Decision No. 334-R-2016
SUMMARY
[1] The Agency considered whether, for the purposes of computing Canadian National Railway Company’s (CN) MRE, the mileage travelled by CN beyond Thornton Yard in Vancouver and Neebing Yard in Thunder Bay should be included in the calculation of its average length of haul (LoH) for the crop year.
[2] The three main issues to be addressed in this determination are:
- Does the Agency have the discretion to determine the appropriate methodology for calculating the average LoH for the crop year?
- If so, what is the appropriate methodology for calculating the average LoH for the crop year?
- Is CN’s request to include mileage beyond Thornton Yard and Neebing Yard consistent with that methodology?
[3] For the reasons set out in this Determination, the Agency finds that:
- The Agency has the discretion to establish the methodology for determining the average LoH for the crop year.
- The LoH for a specific origin to destination (OD) pair should be determined using the same methodology and the same mileage that was used in arriving at the base year average LoH.
- The base year LoH mileages did not include the miles travelled beyond Thornton Yard or Neebing Yard, and, therefore, CN’s request is inconsistent with the methodology for calculating the average LoH. These additional miles should, therefore, not be included in establishing CN’s average LoH for the crop year.
INTRODUCTION
[4] On December 29, 2015, the Agency issued 400-R-2015">Decision No. 400-R-2015 (MRE determination), containing its determination on the MRE for crop year 2014-2015. In the MRE determination, the Agency determined that CN’s proposal to include miles travelled by it, beyond Thornton Yard and Neebing Yard, in establishing the LoH to be used in determining CN’s MRE for 2014-2015 (Mileage issue), represented a change in methodology that was material, complex in nature, and potentially inconsistent with the manner in which the base year amounts were established in the CTA.
[5] The Agency, as such, did not make the proposed adjustments in respect of the Mileage issue for the purposes of the 2014-2015 MRE determination and deferred its determination pending further review.
[6] This Decision provides the Agency’s determination on the Mileage issue.
BACKGROUND
[7] The MRE is a statutory limit on the overall revenue that can be earned by CN and the Canadian Pacific Railway Company (CP) for the movement of western grain.
[8] The MRE formula is set out in subsection 151(1) of the Canada Transportation Act, S.C., 1996, c. 10, as amended (CTA), as follows:
MRE = [A/B + ((C-D) x $0.022)] x E x F
Where
A is the company’s revenue for the movement of grain in the base year;
B is the number of tonnes of grain involved in the company’s movement of grain in the base year;
C is the number of miles of the company’s average LoH for the movement of grain in that crop year as determined by the Agency;
D is the number of miles of the company’s average LoH for the movement of grain in the base year;
E is the number of tonnes of grain involved in the company’s movement of grain in the crop year as determined by the Agency; and,
F is the volume-related composite price index as determined by the Agency.
[9] Factors A, B, and D are set in the CTA and cannot change, while factors C, E and F are determined by the Agency for each crop year as part of its MRE determinations.
[10] As part of its final submissions for the 2014-2015 MRE determination, CN asked the Agency to accept the addition of miles arising from the Mileage issue.
[11] CN stated that due to an algorithm error in its data systems, it was not capturing the full mileage for the movement of grain from prairie origin to final port destination at Vancouver and Thunder Bay, but rather only the distance from prairie origin to the main yard facilities at Thornton Yard and Neebing Yard. In CN’s view, if the mileage reflected in the calculation of factor C (the average LoH) only captured the movement to the main yard facilities at Thornton and Neebing yards and not the full distance to the final port destination where the grain is loaded onto ships for export, then its MRE would be understated.
[12] On October 23, 2015, CN filed written submissions with the Agency indicating its position that the proposed adjustments were routine in nature and thus could be made as part of the Agency’s 2014-2015 MRE determination without the need for further assessment or consultation.
[13] On November 6, 2015, the Agency issued LET-R-69-2015">Decision No. LET-R-69-2015 wherein the Agency found that the Mileage issue was not routine and required further review.
[14] The Agency indicated that it had reason to believe that “this claimed understatement of mileage may not necessarily be due to an algorithm error, but that, in fact, the mileage may have been recorded in the same fashion since the establishment of the MRE program”. The Agency reasoned that if this were the case, then it would not be appropriate to compute the distance between a given origin and destination in a way that is different from the base year when there has been no change in operations. The Agency based its decision on the fact that its records showed that the shorter miles were reported in each of the crop years since the inception of the MRE program. The Agency also considered that the shorter mileage recorded to date in the MRE program may be explained by the manner in which the movements were costed in determining the base year amounts. It also reasoned that if mileages are allowed to be added in 2014-2015, the Agency may, in effect, be introducing amounts that have already been accounted for in the base year.
[15] Based on this, the Agency deferred a ruling on the Mileage issue and gave CN the opportunity to provide information that confirmed that the additional mileages it requested for the 2014-2015 crop year were determined in the same manner as the mileages for the base year. That is, CN was asked to demonstrate that the longer distances were also used in the base year. The Agency indicated that if CN were to provide the requested information, it would accept the proposed adjustment. The Agency indicated that if CN was unable to demonstrate that the base year amounts were derived using the same distances as those proposed by CN for 2014-2015, the Agency would consider the matter to be a material issue and, consistent with the established process for managing the MRE program, a final ruling on the issue would be deferred until the 2015-2016 crop year and the proposed changes would not be considered for the purposes of the 2014-2015 MRE determination.
[16] On November 20, 2015, CN filed additional submissions with respect to the Mileage issue wherein CN took the position that the Agency has no discretion in applying the MRE formula prescribed by the CTA. It argued that a plain reading of the provisions allows the Agency to only calculate factor C of the MRE formula as the distance between origin and final destination (i.e. include the additional mileage beyond Thornton Yard and Neebing Yard). This, according to CN, is a simple mathematical exercise that does not entail any discretion. In CN’s view, the Agency’s role in establishing the MRE in a given crop year is simply to calculate factors C and E and it has no authority to investigate whether there is an inconsistency when comparing an adjusted factor C in the 2014-2015 crop year to base year amounts. CN also claimed that the Agency is bound to include all mileages calculated from origin to destination when computing factor C, citing in support of its position the Federal Court of Appeal’s (FCA) decision in Canadian Pacific Ltd. v. Canada (National Transportation Agency) (1992), 151 N. R. 16 wherein the FCA defined “movement” as “… the whole process or series of actions by which grain is moved from origin to destination and it ends only with the placing or “spotting” of the rail cars so that they may be unloaded.”
[17] CN further stated that it did not have the information requested by the Agency on how the base year amounts were determined, as it was Parliament that established the base year amounts in the CTA and, as such, the Agency is imposing an improper burden of proof on CN. Finally, CN stated that its reported actual average annual LoH had always been understated, as a result of the Mileage issue.
[18] In 400-R-2015">Decision No. 400-R-2015, the Agency determined that:
- CN had not provided the Agency with the required factual evidence requested in LET-R-69-2015">Decision No. LET-R-69-2015,
- The matter was material and required a more fulsome investigation; and, accordingly
- The proposed adjustments with respect to the addition of mileages to the ports of Vancouver and Thunder Bay would not be made for the purposes of the 2014-2015 MRE determination.
[19] The Agency also directed staff to undertake “an in-depth investigation into this matter with a view to establishing how movements in ports were costed when base year statistics were established for the MRE formula”.
[20] Agency staff subsequently completed its investigation, which indicated that the average LoH, for the base year, only included CN’s mileage to the Thornton and Neebing yards and did not include the additional mileage now proposed by CN. Staff also found evidence that the activities and costs associated with transporting the grain by rail to the final port loading destination within the Vancouver and Thunder Bay terminals were reflected in the determination of the base year revenue amounts.
[21] On February 19, 2016, the Agency staff’s Investigation Report was shared with CN, which was provided the opportunity to provide further comments, evidence or clarifications for the Agency’s consideration.
[22] On March 28, 2016, CN provided its response to the Agency staff’s Investigation Report, wherein CN stated that:
- The Agency, in applying the MRE formula, must calculate the distance transported over a railway line to destination, and not to an intermediary point. The Agency has no discretion when applying the MRE formula prescribed by the CTA and that its terms of reference for the investigation into the matter exceeded its mandate and authority. The Agency, by relying heavily on external materials to interpret a legislative text that has very little to do with previous regimes, has disregarded the important rule of statutory interpretation that it is only when there is an ambiguity between two or more plausible readings of a provision that a tribunal can resort to external interpretation aids.
- The Investigation Report was incorrect in finding that the base year amounts were determined from the previous regimes, including the rate scale and costing exercises. CN argued that, since 1995, the grain rates the prescribed railways have been permitted to charge, or have actually charged, have been disassociated from the railways’ costs and that the MRE’s base year amounts are not based on the 1998 rate scale. They provide as support for this statement that for CN the D in the MRE formula is 1,045 whereas CN’s actual average LoH in 1998 was 1,013. They also stated that the effective revenues are not based on the 1992 costing review or the 1995-96 rate scale.
AGENCY ANALYSIS AND FINDINGS
[23] There are three main issues to examine in determining the Mileage issue, as follows:
- Does the Agency have the discretion to determine the appropriate methodology for calculating the average LoH for the crop year (factor C of the formula)?
- If so, what is the appropriate methodology for calculating the average LoH for the crop year (factor C of the formula)?
- Is CN’s request to include mileage beyond Thornton Yard and Neebing Yard consistent with that methodology?
1. Does the Agency have the discretion to determine the appropriate methodology for calculating the average LoH for the crop year (factor C of the formula)?
[24] It is settled law that the terms of a statute must be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the act, the object of the act, and the intention of ParliamentNote 1.
[25] Using this approach, the Agency finds that subsection 151(1) of the CTA confers on the Agency the power to calculate the average LoH for the crop year using the methodology that it deems appropriate. The term “average length of haul” is not defined in the CTA and it is therefore the Agency’s role to interpret these terms in its capacity as the expert economic regulatory body charged with the administration of the MRE regime. The plain reading of the definition of factor C reinforces this view, as the use of the term “as determined by the Agency” in that definition provides the Agency with explicit interpretive authority.
[26] Further, internal consistency requires that the term “as determined by the Agency” be given the same meaning throughout subsection 151(1) of the CTA. That phrase also appears at factor F:
the VRCPI “as determined by the Agency”. “VRCPI” is a technical term unique to the MRE regime; it has no independent meaning or methodology outside the MRE context. As such, the Agency could not fulfil its statutory duty to determine the VRCPI if it did not also have the authority to establish an appropriate methodology for doing so. The term “as determined by the Agency” must necessarily be interpreted as conferring on the Agency the power to determine a methodology for calculating the VRCPI at factor F. It must also be interpreted as providing same authority with respect to the determination of the average LoH at factor C.
[27] Finally, the definition of factor C should be interpreted in a manner consistent with the statutory objective that the MRE formula seeks to achieve. The MRE Program was introduced in 2000 to replace the Maximum Rate Scale (MRS) regime with the intent to give the prescribed railway companies price flexibility while safeguarding producers from rate increases. The mechanism chosen by Parliament to implement this objective is to limit the railway companies’ MRE revenues in accordance with the MRE formula. It is apparent from the formula that the purpose of its (C – D) component is to adjust the MRE in relation to an increase or a decrease in the average LoH as compared to the base year. In order to achieve this purpose, the Agency must necessarily have discretion to use the methodology that it deems appropriate for calculating the average LoH.
2. What is the appropriate methodology for calculating the average LoH for the crop year (factor C of the formula)?
[28] The MRE formula establishes the maximum amount of revenues that the prescribed railways can earn to transport eligible grain for a given crop year. The MRE formula sets the MRE for a given crop year in relation to their “base year” (i.e., 2000-2001).
[29] The base year amounts to be taken into account for CN’s MRE are established by subsection 151(2)(a) of the CTA at $348 million in revenues, based on transporting 12.437 million tonnes of grain (i.e., factor B) over an average LoH of 1,045 miles (i.e., factor D).
[30] The MRE formula provides for the MRE for each crop year to be determined as the base year revenue amount adjusted for inflation and any increase or decrease in tonnage or in mileage as compared to the base year.
[31] The purpose of the average LoH adjustment (i.e., factor C minus factor D) is to provide additional revenue entitlement to the railway company if its average LoH in a given crop year is longer than it was in the base year or less revenue entitlement if its average LoH in a crop year is shorter than in the base year. Similarly, if the average LoH in a crop year is the same as in the base year, the MRE formula should not produce a mileage-based increase or a decrease in the MRE.
[32] The Agency therefore finds that, given the logic and intent of the MRE formula, factor C for the movement of grain for a particular OD pairing in any given crop year must be computed using the same methodology consistent with how it was determined in computing factor D for the base year.
[33] Furthermore, as railway companies transport grain over rails, which by their nature do not vary in length, the distance for each OD pair, as used in the base year, should remain the same in the following crop years. Historical OD mileages should only change as a result of a physical change to the route or the length of the rail line that occurs after the base year, such as from re-routing due to line abandonments, construction, etc.
3. Is CN’s request to include mileage beyond Thornton Yard and Neebing Yard consistent with that methodology?
[34] Having determined that the average LoH for a crop year must be computed by applying the same methodology as was used to establish the 2000-2001 base year average LoH, the Agency must now determine whether the base year mileage amounts included miles travelled beyond Thornton Yard and Neebing Yard.
[35] If the evidence indicates, on balance, that factor D was established using miles measured from prairie origin to main yard facilities, it would be inappropriate to use a value for factor C that incorporates additional miles from the main yard facilities to the vessel loading positions at the port, as doing so would effectively give the railway companies the benefit of an artificially inflated MRE. By the same token, if the evidence indicates, on balance, that factor D was established using distances from the point of origin to vessel loading locations, then leaving out the distances between the main yard facilities and those locations would inappropriately lower the MRE.
[36] Because the CTA specifies, as factor D, the average LoH in the base year for each of the prescribed railway companies in aggregate and not for individual OD pair movements, and because there is no single document available that lays out in a simple fashion how D was arrived at, the Agency has had to carefully examine and weigh available information on the calculation of D to determine whether miles between main yards and vessel loading positions were included. Much of this information was contained in staff’s Investigation Report, CN’s response to the Investigation Report, and CN’s submissions on the Mileage issue.
[37] After considering the information before it, the Agency finds that factor D does not include any mileage beyond Thornton Yard and Neebing Yard, based on the following:
- Factor D (along with factors A and B) was established based on the 1998 figures in the railway companies’ Rail Freight Traffic Database (RFTDB);
- The 1998 RFTDB revenue figures were based on the maximum rate scale (MRS) established by the Agency, which in turn was based on a 1992 Costing Review; and,
- The 1992 Costing Review methodology used LoH distances measured from the origin to, but not beyond, Thornton Yard and Neebing Yard.
[38] The background to and evidence for these conclusions are laid out below.
a. Legislative History
[39] Parliament has established a series of legislative schemes in relation to the prices charged by railway companies for the transportation of western grain: the 1983 Western Grain Transportation Act (WGTA) provided for an annual rate scale, which was replaced by the Maximum Rate Scale (MRS) regime introduced in the 1996 CTA, which in turn was replaced by the MRE in 2000.
[40] Under the WGTA, the Agency (known as the Canadian Transportation Commission until 1988 and the National Transportation Agency from 1988 to 1996) determined the annual maximum rate scale based on the costs of moving grain. Costing studies to support these determinations were conducted every four years. The last costing study was completed for the 1992 calendar year. The last rate scale established under the WGTA was for crop year 1995-1996 and was based on the 1992 costing review.
[41] The MRS provisions of the 1996 CTA provided for a maximum rate scale to be determined by taking the WGTA’s 1995-1996 rate scale and making adjustments for factors such as inflation. By relying on the 1995-1996 rate scale, the MRS was based on the 1992 costing review.
[42] The MRE regime implemented from 2000 established base year factors for revenue (factor A), tonnes (factor B), and average LoH (factor D) using 1998 figures in the railway companies’ RFTDB, which were based on the MRS.
b. 1992 costing methodology
[43] The 1992 costs were calculated using a model applied by the Agency with little modification since 1969 that relies on determinations of the costs of specific activities performed by railway companies.Note 2
[44] Most traffic movements by rail are performed in three stages, with the steps being reversed to return empty cars to their starting point:
- Traffic is picked up at the customer location, brought to an origin yard, and hooked up to a train;
- Train moves from origin yard to destination yard; and,
- Traffic is unhooked from train and delivered to the customer.
[45] The cost to move the train from origin yard to destination yard (i.e., step 2) is heavily influenced by the tonnes carried and distances travelled from the origin yard to the destination yard and, as such, it is logical to link revenues with the LoH between these locations.
[46] However, the costs to pickup at origin (i.e., step 1) and deliver at the end destination (i.e., step 3) are heavily influenced by factors such as yard configurations, urban rail network, and number of at-grade intersections, in addition to tonnes moved and LoH. Therefore, these costs were determined in the costing model using the time (Yard Switching Minutes or YSM) required by a train crew to perform all the activities needed to complete steps 1 and 3. This is consistent with the statement in CN’s Technical Note that for the MRE to work as intended, “the length of haul in the formula must be developed as per the 1992 cost base methodology in order that the Revenue Cap properly track the changing workload involved in moving grain to port.”
[47] The documentation from the 1992 costing exercise for CN studies shows that costs for activities within both Thornton Yard and Neebing Yard and between those yards and the port loading facilities were accounted for inYSM and not train miles, gross tonne-miles or other line haul variables.
c. 1998 Grain Traffic Database (GTDB) Distances
[48] The mileages reflected in the 1998 RFTDB for the purposes of the MRS program were recorded up to the main yard facilities in Vancouver and Thunder Bay and not further, consistent with the 1992 costing methodology.
[49] CN’s 1998 GTDB (i.e., a subset of the RFTDB) reported, as an example, the following representative data for movements originating in Aberdeen, Saskatchewan and terminating in the Vancouver terminal area:
Year | Origin | Origin Name | Origin Area | Destination | Destination Name | Dest. Area | Car Miles |
---|---|---|---|---|---|---|---|
98 | 072417 | Aberdeen | SK | 093314 | North Vancouver | BC | 1102 |
98 | 072417 | Aberdeen | SK | 093605 | Port Mann | BC | 1102 |
98 | 072417 | Aberdeen | SK | 093724 | Lulu Yard | BC | 1102 |
98 | 072417 | Aberdeen | SK | 093768 | New West | BC | 1102 |
98 | 072417 | Aberdeen | SK | 093900 | Vancouver | BC | 1102 |
[50] Irrespective of the final destination end point, the transportation of grain from a single location (i.e., Aberdeen, Saskatchewan) to various different terminating locations within the Vancouver terminal area were all recorded with the same mileage of 1,102 miles, the distance to Port Mann (subsequently renamed Thornton Yard).
[51] The other destinations beyond Port Mann (i.e., Thornton Yard) were assigned the same LoH demonstrating that all distances were calculated up to Thornton Yard, and not beyond, for the purpose of the MRS program.
[52] CN’s 1998 GTDB, similarly, reported the following representative data for movements originating in Regina and Kindersley, Saskatchewan to the Thunder Bay terminal area:
Year | Origin | Origin Name | Origin Area | Destination | Destination Name | Dest. Area | Car Miles |
---|---|---|---|---|---|---|---|
98 | 070100 | Regina | SK | 058000 | Thunder Bay | ON | 815 |
98 | 070100 | Regina | SK | 058017 | McKellar Island | ON | 815 |
98 | 076257 | Kindersley | SK | 058000 | Thunder Bay | ON | 1034 |
98 | 076257 | Kindersley | SK | 058017 | McKellar Island | ON | 1034 |
[53] The distance for rail cars moved to the Thunder Bay terminal area were consistently calculated up to Thunder Bay, and not beyond, for the purpose of the MRS program. The additional distance to McKellar Island did not increase the LoH.
[54] In short, the 1998 RFTDB, which was used to derive the MRE base year average LoH amounts for the prescribed railway companies, did not include the additional distance beyond Thornton Yard and Neebing Yard. Indeed, at no time between 1992 and 2014 did the data submitted by CN for the purpose of the MRS or the MRE include the mileage beyond Thornton Yard and Neebing Yard.
d. Agency Report to Arthur Kroeger
[55] Evidence that the MRS scheme being applied in 1998 was based on the 1992 costing review can be found in a document provided by the Agency to Arthur Kroeger in 1999.
[56] Mr. Kroeger had been asked by the federal government to look at the western grain handling system and the regulation thereof, and his report was the basis for the creation for the MRE. As part of his review, he requested the assistance of the Agency on various issues. An Agency report to Mr. Kroeger dated July 16, 1999 included the following statement:
“When the WGTA was repealed, a new procedure was established for setting western grain rates that contained a strong link to the original WGTA process. The maximum rates that the Agency establishes under its current mandate are a multiple of the CTA’s Schedule III rates. However, the Schedule III rates were established based on 1992 WGTA costs. Hence all Agency rates established for western grain are, in effect, based on 1992 WGTA costs. Recently, the Agency announced rates for the upcoming 1999-2000 crop year. This will be the sixth crop year in which rates will be based on 1992 WGTA costs.”
[57] This statement – made at a time when the establishment of the MRE program was being considered – indicates the continued reliance on the 1992 costing model.
e. CN’s Technical Note
[58] Further evidence that the MRS and MRE were based on the 1992 costing methdology is contained in a February 2001 Technical Note provided by CN itself to the Agency. That Note addressed issues related to the administration of the MRE program and under the heading “Revenue Cap Formula” stated as follows:
The Revenue Cap formula was developed starting from the 1992 cost based rate scale with annual indexation for inflation and productivity adjustments to reflect improvements since 1992. The formula recognizes that length of haul has a significant impact on the revenue per Tonne by incorporating an adjustment of $0.022 per Tonne-mile for each additional mile traveled. The LOH in the formula must be developed as per the 1992 cost base methodology in order that the Revenue Cap properly track the changing workload involved in moving grain to port. (Emphasis added)
[59] The same Note made the following statement under the heading “Length of Haul”:
The length of haul was determined by taking the ratio of Tonne-miles to Tonnes. The tonne-miles were determined based on distance traveled on trains from yard to yard… Costs in terminals were based on yard crew minutes required to originate or terminate the movement, and these minutes generally had very little relationship to the distance travelled within the terminal. Therefore, regulatory costing methodology did not adjust the length of haul to reflect the miles within terminals.” (Emphasis added)
[60] This Technical Note, which was provided to the Agency shortly after the MRE program had been implemented, indicated CN’s understanding at the time that the MRE formula and its base year amounts were derived from the previous MRS regime, the LoH was to be determined consistent with how it was determined for the 1992 cost-based rate scale, and the average LoH did not include distances beyond main rail yards.
f. Government statements during Parliamentary Committee discussion on establishment of MRE
[61] When Bill C-34, which introduced the MRE provisions in the CTA, was debated in Parliament and studied by the Standing Committee on Transport, the transition between the MRS and the MRE regimes included the following statement by the Minister of Transport, the Honourable David Collenette:
The bill introduces important changes on four issues. The maximum rate scale in sections 150 to 152 of the Canada Transportation Act is replaced by a cap on annual grain revenues to be earned by Canadian National and Canadian Pacific. This change will increase price flexibility and efficiencies in the grain handling and transportation system while lowering costs for western producers. The revenue cap will produce an estimated $178 million in savings, and this is based on an effective rate for August 1 of $32.92 per tonne, for total rail revenues of $988 million for a typical crop of 30 million tonnes.
The government’s May 10 decision has set the new revenue cap at $27 a tonne, a reduction of 18%. This would limit rail revenues next year to $810 million or a reduction of $178 million. That is indeed significant, Mr. Chairman, and I hope the farmers of western Canada can see the evidence of those savings in their accounts this coming year.Note 3
[62] Rick Borotsik (Brandon—Souris, PC) made the following statement:
Let’s talk about policy right now. There’s $178 million, which is at best an estimate as to what your savings are going to be, because you’re doing it based on an 18% reduction, based on 30 million metric tonnes, I believe, Mr. Collenette, that you had indicated. If in fact it isn’t 30 million metric tonnes—and in 1998 it wasn’t, it was 26 million metric tonnes, which if you do the numbers is less than $178 million—are you prepared to guarantee the $178 million as being a number...Note 4
[63] These statements indicate that the starting point for the base year figures in the MRE formula, including the $27 per tonne revenue cap, was the railway data from 1998. The reference to the $27 per tonne revenue cap refers to the CTA’s base year amounts (i.e., revenues divided by tonnes), while the reference to 1998 serves to link the base year amounts to those derived under the MRS in 1998.
g. MRE formula’s distance-based adjustment factor
[64] Information on the adjustment factor contained in the MRE formula points to that MRE’s grounding in the 1998 MRS scheme.
[65] The formula provides for the MRE to be adjusted by the distance based adjustment factor specified as [(C-D) X $0.022]. As evidenced in staff’s Investigative Report, Agency staff has confirmed that this adjustment factor was derived from the 1998 maximum rates that were charged by railway companies under the MRS regime. By regressing the maximum rate, and the mid-point of the 1998 rate scale, a distance-based adjustment of 2.6 cents was determined. That 2.6 cents was adjusted downward, based on a policy decision, when creating the MRE program, to reduce the 1998 revenues by 14.3% to account for productivity improvements between 1998 and the MRE base year to arrive at the 2.2 cents contained in the CTA.Note 5
[66] In other words, the 2.2 cent adjustment factor was determined based on the revenues and LoH distances, as determined under the MRS program in 1998.
CONCLUSION
[67] Having found that the Agency has the discretion to determine the appropriate methodology for calculating factor C, that this methodology should be consistent with the methodology used to compute factor D, and that the methodology used to compute factor D was rooted in a 1992 costing study that did not include distances beyond Thornton and Neebing yards, the Agency cannot accept CN’s request to include the additional mileage in factor C. Historical OD mileages should only change as a result of a physical change to the route or the length of the rail line that occurs after the base year, such as from re-routing due to line abandonments, construction, etc. The Agency’s 2015-2016 and future MRE determinations will be made accordingly.
[68] CN is reminded that this conclusion also applies to traffic destined to Lulu Island Junction and New Westminster. As previously stated in LET-R-69-2015">Decision No. LET-R-69-2015:
The issue of the appropriateness of mileage adjustments for traffic to Lulu Island and New Westminster filed by CN after the beginning of the MRE program was never brought before the Agency for a ruling.
The fact that CN changed its practice, when this was not approved by the Agency, does not provide justification for allowing changes in mileages in respect of other destinations. The Agency notes this discrepancy in the recording of mileages to Lulu Island and New Westminster and will ensure that it treats these specific mileages in the same manner as those to other points beyond Thornton Yard. Specifically, the mileages to those destinations should be derived in the same manner as they were in the base year.
[69] Going forward, mileages for movements from Thornton Yard to Lulu Island Junction and to New Westminster should not be included in CN’s filings.
Member(s)
- Date modified: