirming the quantity and condition of the assets, and nearer to the end of the statutory process than to the beginning. In this way, the Agency’s ultimate determination incorporates values that better approximate in time the actual (or possible) transfer date of the railway line in question.
[16] The process used to determine the net salvage value is to be fair and consistent. Fairness requires that the Agency consider the evidence submitted by both parties for their respective valuations and then impartially assess each for both technical merit and reasonableness. Consistency means that if a particular valuation approach is adopted for one asset (e.g. reusable steel,) then all assets (steel, ballast, ties, other track materials) ought to be treated in the same manner.
[17] The Agency is thus not bound to accept those valuations that coincide with the date of the application, particularly if significant time has passed. It may use valuations developed over a time period and then determine a value based upon the best evidence and what is appropriate in the circumstances.
QUANTITY AND QUALITY OF THE TRACK ASSETS
Site visit and Statement of Track Materials
[18] On March 9, 2010, in conjunction with a previous application for a determination of the net salvage value of the Line made pursuant to subsection 144(3.1) of the CTA, which was later withdrawn, Agency staff conducted an engineering inspection of the Line. The purpose of this inspection was to confirm the quantity of the track and other material included in the Line, as well as to assess the condition of these assets. Based on this inspection, a Statement of Track Materials was completed on April 12, 2010. Because the Line has seen no traffic since the initial inspection, the Agency adopted that Statement of Track Materials in this case, distributed it to the parties with an opportunity to comment on October 6, 2010 and, with some minor modifications made based on comments received, finalized it on October 21, 2010.
VALUE OF THE TRACK ASSETS
[19] RDNO did not undertake a detailed assessment of the value of track infrastructure but submitted an estimate for the overall net value of the track assets of $1,100,000.
[20] The gross salvage value of the track assets according to CP is $2,360,284. CP indicates that as part of its railway business, it is familiar with gross market values of track materials from a number of sources, including North American indices and market prices, as well as direct sales to contractors of track materials from discontinued railway lines.
[21] CP indicates that it used the Agency Statement of Track Materials to establish the quality and quantity of track assets, and assigned values to the assets based on its own research of current market values. This research includes confidential correspondence with another North American railway company and contracts secured by CP with private salvaging contractors, detailing how much was paid for similar types of rail in the not too distant past. The contracts and correspondence were submitted to the Agency by CP with a claim for confidentiality.
[22] To assist in its determination of the value of the track assets, the Agency also conducted an independent market survey based on the information contained in the Statement of Track Materials, obtaining quotations from several market sources on the value of the various assets and the salvaging works involved to remove and dispose of those assets. These market sources include other Class 1 railway companies, companies specializing in rail salvage and metal markets. The quotations obtained were set out in a Market Research Data Report (MRDR,) which was distributed to the parties for comments on July 19, 2012. Comments were received from both parties on August 17, 2012.
Comments of the parties on the MRDR
[23] RDNO supports the findings contained in the MRDR.
[24] CP refers to the range of values for certain track assets set out in the MRDR and questions the Agency’s methodology for determining the value of track assets. CP also expresses concerns with respect to the costs shown in the MRDR for the disposal of scrap ties.
[25] Regarding the values of the track assets in the MRDR, CP maintains that there is a wide discrepancy in the values quoted. CP submits that what a salvage contractor is willing to pay for rail materials is quite different than the value other groups may attach to these materials. Because this quote price is always lower than market value, CP argues that the market value of these assets cannot be based on the price the contractor quotes for the asset. CP suggests that the Agency should closely validate the values submitted and discard those that are deemed invalid, and requests that the Agency not simply calculate the averages to determine the value of these assets. To support its position on the value of some of the key assets on the line, CP provided confidential sale orders and a description of the process it follows to award salvage contracts, indicating that these are meant to assist the Agency in validating the values of some of the quotes received.
[26] With respect to the disposal of scrap ties, CP submits that the costs shown in the MRDR, which range from $5 to $10 per tie for cross ties, from $7.75 to $15 for switch ties and $6.50 to $20 for bridge ties, are too high. CP reiterates the disposal cost of $2.55 per scrap tie it submitted in its original October 2010 submission of value and submits that the companies that provided quotes to the Agency do not have similar economies of scale to CP, or a corresponding favorable internal cost to transport products and materials over long distances. CP further submits that these companies most likely require a trucking company to haul the ties to an appropriate disposal location and have to pay “tipping” fees to dispose of the ties, which is not the case for CP. Because of this, CP submits that the Agency should determine that CP’s methodology and costing towards scrap ties are the most reasonable.
Analysis
[27] The Agency’s methodology for determining the value of the track assets, as described earlier in this Decision, is consistently applied in all net salvage value determinations. The Agency seeks quotations from independent market sources and also takes into account the value positions of the parties, when appropriate, to determine the market value of each component of the track infrastructure, based on its type, quantity and quality. The Agency also consistently assesses each of the quotations received for reasonableness, eliminating any “outliers” that appear to be either unrealistically higher or lower than the mean.
[28] The Agency is of the opinion that the fact that there is a range of values submitted from these independent sources validates the exercise by exemplifying and incorporating differing levels of market demand and avenues of disposal. In addition, if the Agency only accepted those values similar to or the same as those submitted by the railway company as being reasonable for consideration, the statutory process of determining net salvage value would be rendered moot.
[29] In Decision No. 542-R-2000, the Agency stated that its task in a net salvage value determination was to establish the value of the railway company’s interest, not to determine the value of the interest to the railway company or from the perspective of the government. In doing so, the Agency aimed at determining not the value of the assets as interpreted by the parties or from the parties’ perspective, but rather the value of the assets in the market, which is the ultimate force in determining the value of assets on a railway line. In that Decision, the Agency also stated that the fact that the valuation exercise is premised upon the assets being used for any purpose reinforces the use of a market approach. A market price is an amalgamation of all purposes, which is the mandate upon which the Agency is to determine net salvage value. Determining value from one party’s position is not consistent with the determination of value based on any purpose. The Agency concluded in that Decision that the approach taken by the Agency in conducting market research and determining the value of assets by averaging the relevant quotes received for the assets is consistent with the Agency’s task of determining net salvage value as defined by subsection 145(5) of the CTA. The Agency is still of that opinion.
[30] With respect to the disposal of scrap ties, the Agency acknowledges that CP appears to be in a position to dispose of scrap ties at a lower cost than other market sources. However, in determining market value, and this applies to all asset and removal valuations, not just those for scrap ties, the Agency must account for situations that do not necessarily entail the same commercial advantages and economies of scale that CP enjoys. The Agency finds that this can best be achieved through the use of an average of several independent market sources. That said, the Agency does find that CP has provided sufficient evidence to support its submitted disposal cost of $2.55 per tie, and the Agency includes it in the average cost for scrap tie disposal.
[31] A summary of the quantities and conditions of the track and other material contained in the Statement of Track Materials, and the values for them as determined by the Agency, based on its consideration of the MRDR and the submissions of the parties, are set out in Tables 1A to 1D. Tables 1A to 1C also include the values assigned to the various assets by CP. RDNO did not submit gross values for the track assets.
Rail
[32] The main line is made of 85 lb. jointed rail, with two public crossings made of 132 lb. and 115 lb. rail. In general, the rail is in good condition with a small “metal lip” on the gauge side of both rails in straight alignment. In curves, the rail showed typical wear patterns, such as extensive gauge face wear on the high rail and lips (metal flow) on the low rail. Also some small cracks known as rolling contact fatigue cracks were observed on the rail head in curves. The joints were in good condition and the rails were seated on tie plates. Based on the conditions observed in curves, all rails in curves of three degrees or more is classified as scrap and the remaining rail on straight alignment is classified as reusable for other branch line use.
[33] There are three sidings on the Line. The siding at Armstrong is in usable condition with an unloading pit in place, the siding at Enderby is in bad condition, and the one at Grindrod is covered by granular material to allow roadway vehicles to travel over it. The rail in the Armstrong siding is classified as reusable for similar use, whereas the rail in the other two sidings is classified as scrap.
Comments from the parties
[34] RDNO submits that it did not undertake an assessment of the gross value of the track infrastructure due to time and budgetary concerns.
[35] CP submits that there is significant demand for reusable 85 lb. and 80 lb. rail both within CP’s network and the North American railway industry, resulting in a higher market value for 85 lb. and 80 lb. rail than for scrap rail. CP further submits that 85 lb. and 80 lb. rail are no longer commercially manufactured in North America and, as a result, there is a cost premium to obtain these track materials today. CP indicates that it and numerous short-line and industrial rail operators require a constant supply of 85 lb. and 80 lb. rail for ongoing maintenance and relay/replacement program purposes.
[36] CP submits that for the purpose of this net salvage value application, an appropriate gross value for relay 85 lb. rail is $550 per ton, and a value of $450 per ton is the value that should be considered to accurately reflect the market price of quality 80 lb. relay rail. Finally, CP submits that $340 per ton is the appropriate gross value for scrap rail. CP estimates the overall value of the rail to be $1,298,391.
Analysis
[37] From its review of the information available, the Agency estimates that the current market value for 85 lb. rail suitable for branch line relay varies from $350 to $550 per ton. The Agency finds that a value of $429 per ton for 85 lb. rail suitable for branch line relay is appropriate in this case. With respect to 80 lb. rail reusable for siding or yard purposes, market research values vary from $305 to $650 per ton. The Agency finds that a value of $418 per ton for 80 lb. rail reusable for sidings or yards is appropriate. In reaching these particular values, the Agency has averaged CP’s submitted value and the values of the five relay rail quotations included in the MRDR.
[38] In the case of scrap rail, market values ranged from $200 to $401 per ton. Again, the Agency averaged the values assigned to scrap rail by CP and the seven scrap rail quotations included in the MRDR, to arrive at a value of $325 per ton for all sizes of scrap rail. See Table 1A below.
Agency | Quantity (tons) | Condition | $ Value (ton) | |
---|---|---|---|---|
85 lb. 39 ft. | 2,432.00 | Reusable BL | 86.34% | $429 |
Scrap | 13.66% | $325 | ||
80 lb. 39 ft. | 55.81 | Reusable S/Y | 100% | $418 |
65 lb. & 100 lb., 115 lb. & 132 lb. |
15.94 | Scrap | 100% | $325 |
CP | Quantity (tons) | Condition | $ Value (ton) | |
85 lb. 39 ft. | 2,432.00 | Reusable BL | 86.34% | $550 |
Scrap | 13.66% | $340 | ||
80 lb. 39 ft. | 55.81 | Reusable S/Y | 100% | $450 |
65 lb. & 100 lb. 115 lb. & 132 lb. |
15.94 | Scrap | 100% | $340 |
Other track materials (tie plates, joint bars, bolts, spikes, anchors, etc.) (OTM)
[39] The various types of 85 lb. tie plates and joint bars are generally in good condition. Approximately 23 percent of the tie plates and 14 percent of the joint bars are classified as scrap. All of the 100 lb., 115 lb. and 132 lb. tie plates and joint bars are classified as reusable, and the 65 lb. joint bars are 100 percent scrap. The bolts, spikes and rail anchors of all rail sizes are considered scrap.
[40] RDNO does not estimate a value for the OTM. CP used the Agency’s breakdown of reusable and scrap OTM to estimate its total value at $568,881.
[41] The Agency used the same approach to establish the market values for the OTM as it did for rail. That is, based upon the market value evidence presented, as well as that obtained independently by the Agency and set out in the MRDR, the Agency determines the following values. The value of reusable 85 lb. tie plates ranges from $459 to $666 per ton depending on the type of tie plate (see Table 1B.) Reusable double sided 100 lb., 115 lb. and 132 lb. tie plates are valued at $707 per ton, $685 per ton and $653 per ton respectively. The value of scrap tie plates is $374 per ton.
[42] The value of reusable 80 lb. joint bars is $605 per ton. For reusable 85 lb. joint bars, the value is $972 per ton for toeless joint bars and $902 per ton for joint bars that are not toeless. The value of all scrap joint bars is $374 per ton. Scrap bolts, nuts, spikes and rail anchors are also valued at $374 per ton. See Table 1B below.
Miscellaneous track materials
[43] There are nine switches on the main line and sidings, seven of which are 85 lb. and two that are 100 lb. Of the 85 lb. switches, five are in reusable condition and two are scrap. One of the 100 lb. switches is considered reusable, the other is classified as scrap. There are also four derails, hinge type, 85 lb., located on sidings. All of these are considered reusable.
[44] CP values the reusable 85 lb. switches at $5,000 each, and the reusable 100 lb. switch at $7,900. CP does not submit a value for the derails. CP also submits a value of $2,380 per unit for the 85 lb. scrap switches and $2,720 for the 100 lb. scrap switch. Taking into account CP’s estimates, as well as those received from independent quotations, the Agency determines the value of the reusable 85 lb. switches to be $2,633. On the same basis, the Agency determines the value of the reusable 100 lb. switch to be $5,850 and estimates the value of the scrap switches on a per ton basis at $449 per ton for the 85 lb. switches and $492 per ton for the 100 lb. switch. The reusable 85 lb. hinge type derail are valued at $151 each. See Table 1B below.
