Letter Decision No. LET-R-86-2002

This is in reference to the Ferroequus Railway Company Limited (FE) application dated October 25, 2001 and to motions for dismissal of that application filed by the Canadian Pacific Railway Company (CP) on December 21, 2001 and the Canadian National Railway Company (CN) on December 27, 2001.

Background

On October 25, 2001, FE applied to the Agency pursuant to subsections 138(1) and (2) of the Canada Transportation Act (CTA) for an order granting it "the right to run and operate its trains on and over specified lines of CN between Camrose, Alberta and Prince Rupert, British Columbia and between Lloydminster, Saskatchewan and Prince Rupert, British Columbia, and for that purpose, to use the whole or any portion of the right-of-way, tracks, terminals, stations or station-grounds, interchanges, land, facilities and railway infrastructure as may be required for the said operation located on or used in conjunction with the said lines as fully specified, described and located in Appendix 1 to the Application."

On December 6, 2001 CN filed a motion requesting that the Agency dismiss FE's application for lack of authority under section 138 of the CTA. By Decision No. LET-R-8-2002 dated January 9, 2002, the Agency dismissed CN's motion. In its answer to FE's application filed on December 27, 2001, CN, in addition to the arguments raised in its motion for dismissal raised the question of customer solicitation at the Port of Prince Rupert as further support for dismissal of the application.

On December 21, 2001, CP also filed a motion seeking the dismissal of FE's application on the grounds that FE's application contemplates the use of CP's assets and that any traffic which originates on CP's lines is traffic which is being solicited from CP and thus is contrary to Decision No. 213-R-2001, whether or not CP's track and property are being used.

On February 1, 2002, in Decision No. LET-R-35-2002, the Agency determined that there was insufficient information to make a determination on CP's motion, and directed that a fact finding meeting be held to answer whether the proposed running rights, as described in FE's application, involves the use of CP trackage at Lloydminster, Saskatchewan and Camrose, Alberta. A meeting was thus scheduled and held on February 13 and 14, 2002. The Agency directed a series of questions related to FE's proposed operations at the two interchanges which the parties were expected to address at the meeting. In addition, CN participated in the meeting given its potential involvement at the interchanges.

In view of the complexity of the issues involved, the parties were advised that concluding remarks could be filed in writing with the Agency. On February 21, 2002, FE, CP, and CN submitted their final written arguments with the Agency.

Issues

The issues to be addressed relate to: a) the ownership and use of the interchange trackage located at Lloydminster, Saskatchewan and Camrose, Alberta; b) whether FE's application, with or without the purported use of CP's trackage at or near the interchanges, involves traffic solicitation contrary to Decision No. 213-R-2001; and, c) whether, as CN alleges in its motion of December 27, 2001, FE is improperly soliciting CN's customer at the Prince Rupert Grain Terminal (PRGT) destination.

Issue A - Ownership and use of CP's Track and Properties at Lloydminster and Camrose

In its application filed pursuant to subsections 138(1) and (2) of the CTA, FE requests an order granting it "the right to run and operate its trains on and over specified lines of CN between Camrose, Alberta and Prince Rupert, British Columbia and between Lloydminster, Saskatchewan and Prince Rupert, British Columbia, and for that purpose, to use the whole or any portion of the right-of-way, tracks, terminals, stations or station-grounds, interchanges, land, facilities and railway infrastructure as may be required for the said operation located on or used in conjunction with the said lines as fully specified, described and located in Appendix 1 to the Application".

Section 138 of the CTA provides that a railway company may apply to the Agency for the right to: (a) take possession of, use or occupy any land belonging to any other railway company; (b) use the whole or any portion of the right-of-way, tracks, terminals, stations or station-grounds of any other railway company; and (c) run and operate its trains over and on any portion of the railway of any other railway company.

In the case at hand, FE's application has only been filed against CN. Accordingly, the Agency's authority to grant such an application is restricted to the lands, tracks, terminals, stations, station-grounds, railway infrastructure and interchange facilities which are owned by CN.

Further to CP's motion, the Agency must now determine whether the running rights application as filed by FE includes lands, tracks, terminals, stations, station-ground, railway infrastructure or interchange facilities which are owned by CP or in respect of which CP has some other property right. If the answer to this question is yes then FE's application is flawed.

Lloydminster Interchange

The Lloydminster interchange is located south of 52^nd Street in the city of Lloydminster, between approximately mileage point 104 of CP's Lloydminster Subdivision and mileage point 83.84 of CN's Blackfoot Subdivision (at the switch leading to the interchange). The overall operating length of the interchange is approximately 540 feet with an effective capacity of eight to nine 60 foot cars.

The construction of the interchange trackage at Lloydminster stems from an application of the Province of Alberta to the Board of Transport Commissioners (the Board) for an Order directing the

establishment of an interchange track between the railways of CN and CP at Lloydminster. Having been satisfied that the construction of such an interchange was in the public interest, the Board, in Order No. 79301, dated June 30, 1952, directed CP to construct and maintain an interchange track connecting the railways of CP and CN in the then town of Lloydminster. Although the construction was ordered against CP, the Board apportioned the cost of construction between CP, CN, Excelsior Refineries Limited and the Town of Lloydminster and maintenance costs of the interchange track were apportioned between CN and CP.

Following the issuance of Board Order No. 79301, CP entered into an agreement with the City of Lloydminster whereby the City granted to CP an easement over a parcel of land situated between the railways of CN and CP in Lloydminster. The existence of this easement is confirmed by registered Certificates of Title for Blocks 17A and 25A in the city.

Information obtained at the fact finding inquiry shows that FE intends to operate on and over the interchange tracks located south of 52^nd Street in the City of Lloydminster to CN's mainline right of way, described by FE as the "blue line" indicated in its exhibit FE-8.

The core of the dispute between FE and CP at Lloydminster lies in the ownership or the property right to the interchange land and trackage between CP's Lloydminster Subdivision and CN's Blackfoot Subdivision.

The Agency finds that the preponderance of the evidence indicates that CP has a property right, that is, an easement over the interchange land where FE intends to operate. The Easement Agreement and the Certificates of Title filed by CP indicate that it is the railway company entitled to "construct, maintain, inspect, operate, repair, renew, replace, keep and have a railway spur track on, along, over, across and upon" the interchange land in Lloydminster. Accordingly, no running rights could be granted over this interchange without the use of or the occupancy of the land over which CP enjoys a registered property right.

In addition, given that CP is the railway company that was directed to construct the interchange track by the Board and given that CP is the railway which has been granted the right to construct or operate over the interchange land, it is apparent that CP is the owner of the interchange trackage. On this account, no running rights could be granted over the Lloydminster interchange without the use of the right-of-way, tracks, and railway infrastructure in which CP enjoys a property interest.

FE argued that this interchange was constructed for the public interest and that CN and CP have always acted as if the interchange was jointly owned by the two railway companies. FE pointed out that there is no agreement between CN and CP governing the interchange of traffic at Lloydminster and that both CN and CP have free access to the interchange for operating purposes. FE also pointed out that CN originally paid a portion of the cost of construction and that CN and CP are currently sharing the track maintenance responsibilities at the interchange.

The Agency acknowledges that this suggests that CN may enjoy a tacit right of use at the interchange, yet, alone, and in these proceedings, this is not sufficient to establish a CN legal right or title to all the properties at the interchange or that another railway company such as FE has the right to use the interchange without the benefit of an agreement with CP or an order of the Agency.

FE also relied on City of Lloydminster tax and land records indicating that CN has been paying taxes over the interchange land. CN, in its letter of February 20, 2002, confirmed that it did pay municipal taxes on the interchange property, but that the tax assessment has been made in error. In this case, the Agency finds that the Easement Agreement and the Certificates of Title for Blocks 17A and 25A are more indicative of legal property interests than tax records.

FE also submitted that even if CP were to own or have an interest in the Lloydminster interchange, CP does not have the ability to frustrate competition by refusing to interchange traffic at this point. In support, FE relied on the level of service provisions found in the CTA.

The Agency finds that FE's argument on the obligation of CP to transfer the traffic at the interchange if so requested by a shipper is premature. Upon receipt of an application filed under section 138 of the CTA, the Agency is to determine, among other matters, which railway company's assets are involved in the operating proposal and, ultimately, whether it is in the public interest to grant a right to use those assets. As FE's application is presently framed, the legal obligation of CP pursuant to the CTA to interchange traffic with FE at this interchange will only come into play if running rights are granted by the Agency and if CP refuses to interchange the traffic if so requested by a shipper.

Camrose Interchange

The interchange track at Camrose, Alberta is located between mileage point 70.0 on CP's Wetaskiwin Subdivision and the CN switch located at mileage point 47.54 of CN's Camrose Subdivision running east/west through the town of Camrose. The two lines cross at approximately right angles and the interchange track is located in the northeast quadrant of the crossing. The interchange is approximately 1,100 feet in length, with a standing capacity of seventeen 60 foot cars.

At the fact finding meeting, FE specified that its proposed operation at Camrose includes the interchange located on the northeast quadrant of the CN Camrose Subdivision and the CP Wetaskiwin Subdivision (exhibit FE-14). FE also confirmed that the running rights sought in or near Camrose include the portion of the CN Camrose Subdivision running from the interchange

through Ferlow Junction located approximately 5.2 miles south of Camrose.

The Agency notes that the parties agreed that CN is the owner of the interchange land and trackage located East of the Camrose Subdivision up to the CP Wetaskiwin Subdivision right-of-way.

In its submission to the Agency, FE first acknowledged that its proposed operation on the Camrose interchange included the land and trackage running from CN's Camrose Subdivision to the CP's Wetaskiwin Subdivision. However, FE subsequently stated that it will accept or deliver cars from or to CP on the CN-owned portion of the interchange only. According to this latest operating proposal, the Agency finds that FE's proposed operation at the Camrose interchange does not involve the use of CP land, right-of-way, tracks, railway infrastructure and interchange. This however, is only the case if FE's operation is restricted to the part of the interchange owned by CN.

FE also confirmed that it intends to operate on the Camrose Subdivision through to Ferlow Junction. The Agency notes that the CN Camrose Subdivision crosses the CP Wetaskiwin Subdivision south of the Camrose interchange. If FE operated on the Camrose Subdivision south of the CP right-of-way for the Wetaskiwin Subdivision, it would pass over that right-of- way. FE indicated that it was not necessary to do so to receive traffic at the interchange, but might be done for operational convenience.

Based on Order No. 10612 of the Railway Commissioners for Canada (Railway Board) dated May 17, 1910, the Agency finds that CP is senior in title at this crossing. As the right-of-way and diamond where the two railway companies cross are owned by CP, no running rights on the Camrose Subdivision to Ferlow Juncton is possible without the use of CP's right-of-way and diamond. CN has obtained a right of passage by virtue of Railway Board Order No. 8176 dated September 24, 1909. There is no evidence showing that this right has been granted to other railway companies.

Conclusion

The Agency finds that the application for running rights filed by FE pursuant to section 138 of the CTA includes, both at Lloydminster and Camrose, lands, tracks, railway infrastructure or interchanges facilities which are owned by CP or in respect of which CP has a property right. Because FE has not included CP in its application, the Agency finds that FE's application is incomplete. Under section 138, the Agency cannot issue any order affecting CP properties or assets unless CP is named as a party. Yet, it is clear that FE's operating proposal will require just that. In the circumstances, the Agency will not consider this application further in its present form.

Issue B - Improper Solicitation of CP's Traffic

CP submits that FE seeks to both use and solicit traffic from CP lines. In the opinion of CP, the Agency is not empowered to grant such an order.

The arguments raised by CP raise two issues with respect to the solicitation of traffic. The foundation for each is that any traffic which originates on CP lines is traffic which is being solicited away from CP and thus is contrary to Decision No. 213-R-2001.

CP first argued that even if FE's proposed operation does not involve the use of CP tracks and properties, FE is not seeking transit rights over CN from Lloydminster and Camrose to Prince Rupert for the purpose of soliciting traffic originating at CN stations, but rather for the purpose of soliciting traffic originating at CP stations and currently transported by CP to destinations other than Prince Rupert, principally Vancouver. In the opinion of CP, FE's proposal is contrary to Decision No. 213-R-2001 which contemplated the origination of the traffic by a short line or regional railway on its own feeder network.

In Decision No. 213-R-2001, the Agency was called upon to examine the scope of section 138 in the context of an application made by FE against CN for an order granting FE "the right to run and operate on and over specified lines of Canadian National Railway Company; to pick up and deliver traffic from North Battleford to Prince Rupert on and over the specified lines and to use, possess, or occupy lands, terminals, sidings and other railway infrastructure as required for the said operation along all the said line [described in the application]".

In that case, the Agency determined that section 138 of the CTA, did not empower the Agency "to grant a railway company the right to run and operate on and over specified lines of another railway company for the express purpose of soliciting as well as carrying the freight of shippers served by the said railway lines"[emphasis added].

While the Agency indicated that it was not Parliament's intention in enacting section 138 of the CTA to allow one railway company to use the lines of another railway company for the express purpose of soliciting and carrying traffic at and from the various shippers' points of origin on the host railway lines, the Agency nevertheless confirmed that running rights, like interswitching and competitive line rates, is a competitive access provision which gives shippers the choice of two or more competing carriers at interchanges.

The Agency gave the example of a "transit" running rights application filed by a short line or regional carrier which, instead of collecting traffic on its feeder network for delivery to a CN interchange for furtherance by CN to destination, would be able, through a transit right order, to either continue to port in a seamless transportation movement or reach the closest interchange with CP for furtherance by CP to port. Although the example depicts a transit running right which would enhance competition at interchanges, it is but one example and there are undoubtedly others.

In the present case, the Agency finds that FE is not seeking the right to solicit CP's traffic at the various shippers' points of origin on CP's lines. To the contrary, the Agency finds that FE is seeking the right to solicit and carry traffic at and from the interchanges located at Camrose and Lloydminster. CP has the right to solicit and carry traffic at and from the various shippers' points of origin on its own railway lines. Yet, and notwithstanding this right, a shipper may determine the routing of its traffic to destination. This CP right to carry that traffic is modified by the competitive access provisions found in the CTA. Among other matters, those provisions provide shippers with a competitive alternative at interchanges. Thus, if a second movement is necessary beyond the original point of destination chosen by the shipper, in this case to the interchange, CP will have to compete for that traffic with other railway companies that may be located at that point of destination. The solicitation and the carriage of the traffic for the second portion of the movement is, therefore, undertaken at the interchange and not, as contended by CP, at or from the shippers' point of origin on CP's lines.

To accept CP's argument that "transit" rights only contemplated the origination of the traffic by a short line or regional railway on its own feeder network, would amount to establishing that the origin carrier has an absolute right over the traffic of the shippers located along its lines. This clearly is at odds with the purpose of the competitive access provisions found in the CTA designed to enhance competition at interchanges as well as with regulatory precedent.

As an alternative argument, CP submitted that if CP interchange track and property in Camrose or Lloydminster as well as CP railway infrastructure and properties at the diamond in Camrose are involved in FE's application, FE is using and soliciting CP's traffic contrary to Decision No. 213-R-2001.

The Agency finds that the prohibition imposed by the Agency in Decision No. 213-R-2001 was for the solicitation and carriage of traffic at and from the various shippers' points of origin on the host railway lines. In the present case, the traffic which FE proposes to carry originates at the interchanges and not at shipper points of origin on CP's lines. In the context of FE's proposal, the interchanges, as far as CP is concerned, are not points of origin, but points of destination.

With respect to the diamond at Camrose, no shipper is presently located there and no traffic originates there. Thus, any use by FE would be incidental to the movement of traffic.

In light of the foregoing, the Agency hereby dismisses the part of CP's motion dealing with the improper solicitation of traffic.

Issue C- Improper Solicitation of CN's Traffic

In its December 27, 2001 answer to FE's application, CN submitted that the access tracks to the Prince Rupert Grain Terminal (PRGT) are private siding trackage. CN argues that these access tracks link CN with its customer and, in accordance with section 115 of the CTA fall within CN's statutory level of service obligations. As such, CN submits that FE is improperly soliciting a CN customer.

The Agency concludes that private trackage at the end of the host railway's line, whether leading to a captive shipper like a port or as here the PRGT cannot mean that such a shipper's traffic is the property of the host carrier. In this respect, this finding is consistent with regulatory precedent to the effect that the level of service provisions under the law are not absolute.

The notion of a property right in a shipper has already been examined by the Agency relating to captivity at origin and the Agency has found that in light of the national transportation policy and section 138 of the CTA in particular, such a right does not exist. Any rights that the host carrier may enjoy are conditioned, where applicable, by the competitive access provisions under the law as well as the reasonableness of the level of service obligations

Here, the Agency has been asked to determine the corollary, that is, what is the impact on section 138 of the CTA of captivity at destination. There are no compelling reasons to depart on this issue from the decision of the Agency on captivity at origin.

These conclusions are supported by the underlying premise that section 138 of the CTA is a competitive remedy that, when applied in appropriate cases, can mitigate any of the potential harms associated with market captivity. As such, it operates as a surrogate for competition.

In the case of PRGT where the shipper is captive and at the end of the CN track, if the Agency were to hold that this is CN's shipper, and, therefore, solicitation arises when a carrier proposes to do business with that shipper, it is hard to imagine many cases where section 138 of the CTA could apply in Canada. This limited ambit in application would be inconsistent with the underlying premise that section 138 of the CTA is a competition remedy. To find in CN's favour on this point would effectively denude the provision of any force and effect.

For the above reasons, the Agency hereby dismisses CN's motion.