Decision No. 43-R-2013

APPLICATION

[1] The Rural Municipality of Gravelbourg No. 104, the Rural Municipality of Lawtonia No. 135, the Village of Hodgeville, and the Town of Gravelbourg (the Municipalities) have applied to the Canadian Transportation Agency (Agency) for a determination of the net salvage value for a line of railway owned by the Canadian Pacific Railway Company (CP) on the Gravelbourg Subdivision located between mileages 0.1 and 53.9, in the province of Saskatchewan (the Line).

LEGISLATION

[2] Part III, Division V, Sections 140 to 146 of the Canada Transportation Act (CTA) outlines a process that must be followed by a federally-regulated railway company when transferring and discontinuing the operation of railway lines. Section 146.3 of the CTA provides that a party to whom a railway line is offered under section 145 can apply to the Agency for a determination of the net salvage value of the railway line before the expiry of the period available to that party to accept the offer. For specific legislative references refer to the Appendix A at the end of this decision.

BACKGROUND

[3] CP acquired and has been operating the Line, which runs between Mossbank Junction and Hodgeville, Saskatchewan, since 1985. The Line was originally owned by the Canadian National Railway Company.

[4] Pursuant to subsection 143(1) of the CTA, CP advertised the Line for the purpose of continued rail operations on August 31, 2010. As no agreement was reached with an interested person within the required time, on May 5, 2011, CP offered the line to be used for any purpose to the Province of Saskatchewan and any municipal government through which territory the Line passed. In correspondence dated June 6, 2011, the Province of Saskatchewan declined the offer by CP. On June 15, 2011, the Municipalities jointly filed an application with the Agency to determine the net salvage value of the Line pursuant to subsection 146.3(1) of the CTA.

[5] CP submits a net salvage value of $12,619,485.65 for the Line, which includes its estimate of the market value of the salvaged track materials net of disposal, the land value and the value of leases and agreements in place on the Line. The Municipalities do not submit an estimate of the total net salvage value of the Line. Instead, they submit certain isolated value estimates for different aspects of the Line, which will be noted elsewhere in this Decision.

DEFINITION OF NET SALVAGE VALUE

[6] In previous decisions issued by the Agency pursuant to section 146 of the CTA, the Agency has determined that the expression “net salvage value” refers to the market value of an asset less the costs associated with its disposal. These costs can include, but are not limited to, sales commissions, excavation, disposal, and environmental remediation. In essence, net salvage value is the realizable value of the assets - the track, land and other structures - less the costs associated with their disposal.

PROCESS

[7] Determining the net salvage value for a railway line involves consideration of several elements. The quantities and condition of the track and other materials forming part of the railway line are first determined. The market value is then established for each component of the track structure. The product of the values and the quantities results in the gross salvage value of the track and other materials. The next element is the determination of the cost of removal and salvage of the track and other materials. This cost is then deducted from the gross salvage value for track materials to arrive at the net salvage value for track materials.

[8] The valuation of the land component of the railway line is generally determined by evaluating the submissions of the parties and any supporting documentation. In some cases, the Agency may request an independent accredited land appraiser to provide an opinion on the submissions of the parties and/or to conduct an assessment.

[9] Depending on the case and the positions of the parties, the Agency may take additional factors into consideration with respect to its valuation of the land component of the railway line, such as any costs associated with the environmental condition of the railway line that the Agency determines should be included. The final element in the valuation exercise is the Agency’s consideration of any benefit, financial or otherwise, resulting from a lease or agreement that may impact on the calculation of net salvage value. When these values are determined they are added to the net salvage value for track assets to arrive at the net salvage value of the railway line.

Relevant time frame for asset valuations

[10] It has been Agency practice to assess values or costs based upon best evidence. In cases of volatile commodity prices like those for reusable steel, the Agency has discretion in determining an appropriate value, especially when the net salvage value determination itself takes months to conclude. As part of the process, the Agency has consistently researched and established the market value for each component of the track structure subsequent to confirming the quantity and condition of the assets, and nearer to the end of the statutory valuation process than to the beginning. Under this approach, the Agency’s ultimate determination incorporates values that better approximate in time the actual (or possible) transfer date of the railway line in question.

[11] The process used to determine net salvage value is to be fair and consistent. Fairness requires that the Agency consider the evidence submitted by both parties for their respective valuations and then impartially assess each for both technical merit and reasonableness. Consistency means that if a particular valuation approach is adopted for one asset (e.g. reusable steel), then all assets (steel, ballast, ties, other track material) ought to be treated in the same manner.

[12] The Agency is thus not bound to accept those valuations that coincide with the date of the application, particularly if they are dated. It may use valuations developed over a time period and then determine a value based upon the best evidence and what is appropriate in the circumstances.

PRELIMINARY MATTER

[13] The Municipalities submit that, in view of the fact that CP has put the Line up for abandonment, there should be an onus on CP to pay the legal and information services costs associated with the land title transfer costs. They add that CP should provide information on the number of property titles involved in the Line because the information is hard to ascertain from Information Services Corporation^{Note 1}.

[14] CP submits that these suggestions are an attempt to discount the overall value of the Line. CP indicates that there would be no costs associated with survey or subdivision because the titles already exist. CP also indicates that typically the purchaser assumes the nominal costs associated with title transfers. To assist in commercial transactions and help reduce legal costs for the purchaser, when a bona fide offer is received from a purchaser, CP pulls titles and provides executed “Transfer Authorization Forms,” which outline the applicable titles and corresponding parcel numbers to be transferred. CP also indicates that, from a hard cost perspective, the costs associated with title transfer are minimal and that volume discounts have been applicable to other railway line acquisitions in Saskatchewan.

[15] In response to the claim that the information is difficult to ascertain from Information Services Corporation, CP submits that this information is in the public domain. In CP’s opinion, in the event that the Municipalities do purchase the Line, they will have a due-diligence obligation to validate the title parcels provided by CP as a schedule to the Asset Purchase Agreement.

Agency finding

[16] Matters of conveyance such as this are elements of the sales transaction that fall outside the purview of the Agency in a net salvage value determination. The Agency views these issues as matters that are more properly negotiated between the parties as part of the closure of a transaction following a net salvage value determination. However, the Agency notes the undertaking made by CP to provide the information necessary for the Municipalities to conduct their due diligence at the time of transfer.

QUANTITY AND QUALITY OF TRACK ASSETS

Site visit and Statement of Track Materials

[17] Agency staff initiated an engineering inspection of the Line on July 26, 2011, extending over a number of days, which involved representatives of CP and the Municipalities at various times. On August 15, 2011, a draft Statement of Track Materials, itemizing the type, quantity and quality of the track assets on the Line was provided to the parties for comment.

[18] The Municipalities were in agreement with the draft statement of materials with the exception of Agency staff’s assessment of the Bateman siding track, which they claimed was in bad condition for the entire length. Agency engineering staff noted that although it was evident that a portion of the rail at the Bateman siding track is in bad condition, the inspection did not show the entire length to be in bad condition.

[19] CP was in disagreement with the preliminary scrap percentage of mainline rail, citing the fact that in the last 13 years, there has only been an equivalent of 44 unit trains that ran on the line. CP also disagreed with the preliminary percentage of scrap joint bars, as a previous inspection performed by CP in 2008, in which every joint bar was inspected, revealed zero defective joint bars. CP also submitted that during the site inspection with Agency staff, it observed that approximately a third of a mile of ancillary track in Hodgeville contained a quantity of 2,000 CN double shoulder tie plates. CP also claimed that there should be more ties classified as good due to the particular dry climate in the area.

[20] Further to CP’s comments, Agency engineering staff adjusted the statement of track materials with the requested adjustments that were consistent with staff’s observations. Specifically, an adjustment was made to the percentage of scrap on the mainline rail and the joint bars. However, CP’s submission regarding the quantity of double shoulder tie plates could not be reconciled with Agency engineering staff observations, as the tie spacing on ancillary track is normally greater than on the main line (24 inches compared with 20-22 inches respectively). The Statement of Track Materials was revised to reflect a quantity of 1,585 of this type of tie plate. Agency engineering staff also did not agree with CP’s submission regarding the classification of ties. Although Saskatchewan on average is characterized by dry climate, the ties were installed in 1985 representing an accumulated 26 years of climate exposure. Agency engineering staff also observed numerous spots where weeds had invaded the ballast shoulders and that, although the cross ties may look sound, if there was regular train traffic on the Line, the “pumping action” of the trains combined with the blocking of ballast shoulders by weeds would result in contamination of the ballast and rapid deterioration of the cross ties.

[21] Taking the comments of the parties into consideration, all necessary adjustments were made and the Statement of Track Materials was finalized on September 12, 2011. It formed the basis for the independent market survey referenced below.

VALUE OF THE TRACK ASSETS

[22] As previously mentioned, the Municipalities did not submit a total estimated gross salvage value of the track assets. CP estimates that value to be $12,722,636.

[23] 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, subsequent to the Agency’s consideration of comments received, has been used by the Agency in making its net salvage value determination in this case. The Municipalities did not comment on the MRDR. CP submitted comments on November 9, 2012.

Comments of CP on the MRDR

[24] CP’s comments pertain to the range of values for certain track assets set out in the MRDR and CP questions the Agency’s methodology for determining the value of track assets. CP also comments on the costs shown in the MRDR for the removal of track assets and the disposal of scrap ties. Similar views have been raised by CP in previous proceedings.

[25] Regarding the values of the track assets in the MRDR, CP maintains that there is a wide discrepancy in the values quoted. CP submits that a salvage contractor’s quote price is always lower than market value and argues that the market value of these assets cannot be based on the price the contractor quotes for the asset. CP explains that, in the process of analyzing RFP’s for a salvage contract, it assesses the quotes on the basis of what provides the best return for CP. CP further submits that it is entitled to receive market value for the assets that reflects the price it could or has sold the particular asset at.

[26] CP also suggests that the Agency should closely validate the values submitted and discard those that are deemed invalid and requests that the Agency not simply calculate the averages to determine the value of these assets. To support its position on the value of some of the key assets on the Line, CP provides confidential sales orders and a description of the process it follows to award salvage contracts, indicating that these are meant to assist the Agency in validating the values of some of the quotes received. CP makes specific reference to the values in the MRDR for ties, removal costs, scrap tie disposal, 100 lb. rail, scrap rail, joint bars, tie plates, scrap OTM and switches, indicating in most cases that values of any notable degree lower than CP’s submitted values should be discarded and values equal to or higher than its submitted values should be retained.

[27] Regarding cross ties, CP notes that some sources did not differentiate between good and fair ties and submits that the single value for cross ties provided by one source is totally out of line with market reality and cannot be used in any valuation process. CP submits that three of four quotations received for removal and salvaging should be discarded on the basis that they are unrealistic. CP also submits that one of the five estimates received for 100 lb. rail and two of the five estimates for scrap rail should be discarded as being unrealistically low. With respect to joint bars, CP submits that at a minimum the two lowest of five quotations should be discarded. CP also notes that low values for single shoulder tie plates should be discarded, but agrees with the higher valuations provided by other sources, as well as with the higher valuations provided for the two types of double shoulder tie plates. Regarding scrap OTM, CP submits that four of five sources are low and not representative of realistic valuations. CP also states that its submission on the values of reusable switches is in agreement with the two of five quotations that exceed its submitted values.

[28] In addition, CP considers all values shown in the MRDR for the disposal of scrap ties to be too high and reiterates the per tie disposal cost for scrap ties it submitted with a claim for confidentiality in its original October 2010 submission of value. CP submits that the companies that provided quotes to the Agency do not have similar economies of scale to CP, or a corresponding favorable internal cost to transport products and materials long distances. CP further submits that these companies most likely require a trucking company to haul the ties to an appropriate disposal location and have to pay “tipping” fees to dispose of the ties, which is not the case for CP. Because of this, CP submits that the Agency should determine that CP’s methodology and costing towards scrap ties is the most reasonable.

Agency analysis

[29] Essentially, CP claims that the Agency’s methodology for determining the net salvage value of the track assets does not result in a value that reflects what CP could obtain for these assets. Similar arguments were brought forward by CP in previous net salvage value determinations and have been dismissed by the Agency in earlier decisions (See Agency Decision No. 314-R-2012 and Decision No. 21-R-2013). The Agency finds that its approach to determining the value of these assets continues to be valid for three reasons. First, a net salvage value determination is not based on the value of the assets to the railway company or to the government but shall reflect the value that any person could realize for these assets. Second as a party to a net salvage value proceeding, a railway company may have an interest in submitting estimates at the higher end (for the assets) and lower end (for the disposal costs) of the spectrum and the Agency as the neutral arbitrator must have a means of validating the information submitted by the parties. Thirdly, by obtaining a range of values submitted from independent sources, assessing their reasonableness, eliminating the outliers, and averaging the responses, the Agency incorporates differing levels of market demand and avenues of disposal. In the Agency’s view this best reflects its mandate to determine the market value of the assets to be used for any purpose. Further to this, the Agency has consistently followed this practice in making net salvage value determinations.

[30] That said, the Agency does find that CP’s detailed calculation of its costs to transport scrap ties to a co-generating facility on company service is sufficient to support the inclusion of CP’s submitted per tie disposal cost for scrap ties within the range of market values contributing to the average cost for scrap tie disposal determined by the Agency. Further, the Agency agrees with CP that the lowest quotation received for good cross ties, which was less than half the next lowest quote, should be discarded. Given the quantities involved and the limited application for fair ties in the second hand market, the Agency retains the quotation from that source for those. The Agency also retains for consideration all values obtained in its survey for removal costs, reusable 100 lb. rail, joint bars, tie plates and switches, as well as scrap rail and OTM, viewing these quotations as exemplifying the diversity and volatility of the rail salvage market.

[31] A summary of the quantities and conditions of the track and other material contained in the Statement of Track Materials, and the values for them as determined by the Agency, based on its consideration of the MRDR and the submissions of the parties, are set out in Tables 1A – 1D.

Rail

[32] The main line is made of 100 lb. Mackie REHF (RE Head Free) rail, jointed in 75 ft. lengths for the entire subdivision. The condition of the rail in each sampling zone was very consistent, with almost no horizontal wear and some vertical wear resulting in a metal “lip” of approximately 1/16 inches. Rail joints are in very good condition with no indication of rail joint pumping or crushed or bent rail ends. Based on the conditions observed on the Line, most of the rail could be reused on similar branch lines. It is estimated that approximately 2 percent of the rail on the main line would be classified as scrap once removed.

[33] There are three siding tracks in Gravelbourg, one in Bateman and three in Hodgeville. With the exception of one siding track in Hodgeville, all the siding tracks are located north of the main line. The third siding track in Hodgeville is situated on the south side of the main line and the switch connecting it to the main line has been removed. The majority of the siding tracks are comprised of 100 lb. rail in acceptable condition. Only a small stretch of a dead-end track in Hodgeville is made of 80 lb. rail. Rail in the siding tracks showed more wear on both the vertical and horizontal axis. Some rail ends were also observed to be in poor condition with metal flow and/or were chipped. For classification purposes, the siding track made of 80 lb. rail is considered scrap. For the siding track composed of 100 lb. rail, it is estimated that 10 percent would be classified as scrap once removed and the balance could be reused elsewhere, either in sidings or yards. The 100 lb. flange rail in crossings is also classified as scrap. Guard rails on the bridges are either 80 lb. or 85 lb. rail and are all classified as scrap.

[34] The Municipalities express concerns that the market for head free rail is limited and that the quantity of head free rail on the Line would be more than the relay market could absorb in a reasonable time frame. They indicate that although CP may have use for this type of rail in its branchline network, the opportunity to use it is shrinking. The Municipalities submit that the fact that it is no longer being manufactured and has compatibility issues with more conventional rail should be taken into account. The Municipalities add that any price quotes sought by the Agency should be relative to the quantity of the material available on the Line.

[35] The individual market data surveys conducted by the Agency for each net salvage value application are specific to the quantity of the given materials set out in the Statement of Track Materials for the railway line in question and involve companies actively involved in the business of rail salvage. This provides the Agency with a range of values based on differing levels of market demand and avenues of disposal for the specific type and quantity of materials being assessed. As such, the Agency is satisfied that the quotations received in the market survey for this Line have reflected any market factors relevant to the value of the head free rail on the Line.

[36] A review of the information available in the MRDR indicates that the current market value for 100 lb. 72 ft. Mackie REHF rail varies from $365 to $675 per ton. For 100 lb. 39 ft. Mackie REHF it ranges from $365 to $700 per ton and for 100 lb. 39 ft. non-Mackie ARA and REHF from $370 to $700 per ton. CP submits a price of $860 per ton for the Mackie 100 lb. rail and $760 per ton for the non-Mackie ARA 100 lb. rail. The Municipalities submit a price of approximately $350 to $400 per ton for 100 lb. head free rail, making no distinction as to type and length. Taking into consideration the midpoint of the range submitted by the Municipalities, CP’s submitted values and those in the MRDR, the Agency concludes that the value of 100 lb. 72 ft. Mackie REHF rail is $601 per ton, the value of 100 lb. 39 ft. Mackie REHF rail is $591 per ton and the value of 100 lb. 39 ft. non-Mackie ARA and REHF rail is $570 per ton.

[37] In the case of scrap rail, market values range from $224 to $375 per ton. CP submits a price of $440 per ton. The Municipalities submit a range of values that average $290 per ton. Taking an average of the six scrap rail quotations included in the MRDR as well as CP’s and the Municipalities’ submitted value, the Agency determines a value of $344 per ton for all sizes of scrap rail. See Table 1A below.

Table 1A – Rail

	Quantity (tons)	Condition		Agency $ Value per tonNote 2
100 lb. 72 ft. Mackie REHF	9,468.80	Reusable	98%	$601
		Scrap	2%	$344
100 lb. 39 ft. Mackie REHF	341.47	Reusable	83%	$591
		Scrap	17%	$344
100 lb. 39 ft. non-Mackie ARA and REHF	147.33	Reusable	90%	$570
		Scrap	10%	$344
80 – 85 lb. RE	40.69	Reusable	0%
		Scrap	100%	$344

Other track materials, OTM (tie plates, joint bars, bolts, spikes, anchors)

[38] Mainline joint bars and tie plates are in good condition. The joint bars are six hole, 33 inches long and the tie plates are single shoulder. Approximately 5 percent of joint bars and tie plates on the main line and siding tracks would not be reusable in similar branch lines and are considered scrap. Other elements of the track infrastructure such as bolts, spikes and rail anchors are all classified as scrap materials.

[39] The Municipalities do not submit a complete estimate for the track fastenings and OTM. CP submits a total value for reusable and scrap OTM of $2,368,754.72.

[40] The Agency uses the same approach for establishing the market values for other track material as for rail. Based on the market value evidence obtained independently by the Agency set out in the MRDR and the submissions of the parties where available, the Agency determines the values as set out in Table 1B below. The value of reusable tie plates ranges from $802 to $1,313 per ton depending on the type of tie plate. For regular joint bars the range is $928 to $1,088 per ton. The value of scrap tie plates and joint bars, as well as all bolts, spikes and rail anchors is $392 per ton.

Miscellaneous track material

[41] There are 11 switches, seven connected to the main line and four to siding tracks. Only one switch, located in the Gravelbourg yard, is classified as scrap. The other switches are in good condition. There are also eight derails, all of which are classified as reusable.

[42] CP submits a total value of $82,844.50 for switches and $960 for derails. The Municipalities did not submit a value for either of these items.

[43] Taking into account the estimates received from independent quotations, which range from $1,000 to $11,500 depending on the type of switch, and CP’s submitted values, the Agency determines the per unit value of the reusable switches to range from $4,160 to $7,080, depending on the type of switch. The value of the scrap switch is determined to be $1,629. The derails are valued at either $191 or $237 per unit, depending on type.

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

	Quantity (Tons)	Condition		Agency $ ValueNote 3 (Per ton)
Tie Plates
100 lb. SS – 7.0X10.5 - SH	1,921.01	Reusable	90%	$802
		Scrap	10%	$392
100 lb. DS – 7.5X11.0 - SH	11.68	Reusable	90%	$1,051
		Scrap	10%	$392
85 lb. DS – 7.5X10.0 - SH	2.70	Reusable	90%	$1,313
		Scrap	10%	$392
Joint Bars
100 lb. 6H – 33 in. – SH	306.95	Reusable	95%	$1,088
		Scrap	5%	$392
100 lb. 4H – 24 in. – SH	0.44	Reusable	95%	$1,031
		Scrap	5%	$392
100 lb. 4H – 22 in. – SH	18.01	Reusable	95%	$1,031
		Scrap	5%	$392
85 lb. 4H – 22 in. – SH	1.58	Reusable	95%	$928
		Scrap	5%	$392
85-100 lb. 4H–22 in.–SH-Comp.	0.09	Reusable	100%	$8,057
Other Track Material
Bolts – All Sizes	50.40	Scrap	100%	$392
Spikes – All Sizes	402.96	Scrap	100%	$392
Rail Anchors – All Sizes	235.32	Scrap	100%	$392
Switches	Units			Per unit
No. 11 100 lb. RBM	1	Reusable		$7,080
No. 9 100 lb. RBM	8	Reusable		$5,980
No. 9 100 lb. BRSG	1	Reusable		$4,160
	1	Scrap		$1,629
Derails
100 lb. Hinge Type - SH	7	Reusable		$191
100 lb. Sliding Type - SH	1	Reusable		$237

Ties

[44] 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 salvage and disposal costs.

Cross ties

[45] Cross ties on the main line are made of treated hardwood measuring 6 in. x 8 in. x 8 ft. long. Based on the condition noted during an inspection of a 100-foot track section in each ten mile segment of the Line, the overall split of cross ties on the main line is 3 percent in good condition, 72 percent in fair condition and 25 percent in scrap condition. A good tie is a tie with no splits, no decay and no sign of tie plate cutting or adzing. A fair tie shows some splitting under tie seats and in between rails with minor tie plate cutting and/or adzing. A scrap tie is one which shows end to end splits, important decays and/or breaks and deep cuts. In siding tracks, the general condition of the cross ties is fair to poor.

[46] CP submits a value of $17 per tie for cross ties in good condition and $12 per tie for those in fair condition. The Municipalities submit a range of values for cross ties that average to $15.56 for those in good condition and $7.40 for those in fair condition.

[47] Based on the values obtained from independent quotations, which range from $10 to $17.50 per tie for good ties and from $5 to $15 per tie for fair ties, as well as the values submitted by the parties, the Agency assigns a value of $14.51 per unit for cross ties in good condition and $9.77 per unit for cross ties in fair condition.

Switch and bridge deck ties

[48] CP submits a value of $28 per tie for reusable switch ties and $35 per tie for reusable bridge ties. The Municipalities did not submit value estimates for switch or bridge ties.

[49] The majority of the switch ties are in fair condition with only 50 pieces considered as scrap. The Agency assigns a value of $33.29 per unit to reusable switch ties.

[50] There are five bridges on the line. The bridge decks are made of treated wood ties measuring 8 in. x 8 in. x 12 ft. long. It was determined that roughly 10 percent of the bridge ties are in bad condition. The Agency finds that reusable bridge ties have a value of $29 per unit.

Table 1C – Ties

	Quantity (pieces)	Condition		Agency $ Value (piece)
No. 2 Cross Ties	169,163	Good	3%	$14.51
		Fair	72%	$9.77
		Scrap	25%	n/a
Switch Ties	698	Good	0%
		Fair	93%	$33.29
		Scrap	7%	n/a
Bridge Deck Ties	653	Good	0%
		Fair	91%	$29.00
		Scrap	9%	n/a

Public crossings and crossing signals

[51] A total of 49 public crossings were encountered, only one is equipped with flashers and bells. Four are paved, including the one with the automatic crossing protection system. The remaining 45 public crossing surfaces are made of wood planks and gravel. Automatic crossing protection systems were not tested by the Agency to verify if they were in operating condition. 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

[52] In summary, track material to be taken into account includes rail, track fastenings (tie plates, joint bars, bolts, spikes, and rail anchors), other miscellaneous track material and ties. Several independent sources were surveyed by the Agency to determine current market conditions and values. As noted above, the relevant quantities and qualities were determined during the engineering inspection. 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 be $9,376,413. See Table 1D below.

Table 1D – Gross Salvage Value of Track Assets

Track Asset	Total Gross Salvage Value (rounded to the nearest $)
Gross Salvage Value – Track Assets	$9,376,413
Rail (Table 1A)	$5,927,856
Track fastenings & miscellaneous track material (Table 1B)	$2,152,931
Relay ties (Table 1C)	$1,295,626

Cost of removal and salvaging

[53] To establish the net salvage value of the assets, the Agency must also include an assessment of the relevant costs for 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 salvage and disposal costs as most of the track material, including the ties, could not be disposed of locally.

Rail and other track materials

[54] The Municipalities submit a value of $31,228 per mile for removal and salvaging. This amount includes $25,000 per mile for removal costs, $6,000 per mile for crossing restoration and the equivalent of $228 per mile for transportation costs.

[55] CP bases its estimate for the removal of track and material on 53.8 miles of track at $12,025 per mile. CP bases its mileage on main track route miles as opposed to the 56.94 total track miles identified in the Statement of Track Materials. CP indicates that an estimate of $34,500 for crossing restoration is included in this cost per mile estimate. CP estimates an additional amount of $24,930, to account for the cost of transporting the reusable track materials. This increases CP’s submitted salvaging and removal cost to $12,487 per mile.

[56] The Agency determines the total mileage for the line to be 56.94 miles, which includes 53.8 miles of main line and 3.14 miles of sidings, crossing rails, flange rails and bridge guard rails. This finding is based on the Agency’s examination of the site as detailed in the Statement of Track Materials. As previously mentioned, there are 49 public crossings, four paved and 45 made of wood planks and gravel. The quotations received by the Agency for track removal and disposal range from $18,400 to $37,000 per mile and include resurfacing of road crossings, as well as the transportation costs associated with the removal of steel, relay ties and scrap OTM. The Agency determines the total inclusive cost for removal of the track and track materials to be $27,019 per mile, totalling $1,538,471 for the 56.94 miles of track on the Line.

Scrap tie disposal

[57] 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, 1999, S.C., 1999, c. 33 and the Transportation of Dangerous Goods Act, 1992, 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.

[58] CP submits a cost for scrap tie disposal of $1.36 per tie. The Municipalities submit a range of values which average $10.88 per tie. Market quotations received range from $4 to $13 per tie, depending on the type of tie.

[59] Taking into account the market quotations received as well as the values submitted by the parties, the Agency determines the cost for the environmentally sound disposal of cross ties to be $6.82 per tie, switch ties to be $8.00 per tie, and bridge ties to be $7.96 per tie. This results in total disposal costs for cross ties of $292,476, for switch ties of $400 and for bridge ties of $485. The total cost for tie disposal is determined by the Agency to be $293,361. See Table 2 below.

Table 2 – Removal and Disposal

	Quantity (miles)	Agency $ Value/mile (rounded to the nearest $)	Agency Total
Total Removal and Disposal Costs			$1,831,832
Rail Salvage costs/mile Includes transportation per mile for rail and OTM and removal and repair of road crossings	56.94	$27,109	$1,538,471
	Quantity (piece)	Agency $ Value/piece (not rounded)
Scrap Tie disposal/piece Includes chipping, transportation, etc.	42,996	$6.82	$293,361

AGENCY DETERMINATION OF NET SALVAGE VALUE FOR TRACK MATERIALS

[60] The net salvage value for track materials is obtained by subtracting the cost of removal, salvage and transportation of $1,831,832 from the gross salvage value of the track materials of $9,376,413. The Agency therefore determines the net salvage value of the track materials on the Line to be $7,554,581.

INTEREST IN LEASES AND AGREEMENTS

[61] A value representative of the interest in any leases and agreements that are expected to survive the transfer of the railway line is taken into consideration by the Agency when establishing net salvage value.

[62] In its submission, CP includes, with a claim for confidentiality, a detailed table of the leases and agreements currently in place on the Line that it considers subject to transfer when ownership of the Line changes. CP submits the net present value of the leases to be $162,879. This is based on a period of 15 years with a 3 percent annual lease increase, and a discount rate of 6.33 percent. CP also suggests that any speculation about the leases and agreements being cancelled is unrealistic and should not be considered by the Agency.

[63] The Municipalities submit that without information from CP on the income being derived from them and their expiry dates, the lease or third-party agreement income cannot be quantified. The Municipalities also submit that calculating incomes from these leases and agreements for more than the minimum cancellation period implies guaranteed income that has no basis in fact or law, indicating that the possibility of abandonment of the railway line could change the lessee’s use of the leased property. The Municipalities suggest one way to accurately reflect the “present value” of the leases and agreements and the uncertainty associated with their continuance is to take the probability of renewal into consideration when determining the number of years to use as a multiplying factor apply and to apply a discount rate to the projected lease or third-party agreement income figure.

[64] For the value of the revenue stream from any particular lease or agreement to be included in net salvage value, a key determinant for the Agency is that there must be a reasonable certainty that the agreement will survive the transfer of the railway line. The types of agreements contemplated by the Agency for consideration in a net salvage value determined under sections 145 and 146.3 of the CTA are primarily utility easement agreements and long-term agreements of that nature. They are limited to access agreements that are not necessarily dependent on or the consequence of continued rail operations, as well as agreements that are not contingent on the railway line being under federal jurisdiction. When the Agency considers it necessary to conduct a more detailed analysis of the nature and expected duration of these agreements than the submission of the railway company allows, the Agency will request a railway company to provide copies of the actual leases and agreements for which it has made a future revenue claim.

[65] Such was the case in this application and based on an analysis of the lease and agreement information provided with an unchallenged claim for confidentiality by CP, the Agency determines that there is an annual lease revenue of $1,440 that can reasonably be expected to continue upon transfer, even in the event that the Line is no longer used for rail transportation. Therefore, the Agency includes the present value of this lease revenue for a 10-year period in the net salvage value and does not take into account other lease revenues that it cannot be reasonably certain would survive an eventual transfer of the Line involving the discontinuance of rail service. Applying a discount rate equal to the rate of return on long-term (10+ year) Canadian bonds of 2.31 percent, the Agency determines the resulting increase to the net salvage value to account for interest in leases and agreements to be $12,728.

LAND VALUATION

[66] The parties each made submissions with respect to the value of the land on the Line. The parties are within the same approximate range on a price per acre basis, diverging primarily when it comes to where within that range the valuation should be struck.

Positions of the parties

The Municipalities

[67] The Municipalities did not have the land component of the Line appraised by an accredited professional land appraiser. Instead they indicated that should there be no agreement between them and CP on the value of the land, the Agency should direct that a professional appraisal be done to enable the Agency to rule on this value.

[68] The Municipalities estimate the subject property to consist of 653 acres of right of way and 58 acres of additional properties for a total of 711 acres. They submit that, according to recent farm land sales, the price of farm land adjacent to the Line would range from $300 to $600 per acre. The Municipalities further submit that the railway lands should be valued at the low end of this range ($300/acre) for net salvage value purposes, to account for the removal of the ballast (estimated to be $6,000 per mile), which it considers necessary to render the land usable for agricultural purposes, as well as to account for the costs to transfer and survey at least 100 property titles that may be associated with the sale. They also submit that one scenario that must be considered is the case where a single buyer is not found for this land and the selling costs increase due to dealing with multiple buyers and the multiple surveying and legal costs involved. The Municipalities submit that this, coupled with the risk of some parcels not selling, would lead to a downward adjustment on the value of the land.

[69] Although the Municipalities do not submit a final figure for the land component of the line, based on their submission of a value of $300 per acre and a total area of 711 acres, a land value of $213,300 results.

[70] Responding to CP’s submission, the Municipalities submit little argument or rebuttal to the values set out in the appraisal submitted by CP, which is discussed in detail below. However, the Municipalities submit that the commercial acreage in the town of Gravelbourg should be removed from the land valuation. They indicate that the property is currently occupied by CP leaseholders and in their opinion the income generated from these leasehold interests will be accounted for elsewhere in the net salvage value calculation. The Municipalities’ position is that it would be unfair to include the lands in both the appraisal and the leasehold interests, as it would amount to paying for these lands twice.

[71] The Municipalities also submit that no corridor assemblage premium should be considered, based on the CP’s appraiser’s statement that there was “insufficient data...available to develop such a factor.”

CP

[72] CP’s submission includes a professional land appraisal (Clements Report), as at April 28, 2011, conducted by Blaise Clements, B. Comm, AACI, P. App, an accredited appraiser with the Regina-based real estate appraisal and consulting company B.R. Gaffney & Associates Ltd.

[73] The appraisal cites direct comparison values for cultivated farmland in the rural municipalities involved ranging from $215 to $840 per acre, with an overall average of $531 per acre. The appraisal assesses the value of 19.2 acres of commercial and industrial land in the town of Gravelbourg at an average price of $1,781 per acre. CP submits a total land value for the corridor of $442,400, which represents $408,200 for land adjacent to cultivated farmland and $34,200 for land adjacent to commercial and industrial land. CP indicates that this should represent the minimum value for the corridor.

[74] CP submits that increased economic growth and business opportunities have led to increased land values in southern Saskatchewan and provided a report from Farm Credit Canada that indicates that agricultural land in Saskatchewan rose in value by over 21 percent between January 1, 2008 and December 31, 2009. CP is of the opinion that land values for the corridor lands will continue to rise.

[75] CP also states that retaining the corridor lands as a linear corridor provides for the widest range of possible end uses and that, based on its experience, the sale of railway lines has typically encompassed continued use as a corridor, including continued rail operations, utility corridors and public recreational trails.

[76] CP adds that, if sold on a parcel by parcel basis, many landowners would likely acquire the portion of the right-of-way that bisects or runs adjacent to their property. It is CP’s opinion that, in particular, those landowners whose property is bisected by the railway line may consider paying a premium to have a contiguous parcel.

[77] According to CP, tax record assessments should not be used to value the corridor lands and should only be considered as evidence by the Agency where there is no market value assessment evidence at all or all other evidence is suspect. To support this position, CP cites Agency Decision No. 542-R-2000, which it submits indicates that the limitation in using tax records was that it was not an accurate representation of market value. CP adds that, as market values are quickly escalating, assessed values are quickly out-of-date, indicating that the Clements Report demonstrates that the market price of property in the area is much higher than the assessed value in almost every case.

[78] CP submitted the Clements Report with a claim for Level 3 confidentiality^{Note 4}, indicating that it was commissioned for the express purpose of providing CP with a baseline market value appraisal of the corridor lands and if made available to the public, could cause CP specific direct harm and disadvantage in any negotiations. The Agency accepts this claim for confidentiality, and the Clements Report has not been placed on the public record. However, for the purposes of this discussion of land value, the Agency finds it necessary to disclose certain information and isolated values set out in the Clements Report. The Agency also finds that disclosing these values does not compromise the confidentiality of the Clements Report as a whole and will not result in prejudice to CP. The relevant aspects of the Clements Report submitted by CP are summarized below.

The Clements Report

[79] The purpose of the Clements Report is stated to be to provide the estimated market value of the subject property, in fee simple estate, free and clear of all encumbrances as at the effective date of April 28, 2011.

[80] The report identifies the property as 787.81 acres, running through the following rural municipalities: Lake Johnson No. 102, (16.03 acres); Sutton No. 103, (270.29 acres); Gravelbourg No. 104, (322.69 acres); Glen Bain No. 105, (31.83 acres); and, Lawtonia No. 135, (146.97 acres). The measurements and area of the property were obtained from the Saskatchewan Assessment Management Agency and the Saskatchewan Land Titles Registry with the latter being assumed correct in cases of discrepancy.

[81] Mr. Clements bases his appraisal on the following assumptions:

• the information provided by the client relative to the identification of the subject property is correct;
• titles to the property are good and marketable;
• the existing uses are legally conforming uses, which may be continued by any purchaser;
• there are no encroachments, encumbrances, restrictions, leases or covenants that would in any way affect the value of the subject property;
• rights of way, easements or encroachments over other real property and leases or other covenants are legally enforceable; and
• the property is assumed to be free and clear of pollutants and contaminants.

Highest and best use

[82] The Clements Report indicates that the “highest and best use” of a property is a major factor affecting market value and defines it, in simple terms, as the use likely to produce the greatest net return over a given period of time. The report also indicates that the property is currently being used to facilitate a rail line with the proper infrastructure in place. Although the Clements Report pertains only to the land value, Mr. Clements states the improvements in place relating to the rail line contribute to an assessment of the highest and best use as a continued rail corridor. Mr. Clements also indicates that this assessment of continued corridor use as the highest and best use is further based on his awareness at the time of the Clements Report that a short‑line operator was interested in purchasing the subject property for continued rail use and the fact that an existing corridor has the ability to serve communities in the local area.

[83] Based on this assessment, Mr. Clements considers the ‘Across the Fence’ (ATF) method to be an appropriate valuation approach. He describes this method as using the direct comparison approach, which involves analyzing the surrounding uses, gathering recent sales data for these uses, and estimating the ATF value from the unit rates reflected by sales of typical parcels, without adjustments for size, shape or access. Mr. Clements indicates that this method is typically used when the highest and best use of the subject property is for continued corridor use.

[84] Mr. Clements considers the most probable use of the subject property, if not as a continued corridor, to be similar to the adjacent land uses and to the other land located within the various rural municipalities involved, which is primarily agricultural, with the exception of the land abutting commercial and industrial land in the town of Gravelbourg.

Across-the-fence values

[85] The Clements Report characterizes the properties abutting the subject property as mainly agricultural use lands, primarily cultivated field crop production land, with some pasture land, with the exception of the land abutting 19.2 acres of the subject property at the north side of the town of Gravelbourg (in Gravelbourg No. 104). These abutting lands are identified to be commercial use to the south of the Line and industrial/agricultural use to the north.

[86] Mr. Clements uses the direct comparison approach to arrive at ATF values for cultivated farmland in each of the rural municipalities through which the Line passes, as well as for the commercial and industrial land in the town of Gravelbourg. In utilizing this approach, Mr. Clements considered adjacent property uses and reviewed comparable properties that were recently sold within the subject area. According to Mr. Clements, consistent with what is occurring elsewhere in the province, agricultural land values in the subject area have been increasing in recent years.

[87] Based on his analysis of between 17 and 50 comparable sales in each rural municipality from 2009 to 2011, Mr. Clements considers an average price of between $439 and $594 per acre, depending on the rural municipality, to be a reliable estimate of the ATF value for the property abutting farmland.

[88] With respect to the commercial property in the town of Gravelbourg, Mr. Clements indicates that very few sales of vacant commercial land have occurred there recently and that demand for commercial property in Gravelbourg is low as is the likelihood of the subject property being developed for commercial use. Keeping the focus of his research to the land located in the vicinity of the subject property, specifically, land located on the south side of 7^th Avenue, Mr. Clements was able to identify only three somewhat comparable sales of very small parcels. Given the size of the parcels of the subject land, the current market conditions and the relationship between parcel size and unit price, Mr. Clements considers a price per acre of $3,000 to be appropriate for the 7.5 acres of the subject property abutting commercial land.

[89] For the 11.7 acres of land located at the north and west sides of the parcel that abuts industrial use land, Mr. Clements was unable to find any comparable industrial sales within the vicinity to date. He indicates that the Town of Gravelbourg subdivided a number of lots northeast of the subject property for industrial development, but that there have been no sales within the subdivision to date. Mr. Clements estimates the ATF value per acre for industrial use land would likely be in excess of the value of agricultural land but less than the amount applicable to adjacent commercial use land and concludes a value per acre of $1,000 for industrial land in the town of Gravelbourg.

Assemblage multiplier/enhancement factor

[90] Mr. Clements indicates that, giving consideration to the fact that the subject property is a continuous corridor, it is typically considered appropriate to add an assemblage multiplier or enhancement factor to the ATF value to reflect the fact that there is typically a cost above and beyond that indicated by the ATF valuation in assembling a corridor. Mr. Clements adds that due to insufficient data it was not possible to develop such a factor. Mr. Clements makes no reference in his report to the application of discount factors.

Assessment information

[91] In addition to a market value appraisal, Mr. Clements also includes information relating to the assessment value of the subject property, indicating that the assessment information was provided by CP.

[92] Based on this information, and using an estimate for the Rural Municipality of Lake Johnston No. 102 based on assessment information for neighbouring rural municipalities because Mr. Clements did not consider the available assessment information for that rural municipality applicable, Mr. Clement sets out the assessment value of the subject property located within the various rural municipalities and their respective communities ranging from $385 to $459 per acre.

Mr. Clements’ final estimate of value

[93] Based on the total acreage of the corridor lands, segmented based on location, and the ATF value of the abutting land use category for the property, Mr. Clements estimates the total market value of the land to be $442,400. Mr. Clements estimates the total assessment value of the property to be $345,673.

Agency analysis and findings

[94] The Agency notes that there is a discrepancy of approximately $229,000 between the parties’ respective valuations that must be reconciled to establish the land value for net salvage value purposes. Given that the land values submitted by the parties are low in proportion to the value of the Line as a whole, and the discrepancy between the parties’ valuations is relatively small, the Agency has determined that commissioning a land appraisal would be a measure disproportionate to the value of the land asset. Further the Agency considers that the documentation submitted by the parties provides sufficient information about the land, its condition and the market for the Agency to perform an adequate valuation, without the need for an additional appraisal or appraisal review.

[95] In approaching this reconciliation task the Agency examined several options. The first option would be for the Agency to accept CP’s assertion that the market appraisal in the Mr. Clements Report provides the best evidence of land value and adopt that value. The Agency considers that certain aspects of the Clements Report, such as its estimation of the total area of the land component, which the Agency accepts, can assist in valuing the land component of the line. However, the Agency is of the opinion that Mr. Clements’ market appraisal is based on certain assumptions that make it incompatible on a stand-alone basis with valuation principles for net salvage value purposes.

[96] It is apparent from the report that Mr. Clements bases his assessment of highest and best use as a continued corridor, at least in part, on the fact that at the time of his appraisal the track infrastructure was in place and the property was being used for rail service. He indicates that the improvements being in place relating to the rail line use impact the highest and best use and contribute to a continued rail corridor highest and best use.

[97] This assumption is inconsistent with the concept of net salvage value, where the basic premise of the valuation assumes the track infrastructure is removed for salvage and the railway land is put on the market in a vacant and unimproved state. The Agency is of the opinion that, in a salvage situation, devoid of any rail infrastructure, a more likely highest and best use of the corridor lands would be the parcel by parcel sale of the land to adjoining landowners.

[98] This conclusion is reinforced by CP’s submissions regarding low traffic volume over the past 13 years and declining revenue carload densities for 2009 through 2011, (i.e., 2009 – 63 cars, 2010 – 7 cars, 2011 at the time of CP’s submission – 4 cars) and the fact that the Line was not sold, transferred or leased for continued operation when offered under section 143 of the CTA. These factors indicate that the market as a going-concern railway transportation corridor is limited or non-existent and imply that the highest and best use is not as a railway transportation corridor, but as a source of income as an asset to be disposed of.

[99] An examination of the highest and best use is critical to the land appraisal process, in that it provides a focus for the choice of an appropriate valuation methodology. If there is a flaw in the assessment of highest and best use, then the resulting valuation may also be considered flawed. To value the corridor, based on his assessment of highest and best use, Mr. Clements employs the ATF method, using the Direct Comparison approach. The Agency recognizes from past experience that the ATF methodology is also accepted and commonly used to value a corridor under a break-up scenario, when the highest and best use is determined to be the parcel by parcel sale of the railway lands. Where the incompatibility occurs is in the assessment of whether assemblage premiums or discount factors should be applied to the ATF values.

Assemblage premium

[100] Based on continued corridor use, Mr. Clements indicates that application of an assemblage premium would provide a more appropriate estimate of market value, but that there was insufficient data available to quantify such a premium.

[101] As indicated previously, the Agency is of the opinion that the most probable highest and best use of the Line in a salvage situation is as an asset to be disposed of in a break-up scenario. Given this, the land would be valued based on the sale of disassembled parcels, likely to adjoining land owners for non-railway purposes or quite possibly to no one at all if no such market exists. As such, the Agency questions the applicability of an assemblage premium in this instance. It is also noteworthy that no evidence to substantiate or quantify application of an assemblage premium was available. The Agency therefore finds that an assemblage premium is not applicable in this case.

Discount factor

[102] The Agency notes that Mr. Clements makes no reference to the application of discount factors. This is understandable as it would be inconsistent with his assumption of highest and best use. However, it must be recognized that the values established in the Clements Report are based on the direct comparison of sales of large parcels of farmland that are not land-locked and have not been compromised in any way by decades of use as a railway line. This is contrasted by the Municipalities’ submission that market value should be discounted to its low end to account for such factors as the reclamation of the rail bed for agricultural purposes and other factors.

[103] In past net salvage value determinations^{Note 5} the Agency has consistently found that applying a discount factor to the ATF market values is warranted. This is after taking into consideration factors such as the size, shape, elevations and accessibility of the parcels of land comprising a railway line, the nature of the abutting land uses, the limited pool of willing buyers, the relative willingness of the abutting property owners to purchase additional land, and the probability of delays and difficulty in selling the line. These same factors would be applicable to the land in the present case and the Agency recognizes that if the ATF market values in the Clements Report are to be used that discount factors should be applied where appropriate.

[104] This leads the Agency to consider whether it should apply discount factors to the ATF market values in the Clements Report. Although there are several precedent cases in which discount factors have been applied to ATF values, the Agency finds that there are several drawbacks to this approach in the present case. There is no standard rule in terms of the discount rates to be applied in these situations. These rates are typically the result of a professional opinion made by an accredited appraiser and adopted by the Agency. The Agency does not consider it appropriate to apply discount factors without the benefit of input from an independent appraiser as to how the discount should be quantified. Further the Agency considers that the appropriate discount factor must be determined on a case-by-case basis depending on the individual characteristics of the railway line and the market in which it is located and is not necessarily transferrable from one case to another. In view of these drawbacks, the Agency finds that it does not have the evidence necessary to determine the appropriate discount factor to apply to the AFT market values established in the Clements Report.

[105] Instead, the Agency considers it more appropriate to adopt the approach used in Decision No. 385-R-2008, a net salvage value determination for CP’s Bromhead Subdivision in Saskatchewan. In that Decision, the Agency determined that the municipal land records used for taxation purposes reflected an assessment of land values for any purpose, were based upon a market-based valuation approach and were a suitable indicator of land values. In the absence of an exhaustive assessment, an appraiser and contemporary sales values, which the Agency indicated might yield more reliable results, the assessment information was considered to be the best evidence before the Agency.

[106] In the present case, with the shortcomings identified with respect to the highest and best use underlying the Clements Report, the unavailability of any guidance from an independent professional land appraiser with respect to establishing appropriate discount factors, and the fact that the assessment values included in the Clements Report were not disputed by the Municipalities, the Agency considers those assessment values, which total $345,673, to be the best available evidence on which to base its decision on land value.

[107] With respect to the Municipalities’ concern about “double-counting” when net salvage value includes both a land value per acre and the future leasehold revenue stream of the land, the Agency finds on analysis that, in this instance, there is less than one quarter of an acre of land with an assessed rate per acre of $459 for which a lease value must be reflected. This leads the Agency to conclude that the Municipalities’ concern is unfounded.

Agency conclusion on land value

[108] The Agency determines the land value component of the net salvage value of the Line to be $345,673.

ENVIRONMENTAL CONSIDERATIONS

[109] The Municipalities refer to the deductibility of contamination costs from the net salvage value, but do not attach a value or express any particular concerns regarding the environmental condition of the Line.

[110] CP submits that there are no significant environmental issues that would require costs to be deducted from the market value of the corridor lands. CP included a Phase 1 Environmental Site Assessment (ESA) dated January 2011, conducted by Dillon Consulting Limited, in its submission with a claim for confidentiality.

[111] In Decision No. LET-R-64-2012, the Agency granted Level 3 confidentiality to the Phase 1 ESA. The Agency determined that this would allow CP’s concerns over disclosure of the document to be mitigated while providing certain approved representatives from the Municipalities with access to the information on which the Agency’s assessment of whether there are environmental remediation costs that should be factored into the net salvage value determination is based. The Municipalities’ approved representative was provided with a copy of the Phase 1 ESA on June 10, 2012.

Agency analysis and finding

[112] The Agency notes that CP’s submission of a Phase 1 ESA is in keeping with environmental best practices and assists a prospective transferee to gain an understanding of the environmental state of a property it is interested in acquiring. The Agency also notes that the assessment included an examination of available historical documentation, both publicly and CP-owned, interviews with personnel familiar with the site and a site visit.

[113] In assessing the impact that any environmental considerations would have on the net salvage value, the Agency reviewed the Phase 1 ESA and requested further information from CP with respect to a few areas of particular concern.Based on its review and CP’s response to the Agency’s request for information, the Agency concludes that the environmental risk in this case is minimal. Accordingly, the Agency determines that no cost for environmental remediation should be included in the determination of net salvage value.

CONCLUSION

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

Item	Net Salvage Value
Total Net Salvage Value	$7,912,982
Track and materials	$7,554,581
Land	$345,673
Leases and agreements	$12,728

[115] The Agency determines the net salvage value for the Line to be $7,912,982.

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APPENDIX TO DECISION NO. 43-R-2013

Part III Division V of the Canada Transportation Act

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 (a) no person makes their interest known to the railway company, or no agreement with an interested person is reached, within the required time; or

(b) an agreement is reached within the required time, but the transfer is not completed in accordance with the agreement.

Which governments receive offer

145. (2) After the requirement to make the offer arises, the railway company shall send it simultaneously

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

1. by the Minister, the Government of Canada may accept it within thirty days;
2. by a provincial minister, the government of the province may accept it within thirty days, unless the offer is received by the Minister, in which case the government of each province may accept it within an additional thirty days after the end of the period mentioned in paragraph (a) if it is not accepted under that paragraph;

   (b.1) by an urban transit authority, it may accept it within an additional 30 days after the end of the period or periods for acceptance under paragraphs (a) and (b), if it is not accepted under those paragraphs; and

3. 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.