Office |
Quantity |
Condition | $ Value/ton (rounded) | |
---|---|---|---|---|
Tie plates | ||||
65/85 lb. SS – 6.5 in. x 8.5 in. | 30.10 | Reusable | 75% | $485 |
Scrap | 25% | $374 | ||
85 lb. DS – 7.5 in. x 11 in. | 48.70 | Reusable | 100% | $666 |
85/100 lb. SS – 7.5 in. x 11 in. | 501.49 | Reusable | 75% | $459 |
Scrap | 25% | $374 | ||
100 lb. DS – 7.5 in. x 14 in. | 3.00 | Reusable | 100% | $707 |
115 lb. DS – 7.5 in. x 14 in. | 0.62 | Reusable | 100% | $685 |
132 lb. DS – 7.5 in. x 14 in. | 1.29 | Reusable | 100% | $653 |
Joint bars | ||||
4H-80 lb. 22 in. | 2.47 | Reusable | 80% | $605 |
Scrap | 20% | $374 | ||
4H-85 lb. 22 in. | 64.08 | Reusable | 80% | $902 |
Scrap | 20% | $374 | ||
4H-85 lb. 22 in. Toeless | 27.46 | Reusable | 100% | $972 |
4H-85-100 lb. Compromise 22 in. | 0.20 | Reusable | 100% | $5,805 |
6H-100-115 lb. Compromise 36 in. | 0.18 | Reusable | 100% | $4,521 |
6H-100-132 lb. Compromise 36 in. | 0.19 | Reusable | 100% | $4,030 |
Other fastenings | ||||
Bolts | 13.52 | Scrap | 100% | $374 |
Spikes | 77.13 | Scrap | 100% | $374 |
Rail anchors | 60.34 | Scrap | 100% | $374 |
CP |
Quantity |
Condition | $ Value/unit | |
Tie plates | ||||
85 lb. DS 11 in. | 7,008 | Reusable | 100% | $3.83 |
Various 85 lb. SS tie plates | 71,352 | Reusable | 100% | $3.83 |
100 lb. DS 14 in. | 286 | Reusable | 100% | $4.59 |
115 lb. DS 14 in. | 62 | Reusable | 100% | $4.68 |
132 lb. DS 14 in. | 122 | Reusable | 100% | $5.74 |
Joint bars | ||||
Various 80/85 RE joint/angle bars | 7,054 | Reusable | 100% | $18 |
100/85 lb. Compromise joint bars | 8 pairs | Reusable | 100% | $105.68/pair |
115-132/100 lb. Compromise joint bars | 11 pairs | Reusable | 100% | $172.88/pair |
Other scrap fastenings | ||||
Bolts, spikes, rail anchors, joint bars and tie plates | 297.26 tons | Scrap | 100% | $460/ton |
Miscellaneous track materials | Quantity (units) | Condition |
CP |
Agency |
Switch - No. 9 - 85 lb. BR | 5 | Reusable | $5,000 | $2,633 |
Switch No. 11–100 lb. RBM | 1 | Reusable | $7,900 | $5,850 |
Switch - No. 9 - 85 lb. BR | 2 | Scrap | $2,380 | $449/ton |
Switch No. 11–100 lb. RBM | 1 | Scrap | $2,720 | $492/ton |
Derail-hinge type - 85 lb. | 4 | Reusable | n/a | $151 |
Ties
[45] All of the three types of ties: cross, switch and bridge, are categorized based on their condition as good, fair or bad, with bad ties being considered scrap. Scrap ties have no salvage value, but instead carry a disposal cost, which will be discussed further under the section on salvage and disposal costs. Ties classified as fair are valued on their potential use in other non-railway, industrial applications. The Agency gives no consideration to using ties as landscape materials because they are treated with creosote.
Cross ties
[46] Based on the results of a verification of a track section in each five-mile segment of the main line, the overall split of cross ties on the main line would be 24 percent good, reusable in similar branch lines, 30 percent fair, reusable in sidings and yard tracks, and 46 percent scrap. The cross ties on the sidings were generally in poor condition. As a result of the better condition noted by Agency engineering staff for the cross ties in curves, a different split was made for ties in curves. This results in an average overall split of the 52,031 cross ties of 26 percent in good condition, 31 percent in fair condition and 43 percent scrap.
[47] As with the rail and other track materials, RDNO did not submit an estimate for the value of any type or condition of tie. CP categorizes used ties three ways: CP relay; contractor relay; and, scrap. CP accepts the Agency’s breakdown of cross ties, as per the Statement of Track Materials, and assigns 43 percent of 52,031 cross ties as scrap. For all sizes of cross ties, CP attaches an average value of $17 each to the ties falling into the CP rail category, and $12 each for contractor relay ties for a total value of $423,627 for reusable cross ties.
[48] Taking the values submitted and those obtained from independent quotations into account, the Agency assigns values for the various sizes of cross ties classified as either good or fair, as presented below in Table 1C.
Switch ties and bridge deck ties
[49] The Agency considers approximately 65 percent of the switch ties as fair, reusable in similar track, with the balance being classified as scrap. There are a total of three open deck bridges on the line. Bridge deck ties are of 8 in. x 8 in. x 10 ft. The condition of the treated bridge ties is generally poor, with 21 percent in a fair condition and 79 percent classified as scrap.
[50] CP views the switch ties as nine complete “switch tie packages,” which CP considers to be 67 percent CP relay quality and 33 percent scrap. CP assigns a value of $4,700 each to the six relay quality packages. Based on CP’s assessment that 67 percent of the switch ties (318) are of relay quality, as opposed to the Agency’s 65 percent assessment (309,) this equates to a value of $88.68 per tie. Regarding bridge ties, CP uses the breakdown in the Statement of Track Materials and assigns a value of $35 per tie for reusable bridge ties.
[51] Based on its evaluation of the market data gathered, the Agency finds that the reusable switch ties and reusable bridge deck ties have a value of $37.31 and $20.17 per tie respectively. This reflects an average of the various assessments. See Table 1C below.
Agency |
Quantity |
Condition | $ Value (each) | |
---|---|---|---|---|
Cross ties | ||||
No. 1 TR HW - 7” x 9” x 8’ | 48,562 | Good | 27% | $13.75 |
Fair | 30% | $10.75 | ||
Scrap | 43% | n/a | ||
No. 2 TR HW - 6” x 8” x 8’ | 3,469 | Good | 5% | $10.33 |
Fair | 48% | $9.33 | ||
Scrap | 47% | n/a | ||
Switch ties | 477 | Fair | 65% | $37.31 |
Scrap | 35% | n/a | ||
Bridge deck ties | 108 | Fair | 21% | $20.17 |
Scrap | 79% | n/a | ||
CP | ||||
Cross ties | 52,116 | CP relay | 26% | $17.00 |
Contractor relay | 31% | $12.00 | ||
Scrap | 43% | n/a | ||
Switch ties | 477 (9 package) |
CP relay | 67% | $88.68 |
Scrap | 33% | n/a | ||
Bridge deck ties | 108 | CP relay | 21% | $35.00 |
Scrap | 79% | n/a |
Public crossings and crossing signals
[52] A total of 13 public crossings at grade were encountered; 7 equipped with standard cross bucks and 6 with automatic crossing protection systems. No net salvage value is estimated for public crossings, although the restoration of public crossings is a factor considered in determining removal and disposal costs.
AGENCY DETERMINATION OF GROSS SALVAGE VALUE OF TRACK ASSETS
[53] In summary, track materials to be taken into account include rail, track fastenings, other miscellaneous track materials and ties. In addition to taking the parties’ estimates into account, several independent sources were surveyed by the Agency during its assessment of current market conditions and values. As noted above, the relevant quantities were determined during the engineering inspection and subsequently adjusted, where appropriate, based on the comments received from the parties. The unit values for the various assets were, in turn, multiplied by the respective quantities to arrive at the gross salvage value, which the Agency determines to be $1,836,257. See Table 1D below.
Track asset |
Total gross salvage value (rounded to the nearest $) |
---|---|
Rail (Table 1A) | $1,037,942 |
Track fastenings and miscellaneous track materials (Table 1B) | $429,798 |
Reusable ties (Table 1C) | $368,517 |
Gross salvage value - Track assets | $1,836,257 |
Cost of removal and salvaging
[54] The accepted definitions and the Agency’s methodology for determining net salvage value include an assessment of the relevant costs for the removal and disposal of track assets. Structures are considered to be left in place, and public crossings are considered to be resurfaced to return them to their original condition. The steel track materials are assessed on the basis of either being sent for disposal to a scrap yard or shipped/sold for reuse elsewhere. Cross, switch and bridge ties are considered to be sold for reuse as second-hand track materials or disposed of in a licensed disposal site. Transportation costs have been factored into the salvage and disposal costs as most of the track materials, including the ties, could not be disposed of locally.
[55] An itemized breakdown of RDNO’s estimate for the cost of removal and salvaging was included in its submission of value in Appendix 5: Golder Associates: Preliminary Cost Assessment to Decommission a Rail Corridor between Armstrong and Grindrod BC (Golder Report.) RDNO submitted this report with a claim for confidentiality, indicating that it was due to the sensitive and privileged nature of the material. For the most part, the Agency accepts this claim for confidentiality. However, for the purposes of this determination of removal and salvaging costs, the Agency finds that it is necessary to disclose certain isolated values set out in the Golder Report and the Agency further finds that disclosing these values does not compromise the confidentiality of the Golder Report as a whole.
Rail and other track materials
[56] With respect to the cost of salvaging the track materials, RDNO submits a cost of $242,250 for track removal and $127,500 for tie removal (a total of $369,750,) as indicated in the Golder Report. This equates to a salvaging cost of $22,075 per mile.
[57] CP bases its estimate for the removal of track and material on 15.23 miles of track at $19,000 per mile, which totals $289,370. CP bases its mileage on main track route miles as opposed to the 16.75 total track miles identified in the Statement of Track Materials. It is CP’s position that its estimate reflects a conservative point between contractor salvaging costs of 85 lb. branch lines submitted in previous net salvage value submissions and CP’s most recent 85 lb. salvaging contracts provided to the Agency under claim of confidentiality, and takes into account labour cost fluctuations since the salvage contracts were awarded. CP indicates that an estimate of $21,500 to account for the restoration of road crossings is included in its cost per mile estimate. CP estimates an additional amount of $33,794 to account for the cost of loading and transporting the track materials. This increases CP’s submitted salvaging and removal cost to $19,293 per mile, based on the total cost submitted by CP and the total mileage of 16.75 miles determined by the Agency.
[58] The Agency’s determination of the total mileage for the Line of 16.75 miles includes 15.16 miles of branch line and 1.59 miles of siding and guard rails. This finding is based on the Agency’s examination of the site as detailed in the Statement of Track Materials. There are 13 public crossings, 5 with asphalt, 1 with concrete panels, and 6 with wood planks and asphalt. The quotations received by the Agency for track removal and disposal include reparation of road crossings, as well as the transportation costs associated with the removal of steel, relay ties and scrap OTM. The Agency has analyzed the submissions of the parties on this basis, and has established a removal and disposal cost that is inclusive of these additional factors.
[59] After considering the parties’ estimates and those of the other quotations received, the Agency has determined the total inclusive cost for removal of the track and track materials to be $23,300 per mile, totalling $390,276 for the 16.75 miles of track on the Line.
Scrap tie disposal
[60] There is a cost to dispose of scrap ties and transport them to a facility where they can be disposed of in an environmentally sound manner. Under both the Canadian Environmental Protection Act, S.C., 1999, c. 33 and the Transportation of Dangerous Goods Act, S.C., 1992, c. 34, materials with a creosote concentration of above 100 ppm are considered a toxic waste. The Agency bases its assessment of the transportation and disposal costs associated with the environmentally sound disposal of scrap ties, which includes chipping the scrap ties and transporting them to an approved co-generation site, on the assumption that all scrap ties installed on the line exceed the allowable creosote level.
[61] RDNO’s Golder Report assigns a disposal cost of $7.50 per tie for scrap ties. The removal costs for scrap ties are included in RDNO’s estimate of track removal costs noted earlier.
[62] CP included the cost of picking up the scrap ties from the Line and transporting them to the rail car loading point in its submitted cost of salvage noted earlier. CP submits a further cost to load, transport and dispose of the scrap ties. CP calculated this cost based on CP’s Unit Cost determination for On Company Service (OCS,) and made a claim for confidentiality on the specifics of this calculation. CP’s estimated number of scrap ties is 22,455, which differs from the quantity of 23,623 scrap ties determined by the Agency. Based on its estimated quantity, CP submits an estimated cost of $2.55 per scrap tie to load, transport and dispose of scrap ties.
[63] After considering the parties’ estimates and those of other quotations received, The Agency determines the cost for the environmentally sound disposal of cross ties to be $6.65 per tie; switch ties $8.68 per tie, and bridge ties $9.36 per tie. These result in the Agency’s determination of a total disposal cost for scrap ties of $150,967.
AGENCY DETERMINATION OF THE COSTS OF THE REMOVAL AND SALVAGE OF TRACK ASSETS
[64] The Agency determines the total removal and salvage cost for the track assets to be $541,243. A comparison, based on 16.75 miles of track, of the removal and salvage costs of track assets as determined by the Agency and the estimates submitted by the parties is summarized in Table 2 below.
Rail salvage costsNote 1 | Quantity |
$ Value/mile |
Submitted total | Agency total |
---|---|---|---|---|
Agency total removal and disposal cost | $541,243 | |||
Agency | 16.75 mi. | $23,300 | $390, 276 | |
RDNO | $22,075 | $369,750 | ||
CP | $19,293 | $323,164 | ||
Scrap tie disposal, chipping, transportation, etc. | Quantity |
$ Value/tie |
||
Agency | ||||
Cross ties | 23,370 | $6.65 | $148,712 | |
Switch ties | 168 | $8.68 | $1,459 | |
Bridge ties | 85 | $9.36 | $796 | |
RDNO | 23,623 | $7.50 | $169,672 | |
CP | 22,455 | $2.55 | $57,346 |
AGENCY DETERMINATION OF NET SALVAGE VALUE FOR TRACK MATERIALS
[65] The net salvage value for track materials is obtained by subtracting the cost of removal, salvage and transportation of $541,243 from the gross salvage value of the track materials of $1,836,257. The Agency therefore determines a net salvage value of the track materials on the Line of $1,295,014.
Consideration of bridges and culverts
[66] There are three open deck bridges on the Line.
