Decision No. 596-R-1996

December 16, 1996

File No. T 7435/96-1

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BACKGROUND

On April 23, 1996, Halifax Grain Elevator Limited (hereinafter HGEL) requested the National Transportation Agency (hereinafter the NTA) to investigate certain rates established by the Canadian National Railway Company (hereinafter CN) with respect to the carriage of feed corn, feed wheat and feed barley contained in Freight Tariffs CNR 4436 and CNR 4484, for rail movements from southwestern Ontario and western Canadian origins to certain Nova Scotia destinations, and in Freight Tariff GTW 4501, for rail movements from various United States origins to certain Nova Scotia destinations. HGEL stated that the effect of these rates may be prejudicial to the public interest for the carriage of goods within, into or from Canada.

On July 1, 1996, the National Transportation Act, 1987, R.S.C., 1985, c. 28 (3rd Supp.) (hereinafter the NTA, 1987) was repealed with the proclamation of the Canada Transportation Act, S.C., 1996, c. 10. Although HGEL's application was filed with the NTA, it was dealt with by the Canadian Transportation Agency (hereinafter the Agency) as provided for in section 195 of the Canada Transportation Act.

Following its investigation into the application, the Agency issued Order No. 1996-R-324 and Decision No. 471-R-1996 on August 21, 1996. The Agency found, inter alia, that the subject rates of CN were prejudicial to the public interest, and ordered CN to adjust the applicable rates to remove the prejudicial features and "forthwith increase and maintain the applicable rates in Tariffs CNR 4436, CNR 4484 and GTW 4501 at a more competitive level."

Effective August 28, 1996, CN raised rate levels in Tariffs CNR 4436 and 4484 on feed wheat, feed barley and feed corn, applicable on movements to specific destinations in the Annapolis Valley region of Nova Scotia. CN subsequently issued a new series of tariffs, effective October 1, 1996.

On September 24, 1996, HGEL approached the Agency, claiming that the CN rates covering these commodities and these destinations were not in compliance with the Agency Order, that CN had failed to remove the prejudicial features in the subject tariffs, and had failed to adjust its applicable rates in Tariff GTW 4501.

POSITIONS OF THE PARTIES

HGEL

HGEL alleges that the CN rate increases are insufficient, and create a level of rates which continues to be anti-competitive, precludes effective intermodal competition, and is contrary to the public interest.

HGEL states that the rate increases on the subject movements destined to New Minas and Port Williams, Nova Scotia create a level of rates which is still far below the level of its rates on the same commodities to points on the neighbouring Cape Breton & Central Nova Scotia Railway (hereinafter the CBCNSR).

HGEL submits that the CN rate increases create a level of rates that perpetuates anomalies in the rate structure and formally requests the Agency to require CN to comply with the Agency's Order. Should CN persist in its defiance of the Agency's Order, HGEL requests the Agency to require CN to show cause why it should not be held in contempt. HGEL submits that CN's defiance of the Agency Order was deliberate and merited an award of costs against CN. HGEL asserts that the Agency has the authority to grant the relief requested by virtue of its authority to require the enforcement of its orders pursuant to section 25 of the Canada Transportation Act.

CN

In its letter dated October 21, 1996, CN states that it has fully complied with Agency Order No. 1996-R-324, having removed the prejudicial features from CNR Tariffs 4436 and 4484. CN raised certain rates contained in those tariffs, increasing rates to specific points in Nova Scotia. CN claims that it did not amend GTW Tariff 4501 since no traffic has moved under the subject items of that tariff since the Agency's Order of August 21, 1996.

CN indicates that its rate increases amount to $140 to $250 per car in order to bring the rates to a "more competitive level", and that these new levels accordingly constitute compliance with the Agency Order. CN adds that requests received by three parties who asked for a stay of the effect of the Agency Order applicable on consignments previously committed to rail (prior to the Agency's August 21 Order) are evidence that the increased rates are at a more competitive level. CN points out that further rate increases would lead to serious prejudice and undue hardship to customers.

CN also describes further amendments to its rate structure as it applies to some of the commodities/origins-destinations that are the subject of the application. Effective October 21, 1996, certain rates on movements of wheat and barley to points located on the CBCNSR were reduced, along with rates on corn movements from Quebec origins to Nova Scotia destinations.

CN also states that the Agency is functus officio insofar as HGEL's application is concerned and therefore lacks jurisdiction to reconsider the matter. Respecting HGEL's request that costs be awarded against CN, CN states that it has acted in good faith and accordingly there is no valid ground for the Agency to exercise its discretion to award costs.

INTERVENERS

Comments were received from seven interveners: Windsor and Hantsport Railway Company Limited (hereinafter WHR); Smith Brokerage Limited; Clarence Farm Services Limited; Scotia Farm Services Ltd.; Nova Scotia Chicken Producers Board; Interpro Sales Ltd., and the Nova Scotia Federation of Agriculture.

Five of the above, who are shippers, brokers, or espouse the interests of shippers or brokers oppose the HGEL application. Smith Brokerage, Clarence Farm Services, Scotia Farm Services, Nova Scotia Chicken Producers Board and the Nova Scotia Federation of Agriculture each indicate that they had supported or remained neutral with respect to the original application in order to protect ongoing water/truck competition with the rail mode. Each, however, indicates that CN's rate increase in response to the Agency Decision and Order had gone far enough to ensure modal competition, and suggests that further rate increases would be detrimental to area livestock and poultry industries.

Interpro Sales Ltd. supports the application and suggests that the original CN increase met the bare minimum of the original Agency ruling but not the spirit of that ruling. It also describes some rate anomalies involving rail movements to different destinations in the area.

WHR submits that the new CN rates are already too high, and adds that the position of HGEL appears to be that the public interest is to be equated with HGEL's interest, without regard to any other factor. The logical extension of this premise is that the public interest will only be served when the customers presently using rail find that mode so economically disadvantageous that they will switch to the ship/elevator routing. This would ignore the interests of the consumers of feed grain, according to WHR. WHR adds that several of its customers have already complained about the new rate levels.

WHR also commented on the Agency's jurisdiction to consider the present HGEL request. Since the enabling legislation under which the original application (the NTA, 1987) has been replaced by new legislation, WHR submits that the Agency is functus officio and does not have the mandate to consider the present request, regardless of whether it is treated as a request to reopen or vary these decisions or as a fresh application. According to WHR, section 59 of the NTA, 1987 has been repealed so there can be no consideration of this request as a new application and there is no change in the facts or circumstances thereby founding a review jurisdiction.

REPLY OF HGEL

HGEL filed its reply to the comments of the other parties on October 28, 1996. HGEL continues to believe that CN's rate levels prevent fair competition in the marketplace. As evidence, HGEL compares the recent rate increase with CN's rate actions between 1982 and 1995. According to HGEL, the recent increase in no way approaches the magnitude of the previous rate reductions.

HGEL also alleges that CN's other recent changes to its rate structure for the area represent attempts to further manipulate and distort rate levels representing, as such, an evasion of the argument, rather than elimination of the rate anomalies.

With respect to the comments of the intervening shippers and brokers opposing the application, HGEL points out that CN's rate increase will not prevent the eventual demise of the elevator, with the result that CN will be left in a monopolistic situation and there will be no protection for these shippers from the potential for abuse of that monopoly position.

Regarding the jurisdiction of the Agency, HGEL states that it is not asking the Agency to change Order No. 1996-R-324. Instead, HGEL is merely requesting the Agency to enforce its Order, which, with the full powers of a superior court, it has the authority to do.

HGEL concludes that the CN rate increases are insufficient, create a level of rates which continues to be anti-competitive, precludes effective intermodal competition and is contrary to the public interest.

JURISDICTIONAL ARGUMENTS

The Agency finds that this is not an application to vary the Agency's Order of August 21, 1996, although, in effect, it may amount to one. That is, there would be a variance if, as a result of HGEL's request, the Agency were to order CN to comply with the preceding Decision and Order by dictating specific increases that would constitute compliance. The original Decision and Order did not have such specificity. The Agency notes that it has previously asserted its jurisdiction to review and vary the earlier Decision and Order when it granted a stay to shippers who brought forward evidence of the harm arising from CN's August 28, 1996 rate increases. The Agency has reviewed HGEL's application and determines that it is a request for enforcement of Order No. 1996-R-324. If, based on the evidence, it is determined that CN has not complied with the Agency's Order, the Agency may grant HGEL's application and order compliance. If CN is found in compliance, HGEL's application will be dismissed. As such, the Agency is asserting its jurisdiction solely on whether there is or is not compliance with an earlier Decision and Order. If the evidence indicated that there is a lack of compliance, the Agency has jurisdiction to rule on this matter.

AGENCY ANALYSIS

In its Decision No. 471-R-1996 (hereinafter the Decision), the Agency noted the evidence of interveners in support of HGEL and found that several parties would be negatively impacted by the loss of HGEL. The Agency therefore gives import to the interventions filed with respect to the present application. In the first instance, interveners were generally willing to accept increased rates in order to protect modal competition. However, in these proceedings, five of the six shipper/broker interveners indicate that the present rate levels are sufficient. The fact that these several representatives of the ultimate grain customers indicate that the present rate levels are sufficient is of particular note to the Agency.

The Agency also found that while it could not specifically link inefficiencies in the marine-truck routing to the loss of traffic experienced by HGEL, the Agency noted in the Decision that there was room for improved efficiencies in the marine-truck operation, particularly with respect to corn. The Agency notes that little evidence was submitted with respect to efforts to improve efficiencies in the water-truck routing. The Agency, having directed CN to raise rates for the rail mode, had anticipated that there would be some corresponding effort to reduce costs of the water-truck partnership which would result in a downward movement in the combined water-truck rates.

The complexity of the original HGEL application represented a difficult case for the Agency. The Agency attempted to accommodate both the situation of HGEL and other potentially-affected parties, and the ability of a carrier (CN) to conduct its business as it sees fit. Through its original decision, the Agency attempted to create more balance in the competitive situation of CN and WHR vis-a-vis the parties that are components of the marine-truck routing. In light of the costing analysis performed by Agency staff with respect to the original application as laid out in the August 21, 1996 Decision, the Agency did not anticipate a sizeable rate increase, nor one that would totally eliminate rate differentials. Accordingly, the Agency issued a decision that attempted to encourage both sides to move toward a more acceptable middle-ground. Indeed, this is one of the reasons that the Agency did not order CN to increase its rates to a specific rate level, preferring to instead send a signal to parties that there was room for movement by each side.

CONCLUSION

On the basis of the evidence and arguments submitted, the Agency finds that CN has met all of the requirements of Order No. 1996-R-324.

The Agency notes that in CN's new corn tariff, CNR 1556, rates from U.S. points to Nova Scotia destinations have been increased. CN shall confirm that these rates supersede the subject rates in CN-family tariff GTW 4501.

With respect to the request by HGEL that costs be awarded against CN, the Agency has considered the matter and, pursuant to section 25.1 of the CTA, hereby denies the request.