Determination No. R-2022-164

December 1, 2022

Determination by the Canadian Transportation Agency (Agency) of the 2023 regulated interswitching rates pursuant to Part III, Division IV of the Canada Transportation Act, SC 1996, c 10 (CTA)

Case number:

22-04258

Summary

[1] This is the Agency’s determination of the 2023 regulated interswitching rates pursuant to Part III, Division IV of the CTA.

[2] The methodology used by the Agency in the determination of the 2023 interswitching rates is presented in Appendix A.

[3] The Agency determines the regulated interswitching rates for 2023 under subsection 127.1(1) of the CTA as follows:

Schedule of regulated interswitching rates for 2023

Column 1 -	Column 2 -	Column 3 -	Column 4 -
Item	Interswitching distance zone	Rate per car for interswitching traffic to or from a siding (single car)	Rate per car for interswitching a car block (60 cars or more)
1	Zone 1	$410	$65
2	Zone 2	$540	$105
3	Zone 3	$535	$90
4	Zone 4A	$515	$115
5	Zone 4B	$515 + $6.00 per additional kilometre	$115 + $1.30 per additional kilometre

Background

[4] Regulated in Canada since 1904, interswitching is part of the competitive access provisions that give some shippers access to the services of railway companies that do not directly serve their facilities or sidings. The interswitching provisions require a railway company that does provide such direct service to transfer cars with a shipper’s traffic at an interchange to a different railway company with which the shipper has made transportation arrangements. The transportation to the interchange must be done at a prescribed rate. The Agency is responsible for calculating and publishing that rate.

[5] Prior to amendments made under the Transportation Modernization Act, SC 2018, c 10, updates to interswitching rates were done by regulation, which resulted in a lag time between updates. Following these amendments, the Agency must determine the interswitching rates annually. The shift to annual updates ensures that the rates are up to date and fully compensatory.

The law

[6] Under section 127.1 of the CTA, the Agency must determine the interswitching rates no later than December 1 of every year and must publish the method that it followed for determining the rates.

[7] Pursuant to the CTA, the Agency must have regard to certain considerations in setting the rates, including the following:

Section 112 requires the rates to be commercially fair and reasonable to all parties.
Paragraph 127.1(2)(a) requires the Agency to take into consideration any reduction in costs that, in the Agency’s opinion, results from moving a greater number of cars or from transferring several cars at the same time.
Paragraph 127.1(2)(b) requires the Agency to take into consideration any long‑term investment needed in the railways.
Subsection 127.1(3) requires the Agency to consider the average variable costs of all movements of traffic that are subject to the rates, and that the rates shall not be less than the variable costs of moving the traffic, as determined by the Agency.

[8] Section 128.1 requires the railway companies to provide to the Agency the information or documents that the Agency considers necessary to exercise its powers or perform its duties or functions under section 127.1.

Methodology for the 2023 regulated interswitching rates

[9] The calculation of the 2023 regulated interswitching rates relies on available data, and uses well-established costing methodologies, some elements of which are used in other Agency determinations. It also reflects relevant methodological determinations, including:

Determination R-2020-194 – Determination by the Agency of the 2021 regulated interswitching rates pursuant to Part III, Division IV of the CTA, dated November 30, 2020;
Determination R-2019-229 – Review of the methodology used by the Agency to determine the cost rate of common equity for federally-regulated railway companies, dated November 29, 2019;
Determination R-2019-230 – Determination by the Agency of the 2020 regulated interswitching rates pursuant to Part III, Division IV of the CTA, dated November 29, 2019;
Determination R-2017-198 – Determination by the Agency of the methodology to be used by federally-regulated railway companies to determine the working capital amounts and capital structure for regulatory purposes, dated December 5, 2017;
Order 2015-R-91 – Determination by the Agency of the variable portions of railway company cost accounts for CN and CP, dated June 8, 2015; and
Decision 425-R-2011 – Review of the methodology used by the Agency to determine the cost of capital for federally-regulated railway companies, dated December 9, 2011.

[10] The data used in the development of the interswitching rates are as follows (Appendix A describes these components in greater detail):

Interswitching service units (obtained through conference calls and complementary electronic data from CN and CP);
2020 unit costs for CN and 2020 unit costs for CP for each service unit, including overheads (approved by the Agency on November 10, 2022);
Contribution to fixed costs (the data required for this calculation is from CN’s 2020 and CP’s 2020 annual reports to the Minister of Transport and was obtained by the Agency through Transport Canada on September 8, 2021);
2023 forecasted component costs for CN and CP (obtained through the Agency’s calculation of the 2022-2023 Volume-Related Composite Price Indices in Determination R-2022-50);
2023 cost of capital rates for regulated interswitching (data obtained pursuant to Determination R-2019-229, Determination R-2017-198 and Decision 425-R-2011);
2023 productivity rates for CN and CP (data from CN’s and CP’s annual reports to the Minister of Transport from 2018 to 2020, and various tables from Statistics Canada); and
2021 volumes of interswitched cars (submitted by CN on March 28, 2022, and by CP on March 31, 2022).

[11] The current approach to determining interswitching rates is based on actual service units within each zone. Costs are affected by a range of factors that can include train length, customer siding characteristics, and train yard activities, any of which can vary considerably from one situation to another.

2023 Regulated interswitching rates

[12] Based on the application of the methodology outlined in Appendix A to the data, the Agency determines the regulated interswitching rates for 2023 in the following schedule, according to the interswitching distance zones and car block as defined in the Railway Interswitching Regulations, SOR/88-41:

Schedule of regulated interswitching rates for 2023

Column 1 -	Column 2 -	Column 3 -	Column 4 -
Item	Interswitching distance zone	Rate per car for interswitching traffic to or from a siding (single car)	Rate per car for interswitching a car block (60 cars or more)
1	Zone 1	$410	$65
2	Zone 2	$540	$105
3	Zone 3	$535	$90
4	Zone 4A	$515	$115
5	Zone 4B	$515 + $6.00 per additional kilometre	$115 + $1.30 per additional kilometre

[13] Where a siding is located in Zone 4B, the interswitching rate for each car is increased from Zone 4A for each kilometre over 40 km by $6.00 per car for single-car movements or by $1.30 per car for car-block movements.

[14] Any required additional kilometres are calculated by identifying the shortest distance, along the line of track of a terminal carrier, from an interchange to the point of connection with the siding.

[15] For all other zones, the interswitching rate charged by a terminal carrier for traffic originating in, or destined to, an interswitching distance zone set out in Column 2 of the schedule is the interswitching rate set out in Column 3 or 4, as the case may be.

[16] For the movement of intermodal containers, the rate per car is based on the number of platforms, which is the most comparable traffic unit for localized intermodal rate determination purposes.

Appendix A to Determination R-2022-164

The Canadian Transportation Agency’s (Agency) methodology for calculating regulated interswitching rates

The 2023 interswitching rates calculated by the Agency are based on a methodology that captures the economic costs of providing interswitching services. These economic costs include explicit costs such as operating costs, including the depreciation of assets, as well as the implicit costs associated with the returns on investment in those assets. The returns on investment are a weighted average of the returns on debt and the returns on equity, and are determined by the Agency according to its cost of capital methodology based on Decision No. 425-R-2011 (2011 Decision), Determination No. R-2017-198, Determination No. R-2019-229 (2019 Determination), and Determination R-2022-39.

For explanatory purposes, the Agency has calculated interswitching rates based on the following simplified formula:

Interswitching rates $(A \times B) \times \frac{C}{D}$

where:

A is interswitching variable costs;

B is contribution to fixed costs;

C is a factor to account for price inflation; and

D is a productivity adjustment factor.

Interswitching variable costs are expressed as:

Interswitching variable costs $(A) = (\frac{E}{F} \times G) \times H$

where:

E is system costs;

F is system service units;

G is variability of costs; and

H is interswitching service units.

The expression $(\frac{E}{F} \times G)$ is referred to below as the unit cost for each service unit, including overhead.

A more detailed explanation can be found in Appendix B. In the following sections, each of these variables is described in further detail.

1.0 Interswitching service units

Every year, Agency staff visits interchange locations across Canada to meet with CN and CP yard supervisors to review interswitching operations at each location. For each interchange location, all of the steps required to provide interswitching services for the major interswitching shippers in each zone and to estimate the service units involved in each step are verified. Agency staff visits interchanges of different sizes, volumes and characteristics to capture the unique operations of interchanges across Canada. Over a two-year period, Agency staff will update service units from all interchanges that are providing regulated interswitching service.

The Agency typically determines interswitching service units through conducting a combination of annual staff site visits and conference calls with complementary electronic data from CN and CP.

The service units determined for single-car rates and block-train rates are described in further detail in sections 1.1 and 1.2 respectively.

1.1 Single-car service units

There are two different types of interswitching operations for single-car movements (interswitching 59 cars or less):

Yard switching; and
Road switching.

Under yard switching, a yard crew will pick up the interchange cars at the interchange and will bring them back to the yard for classification (sorting) and marshalling (placing cars in order for delivery). Cars are then delivered to the customer. On the return trip, the cars are returned to the yard where they are classified and marshalled again before returning to the interchange.

Road switching occurs in locations where switching in a yard is not possible, or in situations where only minimal classification or marshalling is required. Road switching involves either a line-haul train or a road crew picking up cars at the interchange. The cars may or may not be classified or marshalled at the interchange before being delivered to the customer. On the return trip, the cars are brought back to the interchange with little or no classification or marshalling.

Service units determined for road switching include:

Gross ton-miles – which drive costs such as track maintenance;
Car-miles – which drive costs such as car inspection;
Train-miles – which drive costs such as signals maintenance;
Carloads – which drive costs such as marketing and sales;
Fuel consumed;
Crew wages; and
Diesel unit miles – which drive costs such as locomotive maintenance and investment.

Yard switching is more complex in terms of classification and marshalling. In most major yards, there would be a dedicated yard assignment with crews classifying or marshalling hundreds of cars. As tracking specific cars and mileage at the yard is not possible in all circumstances, mileage at the yard is simplified as yard-switching minutes.

Yard-switching minutes capture the amount of time that it takes to service a customer, including the process of classification and marshalling. The associated unit cost for this service unit captures all of the expenses incurred for yard switching, including crew wages, locomotive fuel expenses, locomotive maintenance expenses, and track and roadway maintenance.

Service units for single-car movements increased on average by 0.72% compared to the service units that were used in Determination R-2021-176, translating to an average increase of $0.65 per car in the interswitching rates.

The Agency observed changes in workloads due to changes in the operating plans of the railway companies, which increased efficiency. However, the Agency also observed congestion in yards leading to an increase in the amount of time taken for the classification of cars and the yarding of trains, which decreased efficiency.

1.2 Block-train service units

Service units determined for block trains include:

Gross ton-miles;
Car-miles;
Train-miles;
Carloads;
Fuel consumed;
Crew wages; and
Diesel unit miles.

Block movements involve a “hook and haul” operation where blocks of cars are hooked on at the interchange and delivered directly to the customer. On the return trip, cars are hooked and delivered directly to the customer. However, additional handling, either at the interchange or at the shipper siding, may be required. If, for example, the siding or the interchange is not long enough to handle the block, the railway company must perform one or multiple cuts to the block in order to complete the movement. Where additional handling is identified during site visits, the costs are reflected in the final interswitching rate.

For block-car operations, service units decreased by 23.54% compared to the service units that were used in Determination R-2021-176, translating to an average decrease of $17.57 per car in the interswitching rates.

This decrease was driven by CN finding efficiencies in its operating plans resulting in a lower workload per car.

2.0 Unit cost for each service unit, including overheads

Derived service units are multiplied by their corresponding unit cost to obtain a cost per car for each shipper in each zone. CN and CP submit their detailed financial and operating data to the Agency each year based on the Agency’s Uniform Classification of Accounts And Related Railway Records (2014) [UCA]. The UCA defines the method of accounting for railway companies subject to regulation by the Agency. It provides accounting instructions and the framework of accounts for the rail operations of such railway companies. It also provides instructions for recording operating statistics and defines the categories for these data.

The Agency approves each railway company’s cost to produce a unit of defined railway activities such as track and roadway maintenance, signals investment, and the like, based on system expenses for each activity and the observed system service units.

The costing model developed by the Agency then determines the total variable cost, including direct activities as well as indirect supervisory, management and administration activities, to produce a unit cost for each service unit. These indirect costs are referred to as overhead, as they do not relate to service units directly, but instead relate to the direct costs of those service units (for example, when a train moves one gross ton mile, it will incur track maintenance labour costs directly, as well as indirect costs or overhead for the management of, and the equipment used by, track maintenance labourers).

For the 2023 interswitching rates, the Agency has used the 2020 unit costs for CN and the 2020 unit costs for CP. An index factor (using indices from the volume-related composite price index) and a productivity factor are applied (based on the Agency’s current productivity model¹) in order to estimate costs in 2023.

Railway unit costs as well as the index factors increased due to inflationary pressures that most sectors in the world are currently facing. The changes in unit costs and index factors have increased the single-car rates by 15.13% on average or $37.43 per car and have increased the block-car rates on average by 3.99% or $2.24 per car.

The equation for the Agency’s productivity model is presented in Appendix B.

The data used in the productivity model are the following:

Output price and quantity data

CP’s output data
Price (index 2015 = 1)	Price = freight revenue / revenue ton miles
Output quantity	Revenue ton miles CP output data is categorized into 7 commodities: Grain and grain products Mine products Agriculture products Animal products Forest products Intermodal Manufactured and misc. products

Source : Output quantity and price from F47 submitted annually by CP to the Agency

CN’s output data
Price (index 2015 = 1)	Price = freight revenue / revenue ton miles
Output quantity	Revenue ton miles CN output data is categorized into 13 commodities: Agricultural products Grain Coal Forest products Paper and pulp Fertilizers Mineral ores Metals Automobiles and parts Fuel and chemicals Mine products Manufactured products Intermodal

Source : Output quantity and price from S40 submitted annually by CN to the Agency

Input price and quantity data

Labour
Price (index 2015 = 1)	Labour price (labour price = annual labour price per hours / annual labour price per hour of base year)
Quantity	Hours worked (hours worked = labour expense / labour price)

Source : Schedule 12 submitted by CN and CP

Fuel
Price (index 2015 = 1)	Fuel price (fuel price = annual fuel price per litre / annual fuel price per litre of base year)
Quantity	Litres consumed (litres consumed = fuel expense / fuel price)

Source : Schedule 13 submitted by CN and CP

Material
Price (index 2015 = 1)	Material price index (MPI) (MPI = Agency calculated MPI for a year / Agency calculated MPI of base year)
Quantity	Material quantity (material quantity = material expense / MPI)

Source : F-46, Schedule 12 and Schedule 13 submitted by CN and CP

Land
Price (index 2015 = 1)	$P_{t}^{l a n d}$ (please refer to Note 1)
Quantity	Land quantity

Source :Land quantity from F-49-1 (101)

Way and structure capital
Price (index 2015 = 1)	$P_{t}^{w & s}$ (please refer to Note 1)
Quantity	Annual net book value of way and structure

Source : Way and structure quantity from F-49

Owned equipment
Price (index 2015 = 1)	$P_{t}^{o w n e d_e q p}$ (please refer to Note 1)
Quantity	Annual net book value of owned equipment

Source : Owned equipment quantity from F-49

Leased equipment
Price (index 2015 = 1)	$P_{t}^{l e a s e d_e q p}$ (please refer to Note 1)
Quantity	Leased equipment expense

Source : Leased equipment quantity from F-46 (551-566)

Note 1:

Service price for land $(P_{t}^{l a n d}) = [\frac{1}{1 - u_{t}}] [(1 + {c o c}_{t}) A_{t - 1} - A_{t}] + S_{t} A_{t}$

Service price for way and structure $(P_{t}^{w & s}) = [\frac{1 - u_{t} d_{t}}{1 - u_{t}}] [(1 + {c o c}_{t}) A_{t - 1} - (1 - δ_{t}) A_{t}] + S_{t} A_{t}$

Service price for owned equipment $(P_{t}^{o w n e d_e q p}) = [\frac{(1 - k_{t}) (1 - u_{t} d_{t})}{1 - u_{t}}] [(1 + {c o c}_{t}) A_{t - 1} - (1 - δ_{t}) A_{t}] + S_{t} A_{t}$

Service price for leased equipment $(P_{t}^{l e a s e d_e q p}) = [\frac{(1 - k_{t})}{1 - u_{t}}] [(1 + {c o c}_{t}) A_{t - 1} - A_{t}] + S_{t} A_{t}$

where:

$k_{t}$ is the investment tax credit rate;

$u_{t}$ is the marginal corporate income tax rate;

$A_{t}$ is the asset price;

$d_{t}$ is the present value of all future depreciable deductions for tax purposes;

${c o c}_{t}$ is the annual cost of capital rate as determined by the Agency;

$δ_{t}$ is the annual replacement rate; and

$S_{t}$ is the property tax rate.

Assumption:

The investment tax credit rate ( $k_{t}$ ) is set to zero.

Data sources:

The marginal corporate income tax rate ( $u_{t}$ ) is submitted annually to the Agency by CN and CP.
The asset price $A_{t}$ is from Statistics Canada: land (Table 18-10-0205-01); way and structure, owned equipment, leased equipment (Table 36-10-0097-01).
( $d_{t}$ ) is from schedule F-49 that is submitted annually by CN and CP to Transport Canada.
( $S_{t}$ ) is from schedules F-46 and F-49 that are submitted annually by CN and CP to Transport Canada.

The Agency applied an average productivity value of 97.24% as the estimated productivity gain for 2023. This is based on the Agency’s calculation of the average total factor productivity growth of each railway company from 2018 to 2020.

In Determination R-2021-176, the Agency calculated an average productivity value of 99.47%.

The table in Appendix C lists all of the variable cost accounts (as defined by the UCA) that factor into the 2023 interswitching rates.

3.0 Cost of capital

The 2011 Decision sets out that with the exception of the risk-free rates of return, all the elements that are necessary for the calculation of the cost of capital rate for the purposes of establishing regulated interswitching rates will be those determined annually in the cost of capital rate for the transportation of western grain.

With respect to the appropriate risk-free rates, the 2019 Determination sets out that for the cost of capital rate for the purposes of establishing regulated interswitching rates:

the Canadian risk-free rate will be the average yield on Government of Canada 5-10 year marketable bonds for the month of September of the year prior to the interswitching year, as published by the Bank of Canada; and
the U.S. risk-free rates will be the average yields on each of 5-year and 10-year U.S. Treasury bonds for the month of September of the year prior to the interswitching year, as published by the U.S. Federal Reserve.

Based on this, the Canadian risk-free rate of 3.17%, the U.S. 5-year risk-free rate of 3.70%, and the U.S. 10-year risk-free rate of 3.52% were used for the calculation of the 2023 interswitching rates.

The resulting cost of capital rate used in the development of the 2023 interswitching rates is 6.44% for CN and 7.61% for CP.

The September 2021 risk-free rates used in last year’s interswitching cost of capital rates were 1.19% for Canada, 0.86% for the U.S. 5-year risk-free rate and 1.37% for the U.S. 10-year risk-free rate.

The increase in the risk-free rates was due to the Bank of Canada and U.S. Federal Reserve increasing interest rates to reduce inflation.

4.0 Volumes of interswitched cars

The volumes of interswitched cars are required to calculate a weighted system average of costs starting at each interchange, then for each zone, and finally for CN and CP, to come up with the aggregated weighted system average interswitching costs. The hypothetical example below illustrates the weighting that is applied:

For each interchange, the costs per car for each shipper within a zone are weighted by the carloads interswitched to produce an average cost per interchange.

Table 1: Calculating costs for Vancouver zone 1 interswitching for railway company ABC

Vancouver zone 1 for railway company ABC	2017 carloads	% weight (share of traffic)	Variable cost per car	Weighted zone 1 cost
Shipper A	800	80%	$100	$80
Shipper B	200	20%	$80	$16.00
Vancouver zone 1 cost per car for railway company ABC				$96

For each zone, the average costs for each interchange are then weighted by the traffic interswitched to produce an average cost per car for each zone. For example, the result from Table 1 is found in the first row below.

Table 2: Calculating zone 1 interswitching costs for railway company ABC

Zone 1 for railway company ABC	2017 carloads	% weight (share of traffic)	Variable cost per car	Weighted zone 1 cost
Vancouver	1,000	62.50%	$96	$60
Toronto	600	37.50%	$150	$56.25
Zone 1 cost per car for railway company ABC				$116.25

The costs for each railway company in each zone are then averaged, based on the interswitching traffic of each railway company in that particular zone, to generate a system average variable cost measure per car for each of the four distance zones. For example, the result from Table 2 is found in the first row of Table 3.

Table 3: Calculating zone 1 interswitching costs

Zone 1	2017 carloads	% weight (share of traffic)	Variable cost per car	Weighted zone 1 cost
Railway company ABC	1,600	44.44%	$116.25	$51.66
Railway company XYZ	2,000	55.56%	$125	$69.45
Zone 1 cost per car				$121.11

The Zone 1 variable cost per car in this example is $121.11.

The large decrease in the Zone 4B single-car additional km rate is due to a change in the carloads in that zone which resulted in low-cost customers making up a larger share of the weighted average rate.

5.0 Contribution to fixed costs

Finally, a system average contribution to fixed costs is added to the variable costs for each zone to arrive at the interswitching rate for the zone. Fixed costs include items that are completely non-variable, such as the maintenance of bridges and snow removal. The costs related to the maintenance of bridges and snow removal do not vary with railway traffic volumes, but are caused by weather and age.

The Agency calculates the system average contribution to fixed costs separately for each railway company. The amount of fixed costs is calculated as the total system cost (which is derived from financial reports provided to the Agency) less the system variable cost (calculated by the Agency’s costing model). The system contribution to fixed costs is the amount of fixed costs expressed as a proportion of the system variable costs.

For 2023, the average contribution to fixed costs is 83.35%, compared to the 2022 value of 69.49% as set out in Determination R-2021-176.

The change in the contribution to fixed costs is a function of the difference between the variable unit costs used and the total costs of the railway companies. The Agency updated the unit costs to 2020 and, based on these calculated unit costs, an increase in the contribution to fixed costs was required according to the methodology for allocating constant costs.

Appendix B to Determination R-2022-164

Detailed interswitching rates calculation

Variable costs per shipper:

At year $(t 0)$ for which the last costing information is available:

$V C^{t 0} (s, i, z, r) = \sum_{j} \frac{C_{j}^{t 0} (r)}{y_{j} (r)} v_{j} (r) y_{j}^{*} (s, i, z, r)$

where:

s : is a shipper;

i : is an interchange;

z : is a zone ;

r : is a railway company;

$C_{j t 0} (r)$ is the cost for a specific expense category j for a railway r at time t0;

$y_{j} (r)$ is a system service unit that drives expenses of category j;

$v_{j} (r)$ is the variability factor for the expense category j;

$y_{j}^{*} (s, i, z, r)$ is the interswitching service unit that corresponds to category j, it is specific to a shipper (s) that belongs to a specific interchange (i) in a specific zone (z). In addition, the shipper (s) is a client of a railway (r).

To obtain variable costs at the year of the decision (t), inflation factors $(1 + p_{j})$ are applied to each cost categories j as follows:

${V C}^{t} (s, i, z, r) = \sum_{j} \frac{C_{j}^{t 0} (r) \times (1 + p_{j})}{y_{j} (r)} v_{j} y_{j}^{*} (s, i, z, r)$

Inflation factors $(1 + p_{j})$ that are specific to each expense category j are inserted into the above formula. These inflation factors are developed each year by the Agency.

Variable costs per zone:

Variable costs per shipper are then averaged over the interchange that they belong to and the railway company that was used. Shippers, interchanges and railway companies are weighted based on their relative share of total carloads.

$V C (z) = \sum_{r \in z} [\sum_{i \in z} (\sum_{s \in i} {V C}^{t} (s, i, z, r) ω_{s}) ω_{i}] ω_{r}$

Weights:

$χ_{s}$ is the volume of cars (measured with carloads) related to a specific shipper (s);

$ω_{s} = \frac{x_{s}}{\sum_{s \in i} x_{s}}$ is the weight of each shipper (s) in a specific interchange (i);

$ω_{i} = \frac{\sum_{s \in i} x_{s}}{\sum_{i \in z} \sum_{s \in i} x_{s}}$ is the weight of each interchange (i) in a specific zone (z);

$ω_{r} = \frac{\sum_{i \in z} \sum_{s \in i} x_{s}}{\sum_{r \in z} \sum_{i \in z} \sum_{s \in i} x_{s}}$ is the weight of each railway (r) in a specific zone (z).

Section 4.0 (Volume of interswitched cars) in Appendix A provides examples of how the weighted averages are calculated.

Final rates per zone:

The final rates per zone are obtained by applying a contribution to fixed costs ( $C o n t r$ ) and a productivity factor ( $1 + g$ ) to each variable cost per zone $V C (z)$

$R (z) = \frac{V C (z) C o n t r}{1 + g}$

Where the contribution to fixed costs ( $C o n t r$ ) is estimated using the following equation:

$C o n t r i b u t i o n t o F i x e d C o s t (F) = \frac{T o t a l s y s t e m c o s t}{S y s t e m v a r i a b l e c o s t}$

the total system cost is obtained from the annual reports of the railway companies, and the system variable cost is calculated by the Agency’s costing model using submitted financial and operating data from the railway companies annually.

The productivity variable (g) is provided by:

$P r o d u c t i v i t y I n d e x (g) = \frac{F i s h e r O u t p u t I n d e x}{F i s h e r I n p u t I n d e x} X 100 = \frac{F_{t_{0} {, t}_{1}}^{O u t p u t}}{F_{t_{0} {, t}_{1}}^{I n p u t}} X 100$

$F i s h e r O u t p u t I n d e x = F_{t_{0} {, t}_{1}}^{O u t p u t} = \sqrt{L_{t_{0} {, t}_{1}}^{O u t p u t} \times P_{t_{0} {, t}_{1}}^{O u t p u t}}$

$L a s p e y r e s O u t p u t I n d e x = L_{t_{0} {, t}_{1}}^{O u t p u t} = \frac{\sum_{i = 1}^{N} p_{i {, t}_{0}} {\times y}_{i, t_{1}}}{\sum_{i = 1}^{N} p_{i {, t}_{0}} \times y_{i, t_{0}}} = \sum_{i = 1}^{N} \frac{y_{i, t_{1}}}{y_{i, t_{0}}} \times w_{i, t_{0}}$

$P a a s c h e O u t p u t I n d e x = P_{t_{0} {, t}_{1}}^{O u t p u t} = \frac{\sum_{i = 1}^{N} p_{i {, t}_{1}} {\times y}_{i, t_{1}}}{\sum_{i = 1}^{N} p_{i {, t}_{1}} \times y_{i, t_{0}}} = \sum_{i = 1}^{N} \frac{y_{i, t_{1}}}{y_{i, t_{0}}} \times w_{i, t_{1}}$

$F i s h e r I n p u t I n d e x = F_{t_{0} {, t}_{1}}^{I n p u t} = \sqrt{L_{t_{0} {, t}_{1}}^{I n p u t} \times P_{t_{0} {, t}_{1}}^{I n p u t}}$

$L a s p e y r e s I n p u t I n d e x = L_{t_{0} {, t}_{1}}^{I n p u t} = \frac{\sum_{j = 1}^{M} w_{j {, t}_{0}} {\times x}_{j, t_{1}}}{\sum_{j = 1}^{M} w_{j {, t}_{0}} \times x_{j, t_{0}}} = \sum_{j = 1}^{M} \frac{x_{j, t_{1}}}{x_{j, t_{0}}} \times z_{j, t_{0}}$

$P a a s c h e I n p u t I n d e x = P_{t_{0} {, t}_{1}}^{I n p u t} = \frac{\sum_{j = 1}^{M} w_{j {, t}_{1}} {\times x}_{j, t_{1}}}{\sum_{j = 1}^{M} w_{j {, t}_{1}} \times x_{j, t_{0}}} = \sum_{j = 1}^{M} \frac{x_{j, t_{1}}}{x_{j, t_{0}}} \times z_{j, t_{1}}$

where:

$t_{0}$ is the base period;

$t_{1}$ is the current period;

$i$ is output commodities, and $i$ ranges from 1 to N;

$j$ is output commodities, and $j$ ranges from 1 to M;

$p$ is the output commodity price;

$q$ is the output commodity quantity;

$w$ is the input commodity price;

$x$ is the input commodity quantity;

$w_{i, t_{0}}$ is the share of $i^{t h}$ output commodity in the base period value and $w_{i, t_{0}} = \frac{p_{i {, t}_{0}} {\times y}_{i, t_{0}}}{\sum_{i = 1}^{N} p_{i {, t}_{0}} \times y_{i, t_{0}}};$

$w_{i, t_{1}}$ is the share of $i^{t h}$ output commodity in the current period value and $w_{i, t_{1}} = \frac{p_{i {, t}_{1}} {\times y}_{i, t_{1}}}{\sum_{i = 1}^{N} p_{i {, t}_{1}} \times y_{i, t_{1}}}$

$z_{j, t_{0}}$ is the share of $j^{t h}$ input commodity in the base period value and $z_{j, t_{0}} = \frac{w_{j {, t}_{0}} \times x_{j, t_{0}}}{\sum_{j = 1}^{M} w_{j {, t}_{0}} \times x_{j, t_{0}}};$

$z_{j, t_{1}}$ is the share of $j^{t h}$ input commodity in the current period value and $z_{j, t_{1}} = \frac{w_{j {, t}_{1}} \times x_{j, t_{1}}}{\sum_{j = 1}^{M} w_{j {, t}_{1}} \times x_{j, t_{1}}}$

Appendix C to Determination R-2022-164

Accounts from the Uniform Classification of Accounts and Related Railway Records (2014) [UCA] that factor into the 2023 interswitching rates
Cost complex	UCA account number	Description of account
102cx	102	Grading
102cx	103	Rail
102cx	105	Ties
102cx	106	Paved Concrete Trackbed (PACT System)
102cx	107	Other Track Material
102cx	109	Ballast
102cx	111	Track Laying and Surfacing
102cx	123	Public Improvements
102cx	125	Other Right-of-Way Property
102cx	139	Roadway Buildings
102cx	141	Roadway Building Machines and Moveable Equipment
131cx	131	Office and Common Buildings
131cx	133	Office and Common Buildings Moveable Equipment and Machinery
143	143	Equipment Repair Shops
145	145	Shop Machinery and Moveable Equipment
149	149	Signals
151	151	Rail Communication Systems
163	163	Fuel Stations
171	171	Locomotives
183	183	Roadway Machines
187cx	187	Work Equipment
187cx	189	Other Non-Revenue Rolling Stock
195	195	Miscellaneous Equipment
400cx	400	Administration
400cx	463	Injuries to Railway Employees: Maintenance of Way and Structures
400cx	479	Other Way and Structure Expense
401cx	401	Track and Roadway Maintenance
401cx	403	Rails – Maintenance
401cx	405	Ties – Maintenance
401cx	406	Paved Concrete Trackbed – Maintenance
401cx	407	Other Track Material – Maintenance
401cx	409	Ballast – Maintenance
401cx	419	Tools and Supplies
401cx	423	Crossing Maintenance
401cx	435	Roadway Buildings – Maintenance
401cx	461	Vehicles
431	431	Office and Common Buildings – Maintenance
437	437	Equipment Repair Shops – Maintenance
441cx	441	Track Signals – Maintenance
441cx	442	Hump Yard Devices – Maintenance
441cx	443	Crossing Protection – Maintenance
441cx	444	Other Signal Devices – Maintenance
441cx	671	Dispatching
441cx	673	Line Operators and Signal Operation
445cx	445	Rail Communication Systems – Maintenance
445cx	701	Rail Communication System Operation
457	457	Fuel Stations – Maintenance
500cx	500	Administration
500cx	571	Injuries to Railway Employees: Equipment Maintenance
500cx	579	Other Equipment Expense
501	501	Locomotive Maintenance
503	503	Locomotive Servicing
517	517	Lubrication, Inspection and Coupling Hose – Freight Cars
537	537	Work Equipment – Maintenance
539	539	Roadway machines – Maintenance
563cx	563	Work Equipment and Roadway Machine Rents – Dr.
563cx	564	Work Equipment and Roadway Machine Rents – Cr.
573	573	Shop Machinery – Maintenance
600cx	600	Administration
600cx	709	Building Operating Expenses
600cx	711	Other Rail Operations
600cx	743	Injuries to Railway Employees: Rail Operations (Yard and Train)
600cx	745	Clearing Wrecks
600cx	747	Third Party Injuries and Damage to Property (excluding Freight)
600cx	751	Miscellaneous Operating Expense
600cx	607	Train Crews – Freight
619	619	Train Locomotive Diesel Fuel – Freight
631	631	Train Other Expenses – Freight
635	635	Crew Accommodation
637	637	Crew Transportation
641cx	641	Controlling Yard Operations
641cx	643	Yard and Terminal Clerical
645cx	645	Yard Engine Crews
645cx	647	Yard Train Crews
645cx	649	Operating Yard Devices
645cx	655	Yard Other Expense
651	651	Yard Locomotive Diesel Fuel
681cx	681	Freight Customer Service Centres
681cx	703	Weighing, Inspection and Demurrage Bureaus
741	741	Loss and Damage: Freight Train Accidents
749	749	Loss and Damage – Other Accidents
800cx	800	General Administration
800cx	801	Management Services
800cx	809	Accounting and Finance
800cx	811	Personnel and Public Relations
800cx	817	Other Administrative Expenses
800cx	861	Injuries to Railway Employees: General (and unallocated)
803	803	Marketing and Sales – Carload Freight
813	813	Environmental Remediation Expense
819	819	Employee Incentive Compensation
821	821	Pension Costs
823cx	823	Health and Welfare
823cx	825	Canada Pension Plan
823cx	827	Quebec Pension Plan
823cx	829	Employment Insurance
831	831	Other Employee Benefits
835	835	Labour Restructuring Expense
843	843	Provincial Sales Taxes
845cx	845	Municipal Property Taxes
845cx	849	Other Taxes
851	851	Insurance
902cx	902	Grading – Amortization
902cx	903	Rail – Amortization
902cx	905	Ties – Amortization
902cx	906	Paved Concrete Trackbed – Amortization
902cx	907	Other Track Material – Amortization
902cx	909	Ballast – Amortization
902cx	911	Track Laying and Surfacing – Amortization
902cx	923	Public Improvements – Amortization
902cx	925	Other Right-of-Way Property – Amortization
902cx	939	Roadway Buildings – Amortization
902cx	941	Roadway Building Machines and Moveable Equipment – Amortization
931cx	931	Office and Common Buildings – Amortization
931cx	933	Office and Common Buildings Moveable Equipment and Machinery – Amortization
943	943	Equipment Repair Shops – Amortization
945	945	Shop Machinery and Moveable Equipment – Amortization
949	949	Signals – Amortization
951	951	Rail Communication Systems – Amortization
963	963	Fuel Stations – Amortization
971	971	Locomotives – Amortization
983	983	Roadway Machines – Amortization
987cx	987	Work Equipment – Amortization
987cx	989	Other Non-Revenue Rolling Stock – Amortization
995	995	Miscellaneous Equipment – Amortization

Member(s)

Mark MacKeigan

Lenore Duff

Toby Lennox

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Date modified:: 2022-12-01

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Determination No. R-2022-164

Summary

Schedule of regulated interswitching rates for 2023

Background

The law

Methodology for the 2023 regulated interswitching rates

2023 Regulated interswitching rates

Schedule of regulated interswitching rates for 2023

Appendix A to Determination R-2022-164

The Canadian Transportation Agency’s (Agency) methodology for calculating regulated interswitching rates

1.0 Interswitching service units

1.1 Single-car service units

1.2 Block-train service units

2.0 Unit cost for each service unit, including overheads

Output price and quantity data

Input price and quantity data

Note 1:

3.0 Cost of capital

4.0 Volumes of interswitched cars

Table 1: Calculating costs for Vancouver zone 1 interswitching for railway company ABC

Table 2: Calculating zone 1 interswitching costs for railway company ABC

Table 3: Calculating zone 1 interswitching costs

5.0 Contribution to fixed costs

Appendix B to Determination R-2022-164

Detailed interswitching rates calculation

Variable costs per shipper:

Variable costs per zone:

Weights:

Final rates per zone:

Appendix C to Determination R-2022-164

Member(s)