[67] CP submits that in valuing a railway line where a possible purpose or end use is for continued rail operations, consideration must be given to the preservation of bridges and culverts. Where a possible end use is for other types of linear corridors such as a roadway or recreational trail, bridges and culverts would also be preserved and have value in terms of the use of a line. CP adds that costs associated with the removal of railway bridges and culverts have never been included in net salvage value determinations. CP argues that the reasons given in Decision No. LET‑R‑74‑2008 for assigning a zero value and cost for the removal of railway bridges are applicable in this case.
[68] CP further submits that all culverts are functional and none require removal.
[69] RDNO submits that CP’s Okanagan Subdivision directly interacts with Fortune Creek and its tributaries through culverts, an existing wooden rail bridge and with the right of way, including riparian areas that must be rehabilitated during any land use development.
[70] RDNO contends that a railway company is usually required to remove bridges over navigable waters and fish bearing streams (Crown Land) at the request of the Crown and to restore grade crossings at its own expense. RDNO further contends that in some cases, railway companies must remove berms and culverts as well and restore the corridor to its original contours when selling to individual owners.
[71] RDNO maintains that the railway company retains some risk from the unauthorized use of structures that remain intact. As an example, RDNO states that if a trespasser falls off an abandoned bridge, even if the bridge is blocked off, the railway company may still be liable. According to RDNO, a railway company wants to be absolved of its associated liability as part of any sale and those liabilities should be taken into account when evaluating the net salvage value.
Agency finding
[72] The costs associated with the removal of railway bridges have never been included in past Agency net salvage value determinations under section 145 of the CTA. There are several reasons for this exclusion: the removal of railway bridges is not required by law upon discontinuation of railway lines; the subsequent use of a railway line for which the Agency determines net salvage value may include rail and non-rail transportation use; and, the costs associated with the dismantlement of railway bridges are uncertain as the state of these assets at the time of transfer and the time of dismantlement is likely to change. The Agency’s predecessors, the Canadian Transport Commission and the National Transportation Agency, also determined net salvage value in support of subsidy calculations with respect to actual losses incurred in the operation of particular railway lines. In those proceedings, the net salvage value of railway bridges was consistently deemed to be zero.
[73] As with determinations made under section 145 of the CTA, the Agency, in accordance with section 146.3 of the CTA, is required to determine a net salvage value of a railway line, which can be used “for any purpose” and may include possible rail and non-rail transportation uses. Consistent with past Agency determinations and in light of the above reasons, the Agency will include neither the salvage value nor the cost of dismantling the bridges on the Line in its net salvage value determination.
[74] On the subject of culvert removal, culverts are not normally backfilled when a railway line is discontinued. There are circumstances where certain culverts would need to be removed, such as if a culvert was not functioning and caused water to flow outside the normal channel, resulting in damage to adjacent landowners. However, in this case, all culverts are functional and, therefore, there is no provision for their removal.
ENVIRONMENTAL CONSIDERATIONS
[75] The Agency examines the environmental conditions present in every net salvage value application it undertakes. In this case, after the Agency examined the submissions of the parties and relayed the results of its examination through a confidential process necessitated by the parties’ claim for confidentiality on their respective environment related submissions, the parties were given a choice of several options regarding if and how the Agency should proceed with further environmental examination.
[76] RDNO and CP both chose the option which, on agreement of the parties, eliminated the need for further environmental scrutiny and any determination of possible associated costs for the purposes of the net salvage value process. Under this option, it was further stipulated that the net salvage value determined by the Agency would exclude any consideration of potential environmental costs. It also noted that a decision issued without consideration of environmental costs would not imply environmental costs do not exist, but rather that the Agency had not made a decision either way with respect to the existence of environmental costs.
[77] On the basis of the parties’ agreement on this option, in Decision No. LET-R-123-2011, the Agency determined that the net salvage value of the Line will be determined without further assessment of whether there were environmental costs applicable.
INTEREST IN LEASES AND AGREEMENTS
[78] A value representative of the interest in any leases and agreements that are expected to survive the transfer of the line is taken into consideration by the Agency when establishing the net salvage value.
[79] In its submission, CP includes a confidential detailed table of the leases and agreements currently in place on the Line, which it considers subject to transfer when ownership of the Line changes. CP submits the net present value of the leases to be $183,960.51. This is based on a period of 15 years with a 3 percent annual lease increase, and a discount rate of 6.80 percent.
[80] Prior to the value of the revenue stream from any particular lease or agreement being included in the net salvage value, a key determinant is that there must be a reasonable certainty that the agreement will survive the transfer of the railway line. The types of agreements contemplated by the Agency for consideration in a net salvage value determined under sections 145 and 146.3 of the CTA are primarily utility easement agreements and long-term agreements of that nature. They are limited to access agreements that are not necessarily dependent on or the consequence of continued rail operations, as well as agreements that are not contingent on the railway line being under federal jurisdiction.
[81] Upon examination, the Agency finds that certain of the leases submitted by CP, such as those for private sidings, are rail dependent and do not meet the necessary criteria. These have not, therefore, been included in the Agency’s calculation. The Agency finds that the annual lease revenue of $11,974 from the remaining agreements can reasonably be expected to continue after the Line is transferred. Therefore, consistent with past practices, the Agency includes the present value of these leases for ten years in the net salvage value of the Line and applies a discount rate equal to the rate of return on long‑term Canadian bonds of 2.40 percent. The resulting increase to the net salvage value to account for interest in leases and agreements is $105,338.
LAND VALUATION
[82] A value of the land component of the Line was submitted by both parties, and each party used a different methodology.
RDNO
[83] RDNO estimates the total area of the land to be 226.28 acres, including 23.16 acres within Spallumcheen Indian Band Enderby (Enderby IR#2.) It submits the fee simple interest value of the land to be $2,820,879. RDNO further estimates an additional range of costs for legal and survey costs, Agricultural Land Reserve (ALR) application fees and local and regional land use planning application fees of between $277,250 and $549,350 would reduce this value.
[84] To evaluate the fair market value of the corridor, RDNO indicates that it consulted with a registered local real estate appraiser and has relied on his expert’s opinion regarding a sectoral valuation of the corridor. RDNO also notes that due to time constraints and the complexity of the real estate appraisal, a detailed assessment of the Across the Fence (ATF) valuation was not undertaken. RDNO does not identify its expert or submit a copy of its expert’s opinion.
[85] As the basis of its valuation, RDNO examines the four criteria that must be met in the analysis of highest and best use (i.e., legally permissible, physically possible, financially feasible and maximally productive) and submits that expected land use, as determined by zoning and Official Community Plan (OCP) limitations, provincial designations and surrounding area land uses, as well as existing linkages, market demand and current improvements, limit the highest and best use to either a corridor or consolidation with surrounding parcels. It concludes that due to the inability of CP to dispose of the corridor for rail purposes to a third party for continued operation, the lack of interest by the Province and the federal government to acquire the corridor, and potential segmentation of the corridor due to First Nations issues (discussed below,) the highest and best use of the corridor would be for it to be parcelled up for consolidation with existing adjacent properties.
[86] RDNO’s methodology for land valuation under this scenario involves the implementation of sectoral analysis. Under this approach, the subject property is segmented by its ability to be attached with adjacent parcels using the ATF valuation, and its value reflects the aggregate of the market value of each considered sector, after certain constraints and factors affecting the value have been taken into consideration.
[87] RDNO indicates that these factors and constraints include the effects of provincial ALR property designations and the Riparian Areas Regulation (RAR,) zoning bylaws and OCPs, the existence of double road frontages, and First Nations claims and uncertainty. RDNO also submits that there is an impact due to uncertainty over environmental issues. This is discussed in this Decision under Environmental Considerations.
[88] RDNO submits that, subject to the Agricultural Land Commission Act, S.B.C., 2002, c. 36, and the Agricultural Land Reserve Use, Subdivision and Procedure Regulation; with respect to land located in the province’s designated ALR (a provincial zone in which agriculture is recognized as the priority use,) the Line would be considered a pre-existing non-conforming non-farm use of the ALR. RDNO further submits that if no longer used for rail purposes, any new non-farm use of the Line, including linear corridors, roads, trails, utilities and other transportation uses, would require approval from the Agricultural Land Commission (ALC.) RDNO adds that the potential uses of the corridor would be significantly restricted as the uses that may be acceptable to the ALC would be very limited. According to RDNO, it is unlikely that the ALC would support raising separate title to portions of the right of way for separate sale to adjoining landowners due to issues with road access and concerns that the land might be manipulated into residential parcels. It considers consolidation with adjacent ALR properties would, therefore, likely be the most supportable outcome, contingent on the willingness of adjacent owners to purchase these parcels. RDNO indicates that unless restored for agricultural use, the value of a narrow strip of non-farm use land that would require ALC approval for any use would be substantially lower than productive agricultural land.
[89] With respect to the RAR, RDNO explains that, enabled by the Fish Protection Act, S.B.C., 1997, c. 21, the regulation applies to any new residential, commercial and industrial development that occurs within 30 metres (100 feet) of the high water mark along any water body (in this case Shuswap River, Fortune Creek and any tributaries) on private land and privately used Crown land that is under local government jurisdiction. RDNO indicates that this legislation is intended to ensure that land developers assess habitat and the potential impacts to habitat, develop mitigation measures and avoid impacts from development for fish and fish habitat, particularly riparian habitat (referred to as harmful alteration, disruption or destruction [HADD] of riparian fish habitat.) If an HADD cannot be avoided, an application for authorization must be submitted to Fisheries and Oceans Canada (DFO.) RDNO also indicates that DFO may require rehabilitation of the riparian area within 30 metres of the high water mark, at the owner’s expense, and a restrictive covenant be placed on the property to protect the riparian area. RDNO submits that the liability associated with attempting any development or removal of ballast within 30 metres of a watercourse reduces the value of the land.
[90] Concerning zoning bylaws and OCP issues, RDNO states that the Line is currently registered as eight parcels and that any change in usage, including linear corridor uses, development proposals and subdivision, would require rezoning and OCP amendment applications, RAR applications, development variance permits and other local, regional or provincial authorizations for each parcel. RDNO contends that this provides uncertainty to any potential purchaser regarding permitted end usage.
[91] RDNO submits that the corridor has three major sections that are contained by two roads (double road frontages,) indicating that 23.06 acres of land in Electoral Area F, considered by the ALC to be in the ALR, is isolated by two roads. As this land is governed by a zoning bylaw dictating a minimum parcel size of one acre and consolidation with adjacent parcels would require the removal of one of the road right of ways, RDNO considers subdivision for this acreage problematic. RDNO adds that 6.01 acres of corridor land within the city of Enderby has double road frontage that may make commercial and/or industrial development attractive, although there is uncertainty whether the City of Enderby would support those types of development.
[92] RDNO indicates that the Spallumcheen Indian Band, through legal precedent, and the “INAC policy,” has a high probability of consolidating the Okanagan Subdivision, from mileages 23.50 to 25.42, with Enderby IR#2, through a property transfer from CP to the Crown, at no cost. RDNO argues that these lands should be excluded from the valuation and that this uncertainty over the corridor lands may reduce the willingness of a purchaser to acquire the parcel at fair market value.
[93] To arrive at the ATF values, based on the premise that the lands would be sold to adjacent landowners for consolidation with their existing parcels, RDNO indicates that it employed the Direct Comparison Approach. For this purpose, it used a sectoral average price based on current market demand and the current market value of those parcels, as well as consideration of current market trends, survey costs and costs associated with disposal of individual parcels.
[94] RDNO identifies the following land use categories abutting the Line and estimates the ATF value per acre of the various categories as follows: ALR Farm Use - $8,000; R1 and R1A - $350,000; R3Note 2 - $500,000; Commercial - $550,000; Industrial - $200,000; Institutional (S1) - $500,000, First Nations - $0. The ATF value is reduced by 50 percent for any land that RDNO considers potentially affected by the RAR.
[95] RDNO indicates that the sectoral analysis was implemented by segmenting the right of way by its ability to be autonomously used, or attached with adjacent parcels. RDNO considered any constraints and issues affecting highest and best use, and identified each sector’s geographical/physical asset, local and regional zoning and OCP designation prior to August 1, 2010, ALR designation, and each sector’s highest and best use considering ATF land use and development. A total of 759 segments (incorporating ATF values on both the east and west sides of the corridor) were examined. This results in a total ATF value for the Line of $5,641,758, as submitted by RDNO.
[96] RDNO further submits that, based on the assumption that the ALR lands were remediated to farm use standard, a conservative discount rate of 50 percent is applicable to the ATF value to account for the uncertainty associated with the corridor issues it has identified, as well as issues associated with profit allowance and limited marketability. This results in RDNO’s submitted land value of $2,820,879.
[97] RDNO indicates that ALR non-farm use lands would be worth significantly less, and that deductions or carrying costs, costs associated with adhering to local, regional or provincial regulations, legislation and/or approvals, or any other land development or transfer obligations and costs have not been taken into account.
[98] With respect to a corridor assemblage premium, in RDNO’s view, there is a high probability of the reversion of the Okanagan Subdivision, mileages 23.50 to 25.42, to the Crown to be consolidated with Enderby IR#2. It contends, therefore, that a corridor assemblage premium should not be applied in this case, or if applied, should be significantly reduced as the corridor would no longer be continuous.
[99] In response to CP’s submission on land value, RDNO maintains that the land valuation must consider permissibility and the land must be valued in context with the legal and regulatory issues of the corridor in question. It considers that CP’s classification of 60.19 acres as “improved industrial” and 120.39 acres as “raw industrial” has not taken into account issues associated with ALR and First Nations lands and that the “as is” sale of the land transfers the associated liabilities to the new owners, which therefore reduces the saleability and value of the land. RDNO adds that CP’s valuation approach presupposes an end use based on local OCPs, which recognize the current use of the land and that the rail corridor sales evidenced by CP are not reflective of the constraints and liabilities that a purchaser would need to consider in British Columbia.
CP
[100] CP estimates the total land area on the Line to be 180.58 acres, which it indicates comprises the standard 100-foot right of way, rights of way wider than 100 feet (typically to accommodate higher cuts and fills) and former station ground lands, which may be leased to rail customers/businesses or used to support rail operations. CP submits a value of $16,500,000 for this land.
[101] CP commissioned a land appraisal report, from Rod Cook, senior partner of Kent Macpherson real estate appraisers (Cook Report,) to provide evidence of the market value of the corridor lands. CP submitted the Cook Report, dated December 23, 2009, with a claim for confidentiality.
[102] CP indicates that Mr. Cook valued the corridor lands using several valuation methodologies: its value as a “linear corridor;” an ATF valuation and a Sector valuation (simplified ATF valuation.) The tax roll assessed value of the corridor lands is not included in the Cook Report. CP submits that because these values are assessed on a province-wide rate, they are not representative of market values.
[103] Based on the amount of interest generated by the offering of this corridor, the intent stated by RDNO in its application and rezoning bylaws designating the Line for an end use as a linear corridor, it is CP’s position that the most likely end use for the Line is as a linear corridor. CP submits that the total appraised Linear Corridor value of the lands, as per the Cook Report, is $16,500,000. It indicates that the Cook Report classified 60.19 acres as “Improved Industrial,” commanding a higher price per acre (more than three times higher than “Raw Industrial.”) then the remaining 120.39 acres were classified as “Raw Industrial.” CP suggests that this should be considered the minimum reasonable value and that an intact and unencumbered corridor provides additional value, to which a corridor assemblage premium could be applicable. CP also indicates that, in its experience, the sale of railway corridors has encompassed a wide variety of uses, including short-line and tourist rail operations, utility corridors ranging from waterlines, sewer lines, oil and gas lines, telecommunication lines (including fibre) etc., and public recreational trails.
[104] Another reasonably possible end use according to CP is the annexation of the land by adjacent landowners. CP indicates that much of the right of way runs through agricultural, rural and urban lands and many of these landowners will likely want to acquire the portion of the right of way that bisects or runs adjacent to their property. According to CP, such landowners would pay, at a minimum, the ATF value, and, in situations where their property is bisected, a premium may be considered in order to have a contiguous parcel. To value the land from this perspective, CP indicates that the Cook Report employed both an ATF valuation and a Sector valuation. CP describes the Sector valuation as a broad ATF valuation, which involves breaking down the right of way into larger land use components and applying the average land values to each sector.
[105] CP submits a total value of $7,300,000 using the ATF valuation and $8,900,000 using the Sector valuation. CP maintains that the ATF valuation can undervalue the land because it does not consider the premium that adjacent landowners may be willing to pay and/or the contributory value (compounding effect) of the right of way if added to adjacent properties. CP indicates that detailed feasibility studies assisted by planners and engineers would be required to determine “highest and best use” of the lands before and after the addition of the right of way to more precisely quantify ATF values, including enhancement values.
[106] It is CP’s position that the ATF and Sector methodologies have limitations in trying to determine the appropriate valuation of the corridor lands. Specifically, the ATF approach does not account for any cost incurred in improving or preparing the right of way for railway use, whereas the Linear Corridor valuation reflects the value of the right of way to an industrial user that could utilize the corridor and existing improvements for the purpose for which they were designed. CP submits that the ATF and Sector approaches value the corridor on the basis of the value of the adjacent lands that it traverses, which have very different valuations, uses and potential purposes, but do not necessarily reflect the value of a transportation corridor.
[107] In response to RDNO’s submission on land value, CP submits that the submission contains several significant errors with respect to the calculation of the net salvage value. One of these is the assumption which, according to CP, is consistent throughout RDNO’s reasoning, that valuation of the Line occurs at a point in time after it is discontinued. CP asserts that the relevant valuation point is prior to discontinuance. Accordingly, CP considers that alleged and speculative costs that might arise after discontinuance, including any costs associated with ownership of land under British Columbia’s legislative and regulatory framework, such as the ALR, the RAR and local regulations, as well as First Nations issues, are not relevant to the net salvage value determination.
[108] CP maintains that another incorrect assumption on RDNO’s part is that the Line will not be used for rail purposes and that the right of way lands must be re-engineered to farmland use. CP contends that the Agency must consider that the Line is offered “for any purpose,” which includes use as a railway line. CP further submits that, in its experience, rail purposes would be a most likely end use as it has sold numerous railway lines both during and after discontinuance for the purpose of short-line and tourist railway operations. CP considers re-engineering the Line for farm land use to be the most extreme change of use that could be proposed and, if the cost exceeds the value, does not represent a reasonable end use.
[109] It is also CP’s position that the discount factors applied by RDNO are arbitrary and that RDNO does not specifically identify how the discount was reached, other than repeating the alleged and incorrect cost assumptions. CP further contends that, because RDNO did not undertake a detailed appraisal by a certified appraiser, its submission does not have an accurate base land value from which to apply a discount factor. Further to this, CP disputes that any discount value is appropriate and reiterates that it has provided an expert appraisal report to confirm the value of the right of way lands.
[110] With specific reference to the ALR, CP submits that the right of way has never had a history of use as agricultural land and that during the construction of the Line in 1890 to 1892, top soil would have been removed due to its inherent lack of geotechnical stability. Because of this, CP contends that the status of the soil would have been non-agricultural at the time of the enactment of the British Columbia Land Commission Act in 1973 and the ALR in 1974 through 1976. As a result, CP submits that the Line would not be considered part of the ALR even after discontinuance as the primary technical assessment point for land as agricultural is the presence of high quality agricultural soils. CP considers the ALR completely irrelevant to the net salvage value determination and disputes that a discount factor should be applied due to the ALR. Further to this, CP contends that fees associated with applications to the ALC for permits for non-farm or linear corridor use should also not be considered because, in its view, as the Line has not been discontinued, the ALR is not applicable.
[111] CP considers the RAR to be another example of a regulation that is not applicable to the Line because it has not been discontinued. CP adds that the regulation is applicable only to “new residential and commercial development” and that the most cost-effective and reasonable possible uses of the Line include continuing railway operations or use as a linear corridor. CP considers new residential and commercial development of the corridor to be unlikely because of municipal zoning bylaws, which CP indicates are intended to maintain the Line as a railway/transportation corridor after discontinuance. CP also states that it is unaware of any regulatory triggers or requirements related to riparian areas or wetlands associated with historic land uses and characterizes the reduction applied by RDNO due to RAR issues as “random.”
[112] With respect to any assumption that subdivision restrictions would create delay or difficulty in selling or that consolidation applications would be required to annex portions of the property with adjoining landowners, CP submits that neither of these are the case. CP indicates that any costs associated with subdivision or consolidation are not applicable because the Line has not been discontinued and remains an intact corridor, and neither cost would be required if the Line was sold as a linear corridor.
[113] CP also submits that, even if the Line were sold to adjacent landowners, these costs, as well as any requirement to obtain approval with respect to the ALR, change of usage, development proposals, OCP amendment applications, etc., would not be applicable because the Line already has a total of 46 separate titles, many of which align with the property boundaries of adjacent lands, and CP or a future owner would not have to subdivide titles to sell the right of way lands to adjacent owners. CP contends that it does not matter if these separate legal parcels do not conform to existing requirements (i.e., minimum size or frontage) because they have already been created. In addition, CP indicates that road access would not be an issue as the parcels would become part of the adjoining lot, which would already have access. CP also does not consider double road frontages to be an issue, indicating that in the double road section of the property there would be no need to create parcels because there are already existing parcels. CP contends that there is no level of government that would need to provide approval for the transfer of parcels. CP also considers that any claim that legal and survey costs will be required is incorrect because CP has legal descriptions and titles for all of the land comprising the Line and no surveying would be required.
[114] CP agrees that in the event the Line were decommissioned and abandoned, its right of way would be subject to land use restrictions placed by local governments. However, CP points out that RDNO, the interested purchaser which is claiming a discount due to local OCPs and zoning bylaws, is, in part, comprised of the same communities responsible for making the OCP amendments and rezoning bylaws to account for which RDNO considers a discount to the land value should apply.
[115] CP also disputes RDNO’s contention that when the railway lands are no longer used for rail purposes, the former reserve lands at Enderby IR#2 will have to be returned to reserve status and, therefore, should be excluded from the calculation and preclude the Line being valued as an assembled land corridor. CP submits that discontinuance of the Line is not an automatic trigger for reversion to Canada in trust for the First Nations and that at the time the net salvage value determination is made, in addition to the fact that discontinuance will not have occurred, a continuous assembled corridor, over which continued rail operations including car storage or rail operations under provincial jurisdiction may continue to occur, will still exist. As such, CP contends that the conditions that must be satisfied before a reversionary interest can be triggered will not exist.
[116] Further, CP indicates that in British Columbia, all lands outside of treaty areas are subject to some form of asserted, but as yet undetermined aboriginal rights or title. CP contends that where the claim is a general assertion of rights and title to traditionally used lands, and not a claim focused on a specific parcel of land, this is not considered as a factor in the determination of market value of properties. CP submits that it would be inappropriate to discount the net salvage value on account of the Shuswap Nation’s asserted rights or title and that it is the duty of the Crown to consult and enter into settlements, not private landowners. Therefore, CP claims the former reserve lands should be included in the net salvage value determination and that to attach a $0 value to these lands presupposes that a continued rail operation of the Line could not possibly occur in the future.
The Erickson Report
[117] In circumstances where the parties to a net salvage value do not agree on the value of the land, and the Agency considers it necessary in order to reconcile these differences, its practice is to contract a qualified independent land appraiser to conduct an impartial assessment of the parties differing land valuations. This assessment is intended to evaluate the two submitted value estimates for the vacant land component of the net salvage value for the subject property, make comments and render an opinion as to the merits and/or shortcomings of the parties’ valuations, taking into consideration the assumptions, methodology and conclusions derived at in each submission. This is to assist the Agency in its reconciliation of the two value estimates and to arrive at a proposed value of the land. In applications submitted under section 146.3 of the CTA, as is the case here, the applicant is responsible to reimburse the Agency’s costs for this independent assessment, in accordance with subsection 146.3(3) of the CTA.
[118] In this case, due to the large discrepancy in land values submitted by RDNO and CP, the Agency determined that an expert impartial evaluation of these submissions was necessary. The Agency commissioned Harvey Erickson, AACI, P. App, of North Country Appraisals Ltd., based out of Kelowna British Columbia to conduct the evaluation. The resulting three part report (Erickson Report) consists of a detailed Appraisal Review of each submission (Part A and Part B of the Report) and a correlation of Mr. Erickson’s review findings, which also includes his professional opinion on the value of the subject lands in the context of a net salvage value (Part C of the Report.) Part C of the Report was distributed to the parties for comments on July 19, 2012. Comments were received on August 17, 2012.
Findings of the Erickson Report
Key strengths and weaknesses
[119] Although both of the parties’ submissions were found to contain certain positive attributes, the Erickson Report does not agree with the reliability, completeness or reasonableness of either the appraisal report submitted by CP (Cook Report) or the submission of land value made by RDNO (RDNO submission.)
[120] Mr. Erickson indicates that both adequately map the property and give a reasonable presentation of the location and characteristics of the property given the extensive nature of right of way, and that RDNO identifies adjacent land uses and zoning well. With reference to market data, Mr. Erickson views the market data used in the Cook Report as somewhat reliable in a general sense. However, he has concerns over the dominance of the use of extracted land valuesNote 3 calculated using assessed improvement values, and sees no indication that the market values were time adjusted due to downward market corrections occurring after 2008, which he indicates could result in a 20 to 25 percent differential, or whether size adjustment considerations were taken into account. Mr. Erickson indicates that the market values used in the RDNO submission rely on very general market trends and apply values in a broad brush manner. He adds that these estimates are suspect for accuracy having been assembled and determined by an undisclosed third party professional with no background research tendered to validate the opinions.
Highest and best use issues
[121] The Erickson Report indicates that the determination of highest and best use is fundamental to any evaluation, albeit in many cases a complex assignment. Mr. Erickson expresses serious concerns as to whether either submission filed by the parties has accurately assessed the highest and best use, including the interest appraised.
[122] With reference to the Cook Report, Mr. Erickson considers it difficult to determine exactly if and what is resolved as highest and best use. Without stipulating any hypothetical or limiting condition or extraordinary assumption, the Cook Report initially focuses on the break-up potential of the property both from an ATF perspective and through a Sector valuation. It then evaluates the property through a Linear Corridor valuation, based on the corridor being retained as an industrial transportation corridor, using industrial market values, with emphasis on its use as a continuous commercial corridor, possibly based on the assumption that the corridor will be retained for railway usage, and with no examination of alternative corridor uses such as a trail system or park usage.
[123] Mr. Erickson indicates that the Cook Report appears to discount the break-up potential using ATF as being representative of the highest and best use because the industrial Linear Corridor valuation it puts forward produces a higher market value than what the ATF value indicates and notes that CP adopts the industrial Linear Corridor valuation for its submission of net salvage value. Mr. Erickson also notes that the Cook Report offers no discussion of supply and demand factors affecting the marketability of the property. Because the Cook Report does not conclude a reconciled value estimate, but instead looks at three different values, presumably estimated by three different methodologies, Mr. Erickson views the Cook Report as more of a consultative analysis conducted specifically for CP internal purposes than a market value appraisal. Mr. Erickson further indicates that without substantial clarification or adjustment, he considers the Cook Report unreliable for the Agency’s purposes.
