Determination No. R-2019-221
DETERMINATION by the Canadian Transportation Agency (Agency) regarding the Canadian Pacific Railway Company’s (CP) applications for a variance of Determination No. R‑2019‑68 and an adjustment to the 2019–2020 Volume‑Related Composite Price Index (VRCPI) pursuant to paragraph 151(4)(c) of the Canada Transportation Act, S.C., 1996, c. 10, as amended (CTA).
SUMMARY
[1] On April 5, 2019, CP filed an application (April 5 Application) requesting that its VRCPI be adjusted, pursuant to paragraph 151(4)(c) of the CTA, to reflect costs it incurred for the maintenance of hopper cars it obtains from its U.S. subsidiary companies.
[2] On May 5, 2019, CP filed an application (May 5 Application) requesting that the Agency correct a clerical error in Determination No. R-2019-68 (2019 Determination).
[3] This determination addresses the following issues:
- Should the 2019 Determination be varied to correct a clerical error in how depreciation expenses for the newly purchased hopper cars were calculated?
- Should the costs CP incurred for the maintenance of its U.S. subsidiary hopper cars be included as an adjustment to its 2019–2020 VRCPI, pursuant to paragraph 151(4)(c) of the CTA?
[4] For the reasons set out below, the Agency varies the 2019 Determination to correct a clerical error affecting the amount originally calculated for depreciation expenses incurred for the purchase of new hopper cars.
[5] As a result, the Agency adjusts the Canadian National Railway Company’s (CN) and CP’s 2019‑ 2020 VRCPIs upwards from the values set in the 2019 Determination: for CP, from 1.5148 to 1.5169; and, for CN, from 1.4371 to 1.4384.
[6] In addition, the Agency further adjusts the varied VRCPI for CP to include an adjustment pursuant to paragraph 151(4)(c) that recognizes the costs that CP incurs in maintaining its U.S. subsidiary hopper cars that are used in moving regulated grain in Canada.
[7] As a result, the Agency adjusts CP’s 2019–2020 VRCPI from its varied amount of 1.5169 to 1.5311.
[8] Pursuant to subsection 151(6) of the CTA, the Agency makes the adjustments to CP’s and CN’s 2019–2020 VRCPIs effective as of August 1, 2019.
BACKGROUND
[9] On April 30, 2019, the Agency issued the 2019 Determination where it established CP’s VRCPI for the 2019–2020 crop year to be 1.5148. In the 2019 Determination, the Agency stated that there was insufficient time to make a determination on CP’s April 5 Application given the statutory deadline of April 30, 2019, and, as such, consistent with subsection 151(6) of the CTA, would make any adjustments it considers appropriate at a later date.
THE LAW
[10] Section 32 of the CTA states:
The Agency may review, rescind or vary any decision or order made by it or may re‑hear any application before deciding it if, in the opinion of the Agency, since the decision or order or the hearing of the application, there has been a change in the facts or circumstances pertaining to the decision, order or hearing.
[11] Subsection 151(4) of the CTA states:
The following rules are applicable to a volume-related composite price index:
- in the crop year 2016–2017, each prescribed railway company’s index is 1.3275;
- an index shall be determined in respect of each prescribed railway company; and
- the Agency shall make adjustments to each prescribed railway company’s index to reflect the costs incurred by the prescribed railway company to obtain hopper cars for the movement of grain and the costs incurred by the prescribed railway company for the maintenance of those hopper cars.
ANALYSIS AND DETERMINATIONS
Should the 2019 Determination be varied to correct a clerical error in how depreciation expenses for the newly purchased hopper cars were calculated?
[12] Upon further examination, it is clear that there was a clerical error in the calculation of the depreciation expenses. The same minor error also affects the calculation of depreciation expenses for CN. The Agency, therefore, finds that this warrants an upward adjustment to the 2019–2020 VRCPI for both CP and CN.
[13] Before the issuance of the 2019 Determination, neither CP nor CN could have known about the clerical error or the value used in the calculation of the depreciation expenses. As such, the Agency finds that there are new facts or circumstances that warrant a variance of the 2019 Determination. Accordingly, the Agency, pursuant to section 32 of the CTA, varies the 2019 Determination and adjusts CN’s and CP’s 2019‑2020 VRCPIs upwards from the values previously set in the 2019 Determination: for CP, from 1.5148 to 1.5169; and, for CN, from 1.4371 to 1.4384.
Should the costs CP incurred for the maintenance of its U.S. subsidiary hopper cars be included as an adjustment to its 2019–2020 VRCPI, pursuant to paragraph 151(4)(c) of the CTA?
[14] In its submission, CP provided a detailed account of the costs it incurred for the maintenance of its U.S. hopper car fleet, which resulted in an average cost per car for those expenditures. The amounts CP provided, representing its annual maintenance costs, were examined and found to be reasonable.
[15] In determining the amount to be included for the adjustment to the 2019–2020 VRCPI, the Agency took into account the amounts submitted by CP in its submission along with the maintenance costs already included in the base year costs within the maximum revenue entitlement in order to ensure that there would be no double-counting of costs.
[16] In a previous Agency determination affecting hopper car maintenance costs, Decision No. 67-R-2008, the Agency adjusted the 2007–2008 VRCPI to replace the original maintenance amounts included in the base year costs with more up-to-date, reduced amounts as determined by the Agency at that time. The adjusted maintenance costs were associated with approximately 24,000 hopper cars, including approximately 19,500 government-owned hopper cars (which included federal, Wheat Board, Saskatchewan and Alberta cars) that were assigned to each of CN and CP.
[17] Some of the hopper cars to which maintenance costs were assigned in 2008 are no longer in service and are being replaced by the U.S. subsidiary cars. To ensure there would be no double-counting of maintenance costs, the Agency, in determining the final amount for the adjustment pursuant to paragraph 151(4)(c) of the CTA, netted out amounts associated with cars that have been, or are scheduled to be, withdrawn from service since the hopper car adjustment to the 2007–2008 VRCPI.
[18] The Agency finds that an adjustment to the 2019–2020 VRCPI pursuant to paragraph 151(4)(c) of the CTA to reflect the maintenance costs CP incurs when using its U.S. subsidiary hopper cars in western grain service is warranted in the circumstances.
[19] In light of the above, the Agency, pursuant to paragraph 151(4)(c) of the CTA, further adjusts CP’s 2019–2020 VRCPI (as established in paragraph 13 above) to 1.5311 and, pursuant to subsection 151(6) of the CTA, makes this adjustment effective as of August 1, 2019.
CONCLUSION
[20] The Agency varies the 2019 Determination to correct a clerical error affecting the amount originally calculated for depreciation expenses incurred for the purchase of new hopper cars. As a result, the Agency adjusts CN’s and CP’s 2019–2020 VRCPIs upwards from the values set in the 2019 Determination: for CP, from 1.5148 to 1.5169 and, for CN, from 1.4371 to 1.4384.
[21] In addition, the Agency further adjusts the varied VRCPI for CP to include an adjustment pursuant to paragraph 151(4)(c) of the CTA that recognizes the costs that CP incurs in maintaining its U.S. subsidiary hopper cars that are used in moving regulated grain in Canada. As a result, the Agency further adjusts CP’s 2019–2020 VRCPI from its varied amount of 1.5169 to 1.5311.
[22] Pursuant to subsection 151(6) of the CTA, the Agency makes the adjustments to CP’s and CN’s 2019–2020 VRCPIs effective as of August 1, 2019.
Member(s)
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