Letter Decision No. LET-R-75-2008
Application by the Rural Municipality of Souris Valley No. 7, Saskatchewan pursuant to section 146.3 of the Canada Transportation Act (CTA)
The Canadian Transportation Agency’s interim decision in the above-noted matter follows.
Application
[1] The Rural Municipality of Souris Valley No. 7, Saskatchewan (Souris Valley) applied to the Canadian Transportation Agency (the Agency) for a determination of the net salvage value for a line of railway owned by the Canadian Pacific Railway Company (CP) on the Bromhead Subdivision located between mileages 0.1 and 41.0 (the railway line) in the province of Saskatchewan. The application was received on November 9, 2007.
Background
[2] The railway line runs from mileage 0.1 to mileage 41.0, and includes the 1.0 mile Southall Wye. It runs west from the city of Estevan, and through the rural municipalities of Estevan No. 5, Cambria No. 6, and Souris Valley No. 7, as well as the village of Tribune. Schedule 1 of the Canada Transportation Act (the CTA) designates the railway line as a grain dependent branch line. CP indicates that there has been no traffic on the line for approximately 6 years.
[3] In the context of the process provided for in Part III, Division V, of the CTA, CP listed the line on its Three-Year Plan on July 28, 2005 pursuant to section 141 of the CTA; published a “Notice of Discontinuance of Railway Line” in respect of the railway line pursuant to subsection 143(1) of the CTA on January 10, 2007; and, as no agreement was reached with an interested person, within the required time, CP offered to transfer all of its interest in the line to governments on September 20, 2007, as stipulated in section 145 of the CTA.
[4] Souris Valley, as a local government having an interest in acquiring the line, submitted an application for a determination of net salvage value of the line, pursuant to section 146.3 of the CTA on November 9, 2007.
[5] In its submission, Souris Valley proposed a net salvage value for the railway line of negative $462,243, however, Souris Valley advised it would consider a transfer value of $1 acceptable. CP has calculated a net salvage value of $3,268,296.
Legislative authority
[6] Part III, Division V, of the CTA, outlines a process that must be followed by a federally-regulated railway company when transferring and discontinuing the operation of railway lines.
[7] Prior to discontinuing the operation of a line of railway, if there has been no agreement reached with an interested person within the required time to transfer the line for continued operation in accordance with section 143 of the CTA, section 145 of the CTA requires a railway company to offer to transfer all of its interest in the railway line to the governments and urban transit authorities stipulated in that section, for not more than the railway line’s net salvage value.
[8] Section 146.3 of the CTA provides an opportunity for a person who receives an offer under section 145 to, in advance of accepting the offer, apply to the Agency for a determination of the net salvage value of the railway line and subsection 146.3(4) provides that the applicant shall reimburse the Agency’s costs associated with the application.
Definition of net salvage value
[9] Previous panels of the Agency have already determined, in a number of previous Decisions issued pursuant to section 145 of the CTA, 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 to be used for any purpose.
Process
[10] The process for arriving at a net salvage value for a line of railway involves several elements. The quantities and condition of the track and other materials forming part of the line of railway 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.
[11] The valuation of the land component of the line of railway is the usual next step. The land value 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 for the appraiser to conduct an assessment.
[12] 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 and component of the railway line, such as the existence and extent of any environmental contamination. 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.
[13] When the land value is determined, it is added to the net salvage value for track assets to arrive at the net salvage value of the line of railway.
Relevant time frame for asset valuations
[14] As to the process, an issue was raised by the parties pertaining to the relevant time frame for asset valuations in a net salvage value determination.
[15] In its submission of February 6, 2008, CP indicates that its asset valuations were developed as of November 2007 and notes that steel values have risen substantially since then. In a response to this claim, Souris Valley states that relevant values or costs ought to be those existing as of November 2007, being the date of the application.
[16] 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 several 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 process than to the beginning. Under this approach, the Agency’s ultimate determination incorporates values that better approximate in time the actual transfer date of the railway line in question.
[17] The process used to determine net salvage value is 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.
[18] In light of the above, the Agency is not bound to accept only those valuations that coincide with the date of the application. 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.
Quantity and quality of track assets
Site visit
[19] An engineering inspection of the railway line was conducted on December 13, 2007. The purpose of the inspection was to confirm the quantity of the track and other material included in the application, as well as to assess the condition of these assets. Agency staff and representatives from Souris Valley, the Government of Saskatchewan and CP attended. On January 31, 2008, the minutes of the site inspection report were distributed to the parties for comment.
[20] In its comments on the engineering inspection report, Souris Valley indicated that, although the inspection criteria and methodology were agreed to by all parties at the time of the inspection, had weather conditions been better, it would have preferred a more frequent sampling and inspection of materials. It also stated that, regardless of its condition, 80 lb and 85 lb rail should be considered scrap because there is no real demand for lightweight rail. Souris Valley considered CP’s estimate of the weight of other track materials (OTM) to be reflective of the actual tonnage on the railway line.
[21] CP, in response to the engineering inspection report, indicated that CP’s branch line standard for ties is 55 ties per 100 feet, and its quantities of OTM in the present case were based on that standard. CP also indicated that, based on previously awarded branch line salvaging contracts, as well as current bids, it considered an appropriate range for the proportion of scrap ties on the railway line to be 20-25 percent.
Value of the track assets
[22] Souris Valley determines the gross salvage value of the assets to be $2,776,183, based on its assertion that most of the track and materials on the railway line should be valued as scrap, because the railway line is comprised of a mix of 80 lb and 85 lb rail, for which, it states, there is virtually no demand.
[23] The gross salvage value of the assets according to CP is $3,743,836. CP considers that, as the vendor of the assets, it must be able to arrive, with some degree of certainty, at the realizable market value of the track assets or the alternative cost of supply to CP if it uses the assets on its own network.
[24] To accomplish this, CP indicates that it issued a Request for Proposals (RFP) for the removal of three CP railway lines that are currently undergoing the discontinuance process. The recipients were 11 contractors who specialize in large track salvage projects across Canada and the United States. CP filed with the Agency the RFP and the responding bid from one contractor, both of which were considered confidential in nature by CP due to their commercial sensitivity. The RFP requested bids on five options for the scope of work, ranging from complete removal by the contractor with CP retention of all materials and scrap, to complete removal and purchase of all materials and scrap by the contractor. CP submits that although it considers the track material to have a higher value, the contractor’s bids on the various options demonstrate with certainty the minimum realizable value of the track materials.
[25] Based on the information contained in the engineering inspection report, Agency staff prepared a Market Research Data Report (the MRDR) setting out quotations obtained from various market sources on the value of the various assets and the salvaging works involved to remove and dispose of those assets. This information was sent to the parties for comment. Comments were received from Souris Valley and CP. This report and the comments filed have been used by the Agency.
[26] A summary of the quantities and conditions of the track and other material contained in the Agency staff’s engineering inspection report, as well as those proposed by Souris Valley and CP, is set out in Tables 1A - 1E. The values assigned to the various assets by Souris Valley and CP are also included in the Tables.
Rail
[27] Originally the railway line ran from Estevan to Southall, then to Minton, with a spur going from Southall to Neptune. The portion between Southall and Minton was removed and the spur now stops at Tribune instead of Neptune. At Southall, only the connection between the spur and main line remains. The rail on the main line is 85 lb and the rail on the former Tribune spur is 80 lb. There are four siding tracks along elevators on the line, namely: Outram, Torquay, Bromhead and Tribune. For classification purposes, most of the 80 lb and 85 lb rail is considered reusable on other branch lines.
[28] Souris Valley submits that 100 percent of the 80 lb and 85 lb rail should be valued at scrap prices because, based on its knowledge of general industry practice, anything less than 115 lb rail has no application as relay in main lines or branch lines and very limited use in yards or sidings. Souris Valley submits a value of $234 per ton for scrap rail, for a total rail value of $1,528,020. CP submits that there is an ongoing significant need for 85 lb rail, which is no longer being rolled. In support of this position, CP references its own need to maintain its network of rail lines with 85 lb rail running throughout the Prairies, as well as the needs of municipal governments and short line railway companies that have acquired 85 lb rail lines. It estimates 90 percent of the 85 lb rail on the railway line to be of relay quality and values it at $327 per ton. CP considers the remaining 10 percent to be scrap and values that at $250 per ton. CP’s total value for rail is $2,081,836.
[29] A review of the available information indicates that the current market value for 85 lb rail which is suitable for both branch line relay and siding and yard relay varies from $248 to $327 per ton. The Agency concludes that a value of $294 per ton for 85 lb rail suitable for branch line relay and a value of $281 per ton for 85 lb rail reusable for siding and yard purposes is appropriate in this case. With respect to 80 lb rail in both branch line relay and siding and yard relay conditions, market research values vary from $248 to $327 per ton. The Agency concludes that a value of $283 per ton for branch line relay rail, and a value of $276 per ton for siding and yard relay is appropriate for the 80 lb rail. In reaching these particular values, the Agency has averaged the values submitted for rail by both parties as well as the results of the three relay rail quotations included in the MRDR.
[30] In the case of scrap rail, market values ranged from $229 to $343 per ton. Again the Agency averaged the values assigned to scrap rail by both parties as well as the results of five scrap rail quotations included in the MRDR, to arrive at a value of $265 per ton for 85 and 80 lb scrap rail. See Table 1A below.
| Agency Engineering Staff | Quantity (tons) | Condition | $ Value/ton Rounded |
|
|---|---|---|---|---|
|
85 lb 33 ft |
5,495.9 |
Reusable BL |
86% |
$294 |
|
Reusable S/Y |
4% |
$281 |
||
|
Scrap |
10% |
$265 |
||
|
80 lb 33 ft |
1,047.6 |
Reusable BL |
86% |
$283 |
|
Reusable S/Y |
4% |
$276 |
||
|
Scrap |
10% |
$265 |
||
| Souris Valley |
Quantity (tons) |
Condition |
$ Value (ton) |
|
|
85 lb 33 ft & 80 lb 33 ft |
6,530.0 |
Reusable |
0% |
- |
|
Scrap |
100% |
$234 |
||
| CP |
Quantity (tons) |
Condition |
$ Value (ton) |
|
|
85 lb 33 ft & 80 lb 33 ft |
6,520.0 |
Reusable |
90% |
$327 |
|
Scrap |
10% |
$250 |
||
Other track materials (tie plates, joint bars, bolts, spikes, anchors, etc.) - OTM
[31] The tie plates and joint bars of the 80 lb and 85 lb rail are in good condition, and only 10 percent are classified as scrap. The bolts, spikes and rail anchors of all rail sizes are considered scrap.
[32] Souris Valley submits that the entire railway line is comprised of scrap OTM, including tie plates, joint bars, bolts, spikes, anchors etc. It estimates an OTM value of $223 per ton, for a total of $366,166. CP also values all of the OTM on the railway line as scrap, and uses an estimated scrap value of $400 per ton, for a total OTM value of $656,000.
[33] The Agency used the same approach for establishing the market values for other track material as for rail. That is, based upon the market value evidence presented, as well as that obtained independently by the Agency and set out in the MRDR, the Agency determines the following values. The value of reusable 80 and 85 lb tie plates is $283 per ton. The value of scrap 80 and 85 lb tie plates is $322 per ton. For reusable 80 and 85 lb joint bars, the value is $407 per ton, and the value of scrap 80 and 85 lb joint bars is $322 per ton. Scrap bolts, nuts, spikes and rail anchors are also valued at $322 per ton. See Table 1B below.
| Agency Engineering Staff |
Quantity (tons) |
Condition |
$ Value/tonRounded |
|
|---|---|---|---|---|
|
Tie plates 80-85 lb SS - 6.5 in. x 8 in. |
971.4 |
Reusable |
90% |
$283 |
|
Scrap |
10% |
$322 |
||
|
Joint bars 4H-80-85 lb 26 in. |
308.0 |
Reusable |
90% |
$407 |
|
Scrap |
10% |
$322 |
||
|
Bolts |
35.2 |
Scrap |
100% |
$322 |
|
Spikes |
191.7 |
Scrap |
100% |
$322 |
|
Rail Anchors |
133.0 |
Scrap |
100% |
$322 |
| Total Track Fastenings |
1,639.3 |
|||
| Souris Valley |
Quantity (tons total) |
Condition |
$ Value (ton) |
|
|
Track fastenings - joint bars, tie plates, bolts, spikes and rail anchors |
1642.0 |
Scrap |
100% |
$223 |
| CP |
Quantity (tons total) |
Condition |
$ Value (ton) |
|
|
Track fastenings - joint bars, tie plates, bolts, spikes and rail anchors |
1640.0 |
Reusable |
90% |
$400 |
|
Scrap |
10% |
$400 |
||
Other miscellaneous track material
[34] There are 4 derails, hinge type 85 lb, located on siding and elevator tracks in good condition. There is also a total of 13 switches included on the main line, all considered to be in good second hand (SH) reusable condition.
[35] The Souris Valley submission indicates 13 switches on the line valued at $3,000 each. CP submits that there are 12 switches on the line and also values them at $3,000 each. Neither party mentions the derails. Taking into account the parties’ estimates for switches, as well as those received from independent quotations which were lower than those submitted by the parties, the Agency determines the value of reusable switches to be $2,086 per unit. Reusable 85 lb hinge type derails, of which there are four, are valued at $65 each. See Table 1C below.
| Agency Engineering Staff | Quantity (units) | Condition | $ Value (each) Rounded | |
|---|---|---|---|---|
|
Derail-hinge type - 85 lb |
4 |
Reusable |
100% |
$65 |
|
Switches - No. 9 - 85 lb spring - BR |
7 |
Reusable |
100% |
$2,086 |
|
Switches - No. 9 - 85 lb BRSG |
2 |
Reusable |
100% |
$2,086 |
|
Switches - No. 9 - 85 lb BR |
4 |
Reusable |
100% |
$2,086 |
| Souris Valley |
Quantity (units) |
Condition |
$ Value (each) |
|
|
Derail-hinge type - 85 lb |
n/a |
|||
|
Switches - No. 9 - 85 lb spring - BR |
13 switches in total |
Reusable |
100% |
$3,000 |
|
Switches - No. 9 - 85 lb BRSG |
||||
|
Switches - No. 9 - 85 lb BR |
||||
| CP |
Quantity (units) |
Condition |
$ Value (each) |
|
|
Derail-hinge type - 85 lb |
n/a |
|||
|
Switches - No. 9 - 85 lb spring - BR |
12 switches in total |
Reusable |
100% |
$3,000 |
|
Switches - No. 9 - 85 lb BRSG |
||||
|
Switches - No. 9 - 85 lb BR |
||||
Cross ties
[36] Based on the results of the track sections that were verified in each 10-mile segment of the main line, the split among the three categories of cross ties; good, fair and bad condition, is fairly constant on the portion of the subdivision between Estevan and Southall. On the portion from Southall to Tribune, the split is different with more ties in fair and bad condition. For all track sections, the average quantity of good ties is 44 percent, 29 percent are fair and the balance, 27 percent, are in bad condition. Scrap ties have no salvage value, but do carry a disposal cost. The Agency gives no consideration to using cross ties (or switch and bridge ties) as landscape materials because they are treated with creosote. Ties classified as fair are valued on their potential use in other non-railway, industrial applications.
[37] Souris Valley does not differentiate between cross ties, switch ties and bridge ties, nor does it categorize any ties as fair, assessing them only on the basis of relay and scrap. It estimates that 40 percent of 127,341 ties are relay quality with a value of $16.55 each, for a total of $842,997 for reusable ties.
[38] CP also did not differentiate between cross ties, switch ties and bridge ties. It categorizes used ties four ways: CP relay, contractor relay, landscape and scrap. CP estimates that only 24 percent of 127,342 ties are scrap and attaches an average value of $10 each to the ties falling into the other three categories, for a total value of $970,000 for reusable ties.
[39] Taking the values submitted by the parties as well as those obtained from independent quotations into account, the Agency finds that a good reusable 8-foot cross tie has a value of $11.17 and a fair reusable cross tie has a value of $7.40.
Switch ties and bridge deck ties
[40] The majority of the switches were covered with snow at the time of the site inspection making it difficult to assess the condition of the switch ties. It is assumed that their condition is 50 percent scrap, 50 percent SH reusable. Regarding bridge ties, 20 percent are considered fairly reusable, with 80 percent classified as scrap.
[41] As mentioned previously, the parties based their estimates on ties as a whole and did not identify specific quantities or qualities for switch and bridge ties.
[42] Based on its evaluation of the market data gathered, the Agency finds that the reusable switch ties and reusable bridge deck ties have a value of $8.80 each. This reflects an averaging of the various assessments. See Table 1D below.
| Agency Engineering Staff | Quantity Pieces |
Condition | $ Value (each) | |
|---|---|---|---|---|
|
Cross Ties No. 2 TR SW 6”x8”x8' |
124,678 |
Good Reusable |
44% |
$11.17 |
|
Fair Reusable |
29% |
$7.40 |
||
|
Scrap |
27% |
nil |
||
|
Switch Ties |
689 |
Fair Reusable |
50% |
$8.80 |
|
Scrap |
50% |
nil |
||
|
Bridge Deck Ties |
589 |
Fair Reusable |
20% |
$8.80 |
|
Scrap |
80% |
nil |
||
| Souris Valley |
Quantity |
Condition |
$ Value (each) |
|
|
Cross Ties No. 2 TR SW 6”x8”x8' |
127,341 |
Good Reusable |
40% |
$16.55 |
|
Scrap |
60% |
nil |
||
|
Switch Ties |
n/a |
|||
|
Bridge Deck Ties |
n/a |
|||
| CP |
Quantity |
Condition |
$ Value (each) |
|
|
Cross Ties No. 2 TR SW 6”x8”x8' |
127,342 |
Good, Fair & Landscape Reusable |
76% |
$10 |
|
Scrap |
24% |
nil |
||
|
Switch Ties |
n/a |
|||
|
Bridge Deck Ties |
n/a |
|||
Public crossings and crossing signals
[43] There are 35 public crossings on the main line. They are all protected with standard cross-buck signs, which have no salvage value.
Agency determination of gross salvage value of track assets
[44] In summary, track material to be taken into account includes rail, track fastenings, other miscellaneous track material and ties. In addition to taking the parties’ estimates into account, several independent sources were surveyed by the Agency during its assessment of current market conditions and values. As noted above, the relevant quantities were determined during the engineering inspection. The unit values for the various assets were, in turn, multiplied by the respective quantities to arrive at the gross salvage value, which the Agency determines to be $3,315,306. See Table 1E below.
| Track Asset | Total Gross Salvage Value |
|---|---|
| Gross Salvage Value - Track Assets |
$3,315,306.10 |
| Rail (Table 1A) |
$1,889,677.86 |
| Track Fastenings (Table 1B) |
$517,213.09 |
| Miscellaneous Track Material (Table 1C) |
$27,383.98 |
| Ties (Table 1D) |
$881,031.17 |
Cost of removal and salvaging
[45] The accepted definitions and the Agency’s methodology for determining net salvage value include an assessment of the relevant costs for the removal and disposal of track assets. 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 material or disposed of in a licensed disposal site. Transportation costs are factored into the salvage and disposal costs if the track material, including the cross and switch ties, cannot be disposed of locally.
Rail
[46] Concerning the removal of track materials, Souris Valley obtained a quotation that included lifting the track materials, preparing and transporting the materials, as well as mobilization and demobilization costs. Based on this quotation, Souris Valley submits an estimate of $26,000 per mile for 40.9 miles of railway line, or $1,063,400 in total. This includes costs associated with transportation of scrap OTM. Souris Valley submits an additional cost for steel and relay tie transportation of $182,192, which is equivalent to $4,122 per mile ($3,236/mile - steel transportation; $886/mile - relay tie transportation), and a cost of $93,000 in total for reparation of the 31 road crossings it estimates to be on the line. This latter value includes: removal of planks and protection systems, levelling of the rail roadbed within the roadway right of way, earthwork to extend roadway ditches and drainage, and restoration of gravel surfaces and equates to a per mile cost of $2,104 for road way restoration. These additional associated costs increase the total removal cost according to Souris Valley to $32,226 per mile.
[47] CP based its estimate for the removal of 41.9 miles of track and material at $17,000 per mile, or $712,300 in total. This was based on information extrapolated from proposals it received in response to its RFP. This amount takes into account the transportation of steel and relay ties. It also incorporates a total of approximately $15,000 for restoration of the 35 crossings it lists on the railway line, based on an estimate of under $500 each for the gravel/dirt road crossings, and $2,500 each for restoration of the paved road crossings. CP submits a separate cost of $19,161 for the transportation of scrap OTM, which equates to an additional $434 per mile. Including this amount, the total per mile removal and disposal cost submitted by CP is $17,434.
[48] The Agency determines the total mileage for the railway line to be 44.18 miles. This includes 40.97 miles of branch line and 3.21 miles of siding and wye track. This finding is based upon the Agency’s examination of the site as detailed in the engineering inspection report. There are a total of 35 public crossings, 34 unpaved, 1 paved. The majority of these crossings intersect with gravel roadways and are presently covered over with sand and gravel. The quotations received by the Agency for track removal and disposal include reparation of this type of road crossing, as well as the transportation costs associated with the removal of steel, relay ties and scrap OTM. The Agency has analyzed the submissions of the parties on this basis, and has established a removal and disposal cost that is inclusive of these additional factors.
[49] After considering the parties’ estimates and those of the other quotations it solicited, the Agency has determined the total inclusive track removal cost to be $25,482 per mile, totalling $1,125,795 for the 44.18 miles of trackage on the railway line.
Ties
[50] Souris Valley submits that environmentally sound disposal of scrap railway ties is required for approximately 76,405 ties. It assigns a cost comprised of $3.79 per tie for disposal and $4.61 per tie for transportation to a disposal facility, for a total per tie cost of $8.40. This represents a total tie disposal cost of $641,799. CP estimates that there are 30,342 scrap ties to be disposed of and submits a cost of $0.91 per tie, or $27,726 in total, to load, transport “On Company Service”1, and export to a co-generation facility in North Dakota. After considering the parties’ estimates and those of other quotations it solicited, the Agency determines the cost for the environmentally sound disposal of cross ties to be $4.26 per tie; switch ties $4.86 per tie, and bridge ties $4.66 per tie. This results in total disposal costs for cross ties of $144,345, for switch ties of $1,673 and for bridge ties of $2,205. The total cost for tie disposal is, therefore, determined by the Agency to be $148,223.
Agency determination of the cost of removal and salvage of track assets
[51] The Agency determines the removal and salvage cost for the track assets to be $1,274,018. A comparison of the cost of removal and salvage of track assets as determined by the Agency and those submitted by the parties is summarized in Table 2 below.
| Rail salvage costs2 | Quantity | $ Value/Mile | Submitted Total | Agency Total | |
|---|---|---|---|---|---|
| Agency Total Removal and Disposal Costs |
$1,274,018 |
||||
|
Agency Engineering staff |
44.2 mi. |
$25,482 |
$1,125,795 |
||
|
Souris Valley |
$1,338,592 |
||||
|
CP |
$731,461 |
||||
| Scrap ties disposal, chipping, transportation, etc. - each | Quantity | $ Value/Tie | Submitted Total | Agency Total | |
|
Agency Engineering staff |
Cross ties |
33,868 |
$4.26 |
$144,345 |
|
|
Switch ties |
344 |
$4.86 |
$1,673 |
||
|
Bridge ties |
473 |
$4.66 |
$2,205 |
||
|
Souris Valley |
76,405 |
$8.40 |
$641,799 |
||
|
CP |
30,342 |
$0.91 |
$27,726 |
||
Agency determinations of net salvage value for track assets
[52] The net salvage value for track material is obtained by subtracting the cost of removal, salvage and transportation of $1,274,018 from the gross salvage value of the track materials of $3,315,306. The Agency therefore determines a net salvage value of the track assets on the railway line of $2,041,288.
Right of way reclamation
[53] In addition to the factors discussed above, Souris Valley submits that the cost of rail bed reclamation should be included in a determination of net salvage value. It bases this position on certain “reclamation” by-laws that have been enacted by various municipal governments in Saskatchewan, including some of the rural municipalities within which the railway line is situated.
[54] These enactments require a railway company, as a consequence of line discontinuance and within a specified time, to remove track materials, bury ballast and to level and seed the right of way to a level that is equivalent to the adjacent property. They also generally require a railway company, as a condition of abandonment, to remove all poles, wires, conduits, cables, pipelines, signs, buildings, culverts, trestles and bridges, and to remove or repair all fencing along the right of way.
Souris Valley
[55] With respect to municipalities in which the railway line lies, Souris Valley submits By-law No. 0101, A By-law Respecting the Health Conditions, Safety, and Tidiness of Discontinued Railway Lines, from the Rural Municipality of Cambria No. 6, dated April 17, 2001 and By-law No. 2007-14, Dismantling and Removal of Railway By-law, from the Rural Municipality of Estevan No. 5, which is undated and unsigned. It does not submit similar by-laws from the City of Estevan, the Rural Municipality of Souris Valley No. 7, or the Village of Tribune.
[56] Souris Valley submits that these by-laws are intended to ensure the highest and best use of land, and that if left unreclaimed, the railway lines will be unsafe, untidy and unusable for farm land, recreation or other business opportunities. It indicates that local governments consider these by-laws necessary to protect municipal taxpayers from costs in the event a railway company has been negligent in cleaning up an unsightly and/or unsafe property.
[57] Souris Valley acknowledges that these by-laws are only applicable when a railway company makes the business decision to discontinue railway operations on specific railway lands or assets, and that it is beyond the local government’s authority to apply these by-laws while the railway line is being operated as a railway. It indicates that while the railway is being used for its intended purpose there are no concerns about land use, but argues that these concerns arise after a railway is officially discontinued and abandoned and as such is no longer under federal legislative jurisdiction. In this context, the land becomes subject to all applicable provincial and municipal by-laws.
[58] Souris Valley considers that the application of these by-laws to discontinued railway lines is constitutional, and they are within a municipal governments’s jurisdiction in the province of Saskatchewan. Further, it considers that they are not discriminatory, are not motivated by improper purpose and are not invalidated by the fact that they anticipate future potential problems (as opposed to existing problems) and require the exercise of municipal discretion at some time in the future.
[59] Souris Valley believes that assessing the financial impact of these by-laws in advance of the actual discontinuance of the rail operations would achieve the stated public interest concerns and, as well, provide the financial capability to ensure compliance with the by-laws by the local government in the event that rail operations are discontinued at some later time.
[60] Souris Valley concedes that in certain specific sites it would not be practical or reasonable to level the right of way to the extent specified in the by-laws and therefore submits that only 66 percent (28 miles) of the entire right of way, representing the cultivated land only, not the pasture land, would require levelling and reclamation. It estimates the earthworks required to accomplish this level of reclamation to be approximately $12,500 per mile, totalling $350,000.
CP
[61] CP submits that no deduction from the net salvage value can or should be made as a result of by-laws pertaining to the dismantling and removal of railway lines. CP believes the by-laws represent an indirect and inappropriate method of reducing the purchase price of the railway line in circumstances where the municipal government is entitled to purchase the line. CP also states that as the municipal governments have the discretion whether to apply the by-laws, they are inapplicable given their uncertain application.
[62] To emphasize the contingent nature and application of the by-laws, CP states that provincial shortlines have been discontinued elsewhere in Saskatchewan and have not been required by municipal governments to carry out the application, removal or reclamation steps under the by-laws.
[63] CP also considers the by-laws unconstitutional as they affect the works of a federal railway company. CP believes that in requiring the demolition of all railway works within 12 months of discontinuance, these by-laws prevent such legitimate railway business uses as car storage. As such, they constitute an unlawful interference with the operation of a federal railway company. CP considers the by-laws to be a gratuitous and financially oppressive interference in its property rights and that the by-laws are discriminatory against railway companies as there is no evidence that railway lines are inherently dangerous or less safe, tidy or healthy than lands used for other purposes.
Agency finding
[64] In support of its position, Souris Valley submitted two by-laws referenced earlier, one from the Rural Municipality of Cambria No. 6 and the other from the Rural Municipality of Estevan No. 5. A review of these by-laws shows that the obligations listed arise upon the discontinuance of the operation of a railway line, and require varying processes for compliance, depending on the by-aw.
[65] In the by-law for the Rural Municipality of Cambria No. 6, the conditions apply upon the discontinuance of the operation of the railway line and require that within 6 months of discontinuance the owner of the line (owner prior to discontinuance) apply for a permit. Demolition/reclamation must then be completed within 12 months of discontinuance. The municipal government may compel compliance upon a finding there has been no demolition application or that the line is otherwise “unsafe, untidy and unsightly”. It also has “sole discretion” to identify the buildings, signals, bridges and related railway structures that are to be removed.
[66] The by-law for the Rural Municipality of Estevan No. 5 stipulates that demolition eclamation obligations arise following discontinuance of the operations of a rail line and are to be borne by the last person responsible for the operation of a rail line prior to the discontinuance of operations on the line. No time lines are provided and there is no discretion to exempt compliance.
[67] Another panel of the Agency, in Decision No. 445-R-2000, has previously considered the question of the impact of municipal reclamation by-laws on the net salvage value of a railway line.
[68] In its re-examination of this issue in the present case, and to consider this from a different perspective from that set out in Decision No. 445-R-2000, the Agency observes that the degree and nature of any form of site reclamation is contingent, first and foremost, on the planned use of the site. The Agency considers that municipal governments recognized this in granting themselves powers in these by-laws only at such time as there is a discontinuance of the operation of a railway line.
[69] Subsection 146(1) of the CTA stipulates that a railway company’s obligations under the CTA cease when the railway company has formally notified the Agency in writing of the effective date that the operations on the railway line have been discontinued. Until such time the line continues to be a federal railway subject to federal jurisdiction.
[70] If a railway company has complied with the prescribed discontinuance steps under the CTA but has not reached an agreement to sell, lease or otherwise transfer the railway line, it may then discontinue operating the line, with the filing of a notice pursuant to subsection 146(1) of the CTA, and retain ownership of the line. If this occurs, the railway company, as owner of the discontinued railway line, may then be subject to all applicable municipal reclamation by-laws.
[71] However, in the case where there is a sale, lease or other transfer of a railway line to a third party by a railway company under subsection 146(2) (i.e. where there has been no notice of discontinuance provided by the railway company to the Agency under subsection 146 (1) and the railway company no longer owns the railway line), the railway company ceases to have any obligations in respect of the operation of the railway line and the party to whom the railway line is sold, leased or otherwise transferred assumes those obligations and must take such continuing obligations into account.
[72] In view of this, the Agency finds that what would be transferred, if the railway line is purchased by Souris Valley pursuant to section 145, is a railway line that has not been discontinued. At that time Souris Valley, as owner of the railway line, would have the sole authority over the planned use of the railway line and all applicable reclamation by-laws would only be considered and applied at the time Souris Valley, as owner of the railway line, made a final determination of the use of the railway line and/or sold, leased or otherwise transferred the railway line or any part of the line to some other third party. Accordingly, the reclamation by-laws do not apply to a sale, lease or other transfer of a railway line by a railway company pursuant to section 145 of the CTA and the Agency will not include reclamation costs in its determination of this net salvage value.
Consideration of bridges and culverts
[73] There are three bridges on the main line. All structures appear to be in good condition. The bridge decks are of various sizes, all made of treated wood. The railway line also incorporates many culverts, none greater than 36 inches in diameter, most falling into the 18 to 24 inch range.
Souris Valley
[74] Souris Valley feels that all three bridges must be removed upon discontinuance of the railway line in accordance with the Rural Municipality of Estevan’s By-law No. 2007-14. In addition, Souris Valley feels that safety and environmental issues could potentially force CP to completely dismantle all bridges. It also believes that the cost to remove all bridges in accordance with all federal, provincial and municipal regulations and by-laws would far exceed the value of the salvageable bridge assets, however, it was unable to obtain any evidence to include in its submission concerning the costs of dismantling the specific bridges on the line.
[75] With respect to culverts, Souris Valley notes that culvert removal would be included in the cost associated with right of way reclamation and assumes any culverts would be removed when the right of way is levelled. In view of this, Souris Valley assigns no additional cost to the removal of culverts.
CP
[76] CP submits that bridges and culverts could be a definite asset depending on the future use of the land. It indicates that if the municipal governments operate the line as a railway, as initially intended, there would be an ongoing need for the bridges and culverts. CP further submits that if the line were transformed into a trail or utility corridor, improvements such as bridges and culverts would be a great asset. CP explains that bridges and culverts are evaluated and are not dismantled unless there is a safety concern or other need to remove the structure, and based on the conditions of the bridges and culverts in past evaluations, they are not normally removed. CP feels this is similar to when roads are abandoned and the bridges and culverts are not always removed. CP indicates that provincially regulated shortline railway companies in Saskatchewan are not required to remove all bridges and culverts when they discontinue operations on a railway line.
[77] In addition, CP points out that branch line rights of way have become to a large degree a natural wildlife refuge due to lack of tillage and rather limited herbicide application compared to the surrounding farmland and that water courses have adapted to the right of way for 100 years and this has become the environmental state. CP believes that disturbing the right of way now could be environmentally damaging and could require environmental assessments.
[78] CP is of the opinion that the railway line’s bridges and culverts could have value in terms of use of the line as a utility corridor or recreational trail. However, indicating that it concurs with previous Agency rulings pertaining to bridges and culverts, CP includes neither a salvage value or a dismantling cost for the bridges and culverts on the railway line.
Agency finding
[79] The costs associated with the removal of railway bridges have never been included in past Agency net salvage value determinations under section 145 of the CTA. There are several reasons for this exclusion: the removal of railway bridges is not required by law upon discontinuation of railway lines; the subsequent use of a railway line for which the Agency determines net salvage value may include rail and non-rail transportation use; and, the costs associated with the dismantlement of railway bridges are uncertain as the state of these assets at the time of transfer and the time of dismantlement is likely to change. The Agency’s predecessors, the Canadian Transport Commission and the National Transportation Agency, also determined net salvage value in support of subsidy calculations with respect to actual losses incurred in the operation of particular railway lines. In these proceedings, the net salvage value of railway bridges was consistently deemed by the Agency and its predecessors to be zero.
[80] As with determinations made under section 145 of the CTA, the Agency, in accordance with section 146.3 of the CTA, is required to determine a net salvage value of the railway line “for any purpose”, which may include possible rail and non-rail transportation uses. Consistent with past Agency determinations and in light of the above reasons, the Agency will include neither the salvage value nor the cost of dismantling the bridges on the line in its net salvage value determination.
[81] On the subject of culvert removal, culverts are not normally backfilled when a line of railway is abandoned. There are, however, circumstances where certain culverts would need to be removed, such as if a culvert was not functioning and caused water to flow outside the normal channel, resulting in damage to adjacent landowners. In this case, all culverts are functional and therefore there is no provision for their removal.
Environmental remediation
[82] Souris Valley considers that the costs associated with any special environmental remediation should be included in net salvage value. It also indicates that, pending the outcome of the Agency’s review of the Phase I Environmental Site Assessment (ESA) of the railway line that was submitted by CP, the cost of any future studies and the cost of any subsequent remediation action required should be included in net salvage value.
[83] CP submitted a draft Phase I ESA of the railway line, dated May 29, 2000, to Souris Valley and the Agency. CP states that all potential sources of environmental concern were created by third parties, and under the principle of “polluter pays” a land owner should not be penalized for the actions of third parties and would have cause of action against the third party creating the pollution. CP also considers that the parties that have created the concerns identified in the Phase I ESA should be responsible for conducting Phase II ESA’s if necessary.
[84] In previous net salvage value determinations, the Agency has found that the cost of environmental remediation can be significant, particularly where significant contamination is identified. Remediation costs are difficult to forecast and can vary greatly depending upon the type of contamination, its extent, the risk of off-site contamination and varying regulatory requirements for differing land uses.
[85] The Agency notes that CP’s submission of a Phase I ESA is in keeping with environmental best practice 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 the assessment included a site reconnaissance, which included station-grounds, in January 1999 and a review of historical records and investigation reports, both public and CP-owned.
[86] Based on its review of the report, the Agency concludes that no significant contamination requiring remediation has been identified on the line.
Statutory compensation
Souris Valley
[87] Souris Valley submits that the legislative liability defined in section 146.1 of the CTA, for a railway company that has discontinued operations on a designated grain-dependent branch line to make three annual payments of $10,000 per mile to the municipal governments in which the discontinued railway line lies, should be included as a cost in this determination of net salvage value. It calculates the net present value of this statutory compensation, using an interest rate of 10 percent, to be $24,868 per mile, totalling $1,017,101 for the entire railway line.
[88] Souris Valley submits that, should the line be discontinued and dismantled, CP would generate the financial resources from salvage to recover part or all of the compensation burden. It believes that recognizing this item as a cost in a net salvage value determination would leave the railway company in a “no better no worse” situation. According to Souris Valley, to disregard this item as a cost would allow the railway company to realize a higher salvage value for the line by being relieved of the compensation obligation and it asserts that the intent of the legislation could not have been to create this “windfall” situation.
[89] Souris Valley further submits that the potential for the consideration of the statutory compensation liability as a cost to create a negative net salvage value should not be a consideration or a concern to the Agency, believing that the quantum of the impact of a cost, lease revenue or value of an asset should have no bearing on its inclusion in a net salvage value determination. It considers the liability a cost to CP directly associated with their voluntary business decision to abandon the line, which could have been avoided through a voluntary negotiated agreement to transfer ownership to another party or retention by CP as an operating railway.
CP
[90] CP considers the assertions made by Souris Valley with respect to legislative liability to be incorrect, irrelevant to net salvage value determination and fundamentally inconsistent with the provisions of Part III, Division V of the CTA. CP states that the matter of payment by a railway company of the compensation provided for in section 146.1 does not arise until the railway company has given notice of discontinuance under subsection 146(1) of the CTA. CP considers the section 146.1 payment an obligation that does not arise if the line is sold to a third party for continued operations, a passenger or commuter operator, or any level of government, including the municipalities, or if the railway company ultimately decides not to discontinue. Therefore CP is of the opinion that the section 146.1 payment cannot be taken into account when determining net salvage value.
[91] CP interprets that the CTA stipulates if a railway company is allowed to discontinue operations and retain for itself the assets of a grain-dependent branch line then it pays the $30,000 per mile to the affected municipal governments, but if the railway company does not get to both discontinue operations and retain the assets then it is not required to pay the “compensation”. CP views the $30,000 per mile as compensation for the municipal governments payable only in situations where the line operations disappear and government does not get the assets. CP considers Souris Valley’s argument circular and illogical, and contrary to the CTA, in that it has the effect of delivering to the municipal government both the line of railway and the statutory compensation for its discontinuance.
Agency finding
[92] Sections 146 and 146.1 of the CTA prescribe certain railway obligations that arise post-discontinuance of the railway line. Subsection 146(1) indicates that if upon completing the discontinuance steps under the CTA (i.e., advertisement, offers to third parties for continued operation and offers to governments for any purpose) the line is still not conveyed, then the railway company may discontinue operating the line. The railway company’s obligation under the CTA ceases when it has notified the Agency in writing of the effective date that the operations on the railway line have been discontinued, as stipulated in subsection 146(1).
[93] Subsection 146(2) deals with the situation where the line is transferred to a third party or a government. In these situations the railway company’s operating obligations under the CTA cease simply upon closing of the transfer agreements.
[94] Section 146.1 is a special provision dealing with line discontinuances where the line is identified in Schedule I of the CTA as a grain-dependent branch line. It stipulates that following the railway company providing a notice (of discontinuance) under subsection 146(1), it shall make three annual payments to the affected municipal government in the amount of $10,000 for each mile of the line located within the municipality’s boundaries.
[95] Under the CTA, if the railway company has complied with the prescribed discontinuance steps but an agreement for transfer is not reached, the company may discontinue operating the line. Discontinuance at this point is possible but only if the company first files a notice of discontinuance with the Agency [subsection 146(1)]. The $10,000 per mile compensation requirement is then triggered. No discontinuance notice is required if the assets/line are successfully transferred through the process set out under the CTA. That is, if the line is sold for ongoing rail operations (section 143) or for any purpose (section 145) then no notice of discontinuance is required - and the per mile payment does not arise.
[96] In consideration of the above, the Agency determines that the payment obligation arising out of section 146.1 of the CTA is not a factor that will be taken into account in its determination of net salvage value.
Interest in leases and agreements
[97] A value representative of the interest in leases and agreements that exist with respect to the railway line are taken into consideration by the Agency when establishing net salvage value.
[98] In its submission, CP included a detailed table of the leases and agreements, primarily utility easement agreements, that are currently in place on the line and subject to transfer when ownership of the line changes.
[99] CP also indicates the annual fees currently received from the lease agreements on this railway line amount to $6,682.50 per year. CP submits the net present value of the leases to be $67,475. This is based on a period of fifteen years with a 3 percent annual lease increase, and a discount rate of 8.12 percent.
[100] The Agency expects that these lease revenues would continue after the line had been transferred and therefore includes the present value of these leases for fifteen years in the net salvage value of the line. Applying a discount rate equal to the rate of return on long-term Canadian bonds of 4.09 percent the resulting increase to the net salvage value to account for interest in leases and agreements is $73,833.
Land valuation
[101] A value of the land component of the railway line was submitted by both parties, each using a different methodology.
Souris Valley
[102] Souris Valley estimates the total land included in this matter to be approximately 500 acres, including approximately 475 acres of standard 99 foot right of way and 25 acres of additional property. It considers unreclaimed land to have a value of $0/acre because of its unfarmable state. Once reclaimed, because it is missing topsoil (a critical component), Souris Valley considers the land to have only a minimum average value. On the assumption that rights of way will have all track material removed and will be levelled and reclaimed in accordance with local municipal by-laws to a level that will make the land of equivalent value to adjacent property, Souris Valley submits values obtained from Farm Credit Canada, a major lender for agricultural land and specific to the Rural Municipalities of Estevan, Cambria and Souris Valley of $185/acre for pasture land, comprising one third of the total and $238/acre for cultivated land, comprising two thirds of the total. The total land value submitted by Souris Valley is $109,065.
CP
[103] CP submits that the total land area on the railway line is 616 acres, with 500 acres of right of way lands and 116 acres of station grounds. In its submission, CP identifies the acreage, assessed value and estimated value of the station grounds on the railway line, and includes drawings showing the location and shape of each of the station ground lands. It submits that as a corridor the lands could provide additional value for utility or recreational purposes, but does not speculate on its future land value as a corridor. Based on its internal real estate valuations of the land and comparable values from other railway corridor sales, CP submits a value of $300/acre for right of way lands. For station grounds, CP has provided land values based on assessed values and internal estimates developed in the same manner as for right of way lands. These range, depending on the location, from $1,100/acre for the Tableland Station grounds to $300/acre for the Tribune Station grounds. CP estimates the total value of the right of way and station grounds to be $216,172.
Agency finding
[104] In circumstances such as this, where the parties do not agree on the value of the land, normal Agency practice is to have a qualified independent land appraiser contracted by the Agency conduct an impartial assessment of the parties differing land valuations. This assessment is intended to evaluate the two submitted value estimates for the vacant land component of the net salvage value for the subject property, make comments and render an opinion as to the merits and/or shortcomings of the parties’ valuations, taking into consideration the assumptions, methodology and conclusions derived at in each report, to assist the Agency in its reconciliation of the two value estimates and arrive at a proposed value of the land. In applications submitted under section 146.3 of the CTA, as is the case in this circumstance, the cost for this independent assessment is recovered by the Agency from the applicant, in accordance with subsection 146.3(3).
[105] In the present case, the Agency considers it necessary and is prepared to commission an impartial evaluation that, from its start date would take approximately 30 days to complete. The Agency has determined that the attendant cost to Souris Valley would be approximately $10,000, plus disbursements, estimated at about $1,000.
[106] However, rather than deferring any decision regarding the net salvage value of the railway line until the land component has been valuated, the Agency is issuing an interim decision, detailing the other aspects of the net salvage value of the line, with a final decision to follow upon completion of the land assessment.
Conclusion
[107] The Agency is, at this time, issuing an interim decision on the net salvage value of the railway line, excluding a value for the land component. To arrive at the interim net salvage value of the railway line, the Agency took the following values into account.
|
Item |
Interim Net Salvage Value |
|---|---|
| Total Interim Net Salvage Value |
$2,115,121 |
|
Track and materials |
$2,041,288 |
|
Land |
to be determined |
|
Leases and Agreements |
$73,833 |
[108] The Agency determines the interim net salvage value for the subject railway line, excluding the value of its land, to be $2,115,121.
[109] In the interval between the interim and final decisions, the parties are at liberty to negotiate with each other. Should they wish to participate in mediation, assisted by the Agency, they are asked to advise the Agency. Any times set out in section 146.3 of the CTA with respect to accepting an offer under section 145 of the CTA are not initiated by this interim ruling and will only apply as of the date of issuance of the final decision.
[110] Souris Valley is to advise the Agency within 14 days from the date of this Decision if it wishes the Agency to proceed to engage an independent land appraiser so that the final determination can be completed.
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