[124] With reference to the RDNO submission, Mr. Erickson states that RDNO does formulate an opinion of highest and best use. Specifically, RDNO concluded that CP’s inability to sell, transfer or lease the Line for continued operations and the lack of interest by the federal and provincial governments in acquiring the Line indicate that its market as a transportation corridor is limited to non-existent and the highest and best use is as a source of income as an asset to be disposed of on a parcel by parcel basis to abutting landowners. However, Mr. Erickson points out that while RDNO does not detail any specific assumptions or limiting conditions, as per the Canadian Uniform Standards of Professional Appraisal Practice (CUSPAP) requirements, it does employ specific assumptions and limitations within its presentation and evaluation conclusions. In addition to assumptions related to ALR classifications, riparian, zoning and OCP issues, Mr. Erickson indicates that one major assumption RDNO makes is that the property cannot be retained as a continuous transportation corridor because the land that runs through the First Nations Enderby IR#2 is assumed to go back to the Crown. Mr. Erickson states that this assumption directly influences RDNO’s conclusion of highest and best use and that if the assumption proved to be false, the opinions and conclusion of RDNO’s professional could be altered, diminishing the reliability of the RDNO submission. Mr. Erickson also points that it is not within his mandate to comment on First Nations issues.
Methodology issues
[125] With reference to the application of various valuation methodologies used, the Erickson Report identifies issues in both the Cook Report and the RDNO submission. Mr. Erickson expresses certain concerns over all three valuation techniques employed in the Cook Report; the ATF method, the Sector valuation and the Linear Corridor valuation, as well as with the ATF technique used by RDNO.
[126] Mr. Erickson indicates that in applying the ATF technique, the Cook Report assesses the ATF value of the corridor based on 275 hypothetically plotted parcels, with CTQ-designatedNote 4 areas ranging from .02 acre to 12.41 acres and an average size of 0.657 acre per parcel, apparently on the assumption that the property may be broken up and sold to 275 different parties for the purpose of consolidation and assemblage. However, Mr. Erickson notes that the Cook Report does not discuss the ramifications of assemblage of the right of way or portions thereof with adjoining, and more particularly neighbouring, properties that are set apart from the right of way by roads and other impediments. He also notes that it does not discuss setback requirements as they might apply to water front property along the Shuswap River or the impact of riparian and aquatic classifications and current provincial policy regarding subdivision of lands along the corridor and gives no consideration or adjustments for marketing costs, development costs, financing costs, enhancement factors, discount factors, profit allowances and the like.
[127] Regarding the use of the Sector valuation in the Cook Report, Mr. Erickson indicates that this is not a term normally adopted within appraisal education and theory. Mr. Erickson views it as terminology coined in the Cook Report to reflect a correlation of value determinations arrived at from completion of the ATF technique, or as described in the Cook Report a “broad ATF.” The concern here, according to Mr. Erickson, is that, if the Sector valuation is a broad ATF, what is the reason for a $1.6 million differential between it and the ATF valuation, when the Sector valuation is presumably based on larger parcel sizes, which command lower unit values than smaller parcel sizes, rather than the many smaller parcels that form the basis of the ATF valuation. After an audit check, in Mr. Erickson’s view, the selected values for various land use categories have not been sufficiently adjusted for the Sector valuation. Furthermore, he found significant discrepancies between the area calculations and the unit value calculations between the two methods. In Mr. Erickson’s opinion, the Cook Report’s Sector valuation has critical errors that must be addressed before it can be given any consideration.
[128] With reference to the Linear Corridor valuation in the Cook Report, Mr. Erickson notes that this opinion of value is apparently offered under the assumption that the corridor is retained as an industrial transportation corridor. Further, in valuing the subject property as a going-concern industrial transportation corridor under its use as a railway, industrial values have been employed to reflect the industrial nature of the enterprise. Mr. Erickson also indicates that the Cook Report appears to endorse the industrial Linear Corridor valuation because that evaluation produces a value more than twice that indicated by the ATF. However, the Erickson Report outlines many issues with the Linear Corridor valuation. Mr. Erickson indicates that the values for “Improved Industrial” are lifted from comparison sales located in urban communities, are not necessarily adjusted for size considerations, include extracted values and do not include any sales of industrial parcel encompassing 180 acres. In his opinion, this tends to indicate that the unit value selected for the improved or developed rail bed component, as well as the unimproved adjoining buffer land, may be high. Mr. Erickson states that there is simply no market evidence set forth in the Cook Report that supports an overall unit rate of $91,372 per acre for an “en bloc”Note 5 parcel of industrial land that encompasses 180.58 acres. It is Mr. Erickson’s recommendation that no consideration should be given to the Linear Corridor valuation in the Cook Report.
[129] With reference to the application of the ATF technique in the RDNO submission, Mr. Erickson notes that it uses a combination of municipal zoning and British Columbia assessment land use classifications to summarize the characteristics of the land, insofar as land use or neighbouring land use is concerned, and includes roadways, riparian areas and watercourses along the right of way. Mr. Erickson also notes that RDNO deems areas in the range of 0.0128 acre to 3.7791 acres within the right of way as attached to “across the fence” property, with an average parcel size of 0.2386 acre and identifies 759 properties or parcels that adjoin or neighbour the right of way.
[130] Mr. Erickson indicates that, based on its assessment of ATF land use, the RDNO submission employs a uniform value estimate of one of seven value opinions (some with 50 percent modifications,) but notes that RDNO’s evaluation on that basis includes no comparable sales of record and falls apart due to inadequate data research and most likely inappropriate application of comparable market data to the property that was analyzed. Without the benefit of more extensive research and documented sales evidence, it is Mr. Erickson’s opinion that RDNO’s ATF evaluation is flawed and that questionable reliance on the submitted market data limits the reliability of the estimate.
[131] Further, Mr. Erickson indicates that RDNO is relatively strident in the opinion that a 50 percent discount should be applied across the board and notes that the base ATF values were in many cases already adjusted by 50 percent. This leads Mr. Erickson to be concerned that some double accounting might have occurred in RDNO discounting the value of the land from a gross value based on ATF values and the final value put forward in its submission.
[132] In summary, Mr. Erickson finds the reasoning supporting the analysis, opinions and conclusions to be weak and not very useful in correlating the values set forth in either submission. According to Mr. Erickson, it seems apparent that both submissions are focussed on the parties’ efforts to convince the reader that the property has a certain value under a specific premise and that neither party are overly convincing due to the number of undisclosed assumptions, exclusions, omissions or errors made collectively throughout their submissions. Mr. Erickson does not agree with the reliability, completeness and reasonableness of either evaluation. In view of this, and in accordance with the Agency’s terms of reference, based on evidence taken from both submissions, Mr. Erickson has examined and conducted adjustments to the determination of highest and best use and the parties’ calculations of value to provide a conditional estimate of the net present value attributable to the parcels related in the submissions, as set out below.
Highest and best use
[133] Mr. Erickson characterizes the subject corridor as follows. The Line essentially runs through back country, even though it does run along a stretch of residentially and commercially developed property lying along the stretch of the corridor that passes through the small community of Enderby. Mr. Erickson describes Enderby as a very small village, despite it having been designated as a city in the late 1800’s. The community of Grindrod is unincorporated and consists of a few rural residences located on acreages and, in Mr. Erickson’s view, does not equate in value, utility or marketability to the land situated in Enderby. The corridor runs through a predominantly rural area. It is not located within a major urban municipality and, in Mr. Erickson’s opinion, is not required for any immediate need such as alternative industrial corridor usage. Further, Mr. Erickson finds no evidence in either submission that RDNO is actively seeking to develop an alternative corridor over private lands for any particular purpose.
[134] After closely examining the CTQ engineering schematics conducted for the Cook Report and reviewing the mapping produced by RDNO, it is Mr. Erickson’s opinion that there will be few parties interested in acquiring much of the corridor land. He notes that substantial lengths of the right of way run parallel to roads, and in many cases in the CTQ schematic, the portion of land lying between the centre line of the right of way and the boundary is orphaned from the property identified in the Cook Report as being across the fence. Mr. Erickson also considers this a case where there might be public works required off-site in order to reasonably proceed with development on site.
[135] Mr. Erickson indicates that in determining the highest and best use, an appraiser must consider not only the ATF property and values but also zoning and land use controls unique to the breakup property, as well as the reaction of buyers and market demand. Costs associated with the development and marketing of the property should be considered as well as appropriate expressions of entrepreneurial profit.
[136] Based on his review of the submissions, Mr. Erickson indicates that riparian areas and aquatic index ratings would impact the subdivision of the Line: subdivision would be required for a parcel by parcel disposal of 275 parcels, subdivision would be an arduous and time consuming process, and subdivision approval would not be easily forthcoming due to public policy regarding access, ALR classification, aquatic issues and riparian setback requirements. Mr. Erickson concludes that it does not appear that the “break-up” of the corridor as contemplated by the Cook Report is legally permissible at this time. The land is not zoned for ATF use development and OCP, ALR and riparian and aquatic regulations combine to make any submission for development speculative and conjectural. It may be physically possible to create the CTQ area allocations that are the basis of the Cook Report’s ATF assessment; however, time, effort and capital will need to be expended to accommodate the physical development of the corridor into that number of small parcels.
[137] Taking into account OCPs, zoning information, and riparian setback constraints, Mr. Erickson concludes that alternative uses of the corridor land are limited and considers that the usage of the corridor would most likely be limited to a regional trail network as a pedestrian corridor, if it were to remain as an intact corridor. Based on the fact that the Line is currently under the jurisdiction of the CTA with respect to abandonment, it is Mr. Erickson’s conditional opinion that the highest and best use of the abandoned corridor may be firstly considered for a trail system network, and failing that may secondly be considered for theoretical or hypothetical parcelization. Based on this conclusion, Mr. Erickson indicates that an appropriate way of valuing the property is by the ATF method, which utilizes market data of adjacent or nearby properties and which assumes that the value of the corridor is similar to the value of adjacent properties.
[138] Mr. Erickson indicates that if there were adequate verifiable abandoned Canadian corridor sales that were similar in terms of location, physical features and other characteristics, the Direct Comparison Approach could be used to value the property. However, as there is no evidence put forth in either submission to address this method and RDNO disputes the applicability of sales of this type that are not localized within British Columbia, he invokes a departure from using this approach based on the premise that the value of the land within a corridor should be a reflection of the land through which it passes. Mr. Erickson considers the ATF value as a starting point whereby other appraisal methods may be used to arrive at the final estimate of value consistent with the intended use or purpose of the appraisal, which he indicates in this case is the estimate of market value of the “en bloc” land for the determination of net salvage value. Mr. Erickson also indicates that it is incumbent on the appraiser to examine enhancement and discount factors in the application of this method.
ATF valuation
[139] To develop his recalculated estimates and recommended adjustments to value to arrive at an ATF value, Mr. Erickson uses the presentation of property description line items taken from Appendix 14 of the RDNO submission. He indicates that the RDNO presentation deals with established legal fact and is meticulous in identifying neighbouring or adjoining properties along the corridor, the jurisdiction in which the land is located along with the total area that is surveyed, the track side, plan number, street number, street name and rail segment located in each line item. In comparison, Mr. Erickson indicates that the presentation in the Cook Report’s evaluation is hypothetical, basing all corridor estimates on CTQ engineering schematics. This method arbitrarily assigned portions of the corridor from the centre line to the boundary of the right of way to adjoining neighbourhood property, and would require analysis of each line item and the CTQ mapping, as well as independent research, to determine which neighbouring or adjoining property is dominant in terms of ATF methodology.
[140] With respect to unit values, Mr. Erickson develops his opinion based on his consideration of the market evidence in the Cook Report and the opinion of value in the RDNO submission, augmented by his own independent research. He indicates that adjustments were required to reflect issues such as consistency, difference of opinion, errors and the like.
[141] Mr. Erickson considers the market data in the Cook Report somewhat reliable in a general sense. However, based on a partial audit of the calculations, Mr. Erickson notes that the ATF value developed in the Cook Report is heavily reliant on the assumption that value from neighbouring lands is taken from the centre line of the right of way and applies more or less equally to the across the fence lands that share a common border with the right of way, although many of these parcels are removed or orphaned from adjoining the corridor. Mr. Erickson demonstrates that in the interests of consistency, this procedure requires further analysis as to which property represents the most reasonable ATF property, because it produces two distinctly different values on each side of the centre line for the same sector of land within the corridor. He also notes that the data used in the Cook Report is heavily weighed on improved sales or listings where the assessed value of improvements was subtracted from the sale or list price to derive an extracted land value. Based on independent research, Mr. Erickson considers these unrealistically high, by as much as twice as high, in relation to the vacant land sales in most cases.
[142] Mr. Erickson views the outline of market opinion in the RDNO submission as acceptable in very general terms but questions the thoroughness in which it has been related. He indicates that in practice it is the norm that values would likely fall on each side of the stated opinion by as much as 30 to 40 percent assuming a relatively active market. Calculating this magnitude of value range for the RDNO unit values, Mr. Erickson indicates that it is basically supported by the sales evidence submitted in the Cook Report. After consideration of both presentations and his own independent research, Mr. Erickson estimates a range of ATF unit values for rural, residential, commercial and industrial land use categories based on five different parcel sizes for each category, and with a lower per acre value being attributed the larger the parcel size. The ATF value of rural land, with parcel sizes ranging from 100 acres to 10 acres, is estimated to be between $10,000 and $30,000 per acre. For residential land, with parcel sizes ranging from 1.5 acre to .25 acre, the ATF value is estimated to be between $100,000 and $400,000 per acre. For commercial land, with parcel sizes ranging from 1 acre to .10 acre, the value is estimated at between $250,000 and $600,000 per acre. With parcels sizes ranging from 20 acres to 1 acre, the ATF value of industrial land is estimated at between $50,000 and $200,000 per acre.
[143] To arrive at the value of the property based on these ATF values, Mr. Erickson applies the estimated unit rate per acre that corresponds to the total acreage of a particular land use category found in each jurisdiction the Line traverses, as set out in Appendix 14 of RDNO’s submission. Mr. Erickson’s summary of calculations for composite property use in each jurisdiction includes: rural, residential and industrial land in Area F, totalling 88.79 acres; rural, industrial, commercial and residential land in Enderby, totalling 14.83 acres; 66.77 acres of rural land in Spallumcheen and 1.53 acres of rural land in Armstrong. (Mr. Erickson includes 20.41 acres of land traversing Enderby IR#2 in the rural land calculations in Area F.) This totals 166.35 acres of usable land, and an ATF value of $6,727,004. Although RDNO assigns no value to 8.58 acres of roadway crossings, it is Mr. Erickson’s opinion that for the calculation of an ATF value this area should be included as it currently forms part of the registered continuous corridor. Mr. Erickson addresses the roadway acreage by applying his universe recalculated rateNote 6 of $38,456 per acre to this area. Also noting that approximately 6.19 acres of the 181.12 acres in RDNO’s estimation are unaccounted for in his reconciliation, Mr. Erickson applies the same universe rate per acre to account for these acres. It is his opinion that the unadjusted land value, based on the general property identification work conducted by RDNO, is $7,294,998. Mr. Erickson notes that the ATF value put forth in the Cook Report is $7,300,000. He indicates that it is apparent that both submissions more or less follow the same methodology in conducting the ATF technique, although there are distinct differences in how segmented portions of the corridor are treated. Mr. Erickson considers these values sufficiently close to produce a credible estimate of gross value suitable for the net salvage value estimate of the corridor based on the ATF method, concluding that the unadjusted market value as indicated by the ATF method is $7,300,000.
Enhancement and discount factors applicable to the ATF valuation
[144] With reference to the application of enhancement or discount factors to this ATF value, Mr. Erickson notes that the RDNO submission indicates that the ATF value should be discounted by 50 percent or more. He also notes that the Cook Report suggests that no discounts are applicable but high value enhancement factors could apply to those portions of the Line adjoining commercial and industrial lands within urban areas and those lands lying along the banks of the Shuswap River to account for assemblage. The Cook Report is also noted to suggest the applicability of an enhancement factor of between 10 and 17 times the raw land value to the Line’s valuation as a linear corridor, under the assumption of a demand for the corridor under the existing or alternate transportation or utility purposes such as natural gas, hydro electric power, fibre optics, etc.
[145] For the purpose of examining the applicability of enhancement factors, Mr. Erickson explains that assemblage is the merging of adjacent properties into one common ownership of use. Plottage is taken to mean the increment of value created when two or more sites are combined to produce greater utility. Enhancement factors have their basis in the Cost Approach to Value method of valuation. In the context of a corridor, they are based on a buyer’s willingness to pay a premium due to assemblage or plottage because the cost of replicating a corridor is greater than the sum of its ATF values. This takes into consideration the time required to assemble multiple properties, relocation cost of property owners, damages resulting from partial takings, etc.
[146] Based on its rural location, limited marketability and constrained utility, as previously mentioned under the section Highest and best use, it is Mr. Erickson’s opinion that the subject corridor does not present the necessary attributes to warrant consideration of an enhancement factor, but that a discount factor is required. He recommends a 75 percent discount factor be applied to the estimated ATF value of the “en bloc” corridor, indicating that this factor basically represents an adjustment for the enhanced value considerations given to commercial, industrial and residential land in the unincorporated area of Grindrod and the municipality of Enderby.
[147] Further to this, Mr. Erickson notes that most of the land in the corridor is located in a rural setting and that the segment of land that is located within urban areas, as well as a good deal of the land in the rural area (about 40.6 percent in total, according to Mr. Erickson,) is significantly impacted by being orphaned or removed from the neighbouring land by public roadways. In Mr. Erickson’s opinion, the fact that so much of the land in the corridor is paralleled by public roadways essentially negates practical assemblage with neighbouring land. He indicates that although it may be acceptable in theory to adopt the ATF values, significant discounts are warranted to reflect the issues concerned.
[148] Mr. Erickson concludes that, in his independent opinion, an appropriate value for the corridor lands, consisting of approximately 181.12 acres, based on a discount of 75 percent from the ATF value estimate, is $1,825,000.
Comments of the parties on the Erickson Report
[149] RDNO submits that it is supportive of the findings and conclusions contained in the Erickson Report. RDNO is of the opinion that the analysis and findings were based upon an extensive, unbiased and professional review of the submissions and rebuttals provided by CP and RDNO.
[150] CP offers a number of critical comments in reference to the Erickson Report. First, CP submits that the RDNO submission was not an appraisal report completed by an appraiser, did not contain any arm’s length market data, did not outline a scope of work, and was not completed in accordance with CUSPAP. As such, CP submits that the RDNO submission should not have been accepted by the Agency as an expert valuation for comparison with the Cook Report, and that the Erickson Report failed to identify the shortcomings of RDNO’s submission. CP adds that the Erickson Report had different terms of reference than the Cook Report and presumably the RDNO submission (which did not state terms of reference) and, as such, was not an equivalent document to assess against the other two documents. CP questions how the Erickson Report could objectively achieve “an impartial reconciliation of the Parties’ disparate estimates of land values” when all three reports have differing or absent terms of reference and when Mr. Erickson did not make a personal inspection of the property. Accordingly, CP maintains that the Erickson Report offers no value to the Agency as a critique in these proceedings.
[151] CP is of the view that the Agency’s mandate is to calculate the net salvage value of the railway lands in the context of numerous possible uses and not to speculate on the single most likely use. It contends that net salvage value under sections 145 and 146.3 of the CTA is to be determined for any purpose,” not the most reasonable one. To that end, CP submits that it provided three valuations for a range of possible uses for the Agency’s consideration and contends that the Erickson Report does not explore the potential use of the Line “for any purpose” taking into consideration the widest range of possible uses and that it dismisses any potential corridor utility – from simple lineal retention for recreational use to retention for commercial industrial use.
[152] CP submits that Mr. Erickson confused “highest and best use” with the single most likely use, to the exclusion of other possible uses. CP further submits that in arriving at a highest and best use Mr. Erickson employed a number of unfounded assumptions: the railway has been abandoned; no party came forward to purchase the Line for continued operation or as a federal or provincial holding; First Nations land located on the Line will impede or nullify the potential for a lineal corridor to exist post discontinuance; the valuation is based on transferring the fee simple interest; subdivision will be difficult and lengthy; and U.S. Liquidation Theory is applicable. CP adds that, as a result, Mr. Erickson adopts the single use described in the RDNO submission and concludes that the corridor cannot be divided and that the Line would likely be limited to a regional trail network, which, CP suggests, significantly limits its value.
[153] CP contends that the appraisal evidence should properly consider whether the utility of the corridor could include use as a commercial (industrial) corridor as highest and best use. In CP’s view, neither Mr. Erickson or RDNO considered any other potential commercial uses for the corridor such as a gas line, power line or fibre optics corridor, all of which it indicates have been found as suitable alternatives on other CP and competitor’s railway corridors. To this point, CP indicates that in August 2012, it was approached by a major gas line company with respect to the possible use of the northern portion of this corridor, between Sicamous and GrindrodNote 7. CP further submits that once the Erickson Report declares that the trail use is most likely it fails to add any assemblage premium for that purpose, but instead applies arbitrary discounts for access and development, property designation and zoning. CP questions the applicability of these factors to a trail network.
[154] To further disagree with the position taken by the Erickson Report with respect to discount factors, CP submits that RDNO chose an arbitrary, unsubstantiated overall discount factor of 50 percent without any expert evidence. CP adds that while this discount factor is completely arbitrary, the Erickson Report relies on it in its evaluation and fails to detail any reasoning to support this conclusion.
[155] CP also argues that the Erickson Report erroneously assumes the valuation of the Line occurs at a point in time after it is discontinued and is based upon an end use scenario of restricted use. It submits that Mr. Erickson incorrectly made assumptions regarding subdivision approval that sterilizes the land and limits its use to a recreational trail. Further to this, CP indicates that the Agency held in Decision No. LET-R-74-2008 that the costs associated with municipal bylaws established to require federal railway companies to undertake certain remediation work that would only take place after discontinuance were not applicable to the net salvage value determination. As a result, CP submits that the relevant valuation point is prior to discontinuance and that threatened or speculative costs that might arise after discontinuance are not relevant to the net salvage value determination.
Analysis and findings
[156] It is apparent from some of the comments made by CP that there are some basic fundamentals regarding the valuation of land for net salvage value purposes that need to be clarified. The Agency’s task in this regard is to determine the market value of the land in the context of a salvage or liquidation scenario, that is, as if the land is vacant of all improvements (i.e., track assets of the railway line have been dismantled and removed, rail bed left intact, safe and level.) Contrary to CP’s assertions regarding the inappropriateness of assumptions related to abandonment and the inapplicability of principles found in U.S. Liquidation Value theory, as well as its position that net salvage value is calculated before discontinuance is complete, the concept of net salvage value does imply an orderly liquidation value, regardless of whether abandonment or discontinuance has yet occurred or ever will.
[157] The mere fact that a railway line is placed into the discontinuance process is an indication that, in its existing capacity, the railway line’s economic utility to the railway company has expired. That the transfer and discontinuance process set out in Part III, Division V of the CTA requires for the Agency to determine net salvage value prior to providing for the filing of a Notice of Discontinuance by a railway company does not alter the fact that in determining net salvage value the Agency is assessing the market value of an asset assumed to be defunct, ripe for salvage and orderly liquidation. The Agency considers references made by Mr. Erickson to abandonment and liquidation theory to be reflective of his correct understanding of this concept.
[158] Also, in relation to CP’s suggestion that estimating land value on the basis of fee simple interest is incorrect in a net salvage value determination, the Agency disagrees. While other less absolute forms of property rights may be the subject of negotiation between the parties to a transfer and discontinuance process, for the purposes of setting a binding or potentially binding net salvage value for the transfer of assets, the Agency is not prepared to contemplate determining the value of land on anything other than a fee simple interest basis. This is reinforced by the requirement set out in section 145 of the CTA for a railway company to offer to transfer “all of its interest in the railway line to the governments and urban transit authorities mentioned in this section [...]”
[159] CP asserts that the RDNO submission on land value should not have been accepted by the Agency for comparison with CP’s Cook Report. CP further states that the Erickson Report offers no value to the Agency as a critique in these proceedings because it was not comparing two official appraisal reports, had different terms of reference than the submissions, did not meet the standards of an official appraisal, and because Mr. Erickson did not physically inspect the property.
[160] In this regard, the Agency has a standard practice of inviting submissions on land value from both parties to a net salvage value determination. The Agency does not require that a formal, CUSPAP compliant land appraisal be provided for these submissions. Further, the Agency does not consider a comparison by an independent expert of a formal appraisal from one party and the considered opinion submitted by the other party to be invalid or valueless. Rather, it is a fair and reasonable means to obtain information, have it critically assessed and achieve an impartial reconciliation of the parties’ disparate estimates of land value.
[161] As to differing terms of reference, when it considers it necessary, the Agency seeks input from an independent professional appraiser, under terms of reference defined by the Agency. These terms of reference may differ from those under which the parties obtain professional advice; however, while this may increase the complexity of the Agency’s analysis, it does not negate the value of the parties’ submissions or the independent professional advice. It should also be noted that the Erickson Report complied with the review terms of reference set out by the Agency, recognizes and acknowledges that the RDNO submission does not meet CUSPAP standards as an appraisal, and, as far as the Agency is concerned, very adequately identifies the strengths and weaknesses in both submissions. The Agency is also of the opinion that due to some of the strengths identified by Mr. Erickson in both submissions, specifically the mapping, aerial photography and property descriptions, a physical inspection of the property by Mr. Erickson was not integral to his ability to comply with the terms of reference.
[162] In reference to CP’s submission that a net salvage value under sections 145 and 146.3 of the CTA is to be determined “for any purpose,” not the most reasonable one, the Agency is fully aware of the phrase “to be used for any purpose” in section 145 of the CTA. The Agency recognizes that as a consequence of this phrase, no restrictions from the CTA are imposed on the use that can be made of the land subsequent to its transfer. However, the Agency disagrees with CP and does not interpret the phrase “to be used for any purpose” to mean that, in determining the net salvage value of railway lands, it can or should abandon any consideration related to the reasonableness of a given use before determining whether the land value should be assessed on the basis of that use. The Agency determines the net salvage value of the land within a railway corridor, guided by the appraisal standard of highest and best use, by weighing the evidence before it on a balance of probabilities basis.
[163] The determination of highest and best use requires that the Agency consider the potential uses that can be made of the land, and determine which, among those use, would appear to be highest and best, considering all of the specific applicable circumstances, for the purpose of determining the value of the land. Unlike the Cook Report, which came to vastly different conclusions regarding the value of the land, depending on the assumptions being made regarding the ultimate use that would be made of the land, the Agency cannot set multiple land values or a range of land values when establishing the net salvage value.
[164] The Agency notes CP’s assertion that Decision No. 463-R-2010 stipulates that the land value for net salvage value purposes must be based on the widest range of possible uses and the Agency will address CP’s misinterpretation of that Decision. The extract referred to by CP in this regard pertains to the Agency’s determination about what degree of dismantlement of a railway line the Agency was prepared to consider in determining net salvage value and is not related to the Agency’s approach to determining land value.
[165] The Agency notes that CP contends that the net salvage value of the railway lands should be determined in the context of numerous possible uses and it offers three valuations for a range of possible uses. However, CP’s submission of value clearly adopts the Cook Report’s industrial Linear Corridor valuation and advances arguments about why it should be considered more reasonable than the report’s ATF and Sector valuations. The Agency also notes that CP’s industrial Linear Corridor value is in the range of double that of the ATF and Sector valuations.
[166] CP submits a number of concerns related to the conclusions in the Erickson Report pertaining to “highest and best use.” To address these concerns, the Agency considers it useful to first note the definition of “highest and best use,” as defined by the Appraisal Institute of Canada (AIC:)
That reasonably probable and legal use of vacant land or an improved property which is physically possible, appropriately supported, financially feasible, and that results in the highest valueNote 8.
[167] The AIC makes several points with respect to what the “highest and best use” entails, as follows:
- The highest and best use of a property is an economic concept that measures the interaction of four criteria: legal permissibility, physical possibility, financial feasibility, and maximum profitability.
- Estimating the highest and best use is a critical appraisal component that provides the valuation context within which market participants and appraisers select comparable market information.
- An appraiser considers highest and best use of the property as if vacant separately from the highest and best use of the property as improved. This is because the highest and best use of the site as if vacant and available for development determines the value of the land, even if the property’s existing improvement does not represent the highest and best use of the land.
- Highest and best use of land or a site is the use among all reasonable alternative uses that yields the highest present land value, after payment for labour, capital and co-ordination. The conclusion assumes that the parcel of land is vacant or can be made vacant by demolishment and improvements.
[168] CP contends that the estimated value of the Line was significantly limited by Mr. Erickson’s conclusion that the corridor cannot be divided and the highest and best use of the Line would likely be limited to a regional trail network, and that the Erickson Report does not explore the potential use of the Line “for any purpose” taking into consideration the widest range of possible uses.
[169] The Agency accepts that the examination of highest and best use is critical to the land appraisal process. The Agency also acknowledges that it has a direct bearing on the choice of an appropriate valuation methodology, and, as such, the Agency agrees that it can significantly influence a value estimate. The Agency also recognizes that land appraisers are held to a professional standard that requires land value to be estimated based on highest and best use. In cases where professional standards exist, the Agency cannot ask an independent third party, from whom it has contracted services, to perform an activity that is contrary to those standards. The Agency defers to the expertise of the AIC in setting guidelines that ensure appraisers consider all possible uses of land, and all factors affecting those potential uses when determining the highest and best use.
[170] Based on the above-noted AIC definition, the Agency is satisfied that Mr. Erickson’s independent opinion of the highest and best use of the corridor lands accounts for all potential circumstances applicable to liquidating the property present on the right of way lands, and that it reflects the use that will yield the highest value given those circumstances. It is apparent to the Agency that, in establishing the highest and best use, Mr. Erickson assessed the legal permissibility and physical possibility of subdivision required to achieve the parcel by parcel sale of the 275 hypothetically plotted parcels valuated in CP’s submission, as well as demand for the linear corridor for industrial and commercial purposes. Based on this, Mr. Erickson came to the opinion that, due to its predominantly rural location, limited marketability and constrained utility, the most reasonably probable end use of the corridor land is as a regional trail. The Agency notes that his findings, and the justifications for them, are in accordance with the above-noted AIC definition of highest and best use and, by assessing highest and best use as a linear regional trail, Mr. Erickson does not, as contended by CP, merely adopt the highest and best use submitted by RDNO or dismiss any potential corridor utility.
[171] It is CP’s view that Mr. Erickson’s assumptions regarding subdivision approval sterilize the land and limit its use to a recreational trail. CP submits that Mr. Erickson incorrectly assumes the valuation of the Line occurs at a point in time after it is discontinued and is based upon an end use scenario of restricted use, whereas CP contends that net salvage value is calculated before discontinuance is complete and the application of municipal bylaws comes into effect. CP further submits that threatened or speculative costs that might arise after discontinuance are not relevant to the determination of the net salvage value. In support of this position, CP cites Decision No. LET-R-74-2008, and interprets it to mean that the Agency found that the relevant valuation point is prior to discontinuance.
[172] In this regard, the Agency will address CP’s misinterpretation of Decision No. LET-R-74-2008. In that case, the Agency found, in essence, that a railway line being transferred under section 145 of the CTA is a railway line that has not been discontinued pursuant to subsection 146(1) of the CTA, and, therefore, the Agency did not take into account the municipal reclamation bylaws applicable to discontinued federal railway lines that were at issue in that case in its determination of net salvage value. No mention is made in that Decision of the “relevant valuation point,” whether it be prior to discontinuance or otherwise.
[173] The Agency finds that, other than the fact that municipal bylaws are discussed in both instances, no parallel can be drawn between the issues and the reasoning involved in that previous determination and giving consideration to any legal restrictions governing land use in order to establish the highest and best use for land appraisal purposes, in this case.
[174] To further address the matter of whether consideration should be given to municipal bylaws when determining land value, the Agency again notes the AIC’s definition of “highest and best use.” The highest and best use of a property is an economic concept that measures the interaction of four criteria: legal permissibility, physical possibility, financial feasibility, and maximum profitability. As the municipal bylaws restricting subdivision and development speak to the issue of legal permissibility, the Agency finds that it is a valid consideration in the determination of highest and best use, and consequently the value of the corridor lands.
[175] The Agency also notes that CP bases its submitted ATF value on the assumption that the property may be broken up and sold at its ATF value or higher to 275 different parties for the purpose of consolidation and assemblage. The Agency does not find it reasonable to suggest that a land value be based on the property being broken up and sold parcel by parcel, while at the same time being asked to ignore any legal restrictions or requirements that might limit its break up or marketability.
[176] As a result, the Agency disagrees with CP’s position that Mr. Erickson incorrectly took municipal bylaws into account when assessing the value of the land, and finds that, in the context of determining the net salvage value of the land, legal permissibility is a usage factor that must be taken into account. Furthermore, the Agency finds that to consider the contributory impact of legal and regulatory factors, including municipal bylaws where appropriate, on highest and best use is in no way inconsistent with the previous finding of the Agency respecting reclamation bylaws, or with the findings of the Federal Court of Appeal on the same issue in Bengough Town v. Canadian Pacific Railway Co. 2010 FCA 80, also cited by CP.
[177] CP indicates that the corridor is already subdivided into 46 separate titles, which it submits could be sold on a parcel by parcel basis without the need for any further subdivision requiring provincial or municipal approvals. The Agency notes that the ATF and Sector valuations submitted by CP do not identify the size, location or distribution of these 46 titles, nor do they define a parcel by parcel ATF or Sector value on the basis of these titles. This renders it impossible for the Agency or its independent expert to assess the value of the property on that basis. As previously mentioned, the Agency notes that CP adopts the industrial Linear Corridor valuation, rather than the parcel by parcel ATF valuation or Sector valuation, in its submission of value.
[178] CP states that certain unfounded assumptions related to the discontinuance process and First Nations issues led Mr. Erickson to an incorrect conclusion. The Agency views Mr. Erickson’s consideration of the fact that no party came forward to purchase the Line for continued operation or as a federal or provincial holding to be a valid consideration in the assessment of highest and best use. The Agency also notes that Mr. Erickson specifically states that it is not within his mandate to comment on First Nations issues and that he does include the railway lands passing through Enderby IR#2 in his valuation, thus negating CP’s concern that his opinion was based on an assumption that issues surrounding these lands will impede or nullify the potential for a linear corridor to exist after discontinuance.
[179] With respect to this issue of a potential impact to land value arising from alleged First Nations’ interest in the Line, the Agency finds that there is no information on the record specific to the Line that leads the Agency to conclude that this issue has a tangible bearing on the value of the railway lands. The Agency agrees with the inclusion of the railway lands passing through Enderby IR#2 in the valuation.
[180] The Agency disagrees with CP’s assertion that there was confusion on Mr. Erickson’s part between the highest and best use and the most likely use. The Erickson Report considered alternative uses, and rejected them for various reasons, leaving Mr. Erickson to conclude that a regional trail was the most reasonably probable legal use of the vacant land, which would result in the highest value. The Agency also recognizes that from a land appraisal perspective, it is quite conceivable that the highest and best use and the most likely use can be one and the same.
[181] In support of the marketability of the corridor for industrial purposes, CP makes reference to recent interest in the northern portion of the Okanagan Subdivision by a “major gas line company.” However, as CP submits no evidence pertaining to the details of this interest or the values under discussion, the Agency cannot give this information any weight. The Agency is more persuaded by the characterization of the property in the Erickson Report, his reservations with respect to the values for comparable industrial sales used in the Cook Report being predominantly extracted values from urban sales of smaller parcels and his recommendation that the industrial Linear Corridor valuation be given no consideration. Even if the corridor were to have some future potential utility for industrial purposes, the Agency is not convinced that it would command the industrial Linear Corridor value set out in CP’s submission.
[182] CP also expresses concern over the fact that, having concluded a highest and best use as a recreational trail, Mr. Erickson fails to add any assemblage premium for that purpose, but instead imposes discount factors, relying on what CP describes as arbitrary, unsubstantiated discount factors from the RDNO submission and without detailing any reasoning to support his conclusion. CP also argues that Mr. Erickson illogically applies discounts to account for “access and development,” “property designation” and “zoning,” and questions why these would be required for a trail network.
[183] In examining these concerns, the Agency first notes that Mr. Erickson indicates, given his conclusions on highest and best use, that an ATF valuation is a compatible starting point from which to apply other appraisal methods with the purpose of arriving at the final estimate of the market value of the “en bloc” corridor, and subsequent to his recalculations arrives at an unadjusted ATF value that is the same as the ATF valuation in the Cook Report. Further, Mr. Erickson indicates that in the application of this method, it is incumbent on an appraiser to examine enhancement and discount factors.
[184] The Agency finds Mr. Erickson’s discussion of assemblage premiums (plottage) and enhancement factors to be reasonable and convincing. Mr. Erickson assesses the situation from the perspective of the commonly accepted factors that must be present in a corridor transaction before plottage or an enhancement factor can be derived, such as a buyer’s motivation for cost avoidance and market recognition that the assembled corridor is more valuable than the sum of its component parts. Based on this, Mr. Erickson comes to the opinion that the corridor does not present the necessary attributes to warrant consideration of an enhancement factor. The Agency agrees with the soundness of his reasoning, particularly the observation that there is no evidence in either submission to indicate that RDNO is actively seeking to develop an alternative corridor over private lands for any particular purpose.
[185] With reference to discount factors, the Agency notes that, contrary to CP’s submission, Mr. Erickson does not adopt RDNO’s 50 percent discount factor or the reasoning behind it. Rather, Mr. Erickson applies a discount factor of 75 percent to the ATF value, which he indicates is necessary to account for the enhanced value considerations given in the ATF to commercial, industrial and residential land in the unincorporated area of Grindrod and the municipality of Enderby, in order to arrive at a reasonable estimate of the corridor’s “en bloc” value. The Agency also notes that Mr. Erickson cites the large percentage of the corridor that is orphaned or removed from the neighbouring land by public roadways as a contributing factor to the discount rate. In light of this rationale, the Agency finds the discount factor applied by Mr. Erickson and the resulting estimate of $10,107 per acre for the corridor lands to be reasonable. As far as CP’s concern regarding reasons for discount applied illogically to a trail network, beyond considering access and development, property designation and zoning in the context of examining highest and best use, it is not apparent to the Agency that these influenced the discount Mr. Erickson applied to his recalculation of the ATF value.
Agency conclusion on land value
[186] Based on a comprehensive review and analysis of the submissions of the parties and the report of its independent land appraiser, the Agency finds the independent appraiser’s assessment of the net salvage value for land to be reasonable and supported by evidence, as submitted by the parties. The Agency, therefore, concurs with Mr. Erickson’s opinion of the valuation of the corridor lands, and determines the land value component of the net salvage value of the Line to be $1,825,000.
CONCLUSION
[187] To arrive at the net salvage value of the Line, the Agency took the following values into account:
Item | Net salvage value |
---|---|
Total net salvage value | $3,225,352 |
Track and materials | $1,295,014 |
Land | $1,825,000 |
Leases and agreements | $105,338 |
[188] The Agency determines the net salvage value for the Line to be $3,225,352.
APPENDIX TO DECISION NO. 21-R-2013
Part III, Division V of the Canada Transportation Act, S.C., 1996, c. 10, as amended
Transferring and discontinuing the operation of railway lines
Definition of “railway line”
140. (1) In this Division, “railway line” includes a portion of a railway line, but does not include
- a yard track, siding or spur; or
- other track auxiliary to a railway line.
Determination
140. (2) The Agency may determine as a question of fact what constitutes a yard track, siding, spur or other track auxiliary to a railway line.
Three-year plan
141. (1) A railway company shall prepare and keep up to date a plan indicating for each of its railway lines whether it intends to continue to operate the line or whether, within the next three years, it intends to take steps to discontinue operating the line.
Public availability of plan
141. (2) The railway company shall make the plan available for public inspection in offices of the company that it designates for that purpose.
Notification of changes
141. (2.1) Whenever the railway company makes a change to the plan, it shall notify the following of the change within 10 days after the change:
- the Minister;
- the Agency;
- the minister responsible for transportation matters in the government of each province through which the railway line passes;
- the chairperson of every urban transit authority through whose territory the railway line passes; and
- the clerk or other senior administrative officer of every municipal or district government through which the railway line passes.
When sale, etc., permitted
141. (3) Subject to section 144.1, a railway company may sell, lease or otherwise transfer its railway lines, or its operating interest in its lines, for continued operation.
Continued operation of a portion of a line
141. (4) A railway company that sells, leases or otherwise transfers a portion of a grain-dependent branch line listed in Schedule I, or its operating interest in such a portion, to a person who intends to operate the portion shall continue to operate the remaining portion for three years, unless the Minister determines that it is not in the public interest for the company to do so.
Compliance with steps for discontinuance
142. (1) A railway company shall comply with the steps described in this Division before discontinuing operating a railway line.
Limitation
142. (2) A railway company shall not take steps to discontinue operating a railway line before the company’s intention to discontinue operating the line has been indicated in its plan for at least 12 months.
Community-based groups
142. (3) Subsection (2) does not apply and a railway company shall without delay take the steps described in section 143 if
- the federal government, a provincial, municipal or district government or a community-based group endorsed in writing by such a government has written to the company to express an interest in acquiring all or a portion of a grain-dependent branch line that is listed in Schedule I for the purpose of continuing to operate that line or portion of a line; and
- that line or portion of a line is indicated on the company’s plan as being a line or a portion of a line that the company intends to take steps to discontinue operating.
Advertisement of availability of railway line for continued rail operations
143. (1) The railway company shall advertise the availability of the railway line, or any operating interest that the company has in it, for sale, lease or other transfer for continued operation and its intention to discontinue operating the line if it is not transferred.
Content of advertisement
143. (2) The advertisement must include a description of the railway line and how it or the operating interest is to be transferred, whether by sale, lease or otherwise, and an outline of the steps that must be taken before the operation of the line may be discontinued, including
- a statement that the advertisement is directed to persons interested in buying, leasing or otherwise acquiring the railway line, or the railway company’s operating interest in it, for the purpose of continuing railway operations; and
- the date by which interested persons must make their interest known in writing to the company, but that date must be at least sixty days after the first publication of the advertisement.
Disclosure of agreement with public passenger service provider
143. (3) The advertisement must also disclose the existence of any agreement between the railway company and a public passenger service provider in respect of the operation of a passenger rail service on the railway line.
Disclosure of process
144. (1) The railway company shall disclose the process it intends to follow for receiving and evaluating offers to each interested person who makes their interest known in accordance with the advertisement.
Negotiation in good faith
144. (3) The railway company shall negotiate with an interested person in good faith and in accordance with the process it discloses and the interested person shall negotiate with the company in good faith.
Net salvage value
144. (3.1) The Agency may, on application by a party to a negotiation, determine the net salvage value of the railway line and may, if it is of the opinion that the railway company has removed any of the infrastructure associated with the line in order to reduce traffic on the line, deduct from the net salvage value the amount that the Agency determines is the cost of replacing the removed infrastructure. The party who made the application shall reimburse the Agency its costs associated with the application.
Time limit for agreement
144. (4) The railway company has six months to reach an agreement after the final date stated in the advertisement for persons to make their interest known.
Decision to continue operating a railway line
144. (5) If an agreement is not reached within the six months, the railway company may decide to continue operating the railway line, in which case it is not required to comply with section 145, but shall amend its plan to reflect its decision.
Remedy if bad faith by a railway company
144. (6) If, on complaint in writing by the interested person, the Agency finds that the railway company is not negotiating in good faith and the Agency considers that a sale, lease or other transfer of the railway line, or the company’s operating interest in the line, to the interested person for continued operation would be commercially fair and reasonable to the parties, the Agency may order the railway company to enter into an agreement with the interested person to effect the transfer and with respect to operating arrangements for the interchange of traffic, subject to the terms and conditions, including consideration, specified by the Agency.
Remedy if bad faith by an interested person
144. (7) If, on complaint in writing by the railway company, the Agency finds that the interested person is not negotiating in good faith, the Agency may order that the railway company is no longer required to negotiate with the person.
Rights and obligations under passenger service agreements continued
144.1 (1) If a railway line, or a railway company’s operating interest in a railway line, is sold, leased or otherwise transferred under subsection 141(3) or as the result of an advertisement under subsection 143(1) and, before the day such advertisement was made, an agreement was in force between the railway company and a public passenger service provider in respect of the operation of a passenger rail service on the railway line, the rights and obligations of the railway company under the agreement in respect of the operation of that service on that line vest, as of the day the transfer takes place, in the person or entity to which the railway line, or the operating interest, is transferred, unless the public passenger service provider indicates otherwise before that day
Declaration that line is for general advantage of Canada
144.1 (2) Whenever a railway company’s rights and obligations under an agreement with VIA Rail Canada Inc. are vested in another person or entity by subsection (1), the portion of the railway line to which the agreement relates is hereby declared, as of the day the transfer takes place, to be a work for the general advantage of Canada.
Duration of declaration
144.1 (3) The declaration referred to in subsection (2) ceases to have effect if
- VIA Rail Canada Inc. ceases to operate a passenger rail service on the portion of railway line to which the declaration relates; or
- the operation of the railway line is discontinued.
Offer to governments
145. (1) The railway company shall offer to transfer all of its interest in the railway line to the governments and urban transit authorities mentioned in this section for not more than its net salvage value to be used for any purpose if (a) no person makes their interest known to the railway company, or no agreement with an interested person is reached, within the required time; or
- (b) an agreement is reached within the required time, but the transfer is not completed in accordance with the agreement.
Which governments receive offer
145. (2) After the requirement to make the offer arises, the railway company shall send it simultaneously
- to the Minister if the railway line passes through
- more than one province or outside Canada,
- land that is or was a reserve, as defined in subsection 2(1) of the Indian Act,
- land that is the subject of an agreement entered into by the railway company and the Minister for the settlement of aboriginal land claims, or
- a metropolitan area;
- to the minister responsible for transportation matters in the government of each province through which the railway line passes;
- to the chairperson of every urban transit authority through whose territory the railway line passes; and
- to the clerk or other senior administrative officer of every municipal or district government through whose territory the railway line passes.
Time limits for acceptance
145. (3) Subject to subsection 146.3(3), after the offer is received
- (a) by the Minister, the Government of Canada may accept it within thirty days;
- (b) by a provincial minister, the government of the province may accept it within thirty days, unless the offer is received by the Minister, in which case the government of each province may accept it within an additional thirty days after the end of the period mentioned in paragraph (a) if it is not accepted under that paragraph;
- (b.1) by an urban transit authority, it may accept it within an additional 30 days after the end of the period or periods for acceptance under paragraphs (a) and (b), if it is not accepted under those paragraphs; and
- (c) by a municipal or district government, it may accept it within an additional 30 days after the end of the period or periods for acceptance under paragraphs (a), (b) and (b.1), if it is not accepted under those paragraphs.
Communication and notice of acceptance
145. (4) Once a government or an urban transit authority communicates its written acceptance of the offer to the railway company, the right of any other government or urban transit authority to accept the offer is extinguished, and the railway company must notify the other governments and urban transit authorities of the acceptance.
Net salvage value
145. (5) If a government or an urban transit authority accepts the offer, but cannot agree with the railway company on the net salvage value within 90 days after the acceptance, the Agency may, on the application of the government or urban transit authority or the railway company, determine the net salvage value.
Discontinuation
146. (1) If a railway company has complied with the process set out in sections 143 to 145, but an agreement for the sale, lease or other transfer of the railway line or an interest in it is not entered into through that process, the railway company may discontinue operating the line on providing notice of the discontinuance to the Agency. After providing the notice, the railway company has no obligations under this Act in respect of the operation of the railway line and has no obligations with respect to any operations by any public passenger service provider over the railway line.
No obligation
146. (2) If the railway line, or any interest of the railway company in it, is sold, leased or otherwise transferred by an agreement entered into through the process set out in sections 143 to 145 or otherwise, the railway company that conveyed the railway line has no obligations under this Act in respect of the operation of the railway line as and from the date the sale, lease or other transfer was completed and has no obligations with respect to any operations by any public passenger service provider over the railway line as and from that date.
Obligation following return
146.01 (1) If, by reason of the instrument or act by which a railway line or an operating interest in a railway line is transferred through the process set out in sections 143 to 145 or otherwise, the railway line or operating interest in the railway line returns to the railway company that transferred it, the railway company shall, within 60 days after the day on which the return takes place, resume operations of the line or follow the process set out in sections 143 to 145.
No condition or obligation
146.01 (2) If a railway line or operating interest in a railway line returns to a railway company that transferred it and the company decides to follow the process set out in sections 143 to 145 in respect of the railway line or operating interest, the company is not subject to subsection 142(2) in respect of the railway line or operating interest and has no obligations under this Act in respect of the operation of the railway line.
Exception
146.02 Despite section 146.01, if a railway line or operating interest in a railway line returns to a railway company referred to in that section and, before the day on which the return takes place, an agreement was in force between the person or entity that owned the railway line or had the operating interest in the railway line immediately before the return and a public passenger service provider as defined in section 87 in respect of the operation of a passenger rail service on that railway line, then, unless the public passenger service provider indicates otherwise before that day, the rights and obligations of the person or entity under the agreement in respect of the operation of that service on that line vest, as of that day, in the railway company and the railway company shall resume operations of the railway line.
Compensation
146.1 (1) A railway company that discontinues operating a grain-dependent branch line listed in Schedule I, or a portion of one, that is in a municipality or district shall, commencing on the date on which notice was provided under subsection 146(1), make three annual payments to the municipality or district in the amount equal to $10,000 for each mile of the line or portion in the municipality or district.
Compensation
146.1 (2) If a railway company to which subsection 146.01(1) applies does not resume operations on a grain-dependent branch line listed in Schedule I within the period provided for in that subsection and does not enter into an agreement for the sale, lease or other transfer of that railway line, or applicable interest in that railway line, after following the process set out in sections 143 to 145, the railway company shall, beginning on the day after the last day on which its offer could have been accepted under section 145, make the annual payments referred to in subsection (1).
List of metropolitan sidings and spurs to be dismantled
146.2 (1) A railway company shall prepare and keep up to date a list of its sidings and spurs that it plans to dismantle and that are located in metropolitan areas or within the territory served by any urban transit authority, except for sidings and spurs located on a railway right-of-way that will continue to be used for railway operations subsequent to their dismantlement.
Publication of list and notification of changes
146.2 (2) The railway company shall publish the list on its Internet site and, whenever it makes a change to the list, it shall notify the following of the change within 10 days after the change:
- the Minister;
- the Agency;
- the minister responsible for transportation matters in the government of the province in which the siding or spur that is the subject of the change is located;
- the chairperson of the urban transit authority in whose territory the siding or spur that is the subject of the change is located; and
- the clerk or other senior administrative officer of the municipal or district government in which the siding or spur that is the subject of the change is located.
Limitation
146.2 (3) A railway company shall not take steps to dismantle a siding or a spur until at least 12 months have elapsed since the siding or spur was added to the list.
Offer to governments
146.2 (4) Before dismantling a siding or a spur that has been on the list for at least 12 months, a railway company shall send simultaneously to each of the following an offer to transfer all of its interest in the siding or spur for not more than its net salvage value:
- the Minister;
- the minister responsible for transportation matters in the government of the province in which the siding or spur is located;
- the chairperson of the urban transit authority in whose territory the siding or spur is located; and
- the clerk or other senior administrative officer of the municipal or district government in which the siding or spur is located.
Time limits for acceptance
146.2 (5) Subject to subsection 146.3(3), after the offer is received
- by the Minister, the Government of Canada may accept it within 30 days;
- by the provincial minister, the government of the province may accept it within an additional 30 days after the end of the period mentioned in paragraph (a) if it is not accepted under that paragraph;
- by the chairperson of an urban transit authority, that authority may accept it within an additional 30 days after the end of the periods for acceptance under paragraphs (a) and (b), if it is not accepted under those paragraphs; and
- by the clerk or other senior administrative officer of a municipal or district government, that government may accept it within an additional 30 days after the end of the periods for acceptance under paragraphs (a), (b) and (c), if it is not accepted under those paragraphs.
Communication and notice of acceptance
146.2 (6) Once a government or an urban transit authority communicates its written acceptance of the offer to the railway company, the right of any other government or urban transit authority to accept the offer is extinguished, and the railway company shall notify the other governments and urban transit authorities of the acceptance.
Net salvage value
146.2 (7) If a government or an urban transit authority accepts the offer, but cannot agree with the railway company on the net salvage value within 90 days after the acceptance, the Agency may, on the application of the government, the urban transit authority or the railway company, determine the net salvage value.
Dismantling permitted
146.2 (8) If the offer is not accepted, the railway company may dismantle the siding or spur on providing notice to the Agency.
Determination of net salvage value before expiry of time to accept offer
146.3 (1) A person to whom a railway line is offered under section 145, or to whom a siding or spur is offered under section 146.2, may apply to the Agency for a determination of the net salvage value of the railway line, siding or spur, as the case may be, at any time before the expiry of the period available to the person to accept the offer.
Notification of application
146.3 (2) The applicant shall without delay provide a copy of the application to the railway company, and the railway company shall without delay notify every other person to whom the offer was made and whose time to accept the offer has not expired that an application for a determination of the net salvage value was made.
Effect of application
146.3 (3) If an application is made under subsection (1), the time available to the applicant to accept the offer expires on the day that is 30 days after the day the Agency notifies the applicant of its determination of the net salvage value and the 30-day period for each other person to accept the offer is calculated on the expiry of the period available to the applicant to accept the offer.
Costs
146.3 (4) The applicant shall reimburse the Agency’s costs associated with the application.
Railway rights of way
146.4 Sections 146.2 and 146.3 apply, with any modifications that are necessary, to railway rights-of-way, that are located in metropolitan areas or within the territory served by any urban transit authority and in respect of which the sidings and spurs have been dismantled, that a railway company plans to sell, lease or otherwise transfer.
Passenger railway stations
146.5 Sections 146.2 and 146.3 apply, with any modifications that are necessary, to passenger railway stations in Canada that a railway company plans to sell, lease or otherwise transfer or dismantle.
Notes
- Note 1
-
Includes transportation of steel, relay ties, scrap OTM, and restoration of road crossings.
- Note 2
-
R1, R1A:Residential single family zoning; R3: Residential apartment and multi-family zoning
- Note 3
-
An extracted land value is calculated by deducting the value of improvements from the sale price of an improved property.
- Note 4
-
Refers to mapping provided in the Cook report byCTQ Consultants Ltd.; involved in Engineering, Planning and Urban Design
- Note 5
-
The asset viewed as a whole
- Note 6
-
A universe rate is calculated by totalling the sale prices or values of a dataset and then dividing by the cumulative parcel area totalled for the same dataset.
- Note 7
-
CP’s Okanagan Subdivision, mileage 0.3 (Sicamous) to mileage 16.4 (Grindrod), the subject of a separate transfer and discontinuance process.
- Note 8
-
AIC, Canadian Uniform Standards of Professional Appraisal Practice, 2012, section 12.34
Member(s)
- Date modified: