Decision No. 360-R-2013

APPLICATION

[1] Pursuant to subsection 144(3.1) of the Canada Transportation Act (CTA), Windsor & Hantsport Railway Company Limited (W&H) applied on April 26, 2013 to the Canadian Transportation Agency (Agency) for a determination of the net salvage value of the portion of the railway line known as the Windsor Subdivision owned by the Canadian National Railway Company (CN), between Windsor Junction (near mileage 0.0) and Windsor (near mileage 31.58), in the province of Nova Scotia (the Line).

LEGISLATION

[2] Part III, Division V, Sections 140 to 146 of the CTA outlines a process that must be followed by a federally-regulated railway company when transferring and discontinuing the operation of railway lines. Section 144 of the CTA provides for a six-month negotiating period between a railway company and any party who has properly indicated its interest in acquiring a given railway line for continued operation.  In accordance with subsection 144(3.1) of the CTA, the Agency may, on application by a party to a negotiation, determine the net salvage value of the railway line. For specific legislative references refer to the Appendix at the end of this decision.

BACKGROUND

[3] At Windsor Junction, the Line connects to interchange points with other CN tracks near Halifax. Although owned by CN, it had been operated and maintained by W&H for the past 19 years pursuant to a lease agreement until control of the Line returned to CN following the expiration of that agreement. There has been no traffic on the Line for approximately three years. In accordance with subsection 146.01(2) of the CTA, CN began the transfer and discontinuance process under section 143 of the CTA. Pursuant to subsection 143(1) of the CTA, CN advertised the Line for transfer for continued rail operations on February 5, 2013.

[4] W&H, which currently owns the remaining approximately 30-mile portion of this Subdivision from Windsor, where it connects with the 30-mile portion of CN-owned track that is the subject of this determination to where it terminates (and does not connect to any other railway line), responded with an Expression of Interest to purchase the Line for continued operations, but indicates that the parties have not been able to reach an agreement on a purchase price.

Expedited process

[5] A net salvage value determined under subsection 144(3.1) of the CTA is a non-binding value. It is meant simply to provide a value developed in a manner consistent with the Agency's established net salvage value methodologies and precedents that may assist the parties in what is fundamentally a commercial negotiation for the transfer of the Line for continued operation.

[6] The CTA specifies a fixed six-month time period for parties involved in these negotiations. As has been affirmed by the Federal Court of Appeal (FCA) in Canadian National Railway Co. v. Canada Transportation Agency, 2008 FCA 199,this fixed six-month time period must be adhered to strictly.

[7] Mindful of this time constraint and the need to provide a timely determination that will be of use to the parties before their negotiation period expires, the Agency, in Decision No. LET‑R‑73‑2013, set out an expedited submission process for this application that would rely primarily on independent market research conducted by the Agency and commented on by the parties. Other aspects of the modified process are referenced where relevant throughout this Decision.

DEFINITION OF NET SALVAGE VALUE

[8] In previous decisions, 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.

[9] This application raises a new issue, as it is the first time the Agency needs to determine the net salvage value of a railway line transfer for the purposes of continued railway operation. As indicated in Decision No. LET-R-73-2013, the Agency is of the opinion that the expressions "to be used for any purpose" in section 145 of the CTA and for "continued operation" in section 143 of the CTA are not meant to alter the concept of net salvage value, as described above, but rather to set out for what purpose the rail assets are being offered at a given point in the transfer and discontinuance process. Stated otherwise, the Agency is of the opinion that net salvage value is meant to represent the market value achievable from the orderly liquidation of defunct assets, regardless of the purpose for which the assets are or must be offered for sale, whether net salvage value is assessed pursuant to subsections 144 (3.1) or 145(5) of the CTA.

PROCESS

[10] As altered by the modifications described in Decision No. LET-R-73-2013, the Agency has followed the usual process for determining a net salvage value, as described in the Guidelines Respecting Net Salvage Value Determination Applications.

[11] In brief, to determine the net salvage value of a railway line the Agency identifies and assesses the quantity and quality of the track materials and determines their gross market value, then determines and deducts the cost of removal and disposal of the track materials to arrive at the net salvage value of the track materials. To this the Agency adds the value of the corridor lands, which it determines with input from an independent accredited land appraiser as the circumstances require. The Agency may take additional factors into consideration with respect to its valuation of the land, such as any costs associated with the environmental condition of the railway line that the Agency determines should be included, and any benefit that may accrue from leases or agreements expected to survive the transfer.

Relevant time frame for asset valuations

[12] It has been Agency practice to assess values or costs based upon best evidence. The Agency has thus 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 valuation process than to the beginning. Under this approach, the Agency's ultimate determination incorporates up-to-date values that better approximate in time the actual (or potential) transfer date of the railway line in question.

QUANTITY AND QUALITY OF TRACK ASSETS

Site visit and Statement of Track Materials

[13] An engineering inspection of the Line was conducted by Agency staff with representatives from CN and W&H. Because vegetation issues prevented access to the entire line, approximately 30 percent was traversed and observed by high-rail or on foot, from three access points at the beginning, middle and end of the Line. Random 100-foot sampling locations for the verification of track elements and cross-tie counts were chosen within those portions near accessible bridges and/or switches. On June 20, 2013, a draft Statement of Track Materials, itemizing the type, quantity and quality of the track assets on the Line, as assessed by Agency engineering staff based on the portion of the Line it was able to inspect, was provided to the parties for comment. The parties submitted comments on June 27, 2013.

Comments of the parties on the Statement of Track Materials

[14] CN agrees with the draft statement of materials and states that it has no further comments.

[15] In general terms, W&H concurs with the weights and quantities in the draft Statement of Track Materials, recognizing that any discrepancies it identified were attributable to increased mileage resulting from the inclusion of siding tracks in the Agency's assessment. However, W&H has a different opinion as to the condition of the rail and ties. Citing the Agency's inability to access the entire Line by high-rail due to vegetation issues, W&H submits that an inspection of the entire line, completed under more favourable circumstances by W&H and CN in November 2012, more accurately reflected the condition of the rail, at 100 percent scrap, and the ties at 90 percent scrap, than what was determined in the draft Statement of Track Materials.

[16] W&H further submits that this classification had been agreed upon by CN and W&H. Consequently, W&H asked CN to acknowledge the 2012 inspection results.

[17] In Decision No. LET-R-73-2013, the Agency indicated that its final net salvage value determination would reflect any aspects of the valuation on which the parties had reached an agreement. In view of this, Agency staff asked CN to confirm if it concurred with the condition breakdown for the track materials as submitted by W&H, so that the Statement of Track Materials might be adjusted accordingly.

[18] CN responded that there were only commercial discussions in the fall of 2012, and that at no time did CN and W&H agree on the quantity and condition of the track materials for the Line.

Agency analysis and findings

[19] It is the Agency's normal practice in net salvage value determinations to conduct an inspection of the entire railway line in question. The fact that in this instance the Agency was able to observe and assess the condition of only an approximate 30 percent of the Line is an unusual circumstance, which the Agency finds warrants a valuation approach that differs from the norm.

[20] With respect to the observed portion of the Line, with no confirmation of an agreement between the parties to the contrary, the Agency will rely on its own expert evaluation of the quality of track materials as representative of the condition of 30 percent of the Line and make its value determination for that portion of the Line accordingly. As to the unobserved portion, the Agency considers it reasonable to assume, given the inability to traverse that portion by hi-rail at the time of the site inspection, that its condition is no better and possibly worse than that of the observed portion. Therefore, in order to account for the uncertainty of the actual condition of the unobserved portion of the Line, and in view of the fact that a net salvage value determined under subsection 144(3.1) of the CTA is meant to be a non-binding tool to assist the parties in their negotiations, the Agency will determine the net salvage value for the remaining 70 percent of the Line as ranging from its value as if its quality was the same as that of the observed portion to its value as if comprised of 100 percent scrap rail and other track materials (OTM), and 90 percent scrap ties, as W&H contends. The Agency's final net salvage value determination for the Line will incorporate these two condition scenarios to reflect an upper and a lower value.

[21] After taking the comments of the parties into consideration, the draft Statement of Track Materials was finalized, unchanged, to form the basis for the independent market survey referenced below.

VALUE OF THE TRACK ASSETS

[22] To assist in its determination of the value of the track assets, the Agency conducted an independent market survey based on the information contained in the Statement of Track Materials. The Agency obtained 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 August 23, 2013. The parties were advised that comments could include their substantiated opinions of the value of the track assets. The parties submitted comments on August 29, 2013.

Comments of the parties on the MRDR

[23] CN comments that the prices shown in the MRDR are consistent with recent quotes obtained by CN for similar materials.

[24] W&H submits that it considers the net salvage value of the track assets to be $300,000 ‑ $350,000. In support of its opinion, W&H also submitted internal calculations and two industry quotations for the purchase of the track materials and salvage works, one from Dartmouth Metals and the other from Nackawic Mechanical Ltd. In addition to these submissions, W&H raises several concerns, as follows.

[25] W&H reiterates its concern that the Agency's assessment of the condition of the rail and ties does not accurately represent the true condition of the Line. W&H advances that in the course of its initial work, modelling and communication with CN, it had been concluded between them that all or nearly all ties were bad and would carry a liability of approximately $500,000, rather than a value ranging from $400,000 to $1.1 million, as suggested by the MRDR. W&H expresses a similar point of view with respect to the assessment of the condition of the rail and OTM. W&H assesses the condition of these at 100 percent scrap, based on its extensive knowledge of the Line.

[26] W&H insists that the most recent Agency track inspection misrepresents the condition and quality of the track assets and a valuation of the tracks, ties and OTM based on it adversely affects the net salvage value.

[27] W&H also questions the variations in price from vendor to vendor in the MRDR for common commodities as scrap rail and tie disposal value, viewing the variations as large and considering it more the norm for bids to come between five and ten percent of each other. W&H also questions the credibility of quotes from vendors who have not seen the Line, the removal conditions or the condition of the materials.

[28] Further to this, W&H considers that the removal and transportation costs are grossly underestimated in the MRDR. W&H submits that because the Line is currently not passable, even for a work train, traditional methods of track removal using gondolas for transporting materials are not possible unless significant track and brush work are done and minimum requirements pertaining to mileages 8.7, 9.2 and 18.3 that were set out in correspondence W&H received from Transport Canada and Nova Scotia TIR in September 2010 are met. W&H considers that removal costs will dramatically increase with the introduction of more truck transportation. However, W&H further notes that, because transportation costs in the quotation submitted from Dartmouth Metal reflect the cost of transporting the salvaged materials by water, they are considerably less than those in the MRDR.

[29] W&H also contends that the introduction of more manual labour will both increase costs and decrease the percentage of OTM recoverable, and that consideration for this should be taken into account in the final value assessment. In the internal calculations it submitted, W&H allows that 25 percent of the OTM would be unrecoverable and applies a value only to the remaining 75 percent.

[30] W&H also notes the absence of any reference in the MRDR to the costs associated with the removal of bridges. W&H indicates that although its understanding is that the net salvage value analysis assumes that the cost of the bridge removal is equal to the value of the scrap, in this situation, the depth of the gorge could create a situation similar to bridge removals done in the area by the Province, which had costs of over $1 million each, net of salvage.

[31] W&H estimates the total net salvage value of the Line at $820,000 to $850,000, including land per the Agency's independent appraiser, but exclusive of bridge and culvert removal and repair and any costs associated with third party/personal or environmental liability.

[32] W&H concludes its comments on the MRDR by explaining that its primary business is moving gypsum from mine to port on its own 30 miles of track and that the gypsum business is not dependent on W&H acquiring the Line. It also indicates that it has shipped significant tonnage outbound via the CN interchange, and seeks to preserve the interchange by acquiring the Line for a fair price that is based on actual quotes from vendors that have viewed the Line and taken the related costs to remove and transport, as well as the condition of the materials into consideration. W&H is of the view that preserving the Line will be of benefit to and profit for all parties involved, including CN and customers in the province. It submits that abandonment serves only CN, whereas preservation gives CN a fair price and maintains the ability of current and future customers in the province to create and expand their businesses for many years to come.

Agency analysis and findings

[33] With respect to W&H's concern regarding the Agency's inability to inspect more than 30 percent of the Line and the resulting quality assessment, the Agency considers that in determining an upper and lower value range for 70 percent of the Line to account for condition uncertainties on the unobserved portion, as noted above, it has addressed this concern in the most reasonable manner available under the circumstances.

[34] W&H also expresses concern over the variations in price from vendor to vendor in the MRDR, which exceed the five to ten percent range it considers normal. In addition, W&H questions the credibility of quotes from vendors who have not actually seen the Line.

[35] 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, active in the industry, as well as 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.

[36] 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. Although a market survey process that was limited to participants who could actually do a physical inspection of the assets before submitting a quotation would allow participants to see for themselves the condition of the Line, access, materials storing areas etc., such a practice would be impractical, inhibit the number of survey participants and increase the time and costs associated with determining a net salvage value. The Agency is satisfied that the market survey results it obtained allow for a range of knowledgeable estimates from experienced industry participants and is adequate for its net salvage value purposes.

[37] W&H also contends that the impassability and condition of the Line will complicate the salvage works, rendering approximately 25 percent of the OTM unrecoverable and increasing removal and transportation costs to greater than those reflected in the MRDR.

[38] The Agency accepts that it is reasonable to assume that some spikes, bolts and rail anchors may be lost during salvage operations, but not to the extent of almost 375 tons, as claimed by W&H. As referenced in the Dartmouth Metals' quote submitted by W&H, equipment such as electro-magnetic excavators can be used to gather the OTM. This should serve to reduce any OTM loss to insignificant proportions. Therefore, the Agency will not incorporate a factor for unrecoverable OTM in its calculation.

[39] The Agency is also of the opinion that alternative methods of moving salvaged materials by rail exist, such as using powered rail cranes to move gondola cars across bridges that would not be sound enough to carry a locomotive, which would enable salvage works to take place without the need for extensive truck transportation. Furthermore, the Agency considers the range of values quoted in the MRDR for transportation and removal to be reasonable and notes that even the lowest value per mile is more than double the removal and transportation costs per mile that could be inferred from the Dartmouth Metals' quote submitted by W&H.

[40] With respect to W&H's comments on bridges, the Agency's position on bridges and culverts is set out later in this Decision.

[41] The Agency has done a thorough analysis of the two industry quotations and the related internal calculations submitted by W&H. The Agency finds that Nackawic Mechanical Ltd.'s quotation is not broken down in sufficient detail to allow it to be incorporated into the Agency's calculation methodology. On the other hand, the August 2013 updated Dartmouth Metals' quotation clearly indicates a per ton value for rail and OTM, exclusive of removal and transportation costs. This value is $180 per metric tonne, which the Agency converts to $164 per imperial ton and incorporates into its calculations. The Agency also accepts as reasonable the unit values submitted by W&H for ties and scrap ties and includes them in its calculation.

[42] A summary of the quantities of the track and other materials contained in the Statement of Track Materialss and condition assessments representing the overall upper and lower condition range, as well as the unit value for each type of material as determined by the Agency, based on its consideration of the MRDR and the submissions of the parties, are set out in Tables 1A – 1D below.

Rail

[43] The mainline is a mix of 100 lb. and 85 lb. jointed rail. In the observed portion, the rail was found to be in a generally worn condition, but without any major wear signs. In general terms, it is estimated that 50 percent of the rail could be reused on minor branch lines and 50 percent would be scrap. Flange rails in crossings and guard rails on bridges are also classified as scrap as was the rail in the in-service stub end track at Mount Uniacke and the "run-around" track near Windsor Junction.

[44] The values for reusable rail set out in the MRDR range from $800 per ton to $325 per ton for the 100 lb. rail and from $650 to $300 per ton for the 85 lb. rail. Scrap rail values range from $375 to $240 per ton. The resulting values per ton determined by the Agency for each type and condition of rail, incorporate an average of these values and those submitted by W&H and are shown in Table 1A below. The Agency determines that the total gross value for rail ranges from $2,004,393 to $1,661,635.

Table 1A – Rail

	Quantity (tons)	Condition	Upper	Lower	Agency Value per ton (Rounded to nearest $)
100 lb. 39 ft.	209.23	Branch Line Relay	56%	17%	$520
		Scrap	44%	83%	$288
100 lb. 36 ft.	2,918.08	Branch Line Relay	50%	15%	$510
		Scrap	50%	85%	$288
85 lb. 36 ft.	2,140.55	Branch Line Relay	49%	15%	$420
		Scrap	51%	85%	$288

OTM (tie plates, joint bars, bolts, spikes, anchors)

[45] Track fastenings consist of 4-hole joint bars, angle bars and single shoulders tie plates. The quality of the inspected fastenings is generally good and reusable, outdated angle bars are classified as scrap. Tie plate values in the MRDR range from $900 to $245 per ton, and the values for regular (not compromise) joint bars range from $1,270 to $465 per ton. The condition breakdown for joint bars and ties plates for the upper and lower range scenarios are shown in Table 1B. All bolts, spikes, and rail anchors are classified as scrap. The values for scrap OTM in the MRDR range from $475 to $245 per ton.

Miscellaneous track materials

[46] There are three switches in service, all within the observed portion of the Line; one at Mount Uniacke and two at the run-around track at Windsor Junction. The switch at Mount Uniacke is a No. 9, 85 lb. Bolted Rail in reusable condition. The switches on the run-around track are No. 11, 100 lb. Rail Bound Manganese; one is in poor condition and the other in reusable condition. There is also one 100 lb. hinge type derail on the run-around track in reusable condition.

[47] Incorporating an average of the values in the MRDR and the values submitted by W&H, the total gross value for OTM and miscellaneous track materials ranges from $677,791 to $538,782. The values per ton determined by the Agency for these materials are shown in Table 1B below. No adjustment is made to the lower range for the condition of switches and derails because they are all within the observed portion of the Line.

Table 1B – Track Fastenings – tie plates, joint bars, bolts, spikes, rail anchors and other miscellaneous track materials

	Quantity	Condition	Upper	Lower	Agency $ Value (Rounded to nearest $)
Tie Plates	Tons				Per ton
100 lb. SS – 7.5 x 11.0	633.49	Reusable	80%	24%	$551
		Scrap	20%	76%	$315
85 lb. SS – 6.5 x 10.0	337.23	Reusable	80%	24%	$354
		Scrap	20%	76%	$315
Joint Bars
100 lb. 4H – 22 in.	118.21	Reusable	100%	30%	$750
		Scrap	0%	70%	$315
100 lb. 4H – Angle Bar	29.55	Scrap	100%	100%	$315
85 lb. 4H – 24 in.	71.87	Reusable	100%	30%	$538
		Scrap	0%	70%	$315
85 lb. 4H – Angle Bars	17.97	Scrap	100%	100%	$315
100-85 lb. 4H Comp – 22 in.	0.19	Reusable	100%	30%	$6,401
		Scrap	0%	70%	$315
Other Track Materials
Bolts – all sizes	33.34	Scrap	100%	100%	$315
Spikes – all sizes	159.91	Scrap	100%	100%	$315
Rail Anchors – all sizes	83.10	Scrap	100%	100%	$315
Switches	Units				Per unit
No. 11 100 lb. RBM	2	Reusable	50%	50%	$7,063
Scrap		50%	50%	$1,225
No. 9 85 lb. BR	1	Reusable	100%	100%	$3,025
Derail
100 lb. Hayes Hinge Type	1	Reusable	100%	100%	$264

Ties

[48] 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. Ties classified as fair are valued on their potential use in other non-railway applications, such as for industrial yard service track. The Agency gives no consideration to using ties as landscape materials because they are treated with creosote. Scrap ties have no salvage value, but instead carry a disposal cost. This will be discussed further under the section on removal and disposal costs.

Cross ties

[49] The cross tie count varies from 56 pieces to 62 pieces per 100 foot sampling zone. The per unit value of good No. 1 cross ties ranges from $22 to $10 in the MRDR, fair from $16 to $7. Condition adjustments for the lower value range are based on the assumption that the 10 percent portion of reusable cross ties is equally distributed between good and fair quality ties. The unit values for each type and quality of cross ties determined by the Agency are shown in Table 1C.

Switch and bridge deck ties

[50] The switch ties are in generally poor condition, ranging from 25 percent fair in the switches on the run-around siding, to 75 percent Fair at the Mount Uniacke switch. The balance of the switch ties are classified as scrap. There are six open deck track bridges, of which five were accessible for inspection. The condition of the bridge ties is assessed as good - 4 percent, fair - 29 percent and bad - 67 percent. As all of the switches and all but one of the bridges are located in the observed portion of the Line, there is no adjustment to the condition ratio for switch and bridge ties for the lower value range.

[51] The total gross salvage value for reusable cross ties is determined to range from $818,964 to $332,478.

Table 1C – Ties

	Quantity (pieces)	Condition	Upper	Lower	Agency $ Value (piece)
No. 1 Cross Ties TR HW	98,619	Good	25%	11%	$13.34
		Fair	43%	17%	$11.40
		Scrap	32%	72%	n/a
No. 2 Cross Ties TR SW	1,015	Good	0%	4%	$10.40
		Fair	62%	22%	$10.40
		Scrap	38%	74%	n/a
Switch Ties – TR HW	225	Good	0%	0%	-
		Fair	56%	56%	$12.83
		Scrap	44%	44%	n/a
Bridge Deck Ties – TR various sizes	334	Good	4%	4%	$21.60
		Fair	29%	29%	$14.60
		Scrap	67%	67%	n/a

Public crossings and crossing signals

[52] There are 16 public crossings at grade on the Line, some equipped with automatic crossing protection systems. Consistent with past practice, the Agency assigns no salvage value to this equipment. However, the restoration of public crossings is a factor considered in determining removal and disposal costs.

AGENCY DETERMINATION OF GROSS SALVAGE VALUE

[53] In summary, track materials to be taken into account includes rail, track fastenings (tie plates, joint bars, bolts, spikes, and rail anchors), other miscellaneous track materials and ties. Several independent sources and the submissions of the parties were taken into account by the Agency to determine current market values. The unit values for the various assets were multiplied by the respective quantities to arrive at the gross salvage value of the track assets, which the Agency determines to range from $3,501,148 to $2,532,895. See Table 1D below.

Table 1D – Gross Salvage Value of Track Assets

Track Asset	Total Gross Salvage Value (rounded to the nearest $)
	Upper	Lower
Rail (Table 1A)	$2,004,393	$1,661,635
Track fastenings & miscellaneous track materials (Table 1B)	$677,791	$538,782
Relay ties (Table 1C)	$818,964	$332,478
Gross Salvage Value – Track Assets	$3,501,148	$2,532,895

Cost of removal and disposal

[54] To establish the net salvage value of the assets, the Agency must also include an assessment of the costs related to the removal and disposal of track assets. For this purpose, structures are considered to be left in place, and public crossings are considered to be resurfaced to put them back in 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 removal and disposal costs as most of the track materials, including the ties, could not be disposed of locally.

Rail OTM

[55] The Agency determines the total mileage of the Line to be 32.11 miles, which includes 31.58 miles of main line and .53 miles of sidings, crossing rails, flange rails and bridge guard rails. As previously mentioned, there are 16 public road crossings. The quotations received by the Agency for track removal and disposal range from $39,000 to $20,260 per mile and include resurfacing of road crossings, as well as the transportation costs associated with the removal of relay steel, relay ties, scrap rail and OTM. The Agency determines the total inclusive cost for removal of the track and track materials to be $30,492 per mile, totalling $979,111 for the 32.11 miles of track on the Line. This value is applicable to both the upper and lower value range.

Scrap tie disposal

[56] There is a cost to dispose of scrap ties contaminated with creosote. These waste materials must be transported to a proper facility where they can be disposed of in an environmentally sound manner, in accordance with the requirements of the Canadian Environmental Protection Act, S.C., 1999, c. 33 and the Transportation of Dangerous Goods Act, S.C., 1992, c. 34. The Agency bases its assessment on 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.

[57] Taking into account the market quotations and submissions of the parties, the Agency determines the cost for the environmentally sound disposal of cross ties to be $6.43 per tie, switch ties to be $9.87 per tie, and bridge ties to be $8.87 per tie. This results in total disposal costs for cross ties in the upper value range of $207,309 and $465,550 in the lower range. As all of the switches and five of the six bridges are in the observed portion of the line, the value for switch tie disposal in both ranges is $967 and for bridge tie disposal is $1,970. The total cost for tie disposal is determined by the Agency to range from $210,246 for the upper value range and $468,486 for the lower value range. The Agency determines that the total removal and disposal costs range from $1,189,357 to $1,447,597. See Table 2 below.

Table 2 – Removal and Disposal

	Quantity (miles)	Agency $ Value/mile (rounded to the nearest dollar)			Agency Total
		Upper	Lower		Upper	Lower
Rail Salvage costs/mile	32.11	$30,492	$30,492		$979,111	$979,111
Includes transportation per mile for rail, OTM and relay ties, and removal and repair of road crossings
	Agency Avg. $ Value/piece	Quantity (pieces)
Scrap Tie disposal/piece	$6.45	32,581		72,768	$210,246	$468,486
Includes chipping, transportation, etc.
Total Removal and Disposal Costs					$1,189,357	$1,447,597

AGENCY DETERMINATION OF NET SALVAGE VALUE FOR TRACK MATERIALS

[58] The net salvage value for track materials for the upper and lower value ranges is obtained by subtracting the respective costs of removal, salvage and transportation from the gross salvage value of the track materials for each range. The Agency therefore determines the net salvage value of the track materials on the Line to range from an upper value of $2,311,791 to a lower value of $1,085,298.

Consideration of bridges and culverts

[59] There are six open deck bridges on the Line, of which five were accessible for inspection.

[60] As previously noted, in it comments on the MRDR, W&H expressed concerns related to the absence of any reference in the MRDR to the costs associated with the removal or repair of bridges and culverts, suggesting that in this case the potential cost of bridge removal could exceed the value of the bridge materials.

[61] The costs associated with the removal of railway bridges have never been included in past Agency net salvage value determinations. 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 uses; 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.

[62] 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.

[63] 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.

LAND VALUATION

[64] In Decision No. LET-R-73-2013, as part of the expedited process for this application, the Agency decided to immediately arrange for an independent accredited professional land appraiser to prepare a value appraisal of the land, on which the parties would be given the opportunity to comment. However, in the interim, both parties, of their own volition, submitted land value estimates, which were forwarded to the independent land appraiser for consideration, and which are summarized below.

Positions of the parties

The Ingram Varner Report submitted by CN

[65] CN submitted a professional land appraisal (Ingram Varner), as at May 24, 2013, conducted by Peter A. MacLellan AACI, P. App, an accredited appraiser with the Halifax-based real estate appraisal and consulting company Ingram Varner & Associates Ltd (Ingram Varner). The property is valued at $1,910,000 in this report, based on the following.

[66] The Ingram Varner Report defines its objective as follows: to provide the estimated market value of the subject property, in fee simple interest, free and clear of all encumbrances as at the effective date of May 19, 2013.

[67] Ingram Varner identifies the property as 400.51 acres, running through largely rural portions of the Halifax regional municipality (HRM) - 119.85 acres, Hants county - 258.76 acres and the town of Windsor - 21.90 acres.

Highest and best use

[68] Ingram Varner defines the "highest and best use" of a property, as the use, at the time of appraisal, from among reasonably probable and legal alternative uses found to be physically possible, appropriately supported and financially feasible, that is likely to produce the greatest net return over a period of time.

[69] Ingram Varner considers that the lack of economic potential for the continued existing use of the corridor extremely limits its marketability as a single asset. It further indicates that the historical and physical characteristics of the property make it well suited to being a publicly owned corridor (recreational trail). However, because potential purchasers would be a localized pool of governments and non-profit or philanthropic organizations that are governed by public policy decisions and would not expect to pay a premium for the assembled corridor over what would be paid by a prudent private sector purchaser seeking to maximize the value of the property, Ingram Varner views valuation based on this use unrepresentative of the market value to a broad pool of potential purchasers.

[70] From this analysis, Ingram Varner concludes that the most profitable use would be severing the land into multiple parcels for assemblage with adjacent parcels, and the market value would be defined by the value of a series of individual parcels comprising the corridor.

Across-the-fence (ATF) value

[71] Based on its assessment of highest and best use, Ingram Varner estimates the value of the land using the ATF method, which assumes that the value and potential future use of the segmented corridor is similar to that of the properties adjacent to it. To arrive at its adopted ATF acreage rates, Ingram Varner indicates that it considered adjacent property uses and reviewed comparable properties that have recently sold within or near the municipalities through which the Line passes, using the Direct Comparison Approach and applying its subjective opinion where it considered it appropriate.

[72] In HRM, the abutting land use categories identified by Ingram Varner include various categories of residential (single unit, rural, multi-family), municipal resource, park and industrial land. In Hants county, rural residential, rural recreational and rural resource categories are identified, and the town of Windsor includes agricultural, institutional, mixed residential and mixed commercial categories. Based on the ATF value per acre of the abutting land use categories adopted by Ingram Varner, it estimates a value of $1,220,000 for the corridor lands in HRM, $140,000 for those in Hants county, and $550,000 for those in the town of Windsor, for a total unadjusted market value of $1,910,000.

Adjustments

[73] In arriving at this value, Ingram Varner indicates that it assessed that no adjustments were necessary to take into account issues related to property rights, financing terms, condition of sales, market condition, location, and physical characteristics (access, size and other).

Additional submission from CN

[74] In addition to the Ingram Varner appraisal, to facilitate the identification of the property CN submitted CN maps and documentation, which identify the Line as comprising four parcels and having a total area of 408.98 acres; 128.32 acres within HRM, 258.76 acres within West Hants County and 21.90 acres in the Town of Windsor.

The Red Maple Forestry Report submitted by W&H

[75] W&H submitted an opinion of estimated value from Red Maple Forestry Limited (Red Maple), which was authored by Peter J. Hebb, who indicates in the report that he has over 30 years of extensive experience in resource and recreational property sales and development in Nova Scotia. The Red Maple report estimates the value of the property at $400,000, which is based on the median value of two valuation methodologies; a comparable corridor sale and an over‑the‑fence (same as ATF) valuation of the corridor, as outlined below.

[76] Red Maple describes the subject property as a 66 to 99 foot wide, 31.5 mile long corridor, with a total area of approximately 400 acres, which runs predominantly through woodlands adjacent to forest, with only about 4.5 miles near two small towns. It notes that the land is configured with a level grade strip ideal for a trail, but requiring a fair amount of excavation work to allow it to be complementary to adjacent parcels.

Highest and best use

[77] Based on its configuration, Red Maple views the best use of the property as a land corridor for a transmission line or pipeline, as well as for use as a multi-use nature or recreation trail. Failing that, Red Maple indicates that the only other option would be to offer the property to existing property owners that abut the corridor for amalgamation with their land. It is Red Maple's opinion that this option would be of interest to some but would leave a patchwork of unsaleable remainder lots.

Comparable corridor sale

[78] Red Maple uses the sale of the Chignecto Ship Railway Limited in Cumberland county (Nova Scotia) as a comparison. It indicates that this 150-foot wide, 17-mile long corridor in a similar geographical region to the Line was sold as a corridor in 2012 for $357,000 or $1,573 per acre. Using the same value per acre, Red Maple, estimates the comparable value of the Line under this methodology at $629,074.

[79] Red Maple does not consider it possible to use other lot sales, either commercial or residential for comparison. This is because the corridor's width, lot size restrictions in the subdivision act and access limitations eliminate the possibility of subdividing the property into stand-alone lots.

Across-the-fence value

[80] Red Maple estimates the ATF value by considering the worth of the land adjacent to the Line. It identifies 337 acres of the property as being adjacent to resource land or forest land. Noting that this portion of the corridor would have no marketable value for cottages or camps due to lack of access, and that it has brush, not mature timber, Red Maple assigns it a value of $200 per acre, totalling $67,400.

[81] Red Maple identifies a remaining 57 acres of the corridor as adjacent to houses and towns, where adjacent landowners would be likely to buy and consolidate, but because of zoning, access, and septic issues, none would be developable. Based on its undisclosed analysis of certain similar consolidation sales, Red Maple estimates a value of $2,500 per acre for these 57 acres, totalling $143,000. Combining these two values, Red Maple arrives at a total ATF value of $210,400.

Final opinion of value

[82] Red Maple is of the opinion that either of these options would require significant reclamation and excavation work, but considers both defensible. Red Maple indicates that as the higher corridor valuation is only a possibility for a handful of parties, and the individual parcel sale is more likely to occur, however, over time, it utilizes a median between the two values and puts its opinion of value at $400,000.

Terms of reference for independent appraisal

[83] In accordance with Decision No. LET-R-73-2013, the Agency obtained an independent professional appraisal of the value of the land component of the Line from James Hardy, AACI, P. App, of Altus Group Ltd. (Altus), based out of Halifax, Nova Scotia, under the following terms of reference.

[84] Recognizing that a net salvage value determined in the context of an application under section 144 of the CTA is not necessarily meant to be determinative of a transfer value, but rather merely to inform a commercial negotiation between a railway company and a potential buyer, the Agency required that the appraisal remain consistent with the concept that net salvage value represents the value of an asset whose economic utility to the owner in its existing capacity has expired, essentially the market value of an asset assumed to be defunct, subject to salvage and orderly liquidation.

[85] To that end, the Agency instructed that the appraisal include as the basis of its evaluation an assessment of what the highest and best use(s) of the subject railway lands is/are, unrestricted by the requirement for continued operation prescribed by a transfer under section 144 of the CTA. The Agency also instructed that the appraisal be based on the assumption that the land is vacant (i.e., the track assets of the railway line have been dismantled and removed, rail bed left intact, safe and level) and free of environmental contamination, and that it include the rationale, if applicable, for the application of discount factors and/or assemblage premiums.

[86] The independent land appraisal report from Altus is summarized below.

The Altus Report

[87] Altus identifies the property, exclusive of road crossings and submerged lands, as ±373.96 acres in size, running adjacent to many property uses including residential, commercial, resource, recreational, institutional and park/public, through HRM, Hants county and the town of Windsor. Altus notes that CN identifies a total acreage of 408.98 acres, whereas the Nova Scotia Property Records Database (NSPRD) identifies the four parcels comprising the Line as having a total area of 364.47 acres. Altus indicates that its calculation of the estimated acreage was done using computerized Geographic Information Systems (GIS) software.

Highest and best use

[88] Altus indicates that the foundation of market value rests on the optimum or "highest and best use." Further, Altus quotes the definition of highest and best use from the Canadian Uniform Standards of Professional Appraisal Practice as: "The reasonably probable and legal use of vacant land or of an improved property, which is physically possible, appropriately supported, financially feasible and that results in the highest value."

[89] Altus does not consider use of the entire line spanning from Windsor Junction to the town of Windsor as an active trail to be indicative of its highest and best use, although Altus indicates that sections of it may be reflective of parkland/active trail uses. Altus considers other uses such as for a pipeline (heritage gas), transmission or fibre optics corridor to be potential uses, but very speculative in nature.

[90] Altus is of the opinion that the highest and best use of the subject corridor is for the orderly disposition of the corridor lands to adjoining owners or for potential stand-alone use where applicable.

AFT value

[91] Altus uses the direct comparison approach to arrive at the base values for the ATF methodology It indicates that in the valuation of real estate corridors, the ATF value is estimated based on a comparison with adjacent lands and accounting for location and market conditions, to provide an intermediate value, before the consideration of any other adjustment factors.

[92] As the starting point for valuing a corridor, Altus defines the ATF method as "a means of estimating the price or value of land adjacent to or across the fence from a railroad, pipeline, highway or other corridor real estate; as distinguished from valuing the right-of-way as a separate entity."

[93] Altus further indicates that, for the purpose of its report, the ATF value is an overall value for break-up purposes without valuation of the individual adjoining parcels, undertaken on a mass appraisal basis. Altus explains that this approach utilizes land values of adjoining properties in determining the value of adjacent sections of the rail corridor.

[94] Altus indicates that, although aware of other rail corridors that have sold in the province and across Canada, without a detailed analysis of the adjoining land uses and motivation for purchase these were not considered applicable to the valuation of the subject corridor.

[95] To arrive at the base or gross ATF value, Altus divides the corridor into sections that displayed similar ATF uses for valuation purposes. This resulted in 28 sections varying in size from 0.25 acres to 57.45 acres, spanning 12 communities, (Windsor Junction, Lower Sackville, Beaver Bank, Middle Sackville, Upper Sackville, Mt. Uniacke, Rural East and West Hants South of Highway 101, Ellershouse, Hartville, Newport Station, Three Mile Plains, Garlands Crossing, and Windsor), and encompassing residential, rural residential, recreational, parkland, holding, industrial, resource, commercial and rural commercial uses.

[96] Based on its investigation and identification of the most relevant comparable market sales for the various property types and uses identified for areas adjacent to or near the rail corridor, Altus then applies estimated benchmark ATF values ranging from $500 to $150,000 per acre for the land uses categorized in each section. This results in a total base or gross ATF of $1,995,591 for the corridor.

Discount factors

[97] Altus indicates that the gross ATF value is an intermediate value and adjustments must be made to determine the current market value for each section of the corridor. To arrive at the adjusted ATF value, Altus estimates an appropriate corridor adjustment factor for each section, which it applies to the gross ATF value for that section. Altus indicates that it evaluates the adjusting factors in detail for each section of the corridor, based on the following variables: the consideration of highest and best use regardless of the ATF uses; the supply and demand for similar uses; access; topography of the corridor and surrounding lands; services and utilities; the possibility that there will be remnant parcels that will not be sold; market conditions; location; plottage^{Note 1}; motivation of potential buyers; zoning; subdivision value; quality of land, and rail bed height. On a section by section basis, Altus adjusts the value per acre of each section to values that range from 5 percent to 80 percent of the gross ATF value per acre. This results in Altus's estimated total adjusted ATF market value, before costs, of $689,403.

[98] Altus estimates a further reduction to this value of 14 percent, to account for the following costs: marketing and sales (6 percent), surveying (5 percent), and legal fees (3 percent) for a net market value of $592,886 ($590,000 rounded).

Final opinion of value

[99] In arriving at its final opinion of value, Altus also takes into consideration a present value adjustment factor, based on a three year sell-off period and a discount factor of eight per cent. This results in Altus' final estimate of the current market value of the land comprising the Line of $528,246 ($530,000 rounded).

Comments of the parties on the Altus report

[100] The Altus report was distributed to the parties for comment on July 16, 2013. No comments were received from W&H. Comments were received from CN on August 9, 2013, laying out six areas of concern as follows.

Total acreage

[101] CN does not agree with Altus regarding the total area in question. According to CN, the land measures 408.98 acres, whereas Altus assessed the land as 373.96 acres. CN submits that Altus subtracted 35 acres of road crossings and submerged lands due to its assumption that these lands will never be sold. However, CN argues that Altus ignores the fact that these submerged properties and road crossings would be of value when the corridor is sold for recreational use.

Highest and best use

[102] CN also submits that in assuming that the highest and best use for the railway line is for sales to adjacent owners, Altus makes no mention of recent sales of a continuous corridor as comparable sales.

Discount Factor

[103] In addition, CN submits that Altus has applied corridor factors ranging from a low of 5 percent to a high of 80 percent, without an explanation as to why the percentage used was appropriate for that section. CN further submits that only four sections have values higher than 50 percent. CN disagrees with the proposed use of the corridor factors as Altus fails to provide any justification as to why the ratios used are appropriate.

Possible double-counting

[104] CN also submits that with its inclusion of the "possibility that there will be remnant parcels or parcels that will not be sold" as a corridor factor, Altus has accounted twice for the 35 acres of road crossing and submerged land it subtracted from the total acreage, if it is correctly assumed that the only option for the sale of the corridor is that it be sold to adjacent property owners.

Adjusted ATF value

[105] CN also contests the additional 14 percent discount to the adjusted ATF value to account for sales, marketing, surveying and legal costs. CN submits that the activity associated with these types of expenses is done by CN employees or are the responsibility of the buyer and as such CN considers it inappropriate that they be included in the final determination of value.

Present value discount

[106] CN also considers the application of a present value factor of 0.891, based on a three year sell-off at eight percent, flawed because it implicitly assumes no price change over the next three years. CN disagrees that a cash flow adjustment is part of the standard net salvage value determination, and submits that the discount rate used by Altus is higher than the cost of capital for CN allowed by the Agency.

Agency analysis and findings

Total acreage

[107] With respect to CN's concern over the total acreage assessed in the Altus report, the Agency notes that there is uncertainty over the exact area of the corridor. In addition to Red Maple's rough estimate of an area of approximately 400 acres, the following acreages have been submitted by CN, Ingram Varner and Altus:

	CN Internal	Ingram Varner	NSPRD per Altus	Altus GIS*
Halifax regional municipality (HRM)	128.32	119.85	108.47	106.80
Hants county	258.76	258.76	256.00	249.41
Town of Windsor	21.90	21.90	-	17.75
Total	408.98	400.51	364.47	373.96

*Breakdown for Altus assumes that the 57.45 acres identified in section 8 as Upper Sackville to Mt. Uniacke are divided equally between HRM and Hants county.

[108] Given these different estimates of area, it is clear that the area of the corridor is not precisely known and survey work will be required prior to any transfer of title taking place. However, for the purposes of this determination, the Agency is satisfied that Altus, in calculating the marketable area of the property using a computerized GIS mapping system, has arrived at an estimated area that is reasonable and adequate in these circumstances. Furthermore, excluding submerged lands and road crossings from its valuation is consistent with the highest and best use adopted by Altus. The Agency will rely on Altus's independent measurement of a marketable area for the corridor lands totalling 373.96 acres.

Highest and best use

[109] Also on the subject of highest and best use, CN expresses concern that Altus makes no mention of recent sales of continuous corridors as comparable sales because Altus assumes that the highest and best use is for sales to adjacent owners. As far as the Agency is concerned, if the highest and best use of the property is assumed to be the break up of the property for sale to adjacent landowners, including recent sales of continuous corridors as comparables would be incongruous. Such sales would only be compatible comparisons if the highest and best use was assumed to be for sale as a continuous corridor, a use which Altus examined and ruled out as being indicative of the highest and best use, either as a recreational trail or a utility corridor.

Discount factor

[110] CN also expresses concern that there was insufficient explanation for the discount factors Altus applied to the gross ATF value per acre for each section of the Line, and that only four sections had values higher than 50 percent of the gross ATF value. The Agency notes that Altus set out a detailed list of potential factors that could impact the gross ATF value, and using its professional and independent expertise, systematically examined each segment of the Line to assess the collective impact of those factors on a given segment and arrive at a corridor factor for that segment. The Agency also considers that the factors that Altus took into account are those which typically impact the value of railway lands relative to the gross ATF value of adjacent lands. Furthermore, no alternative evidence was submitted by CN pertaining to factors that it considered more appropriate. With reference to the fact that Altus assessed only four of the 28 sections as having adjusted values higher than 50 percent of the gross ATF value, the Agency notes that those four sections are the only sections considered by Altus to have the potential for stand-alone use, thereby having a greater pool of potential purchasers than the remaining 24 sections, which would be limited to assemblage with adjoining properties. The Agency is satisfied for the purposes of this determination that the corridor factors applied by Altus to arrive at the adjusted ATF value per acre for each segment of the corridor are reasonable and accepts the adjusted ATF values per acre in the Altus report.

Possible double-counting

[111] With reference to the double-counting issue raised by CN, the Agency does not see where this has occurred. In establishing the total marketable area of the property at 373.96 acres, Altus indicates that this is exclusive of an unspecified area of submerged lands and road crossings. Subsequently, Altus applies a value per acre to all 373.96 acres identified. Based on this, it is not evident to the Agency that Altus has made any further discounts for the excluded submerged lands and road crossings. That being said, it is plausible that some of the remaining 373.96 marketable acres may not be sold. The Agency finds as a general principle that including a consideration for remnant parcels that may not be sold as a factor in assessing a discount is valid and accepts that Altus has included it as a potential factor for consideration.

Adjusted ATF value

[112] CN also contests the 14-percent reduction to the adjusted ATF value of the property applied by Altus to account for sales, marketing, surveying and legal costs, because these activities would be performed by CN in-house or be the responsibility of the buyer.

[113] The Agency recognizes that there are normal costs associated with a transaction such as this and that parties to a transaction typically take responsibility for their own individual transaction costs. The Agency has previously ruled that these normal transaction costs are not considered part of a net salvage value. However, in this instance, the sales, marketing, surveying and legal costs that can be anticipated are outside the scope of normal transaction costs. The property is currently comprised of only four parcels, which, under a break up scenario for a parcel by parcel sale to adjoining lands owners, would require significant efforts towards surveying, the requirements of subdivision and appropriate zoning, as well as towards sales and marketing to multiple parties. These efforts to ready the property for market would result in significant costs not properly the responsibility of the buyer, but rather of the property owner. Furthermore, having these activities performed by in-house personnel does not negate their costs. They are still costs that are borne by the seller and, as such, have a substantive impact on the value of the property to that seller. Based on this and relying on Altus's professional and independent assessment of the extent of these costs, the Agency considers the reduction to market value suggested by Altus to cover such costs reasonable and accepts the 14-percent reduction applied to the adjusted ATF value to account for the sales, marketing, surveying and legal costs attendant to this situation.

Present value factor

[114] It is also CN's position that the present value factor applied by Altus is flawed, applies too high a discount rate and is not standard in net salvage value determinations. Given the above-noted complexities involved in the parcel by parcel disposition of the property, it may be accurate to assume, as Altus has, that it may take some time to realize the market value. However, how much of the property would be subject to an extended exposure time, what that property would be worth and the exact length of time that would be involved are all unpredictable. Furthermore, the application of an isolated present value factor to account for ‘time on the market' is not consistent with the Agency's established net salvage value methodology. The Agency also recognizes that an increase in property values over that time could offset the present value discount and the Agency is unaware of the source or rationale behind Altus's use of 8 percent as the discount rate. For these reasons, the Agency will not include a present value adjustment in its determination of land value.

Agency conclusion on land value

[115] After a comprehensive review and analysis of the report of its independent land appraiser and the submissions of the parties, the Agency finds that, with the exception of the application of a present value adjustment, the independent appraiser's assessment of the market value of the corridor land is reasonable. The Agency therefore determines the land value component of the net salvage value of the Line to be $590,000.

ENVIRONMENTAL CONSIDERATIONS

[116] It is the Agency's normal practice to examine the environmental conditions present in every net salvage value application it undertakes, to ascertain if there are associated costs that should be taken into account in the determination.

[117] In Decision No. LET-R-73-2013, the Agency indicated that past experience has demonstrated that obtaining environmental site assessments (ESAs) can be a lengthy process and that undertaking new ESAs within the time constraints of the six-month limited process would not be feasible.

[118] In view of this, CN was requested to submit, if it had in its possession, a current Phase 1 ESA, in which case the Agency could review and possibly conclude definitively that there were no environmental issues to be taken into account.  The Agency also indicated in that Decision that if a Phase 1 ESA was unavailable or if the Agency came to the conclusion after review of a Phase 1 ESA that further scrutiny of potential environmental costs would be required if this matter was to be properly factored into the net salvage value, it would be necessary to vary its normal practice and not consider this matter any further due to the time constraints. The circumstances would necessitate that the Agency proceed to determine the net salvage value of the Line without assessing and accounting for any possible costs associated with environmental conditions present, leaving it as a matter to be addressed in negotiations between the parties.

[119] On May 13, 2013, CN confirmed that it has no Phase 1 ESA for the Line. Therefore, no consideration of possible costs associated with the environmental conditions present has been included the net salvage value of the Line.

INTEREST IN LEASES AND AGREEMENTS

[120] 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. In Decision No. LET-R-73-2013, CN was asked to submit information on any leases or agreements expected to survive a transfer. No information was submitted. In view of this, the Agency determines that the net salvage value will not be adjusted to account for interest in leases and agreements.

CONCLUSION

[121] To arrive at the net salvage value of the Line, the Agency took the following values into account:

Item	Net Salvage Value
	Upper	Lower
Track and materials	$2,311,791	$1,085,298
Land	$590,000	$590,000
Leases and agreements	$0	$0
Total Net Salvage Value	$2,901,791	1,675,298

[122] The Agency determines the net salvage value of the Line to be in the range of $2,901,791 to $1,675,298.

APPENDIX TO DECISION NO. 360-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

1. a yard track, siding or spur; or
2. 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:

1. the Minister;
2. the Agency;
3. the minister responsible for transportation matters in the government of each province through which the railway line passes;
4. the chairperson of every urban transit authority through whose territory the railway line passes; and
5. 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

1. 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
2. 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

1. 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
2. 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

1. VIA Rail Canada Inc. ceases to operate a passenger rail service on the portion of railway line to which the declaration relates; or
2. 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

1. 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
2. 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

1. to the Minister if the railway line passes through
   
   1. more than one province or outside Canada,
   2. land that is or was a reserve, as defined in subsection 2(1) of the Indian Act,
   3. 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
   4. a metropolitan area;
2. to the minister responsible for transportation matters in the government of each province through which the railway line passes;
3. to the chairperson of every urban transit authority through whose territory the railway line passes; and
4. 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;
  
  • o (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:

1. the Minister;
2. the Agency;
3. 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;
4. the chairperson of the urban transit authority in whose territory the siding or spur that is the subject of the change is located; and
5. 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:

1. the Minister;
2. the minister responsible for transportation matters in the government of the province in which the siding or spur is located;
3. the chairperson of the urban transit authority in whose territory the siding or spur is located; and
4. 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

1. by the Minister, the Government of Canada may accept it within 30 days;
2. 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;
3. 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
4. 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.

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