Letter Decision No. LET-R-187-2012

Subsection 151(1) of the Canada Transportation Act (CTA) requires that the Canadian Transportation Agency (Agency) determine the amount of the maximum revenue entitlement for the movement of grain in a crop year.  This process includes Agency determinations regarding appropriate cost of capital rates to be used in the composite price index calculation.

With respect to the 2013-2014 crop year, the Canadian Pacific Railway Company (CP) and the Canadian National Railway Company (CN) have been directed to submit their estimated cost of capital rates, on or before February 8, 2013, to be used in accordance with the CTA and the cost of capital methodology set out in Agency Decision No. 425-R-2011 (the 2011 Decision).

In developing the cost of capital rates in previous years, the Agency invited interested parties to provide comments on the submissions filed by CN and CP.  This practice reflected the fact that certain methodological issues were examined and ruled on yearly by the Agency.  However, in the 2011 Decision, the Agency established several methodological principles applicable to the determination of the cost of capital and decided that such principles would remain applicable until at least 2018.  Given the new approach introduced by the 2011 Decision, the 2013-2014 annual cost of capital determination now requires only that the prescribed methodology be correctly applied, based on accurate inputs.

The determination of the cost of capital rate by the Agency is a determination that the Agency makes in the performance of its regulatory function. The Agency undertakes the responsibility for confirming the accuracy of the inputs as part of that function, especially given the highly confidential nature of much of the information to be examined.  The Agency will continue to apply due diligence to verify and ensure that accurate inputs are being used in applying the approved methodology.  However, in view of the fact that any methodological issues have been resolved for the time being, the Agency finds it is not necessary to continue to solicit comments from interested persons on the annual cost of capital submissions made by railway companies.

Interested persons will continue to be informed when the cost of capital determination process is underway and will be advised of the timelines under which the railway companies are required to make their cost of capital submissions. They will no longer be invited to receive and comment on the submissions.

The practice of issuing a ‘public’ version of the cost of capital decision to interested persons will continue. The public version of the decision will continue to respect the confidentiality of financial information considered sensitive by the railway companies.  However, in the interests of transparency, the Agency will also ensure that it outlines all inputs into the calculation that have been derived from publicly available information.