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Agency Rulings
Order No. 1988-R-798
September 8,1988
IN THE MATTER OF an application by Alberta Gas Chemicals Inc. (hereinafter AGCL) pursuant to Section 136 of the National Transportation Act 1987, S.C.1987, c. 34 (hereinafter the Act) for the establishment of a Competitive Line Rate for the movement of methanol in shipper-supplied tank cars from the AGCL plant at Medicine Hat, Alberta to Coutts, Alberta by Canadian Pacific Limited (hereinafter CP) for transfer to the Burlington Northern Railroad (hereinafter BN).
File No. D2970-A1
WHEREAS AGCL is a shipper within the meaning of the Act and intends to send goods, namely methanol in shipper-supplied tank cars, from the point of origin at Medicine Hat, Alberta to the point of destination at Shelby, Montana, and
WHEREAS AGCL has access to the lines of only one railway company at the point of origin of the traffic, that railway company being CP, and
WHEREAS a continuous route is operated between the point of origin and the point of destination by two railway companies, and
WHEREAS AGCL has designated a continuous route from Medicine Hat, Alberta to Shelby, Montana pursuant to subsection 134(4) of the Act, and
WHEREAS AGCL has requested CP to establish a Competitive Line Rate from the point of origin to the nearest interchange with a connecting carrier, and
WHEREAS AGCL and CP have been unable to agree upon the amount of the Competitive Line Rate, and
WHEREAS AGCL has made application to the Agency to establish the amount of the Competitive Line Rate.
UPON consideration of the submissions of AGCL and CP in this matter, the Agency has determined as follows:
a) BN is a connecting carrier for the purpose of establishing the Competitive Line Rate requested by AGCL.
b) The destination for the purpose of establishing the CLR is Shelby, Montana.
c) There is an agreement between AGCL and BN for the movement of traffic over the balance of the continuous route designated by AGCL.
d) The Coutts/Sweetgrass CP-BN interchange is the nearest CP-BN interchange in the reasonable direction of the movement of the traffic.
e) The amount of the Competitive Line Rate cannot be determined in accordance with Section 137.
IT IS ORDERED THAT:
- Pursuant to its authority under Section 142 of the Act, the Agency hereby establishes the following method of determining the amount of the Competitive Line Rate applied for by AGCL;
a) Determine the actual CP rail mileage between the AGCL plant at Medicine Hat, Alberta and the BN-CP interchange at Coutts, Alberta.
b) Determine the actual BN rail mileage between Sweetgrass, Montana and Shelby, Montana.
c) Multiply BN tariff rate by a currency exchange factor to obtain the Canadian dollar equivalent of the BN tariff rate.
d) Divide the Canadian dollar equivalent of the BN tariff rate by the rail mileage between Sweetgrass, Montana and Shelby, Montana to determine revenue per ton mile.
e) Subtract 25 miles from the CP rail mileage determined in a) above.
f) Multiply the reduced mileage calculated in e) above by the revenue per ton mile calculated in d) above.
g) Divide the $250 interswitching charge by the minimum carload weight of the traffic in tons.
h) Add the product obtained in f) to the quotient obtained in g) to determine the amount of the Competitive Line Rate in dollars per ton.
- The Agency, having performed the above calculations, has determined that the amount of the Competitive Line Rate shall be $10.13 per ton for the movement of methanol from the AGCL plant at Medicine Hat, Alberta to the CP/BN interchange at Coutts, Alberta/Sweetgrass, Montana, subject to the following conditions:
a) The traffic shall be billed to Shelby, Montana
b) No traffic moving at the level of rate established by this Order shall have an ultimate destination in Canada or any other destination outside the United States.
c) CP will have no obligation to make mileage payments to the owner/lessee of railway cars used to transport traffic for the distance travelled on the lines of CP.
d) The rate shall remain in force for a period of one year from the date on which the rate becomes effective or such other period as is agreed on by AGCL and CP.
- CP shall, within 15 days of the date of this Order, issue and publish a tariff containing the Competitive Line Rate and the rate shall become effective immediately upon issue of the tariff.
Reasons for this Order will follow under separate cover.
REASONS FOR ORDER NO. 1988-R-798
IN THE MATTER OF an application by Alberta Gas Chemicals Inc. (hereinafter AGCL) pursuant to section 136 of the National Transportation Act, 1987, S.C. 1987, c. 34 (hereinafter the Act) for the establishment of a Competitive Line Rate for the movement of methanol in shipper-supplied tank cars from the AGCL plant at Medicine Hat, Alberta to Coutts, Alberta by Canadian Pacific Limited (hereinafter CP) for interchange to the Burlington Northern Railroad (hereinafter BN).
File No. D2970-A1
BACKGROUND
On July 25, 1988, AGCL filed an application with the Agency to have a Competitive Line Rate (CLR) established for the movement of methanol from Medicine Hat, Alberta to Coutts, Alberta. The traffic in question would move in tank cars on a continuous routing selected by AGCL pursuant to subsection 134(4) of the Act via CP from Medicine Hat, Alberta to the Coutts, Alberta - Sweetgrass, Montana interchange between CP and BN and then via BN to Shelby, Montana.
On August 18, 1988 CP submitted its answer to the AGCL application and on August 23, 1988 AGCL submitted its reply.
On September 8, 1988 the Agency, by Order No. 1988-R-798, established an alternative method for the calculation of the CLR and established a CLR of $10.33 per ton for the movement of AGCL's traffic from Medicine Hat to Coutts. This document constitutes the Agency's reasons for the issuance of Order No. 1988-R-798.
STATUTORY AUTHORITY
The circumstances and conditions under which the Agency may establish a CLR are set out in sections 134 to 142 of the Act. For convenience, the relevant sections of the Act are reproduced as Appendix I to these reasons.
PROCEDURES
The establishment of a CLR by the Agency is in essence a two stage procedure.
The Agency must first determine whether the movement of traffic is one for which the Agency has authority to establish a CLR and whether the shipper has complied with the requirements of the Act and then it must calculate the amount of the CLR using one of a number of methods set out or authorized in the Act. If the movement of traffic is eligible for a CLR, the Agency must establish the CLR within 45 days of receipt of the shipper's application.
The main conditions which the Act sets out for a shipper and the movement of traffic to be eligible to receive a CLR are as follows:
- The shipper must have access to the lines of only one railway company at the point of origin or the point of destination of the traffic.
- The point of origin and the point of destination must be connected by a continuous route operated by two or more companies.
- The shipper designates the continuous route for the movement of traffic from the point of origin to the point of destination.
- The shipper must reach agreement with all connecting carriers for the movement of traffic over that portion of the continuous route for which the CLR will not apply.
- No other CLR is applicable to the movement over the continuous route.
Once the Agency has confirmed that it can establish the CLR, it calculates the CLR by adding to the zone 4 interswitching rate ($250) a "taxi" charge of $ X per mile for the distance between the shipper's siding and the interchange with the connecting carrier, less the 25 mile interswitching distance. The Agency determines the "taxi" charge in accordance with the procedure set out in the Act as follows:
- If the connecting carrier's rate is a published tariff rate, that rate is converted to a rate per mile and applied to the CLR mileage (subsection 137(3)).
- If the connecting carrier's rate is a confidential contract rate, the local carrier's revenue for a movement of similar traffic from a competitive point under similar conditions is converted to revenue per mile and applied to the CLR mileage (subsection 137(4)).
- If the connecting carrier has no comparable rate from a competitive point, the connecting carrier's revenue from all similar traffic is converted to revenue per mile and applied to the CLR mileage (subsection 137(5)).
In the event that it is not possible to determine the amount of the CLR using any of the above methods, the Agency may establish an alternative method pursuant to section 142.
AGCL APPLICATION
AGCL has designated a continuous route from Medicine Hat, Alberta to Shelby, Montana for the movement of its methanol traffic. AGCL has requested that the Agency establish the amount of a CLR from Medicine Hat, Alberta to the CP-BN interchange at Coutts, Alberta - Sweetgrass, Montana. AGCL states that it has reached agreement with BN for the transportation of its traffic in shipper-supplied tank cars (minimum weight - 95 tons) over the balance of the continuous route at a published tariff rate of US$1.41/ton. This rate was published in BN Tariff 4625 effective July 10, 1988 which was superseded by BN Tariff 4625-A on August 7, 1988. AGCL has indicated it intends to ship an annual volume of approximately 3,000 cars on the CLR.
AGCL submitted that the CLR be calculated using the following input:
- Weight per car - 95 tons in shipper supplied tank cars
- Interswitching charge - C$250/car
- Rate Coutts to Shelby - US$1.41/ton
- Applicable exchange rate - C$1.00 = US$0.83
- Mileage Coutts to Shelby - 39 miles
- Mileage Medicine Hat to Coutts - 179.1 miles
On the basis of this input, AGCL submitted that a CLR of $9.34 per ton should be established by the Agency.
AGCL has access to the lines of only CP at Medicine Hat. The point of origin, Medicine Hat, and the point of destination, Shelby, are connected by a continuous route operated by two carriers, CP and BN, although CP disputes AGCL's designation of Shelby as the point of destination. AGCL has designated a continuous route from Medicine Hat to Shelby and has indicated that it has reached agreement with BN for the movement of its traffic for that portion of the route, although CP disputes that there is an agreement.
CP INFORMATION REQUEST
On August 5, 1988 CP advised the Agency that it was of the opinion that it needed additional information to allow it to properly respond to the AGCL application. CP requested, therefore, that the Agency require, pursuant to Rule 18 of the Agency's General Rules, that AGCL produce a significant amount of information relating to the movement of the CLR traffic beyond Shelby. The information requested included:
- The true destinations of the traffic in question.
- Routing of the traffic in question.
- Identity of all connecting carriers.
- Listing and nature of arrangements - tariff, confidential contract, agreed charge, or combination thereof - with all connecting carriers, especially those at Shelby, Montana, for movements to all destinations.
- Levels of rate charged for the movements to each destination.
AGCL, in reply to the CP request, stated that it had designated the following continuous route from Medicine Hat to Shelby;
Medicine Hat - CP - Coutts (CP-BN interchange) - BN - Shelby.
AGCL asserted that it has designated Shelby as the destination and that the bill of lading will identify Shelby as the ultimate destination.
The Agency, based upon information in the application, determined, with one exception, that the information which CP requested was not necessary to enable the Agency to establish the CLR requested by AGCL. The exception related to the requirement of subsection 134(5) of the Act which provides:
"134.(5) Where the ultimate point of destination of a movement of traffic of a shipper is in Canada and there is available to the shipper more than one continuous route wholly within Canada that is cost-effective and over which it is considered reasonable to move the traffic of the shipper, the shipper shall, in order to have a competitive line rate established, designate a continuous route that is wholly within Canada."
AGCL was directed to provide the Agency with a statement confirming that none of the traffic which would move from Medicine Hat on the continuous route designated by AGCL would move to an ultimate point of destination in Canada. The Agency received that confirmation from AGCL on August 15, 1988.
ISSUES RAISED BY CP
CP, in its answer to the AGCL application raised six issues related to the matter at hand. CP asserted:
- The Agency has no jurisdiction to establish a CLR in the present case because there is no "connecting carrier" within the meaning of the Act.
- The Agency cannot establish a CLR in the present case because AGCL has designated a factitious rather than the true destination for the traffic which would be subject to the application of a CLR.
- The Agency may not establish a CLR where there is no evidence of an agreement with respect to the movement of traffic over the balance of the continuous route, as contemplated by subsection 135(1) of the Act.
- The Agency cannot establish a CLR for traffic interchanged at Coutts/Sweetgrass because the interchange is not the nearest interchange in the reasonable direction of the movement of the traffic, as provided for in subsection 134(7) of the Act.
- The Agency cannot establish a CLR using the methodology set out in subsection 137(3) of the Act because the rate for the balance of the movement of the traffic is not set out in a tariff issued and published in accordance with the Act.
- Even if the method of calculation advanced by AGCL were the proper method, the rate proposed by AGCL is not correct.
AGCL has responded to each of these issues raised by CP. The submissions of both CP and AGCL on each of these issues are presented together below, followed by the Agency's analysis and the conclusions it has reached in respect of the issue.
• Issue 1. Is BN a "connecting carrier"?
CP Argument
CP's argument in respect of this issue is in two parts:
- BN is a "local carrier" as defined by subsection 134(1) of the Act and therefore cannot be a "connecting carrier", and
- a "connecting carrier" must be a carrier which is subject to the jurisdiction of Parliament and since the Sweetgrass - Shelby movement is entirely within the United States, BN is not subject to the jurisdiction of Parliament.
In respect of the first argument, CP submits that because BN is the only rail carrier serving Shelby, BN is a local carrier as defined by subsection 134(1) of the Act. CP further submits that the definitions of local carrier and connecting carrier are mutually exclusive and, therefore, if BN is a local carrier it cannot also be a connecting carrier.
In respect of the second argument, CP submits that a CLR may be established to or from an interchange with a connecting carrier. A "connecting carrier" is defined as a "railway company" and the definition of a railway company is found in subsection 2(1) of the Railway Act. CP submits that it is implicit in that definition that a railway company, in order to be a "railway company" within the meaning of the Act, be within the legislative authority of the Parliament of Canada. In respect of the BN line from Sweetgrass to Shelby, Montana, the line is entirely within the United States and the Parliament of Canada has no legislative authority over that line of railway or the operator of that line of railway. The Agency, CP submits, has no authority to regulate the operation of that line by BN, the movement of traffic on that line or the terms and conditions of those movements. CP submits, therefore, that BN is not a railway company as defined in the Railway Act and thus cannot be a "connecting carrier" as defined by subsection 134(1) of the Act.
AGCL Response
AGCL submits that the Act provides that a local carrier is one that serves a Canadian origin or destination exclusively and is requested by a shipper to establish a CLR. Subsection 135(1) provides that a CLR need only be established when all connecting carriers have reached agreement with respect to the movement of traffic over the balance of the continuous route. Acceptance of CP's interpretation of the Act, in AGCL's view, would preclude shippers served by only one railway both at origin and destination from CLR relief and that interpretation is inconsistent with the purpose of the legislation. AGCL submits, therefore, that the local carrier is the carrier which not only serves the point of origin or destination exclusively but also which has been requested to establish a CLR.
AGCL submits that nothing in the definition of "railway company" in the Railway Act implies that foreign railway companies are not contemplated in that definition, since the definition uses the word "includes" and not "means", indicating that the words in the definition are not exhaustive. AGCL submits that, in any event, BN is a railway company within the legislative authority of the Parliament of Canada as it has authority to operate lines of railway in Canada. Acceptance of CP's argument, AGCL submits, would lead to the untenable conclusion that a connecting carrier cannot be a United States railway company and nothing in sections 134 to 143 supports that interpretation. AGCL submits that, on the contrary, movements to and from the United States are contemplated, even when the ultimate destination is in Canada. Finally, AGCL notes that while Parliament has conferred on the Agency authority to make a CLR order against a local carrier, from or to a Canadian origin or destination, nothing in the legislation provides for orders against connecting carriers. AGCL submits, therefore, that there is no implication or necessity that a connecting carrier must be a railway company subject to the legislative authority of Parliament.
Analysis
A CLR may only be established for a portion of a continuous route designated by a shipper who has access to only one railway company at the point of origin or the point of destination. Part of the movement, between the point of origin or the point of destination and an interchange will be at the CLR, either established by the carrier after reaching an agreement with the shipper or on order of the Agency if the shipper and carrier are unable to agree on the level of rates. The remainder of the movement over the continuous route must be at a rate agreed upon between the shipper and carriers along that route. The definitions of "local carrier" and "connecting carrier" are set out in subsection 134(1) of the Act to make the distinction between the carrier which is requested to establish the CLR (the local carrier) and the carriers which will transport the traffic over the balance of the continuous route designated by the shipper (the connecting carriers). Subsection 135(6) of the Act makes it clear that only one CLR can be in effect at any time for a movement of traffic over a continuous route, so it follows that there can be only one local carrier for the movement of traffic over the continuous route and that is the carrier whom the shipper has requested to establish a CLR. In the present case, AGCL has requested CP to establish the CLR, so CP is the local carrier and BN must then be the connecting carrier.
In respect of CP's second argument, AGCL is correct that acceptance of the CP position inevitably leads to the conclusion that where traffic is interchanged between a Canadian and a U.S. carrier at the international boundary, the U.S. carrier could not be a connecting carrier. Agency acceptance of CP's argument would, therefore, result in the dismissal of AGCL's application.
The Act, however, does not specifically remove U.S. carriers from the definition of a connecting carrier. In addition, the Act clearly contemplates situations where a shipper may designate a continuous route from Canada through the U.S. and back into Canada. The Agency's authority in respect of establishing a CLR is limited under paragraphs 136(a) and 136(d) to determining the amount of the CLR which will be charged by the local carrier and the manner in which the obligations of the local carrier in respect of the level of service are to be fulfilled. The Agency's powers in respect of paragraphs 136(b) and 136(c) are contingent upon the connecting carrier's agreement with the shipper for the movement over the balance of the continuous route designated by the Agency via the interchange designated by the Agency. Participation of a connecting carrier in the movement of traffic for which the local carrier is to charge a CLR is at all times completely voluntary. That being the case, there is no valid reason which would preclude a U.S. railway from being a connecting carrier.
• Issue 2. Can the Agency establish a CLR for a movement to a factitious destination rather than the true destination of the traffic?
CP Argument
CP submits that the term "destination" used in respect of the establishment of a CLR must be interpreted to mean the actual destination, rather than a factitious destination of the traffic. CP submits that the courts and predecessors of the Agency have interpreted the word in the past. The definition of destination in Black's Law Dictionary is: "Place to which something is sent; place set for end of journey; terminal point to which one directs his course". CP submits that the connotation of end, not intermediate, point is unmistakable.
CP submits that the concept of destination is fundamental to the establishment of a CLR in that
(a) a local carrier moves traffic from the point of origin or to the point of destination,
(b) a shipper may request a CLR if that carrier has access to only one carrier at the point of origin or the point of destination,
(c) the local carrier at the point of origin or destination must establish a CLR to or from the point of origin or destination,
(d) a continuous route wholly in Canada must normally be designated by the shipper where the ultimate point of destination is in Canada,
(e) destination also governs designation of the interchange, identity of the connecting carrier, application of mileage limitations and is an essential factor in delivering the mileages which are in turn factors in calculating the CLR.
Having said that, CP presents a number of arguments relating to possible abuses of the CLR provisions of the Act by shippers and connecting carriers. CP suggests that a shipper and connecting carrier could agree to have a very low tariff rate published to an ostensible destination a short distance beyond the interchange, such destination simply being a flow-through point on the route to the destination. CP argues that the connecting carrier could recoup the forgone revenues in two ways:
(a) through a confidential contract escalating the connecting carriers revenues for the movement between the interchange and the destination published in the tariff, or
(b) the connecting carrier's rate from the flow-through point published in the tariff to the destination is contained in a confidential contract at a level which compensates the connecting carrier for the low revenue generated by the application of the published tariff rate for the movement from the interchange to the flow-through point.
CP submits that in either case, the basis on which the CLR is calculated is not indicative of the true revenues to be received by the connecting carrier.
In CP's view, this constitutes an abuse of the process of the Agency and the provisions of the Act. As evidence of the possible abuse, CP notes that BN's published tariff rate is significantly lower than BN's current division of an existing joint through rate between Medicine Hat and Shelby.
CP submits that since AGCL has not put in evidence the true destinations of the movements involved, the AGCL application should be dismissed.
AGCL Response
In response to CP's argument, AGCL notes that the question of destination of the traffic was argued by CP in its submission to the Agency dated August 5, 1988, was responded to by AGCL on August 8, 1988 and the Agency, in its letter of August 12, 1988, dealt with the issue. AGCL submits that it is inappropriate for CP to again raise this matter before the Agency.
Analysis
The issue of destination is the key to the AGCL application for the establishment of a CLR. If the Agency accepts the CP argument that it can only establish a CLR to a true destination and Shelby is a factitious rather than a true destination, the only course of action available to the Agency would be to dismiss the AGCL application. For a number of reasons, however, the Agency has rejected CP's argument.
Before discussing the matter further, however, it should be made clear that although AGCL has designated a continuous route from Medicine Hat, Alberta, as point of origin to Shelby, Montana, as point of destination, the traffic in question will almost certainly move beyond Shelby.
As noted earlier, CP, on August 5, 1988, requested that the Agency require AGCL to produce a significant amount of information relating to the movement of the CLR traffic beyond Shelby. In response to CP's request, the Agency in its letter to CP dated August 12, 1988 noted;
"AGCL has asserted that it has designated Shelby as the destination and the relevant bill of lading will show Shelby as the destination. The Agency has determined, therefore, with one exception, that the information which CP has requested the Agency require AGCL to produce is not necessary to enable the Agency to establish the CLR requested by AGCL."
The Agency, in ruling that the information requested by CP was not necessary for the determination of the CLR because it related to movements beyond Shelby, determined that Shelby would be the destination of the traffic to which the CLR would apply.
The Act does not define the term "point of destination". The Act, however, makes a distinction between the "point of destination" and the "ultimate point of destination" in that if the ultimate point of destination is in Canada, the shipper does not have unrestricted freedom to select a continuous route which is partly in the United States. The distinction between the point of destination and the ultimate point of destination in the Act leads to the conclusion that the framers of the legislation foresaw situations such as the present one where the shipper may for some reason wish to consign traffic to a destination and then have a new bill of lading cut for the movement to the ultimate destination. Such situations are not unusual. In such situations, the legislation makes it clear that where the ultimate point of destination is in Canada, the shipper must designate an all-Canadian route when such route is cost-effective. In the present case, AGCL has confirmed that none of the traffic which would move over the Medicine Hat-Shelby routing will have an ultimate point of destination in Canada.
AGCL has stated that the bills of lading for the traffic which would move under a combination of the CLR and the BN published tariff rate would show Shelby as the destination, that is, it would be consigned to Shelby. If Shelby is shown as the destination on the bill of lading, then the contract for carriage terminates at that point.
In respect of CP's argument that the published BN tariff rate is significantly lower than BN's current division of an existing joint rate between Medicine Hat and Shelby, the Agency notes that AGCL intends to ship approximately 3,000 carloads of methanol at the published tariff rate from Sweetgrass to Shelby. CP has indicated that only one car moved from Medicine Hat to Shelby in 1987, presumably on the existing joint rate. While the Agency does not wish to make a determination with respect to the reason BN established the Sweetgrass - Shelby rate at the level it did, the addition of a significant amount of new traffic must surely have been a major consideration.
The Agency has considered CP's argument concerning possible abuses of the CLR provisions and Agency procedure. The Agency has concluded, however, that any potential for abuse is not related to the fact that Shelby may not be the ultimate destination of AGCL's traffic, but rather that the published freight rate may not accurately reflect the connecting carrier's revenue for the movement. The Act, however, clearly provides for the use of a published tariff rate for the establishment of a CLR, notwithstanding the possibility that confidential contacts could modify that rate.
• Issue 3. Is there evidence of agreement for the movement of traffic over the balance of the continuous route?
CP Argument
CP submits that AGCL has, with the exception of BN, failed even to identify the connecting carriers, much less prove that it has reached the requisite agreement with them. In respect of the agreement between AGCL and BN, CP submits that there is no agreement. The most that can be said, in CP's view, is that the parties have agreed that if a CLR is established and the CLR rate and service level is satisfactory to AGCL, then an agreement will exist. In CP's view this is insufficient and the Agency must dismiss AGCL's application for a CLR.
AGCL Response
AGCL submits that the Agency need only satisfy itself that on a balance of probabilities an agreement exists. AGCL submits that the material it has submitted more than satisfies this onus. AGCL further submits that CP's arguments with respect to connecting carriers do not relate to the relevant movement from Coutts to Shelby.
AGCL admits that its agreement with BN is conditional upon AGCL obtaining a satisfactory CLR. AGCL submits that such a conditional arrangement is necessary for business purposes, but nevertheless an agreement exists.
Analysis
If the Agency concludes that for the purpose of establishing the CLR, Shelby is the destination, the existence of the published BN tariff for the movement of methanol would in itself be sufficient evidence that there is an agreement between AGCL and BN for the movement of traffic over the balance of the continuous route from the Coutts/Sweetgrass interchange to Shelby. In addition, however, AGCL has provided correspondence which indicates that BN agreed to publish the tariff in question. The conclusion which one must reach is that the requirements of subsection 135(1) with respect to the existence of an agreement between the shipper and the connecting carrier have been met.
• Issue 4. Is the Coutts/Sweetgrass interchange the nearest interchange in the reasonable direction of the movement of the traffic?
CP Argument
CP states that the interchange designated for the purpose of establishing a CLR must be located in the reasonable direction of the movement of traffic. CP submits that AGCL's past shipping patterns indicate that the bulk of destinations for the CLR traffic would be in the United States midwest and eastern states. CP argues that a routing through Coutts would, as a simple matter of geography, not be in the reasonable direction of movement. To illustrate, CP presents a number of examples of comparative mileages from Medicine Hat to U.S. midwest destinations via Coutts and via Winnipeg. In each case, the mileage via Coutts exceeded the mileage via Winnipeg. CP submits, therefore, that Coutts cannot be designated as the sole interchange as AGCL has purported to do and the Application should be dismissed.
AGCL Response
AGCL submits that CP's argument is not relevant to this case as the destination of the movement is Shelby and Coutts is in the reasonable direction of that destination.
Analysis
If the Agency accepts Shelby as the destination of the traffic, the Coutts/Sweetgrass interchange is clearly the nearest CP-BN interchange in the reasonable direction of movement of traffic between Medicine Hat and Shelby.
• Issue 5. Can subsection 137(3) be relied upon to determine the CLR?
CP Argument
CP states that AGCL has submitted a method of CLR calculation which purportedly conforms to the method of calculation set out in subsection 137(3) of the Act. CP submits that the rate charged by the connecting carrier is not set out in a tariff within the meaning of the Act and the BN tariff is not such a tariff. CP argues that the BN tariff is not a tariff within the meaning of the Act because it has not been published in accordance with the requirements of Division I of Part III of the Act. CP further argues that the tariff could not be published in accordance with the Act since it relates to the movement of traffic totally outside Canada.
CP also states that it does not make economic sense to structure a Canadian CLR on the tariff rate of an American carrier. CP presents the following reasons for this statement;
(a) the regulatory regimes in the two jurisdictions differ,
(b) operating and capital costs differ,
(c) tax structures differ,
(d) carriers' revenue requirements differ,
(e) the marketplace is not the same,
(f) the variation in the two currencies would make it impossible for the Canadian carrier to receive an accurately calculated CLR.
CP argues, therefore, that the method of calculation provided in subsection 137(3) cannot be used for the purpose of this proceeding.
CP further argues that it is likely that no other method of calculating a CLR provided in section 137 is applicable. Subsections 137(4) and 137(5), CP submits, apply only in situations where a connecting carrier charges its rates under a confidential contract. CP argues that it is as yet unknown whether a connecting carrier is charging a rate under a confidential contract. The Act provides no procedure for the calculation of a CLR when the connecting carrier(s) use a combination of published and confidential contract rates. As well, the Act supplies no guidance as to how a CLR is to be calculated where a connecting carrier is a U.S. carrier and charges rates on the basis of confidential contracts that are not "confidential contracts" as defined by section 110 of the Act.
AGCL Response
AGCL submits that CP has not demonstrated in what manner the publication of the subject BN tariff is not in accordance with the Act and there is no evidence that either the process followed by BN or the tariff itself are inconsistent with the requirements of Division I of Part III of the Act. AGCL further submits that the proposition that rates contained in the tariff of a U.S. connecting carrier cannot be utilized in the calculation of a CLR is not supported by any words of the legislation.
AGCL also submits that, if CP is correct in its argument that section 137 cannot be used in the calculation of a CLR where U.S. connecting carriers are involved, then section 142 of the Act would be applicable and asks that the Agency make the order contemplated by section 142.
Analysis
It is clear that BN Tariff 4625-A is not issued and published in accordance with the provisions of the Act, nor should it be expected to be so issued and published, since it has application in the United States.
As CP has submitted, there are significant differences between the Canadian and U.S. economic climates. The Agency notes, however, that the same factors which CP has cited would affect the CP routing through its subsidiaries which operate in the United States. The Agency has concluded that an appropriate indicator of the differences cited by CP is the relative value of the two countries' currencies. If the calculation of the CLR is to be made on the basis of a published U.S. freight rate, the rate must be adjusted by the application of a currency exchange factor. Since subsection 137(3) does not make any provision for the adjustment of the connecting carrier's published rate to reflect differences in the value of the Canadian and U.S. dollar, it would be inappropriate to use that method.
That being the case, the appropriate course of action for the Agency would be to make an order, pursuant to its authority under section 142 of the Act, establishing an alternative method of determining the amount of the CLR. The method selected is one which parallels the methodology set out in subsection 137(3), with the exception that the published tariff rate is converted to a Canadian dollar equivalent through the use of a currency exchange factor.
The method is as follows:
- Determine the actual CP rail mileage between the AGCL plant at Medicine Hat and the BN-CP interchange at Coutts.
- Determine the actual BN rail mileage between Sweetgrass and Shelby, Montana.
- Multiply the BN tariff rate by a currency exchange factor to obtain the Canadian dollar equivalent of the BN tariff rate.
- Divide the Canadian dollar equivalent of the BN tariff rate by the rail mileage between Sweetgrass and Shelby to determine revenue per ton mile.
- Subtract 25 miles from the CP rail mileage determined in 1 above.
- Multiply the reduced mileage calculated in 5 above by the revenue per ton mile calculated in 4 above.
- Divide the $250 interswitching charge by the minimum carload weight of the traffic in tons.
- Add the product obtained in 6 to the quotient obtained in 7 to determine the amount of the CLR in dollars per ton.
• Issue 6. Rail Mileages and currency exchange factor
CP Argument
CP submits that the rate of $9.34 submitted by AGCL as being the appropriate CLR level is inaccurate because AGCL has used inaccurate mileage figures for both the Canadian and U.S. portions of the movement and has calculated the rate apparently using the exchange rate in effect on the date of the application. CP provides the actual railway mileages and submits that the appropriate exchange rate to be used in the calculation should be the average of all the semi-monthly surcharge exchange factors for the first six months of the year.
CP submits that the appropriate CLR level, based on the CP-provided mileages and exchange factors, should be $10.59 per ton.
AGCL Response
AGCL does not dispute the mileage assertions of CP, but asks that the Agency verify those assertions. AGCL asserts that the exchange rate at the time of the application should be utilized for the calculation of the CLR. AGCL submits that, assuming the CP-provided mileages are correct, the Agency should order a CLR in the amount of $10.29 per ton.
Analysis
CP rail mileages from Medicine Hat to Coutts have been extracted from CP Timetable No. 82, dated June 7, 1987. The mileages are as follows:
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ViewPoint Table Name: Table1
Column Name: Column1
Column Header: Between
Column Name: Column3
Column Header: Subdivision
Column Name: Column2
Column Header: Miles
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Medicine Hat - Macson
Maple Creek
5.00
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Macson - Lethbridge
Taber
116.60
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Lethbridge - Montana
Taber
8.60
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Montana - Stirling
Stirling
17.50
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Stirling - Coutts
Coutts
46.90
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Total
194.60
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To that figure must be added the CP rail mileage from the AGCL plant to Medicine Hat. CP has stated the distance is 4.66 miles. The total CP rail mileage over which the CLR will apply, therefore, is 199.26.
The actual BN rail mileage between Sweetgrass and Shelby has been extracted from BN Mileage Tariff 6003. The mileage is 38.8 miles.
The Agency has considered the submissions of CP and AGCL in respect of the appropriate currency exchange factor to be used in calculating the Canadian dollar equivalent of the published BN rate. In the case at hand the Agency has determined that the official Bank of Canada U.S. dollar exchange rate on July 25, 1988, the day of the AGCL application, is the appropriate exchange rate. The official Bank of Canada U.S. dollar exchange rate at closing on July 25, 1988 was US$1 = C$1.2153.
CALCULATION OF THE CLR
The actual calculation of the CLR is a simple mathematical exercise using the following inputs:
Car loading - 95 tons
CP rail miles AGCL plant to Coutts, Alberta 199.26 miles
BN rail miles Sweetgrass to Shelby, Montana 38.8 miles
BN published tariff rate - US$1.41/ton
Currency exchange factor - 1.2153
The calculation is as follows:
- Calculate Canadian dollar equivalent of BN tariff rate.
US$1.41 x 1.2153 = C$1.714
- Calculate revenue per ton mile of BN tariff rate
C$1.714/ton = C$0.0442/ton mile
38.8 miles
- Reduce CP mileage to reflect mileage to which interswitching charge applies
199.26 - 25 = 174.26 miles
- Calculate CP revenue excluding switching
174.26 miles x C$0.0442/mile = C$7.70/ton
- Calculate switching charge per ton
C$250 = C$2.63
95 tons
- Calculate CLR
C$7.70 + C$2.63 = C$10.33
As a result of an arithmetic error, Order No. 1988-R-798, as originally issued, established a CLR of $10.13 per ton rather than the correct amount of $10.33. An erratum sheet correcting the Order has been issued.
The rate of $10.33 per ton is established subject to a number of conditions. First, since AGCL has indicated that Shelby is the destination of the traffic, the traffic must be billed to Shelby.
Second, to ensure that the CLR traffic will not be returned to Canada or, pursuant to that part of the National Transportation Policy set out in subparagraph 3(1)(g)(iv)of the Act, that the CLR rate is not an unreasonable discouragement to the movement of commodities through Canadian ports, no traffic moving at the CLR level of rates shall have an ultimate destination in Canada or any other destination outside the Continental United States.
Third, since the BN tariff rate of US$1.41 per ton has been established on the basis that cars are to be supplied by the shipper and no mileage payments are payable by the railway to the shipper for the use of the cars, CP shall not be required to pay mileage charges for the use of AGCL-supplied cars when moving traffic on the CLR.
Finally, pursuant to the provisions set out in section 139 of the Act, the CLR rate shall remain in force for a period of one year from the date on which the rate becomes effective or such other period as is agreed on by AGCL and CP.
FINDINGS
On the basis of the analysis of the submissions of AGCL and CP, the Agency has made the following determinations with respect to the AGCL application:
- BN is a connecting carrier for the purpose of establishing the CLR requested by AGCL.
- The destination for the purpose of establishing the CLR is Shelby, Montana.
- There is an agreement between AGCL and BN for the movement of traffic over the balance of the continuous route designated by AGCL pursuant to subsection 134(4) of the Act.
- The Coutts/Sweetgrass CP-BN interchange is the nearest CP-BN interchange in the reasonable direction of the movement of the traffic on the continuous route designated by AGCL.
- The CLR cannot be determined using the methodology set out in subsection 137(3) of the Act.
- The Agency has determined the amount of the CLR using an alternative method ordered pursuant to the Agency's powers under section 142 of the Act.
- The Agency has determined the amount of the CLR to be $10.33 per ton for the movement of methanol in shipper-supplied tank cars from the AGCL plant at Medicine Hat to the CP-BN interchange at Coutts, Alberta/Sweetgrass,
Montana, subject to the following conditions:
(a) The traffic shall be billed to Shelby, Montana.
(b) No traffic moving at the level of rate established by the Agency shall have an ultimate destination in Canada or any other destination outside the Continental United States.
(c) CP will have no obligation to make mileage payments to the owner/lessee of railway cars used to transport traffic for the distance travelled on the lines of CP.
(d) The rate shall remain in force for a period of one year from the date on which the rate becomes effective or such other period as is agreed on by AGCL and CP.
ERRATUM
October 3, 1988
Order No. 1988-R-798 dated September 8, 1988 - Alberta Gas Chemicals Inc.
File No. D2970-A1