Determination No. R-2017-210
DETERMINATION by the Canadian Transportation Agency (Agency), for the 2016-2017 crop year, of the prescribed railway companies’ Maximum Revenue Entitlement (MRE), revenue and whether their revenue exceeds their MRE, for the movement of western grain, pursuant to sections 150 and 151 of the Canada Transportation Act, S.C., 1996, c. 10, as amended (CTA).
SUMMARY
[1] The Agency has determined the Canadian National Railway Company’s (CN) and the Canadian Pacific Railway Company’s (CP) MRE and revenue for the 2016-2017 crop year as set out in Table 1. CN’s and CP’s revenues were above their MRE and, as such, they are required to pay out the excess revenue and penalty to the Western Grains Research Foundation.
MRE | Revenue | Revenue in Excess of MRE | Payout of Excess Revenue and Penalty | |
---|---|---|---|---|
CN | $802,440,043 | $808,213,784 | $5,773,741 | $6,062,428 |
CP | $724,378,501 | $725,457,448 | $1,078,947 | $1,132,894 |
INTRODUCTION
[2] This Determination establishes the prescribed railway companies’ MRE and revenue for the movement of western grain for the 2016-2017 crop year.
[3] If a prescribed railway company’s revenue exceeds its MRE, the company must pay out the excess amount plus a penalty to the Western Grains Research Foundation, as specified in the Railway Company Pay Out of Excess Revenue for the Movement of Grain Regulations, SOR/2001-207 (Regulations).
[4] There were two prescribed railway companies during the 2016-2017 crop year: CN and CP.
[5] The Agency’s determination of CN’s and CP’s MRE is pursuant to the formula defined in section 151 of the CTA.
AGENCY DETERMINATION
[6] The Agency, in determining a prescribed railway company’s MRE, must determine its average length of haul for the movement of western grain and the number of tonnes of grain moved for the crop year. The Agency also determines the prescribed railway company’s revenue and whether its revenue exceeded its MRE and, if it did, the excess amount with penalty that it must pay out to the Western Grains Research Foundation.
1.0 CN’s and CP’s Tonnage and Average Length of Haul
[7] Section 147 of the CTA defines “movement”, “grain” and “crop year” as follows:
“movement”, in respect of grain, means the carriage of grain by a prescribed railway company over a railway line from a point on any line west of Thunder Bay or Armstrong, Ontario, to
(a) Thunder Bay or Armstrong, Ontario, or
(b) Churchill, Manitoba, or a port in British Columbia for export,
but does not include the carriage of grain to a port in British Columbia for export to the United States for consumption in that country;
“grain” means
(a) any grain or crop included in Schedule II that is grown in the Western Division, or any product of it included in Schedule II that is processed in the Western Division, or
(b) any grain or crop included in Schedule II that is grown outside Canada and imported into Canada, or any product of any grain or crop included in Schedule II that is itself included in Schedule II and is processed outside Canada and imported into Canada;
“crop year” means the period beginning on August 1 in any year and ending on July 31 in the next year.
[8] The Agency determined CN’s and CP’s tonnage and average length of haul, for the movement of western grain for the 2016-2017 crop year, to be as follows:
Destination | CN Tonnes Moved | CP Tonnes Moved | Total Tonnes Moved |
---|---|---|---|
[1] Vancouver | 11,452,843 | 14,408,668 | 25,861,511 |
[2] Prince Rupert | 5,921,325 | 10,014Footnote 1 | 5,931,339 |
[3] Thunder Bay | 2,559,576 | 5,207,545 | 7,767,121 |
[4] Eastern Canada | 2,342,783 | 1,293,861 | 3,636,644 |
[5] Interswitching Adjustment | 46,087 | (46,087) | 0 |
[6] Total | 22,322,614 | 20,874,001 | 43,196,615 |
[7] Average length of haul (miles) | 1,004 | 898 | 953 |
[9] The Agency’s determinations were based on detailed traffic submissions by CN and CP, which were reviewed by the Agency to verify that the traffic qualified as western grain movements and that the related revenue, tonnage and mileage amounts were accurate. This review led to the addition, rejection or modification of a number of records.
[10] CN and CP moved a combined 43.2 million tonnes of western grain in the 2016-2017 crop year, 6.9 percent higher than the western grain volume they moved in the previous crop year.
[11] CN’s and CP’s combined average length of haul for the crop year was 953 miles, 0.2 percent higher than in the previous crop year.
[12] While Churchill is an eligible western grain destination, there were no Churchill-bound movements during the crop year by a “prescribed railway company”.
2.0 Agency Process for Administering the MRE Program and Industry Proposals for Changes
[13] Consistent with the Agency’s established approach, CN and CP were given until April 30, 2017 to propose any new methodological changes or issues of interpretation that will have a material impact on the determination of the MRE, for the Agency’s consideration for application to the 2016-2017 crop year. No such changes or issues were submitted by the railway companies for this crop year.
3.0 Determination of CN’s and CPʼs MRE
[14] Subsection 151(1) of the CTA states that the following formula is to be used by the Agency in its determination of a prescribed railway company’s MRE:
[A/B + ((C-D) x $0.022)] x E x F
where
A is the company’s revenue for the movement of grain in the base year;
B is the number of tonnes of grain involved in the company’s movement of grain in the base year;
C is the number of miles of the company’s average length of haul for the movement of grain in that crop year as determined by the Agency;
D is the number of miles of the company’s average length of haul for the movement of grain in the base year;
E is the number of tonnes of grain involved in the company’s movement of grain in the crop year as determined by the Agency; and,
F is the volume-related composite price index as determined by the Agency.
[15] For CN, in respect of the 2016-2017 crop year, the values for A, B, C, D, E and F are as follows:
A = $348,000,000 (as prescribed by subsection 151(2) of the CTA);
B = 12,437,000 (as prescribed by subsection 151(2) of the CTA);
C = 1,004 (as established by the Agency in this Determination);
D = 1,045 (as prescribed by subsection 151(2) of the CTA);
E = 22,322,614 (as established by the Agency in this Determination);
F = 1.3275 (as determined by the Agency in Decision No. 131-R-2016).
[16] The Agency, after inserting these values into the MRE formula, determines that CN’s MRE for the 2016-2017 crop year is $802,440,043.
[17] For CP, in respect of crop year 2016-2017, the values for A, B, C, D, E and F are as follows:
A = $362,900,000 (as prescribed by subsection 151(3) of the CTA);
B = 13,894,000 (as prescribed by subsection 151(3) of the CTA);
C = 898 (as established by the Agency in this Determination);
D = 897 (as prescribed by subsection 151(3) of the CTA);
E = 20,874,001 (as established by the Agency in this Determination);
F = 1.3275 (as determined by the Agency in Decision No. 131-R-2016).
[18] The Agency, after inserting these values into the MRE formula, determines that CP’s MRE for the 2016-2017 crop year is $724,378,501.
4.0 Determination of CN’s and CP’s Western Grain Revenue
4.1 REVENUE AND REVENUE REDUCTIONS
[19] The determination of a prescribed railway company’s revenue from western grain requires many assessments by the Agency, as to what is to be included as revenue or as an allowable reduction to revenue, as detailed in subsections 150(3), (4) and (5) of the CTA, and in Agency Decision No. 114-R-2001.
[20] In summary, a prescribed railway company’s statutory western grain revenue, as identified in the CTA, stems mostly from billings by the prescribed railway companies generated by the application of rates contained in published tariffs or in confidential contracts applicable to western grain movements. A railway company’s statutory grain revenue also includes:
- a portion of amounts received for ensuring car supply through the car ordering process;
- amounts received for providing premium service;
- amounts received for performing interswitching or exchange switching; and,
- amounts received for additional switching requested by the shipper.
[21] The prescribed railway company’s statutory western grain revenue is net of any amounts paid or allowed for incentives, rebates or any other similar reductions, and does not include:
- amounts that are earned as part of a performance penalty or in respect of demurrage or for the storage of rail cars loaded with grain;
- amounts earned for staging of rail cars in transit;
- amounts for additional car switching, necessary due to shipper error or failure to meet obligations; nor,
- compensation received for running rights.
[22] Allowable reductions to a railway company’s statutory western grain revenue include:
- the amortized amounts of contributions for the development of grain-related facilities to a grain handling undertaking that is not owned by the company (i.e., Industrial Development Fund contributions or IDF);
- amounts paid or allowed for interswitching or exchange switching; and,
- amounts related to container pickup and delivery charges that are included in gross revenue amounts for intermodal movements.
[23] The following items do not reduce a railway company’s statutory western grain revenue:
- amounts paid or allowed as dispatch;
- amounts paid by railway companies resulting from the discontinuance of grain-dependent branch lines;
- amounts paid by the railway companies as a performance penalty; and,
- amounts paid for running rights.
4.2 AGENCY REVIEW OF REVENUE AND REVENUE DEDUCTIONS, AND GENERAL FINDINGS
[24] Railway company records relating to western grain revenue were reviewed by Agency staff. Initial freight revenue data, including payments to other railway companies involved in the carriage of grain, were submitted by CN and CP on a per movement basis. General verification procedures were made on a record-by-record basis. In addition, more detailed analysis, based on sample testing, was performed to provide reasonable assurance that all western grain revenue has been appropriately captured and that revenue exclusions or reductions are appropriate and accurate.
4.3 ADJUSTMENTS TO REVENUE IDENTIFIED BY AGENCY STAFF
[25] Agency staff made adjustments to the revenue figures submitted by the railway companies. The Agency has considered the staff adjustments and accepts them. The revenue and MRE adjustments are summarized below.
CN
[26] For CN, the following adjustments made by Agency staff resulted in an increase to CN’s reported western grain revenue and/or its calculated MRE:
- An adjustment to the amounts claimed by CN for Intermodal reductions was made following the removal of miscellaneous and miscoded traffic;
- Discounts claimed by CN, for its Test Shuttle Program, were reduced for traffic that was either identified as ineligible or contained overstated discount amounts;
- A reduction to the amount claimed by CN for discounts associated with its Commercial Fleet Integration Program was made to exclude ineligible amounts associated with the prior crop year;
- An adjustment was made to correct a recording error in the amount claimed by CN as a reduction to revenues for Industrial Development Fund contributions; and,
- A correction to the equivalent tonnes calculation related to interswitching activities increased CN’s MRE.
[27] For CN, the following adjustments made by Agency staff resulted in a reduction to CN’s reported western grain revenue and/or its calculated MRE:
- Records that contained erroneous information, such as movements reported with zero tonnage, duplicate records, low tonnage, or erroneous revenue per tonne, were removed from CN’s Grain Traffic Database (GTDB), which impacted both CN’s revenue and MRE;
- An adjustment was made to CN’s revenue to reflect additional traffic subject to weekend loading rebates, which increased the amount claimed as rebates and lowered CN’s reported revenue; and,
- CN’s reported tonnage figure was decreased to reconcile with the tonnage figures provided by the Canadian Grain Commission (CGC).
CP
[28] For CP, the following adjustments made by Agency staff resulted in an increase to CP’s reported western grain revenue and/or its calculated MRE:
- The amount claimed by CP for uncollectible revenue was adjusted downwards resulting in an increase in CP’s reported revenues;
- CP’s submitted amount for pick-up and delivery charges associated with trucking (an eligible reduction to revenue) was decreased, as a result of the removal of miscellaneous adjustments to the GTDB; and,
- CP’s reported tonnage figure was increased to reconcile with the tonnage figures submitted to the Agency by the CGC.
[29] For CP, the following adjustments made by Agency staff resulted in a reduction to CP’s reported western grain revenue and/or its calculated MRE:
- Records that contained erroneous information, such as movements reported with zero tonnage, duplicate records, low tonnage, or erroneous revenue per tonne, were removed from CP’s GTDB, which impacted both CP’s revenue and MRE;
- The amount claimed as a reduction to revenues for contributions to Industrial Development Funds was adjusted to correct an understatement in CP’s original submission;
- The amount claimed by CP as revenue from carbon surcharge was reduced as CP included revenue from non-regulated movements;
- A reduction in tonnage related to the equivalent tonnes calculation reduced CP’s MRE; and,
- A reporting error in revenue related to interswitching activities was corrected.
[30] Agency staff will provide CN and CP with further details on these adjustments to their revenue and MRE in a separate confidential reconciliation letter.
4.4 CNʼS AND CPʼS WESTERN GRAIN REVENUE DETERMINATION
[31] The Agency, after taking into account its findings and adjustments, has determined CNʼs and CP’s western grain revenue for crop year 2016-2017 to be as follows:
- CN = $808,213,784; and,
- CP = $725,457,448.
5.0 CN’s and CP’s revenue in excess of their MRE and penalty
[32] CN’s and CP’s revenues were above their MRE and, as such, they are required to pay out the excess revenue and penalty, as set out in the Table below, to the Western Grains Research Foundation.
MRE | Revenue | Revenue in Excess of MRE | Penalty | Payout of Excess Revenue and Penalty | |
---|---|---|---|---|---|
CN | $802,440,043 | $808,213,784 | $5,773,741 | $288,687 | $6,062,428 |
CP | $724,378,501 | $725,457,448 | $1,078,947 | $53,947 | $1,132,894 |
[33] Subsection 150(2) of the CTA provides that if a prescribed railway company’s revenue, as determined by the Agency, for the movement of grain in a given crop year exceeds the company’s MRE for that crop year, the company shall pay out the excess amount, and any penalty that may be specified in the Regulations.
[34] The Regulations provide, in part, that:
2. The penalty that a prescribed railway company shall pay out pursuant to subsection 150(2) of the Act, if the company’s revenues for the movement of grain in a crop year exceed the company’s maximum revenue entitlement for that year, as determined under subsection 151(1) of the Act, is
(a) five per cent of the excess amount, if that excess amount is one per cent or less of the company’s maximum revenue entitlement; or
(b) 15 per cent of the excess amount, if that excess amount is more than one per cent of the company’s maximum revenue entitlement.
4(1) The excess amount and the penalty that a prescribed railway company shall pay out pursuant to subsection 150(2) of the Act must be paid out to the Western Grains Research Foundation in the form of a certified cheque, money order or bank draft.
[35] Given that CN’s statutory grain revenue exceeds its MRE for the 2016-2017 crop year by an amount of $5,773,741, which represents 0.7 percent of CN’s determined MRE, the Agency, pursuant to the Regulations and subsection 150(2) of the CTA, orders CN to pay to the Western Grains Research Foundation, within 30 days from the date of this Determination, the amount of $6,062,428, which represents the sum of the excess revenue amount of $5,773,741, and the prescribed penalty of $288,687, as provided for under paragraph 2(a) of the Regulations.
[36] Upon payment of the excess amount and the applicable penalty, CN is to notify the Agency, in writing, of the amount paid out and the date on which it was paid.
[37] Given that CP’s statutory grain revenue exceeds its MRE for the 2016-2017 crop year by an amount of $1,078,947, which represents 0.1 percent of CP’s determined MRE, the Agency, pursuant to the Regulations and subsection 150(2) of the CTA, orders CP to pay to the Western Grains Research Foundation, within 30 days from the date of this Determination, the amount of $1,132,894, which represents the sum of the excess revenue amount of $1,078,947, and the prescribed penalty of $53,947, as provided for under paragraph 2(a) of the Regulations.
[38] Upon payment of the excess amount and the applicable penalty, CP is to notify the Agency, in writing, of the amount paid out and the date on which it was paid.
Member(s)
- Date modified: