The Board of Railway Commissioners was established in 1904 as an independent regulatory body with authority over railways. Since the 1850s, railways had been instrumental in Canada's development. Just as the railway built between Toronto and Montréal in 1856 helped lead Canada West and Canada East into Confederation, railways provided the impetus for other provinces and territories to join as well. In the early 20th century, Canada's economy depended on railways. The Railway Board regulated freight rates, fares and safety, among other things and, in its role as a quasi-judicial tribunal, settled railway disputes. The Board's powers were passed to its successors over the years, as railways increasingly faced competition from other modes of transportation and tougher economic realities. Railway legislation has evolved over time, but the Canadian Transportation Agency continues to have economic authority over railways.

The Agency's mandate in rail transportation ranges from the licensing and approval of new operations to resolution of rate and service disputes between railways and shippers or other parties, the regulation of interswitching, the administration of the Western grain revenue cap regime, and the discontinuance of service and disposal of assets of a railway line.

The Canadian railway industry played a leading role in North American freight transportation in 2003. Railways under federal jurisdiction were clearly focussed on keeping costs in check while working to attract customers through scheduling and route advantages.

The railways' success in cost-effectiveness was reflected in one of the proposed amendments to the Railway Interswitching Regulations, that is, a reduction in interswitching rates. The Canadian Transportation Agency published the proposed amendments to the Regulations in Part I of the Canada Gazette in 2003, as part of its statutory review. The amendments will be studied further in 2004 before they are finalized.

The Agency noted an increase in the use of its mediation program to settle rail disputes in 2003. There were 21 cases in the Agency's mediation program during the year, 13 of which were new requests. The Agency is encouraged by this growing acceptance of mediation and will continue to promote it as a method of solving railway disputes.

The Agency also issued a decision on a railway's application for an interswitching order that included, as alternative remedies, a request for the granting of running rights and a ruling that the railway failed to fulfil its common carrier obligations. The application, brought against Canadian National Railway Company (CN), involved the CN line where it intersects with New Brunswick Southern Railway Co. (NBSR) at the port of Saint John, New Brunswick. The Agency dismissed the application on August 14, 2003.

In 2003, a new Guide to Railway Charges for Crossing Maintenance and Construction was developed by the Agency. The Guide, designed to assist municipalities, railways and government officials, goes into effect on January 1, 2004. It is intended for use by Canadian federally-regulated Class I railways when charging for work performed at crossings, crossing warning systems or for any crossing-related work.

The Agency granted a new certificate of fitness to the Prairie Alliance for the Future railway company, welcoming it into federal jurisdiction in 2003. It also cancelled the certificate of Acadian Railway Trains L.P., which no longer operates in Canada. Two other federal railway companies changed ownership.

An application by CN for an award of costs regarding the Ferroequus Railway Company's application for running rights was dismissed by the Agency in February 2003. The Agency found that since CN had not raised the issue of costs prior to the issuance of the Agency decision, its jurisdiction to award costs was spent.

In November 2003, CN announced that it would acquire the outstanding shares of BC Rail Ltd., along with the right to operate over BC Rail's roadbed under a long-term lease with the Government of British Columbia. The deal must be approved by the Competition Bureau. CN also indicated that it will apply to the Agency for a certificate of fitness for the BC Rail operations. If approved, this would add approximately 2,300 kilometres to the federal rail network and it would place numerous shippers, municipalities, landowners and railway users under federal transportation legislation, including the Canada Transportation Act.

Interswitching

Subsection 128(1) of the Canada Transportation Act stipulates that the Agency may make regulations prescribing terms and conditions governing the interswitching of rail traffic. According to the Act, any person can request a local railway to interswitch its traffic, at a rate provided for in the Regulations, to a connecting railway carrier if its point of origin or destination is within the interswitching limit of a 30-kilometre radius from an interchange. Subsection 128(5) of the Act requires the Agency to review the Regulations as warranted, and also at a minimum of five-year intervals.

On November 8, 2003, the Agency published proposed amendments to the Regulations in Part I of the Canada Gazette. The amendments were drawn up after consultations with more than 200 interested parties, including railways, shipper associations, port authorities, provincial governments and federal government agencies. The proposal to amend interswitching rate levels, including a reduction in each category of rates, reflects a general decline in railway costs.

Several respondents in the consultations, mainly shipper associations and governments, noted the benefits of interswitching and stressed the need for continued regulated interswitching. Most parties were in favour of the proposed reduction in the rates, although a few parties opposed it. Among other issues raised were the level of contribution toward fixed costs incorporated in the interswitching rates and the redefinition of car block sizes.

The Agency will continue consultations on these issues in 2004 and will consider all submissions as it finalizes the regulatory amendments. It is expected that the amended Railway Interswitching Regulations, including the new rates, will be published in Part II of the Canada Gazette in 2004.

In 2003, the Agency issued decisions on two applications for interswitching orders. In the first case, the Trustee of Canadian American Railroad Company (CDAC) had filed an application in 2002, seeking an order for CN to interswitch CDAC's traffic at the point where NBSR and CN join in the port of Saint John, NB.

On December 13, 2002, the Bangor and Aroostook System, an affiliate of CDAC, filed a reply in the proceeding, requesting that the application be extended to include running rights over CN's line at the port of Saint John and a level-of-service complaint concerning CN's refusal to grant the CDAC access to the potash terminal on CN's line at the port of Saint John. CN filed an objection requesting that the complaint be dismissed.

In January 2003, the Bangor and CDAC companies were acquired by Montreal, Maine & Atlantic Railway, Ltd. (MMA) and by Montreal, Maine & Atlantic Canada Company (MMAC). The original application filed by CDAC and amended by Bangor, was then continued by MMA.

In addressing the request for an interswitching order, the Agency noted that the provisions of the Act require that, to be eligible for regulated interswitching, a connection must exist that conforms with the definition of an interchange which is "a place where the line of one railway company connects with the line of another railway company, and where loaded or empty cars may be stored until delivered or received by the other railway company". Furthermore, the Agency noted that "railway company" is defined in the Act as a railway that is under the legislative authority of Parliament and that holds a certificate of fitness issued under Section 92 of the Act.

The Agency determined that, at the port of Saint John, CN, a federally-regulated railway company, connects with NBSR, which is a provincially incorporated and operated railway company. In the absence of a connection between two federally-regulated railway companies, the Agency decided that the point of connection between NBSR and CN did not fall within the definition of "interchange" set out in Section 111 of the Act. Therefore, the Agency dismissed the application.

An application filed by CN that requested the interswitching of traffic between CN and MMA at the junction of Ste-Rosalie, Québec, was withdrawn without conditions. The Agency issued a letter decision in that respect.

Running Rights

As noted in the section above, the Bangor and Aroostook System had, as an alternative remedy to the request for an interswitching order, made a request for running rights over CN's line at the port of Saint John.

In reviewing the arguments filed in the running rights request, the Agency noted that the applicants failed to present any details on how they would exercise the running rights if they were granted. Similarly, the applicants did not file any arguments, indicating how the granting of running rights would be beneficial to the public interest. Furthermore, given that MMA (which had bought out CDAC and Bangor) did not have any operations in Saint John, the Agency found that the granting of running rights over the CN line from the connection in Saint John to the potash terminal in the port of Saint John would serve no useful purpose. The application was dismissed.

Level-of-Service

The Bangor and Aroostook System also requested as a second alternative to the interswitching order that the application be extended to include a level-of-service complaint concerning CN's refusal to grant CDAC access to the potash terminal on CN's line at the port of Saint John.

With respect to CN's conduct in handling the traffic, the Agency, in dismissing the main application for an interswitching order, had determined that regulated interswitching does not apply in Saint John and, consequently, CN was under no statutory obligation to perform interswitching at Saint John at the rates prescribed by the Railway Interswitching Regulations. Regarding the allegation that CN refused to accept liability for the train, the Agency noted that no evidence had been filed that such a decision was made.

The Agency concluded that there was no evidence that CN had breached its common carrier obligation to provide adequate service. It was also noted that the facts surrounding MMA's application for a level-of-service complaint arose at a time when CDAC was the affected railway company. Given that MMA had only acquired the assets of the former CDAC railway company, the Agency questioned the right of MMA to file such a level-of-service complaint. Therefore, the level-of-service complaint was dismissed.

A level-of-service complaint filed in November 2002 by Novell Polymers Inc., alleging that CN had failed to fulfil its common carrier obligations by refusing to scale hopper cars for the carriage of plastic raw materials, was withdrawn without conditions in January 2003.

Another level-of-service complaint against Canadian Pacific Railway Company (CPR) was filed with the Agency by a group of grain producers in December 2003. The Agency will render its decision in that case in 2004.

Award of Costs

On November 1, 2002, CN filed an application for an award of costs regarding a running rights application filed by Ferroequus Railway Company Limited on October 25, 2001.

Ferroequus had requested running rights over CN's lines from interchanges with CPR at Lloydminster, SK, and Camrose, AB, to Prince Rupert, BC. It had previously filed a running rights application with the Agency for a much larger distance, but that application had been dismissed. The October 25, 2001, application was later amended to delete references to Lloydminster and CPR's holdings at Camrose. The Agency issued a decision on the Ferroequus case on September 10, 2002, denying the application on the grounds that no public interest would be served by granting the running rights.

In seeking the award of costs, CN expressed an opinion that the proceeding leading to the 2002 decision constituted special and exceptional circumstances that justified an award of costs. On February 28, 2003, the Agency dismissed CN's application, ruling that the Agency decision made in 2002 was final and that costs were neither requested nor awarded at that time. The Agency also determined that the Ferroequus application, though complex, was not vexatious or frivolous.

Ferroequus had appealed the Agency's September 10, 2002, decision to the Federal Court of Appeal. On November 26, 2003, the Federal Court of Appeal dismissed the appeal.

Final Offer Arbitration

When shippers and carriers are unable to resolve disputes on their own, they can apply to the Agency for final offer arbitration, which is a confidential method of settling a matter through an independent arbitrator or a panel of three arbitrators.

Prior to Agency referral of a case to an arbitrator, the Agency assures that the shipper's request for final offer arbitration is complete and that, at least five days before making the request, the shipper has notified the carrier of its intention to use final offer arbitration. The Agency may also assist the parties in selecting an arbitrator and may provide administrative, legal and technical advice to the arbitrator when requested.

Subsection 163(1) of the Act mandates that in the absence of an agreement between the arbitrator and the parties as to the procedure to be followed, a final offer arbitration shall be governed by rules of procedure made by the Agency. In developing rules, the Agency has consulted widely with industry representatives, including past participants of final offer arbitration. Comments gleaned from these consultations formed the basis of proposed procedural guidelines, which the Agency then forwarded to interested parties. The resulting 18 submissions containing recommendations were used by the Agency to develop a draft set of rules of procedure.

In the fall of 2003, further discussions were held with legal counsel, representatives of shippers, Class I railway companies and arbitrators, all of whom had recently been parties to a final offer arbitration. The purpose of these meetings was to provide the Agency with more insight into the process and to discuss any problems the parties may have experienced. As a result, the rules were amended and a second industry-wide consultation was undertaken.

The Agency also has developed a set of Rules of Ethics for Prospective Arbitrators. The Agency-endorsed rules of ethics are intended to provide guidance to potential arbitrators and to establish appropriate standards of impartiality, independence, competence, diligence and discretion for arbitrators working under Part IV of the Act.

These rules, along with the Procedural Rules for the Conduct of Final Offer Arbitration, were forwarded to all federally-regulated railways, shipper associations, legal counsel for shippers, the arbitrators on the Agency's list of arbitrators and to other interested parties for their input in 2003. The Agency expects that both sets of rules will be available on the Agency's Web site in the spring of 2004.

Section 169 of the Act requires the Agency to maintain a list of individuals willing to act as arbitrators, and to specify each arbitrator's particular expertise. In 2003, the Agency contacted 123 arbitrators to verify their willingness to remain on the Agency list and to update relevant information. In November 2003, the Agency published an amended list of 40 arbitrators, including information about their areas of expertise. This list is available on the Agency's Web site (www.cta-otc.gc.ca).

In 2003, the Agency received one request for final offer arbitration. The request was processed and the case was arbitrated successfully. A forest products shipper also gave notice of intent to arbitrate but, by the end of 2003, the matter had not been pursued.

Since the enactment of the Canada Transportation Act in 1996, the Agency has received more than 20 notices from shippers of their intention to submit their disputes to final offer arbitration. About half of those cases were withdrawn or settled prior to arbitration.

Certificates of Fitness

The Agency issues a certificate of fitness when it is satisfied that a company proposing to construct or operate a railway under federal jurisdiction has adequate liability insurance. Certified companies are then monitored for continued compliance. The Agency may also vary certificates to reflect changes in railway operations, or suspend or cancel a certificate.

In 2003, the Agency granted one new certificate of fitness to the Prairie Alliance for the Future Inc., for a railway operating in the Province of Saskatchewan, through a lease agreement with CN. The proposed operations would be between Denholm and Speers Junction; Speers Junction and Glaslyn; England and Spiritwood; North Battleford Junction and St. Walburg; and Spruce Lake Junction and Paradise Hill, totalling 210.52 miles.

The Agency made four amendments to certificates of fitness in 2003. The certificate of fitness issued to Montreal, Maine & Atlantic Railway, Ltd. and the Montreal, Maine & Atlantic Canada Company was amended three times to reflect: a) a name change from Montreal, Maine & Atlantic Canada Company to Montreal, Maine & Atlantic Canada Co.; b) a change in operations since the Montreal, Maine & Atlantic Railway, Ltd. no longer operated by virtue of a running right with CN and CPR between Saint-Léonard and Grand Falls, NB; and c) to allow Montreal, Maine & Atlantic Canada Co. to operate a special one-time regional passenger service train for a period of one week in the month of August.

The certificate of fitness issued to RaiLink Canada Ltd. was also amended to reflect a change in its operations related to the 2002 discontinuance of auxiliary trackage on the CN's Burford Spur and TH&B Spur of the Hagersville Subdivision in southern Ontario.

In addition, the Agency cancelled three certificates of fitness in 2003. The two certificates for the Bangor and Aroostook Railroad Company and its wholly-owned subsidiary, the Van Buren Bridge Company, and the Canadian American Railroad Company were cancelled as these companies had been acquired by the Montreal, Maine & Atlantic Railway, Ltd. and the Montreal, Maine & Atlantic Canada Co. The Agency cancelled the certificate of fitness for the Acadian Railway Trains L.P. after being informed that the company had cancelled its railway operations in Canada.

In 2004, the Agency anticipates a CN application to vary its certificate of fitness in light of its recent agreement with the Government of British Columbia to lease and operate BC Rail.

Construction Approval

Subject to certain exclusions, the Agency must approve the location of new railway lines, including main lines, branch lines, sidings, spurs, yard tracks or other auxiliary trackage. The Agency may also be asked to approve the construction of railway crossings, including bridges and underpasses. In each case, the Agency must first assess the environmental impact of a project under the Canadian Environmental Assessment Act (CEAA).

In 2003, the Agency developed a plan for the environmental assessment of the Detroit River Tunnel Partnership (DRTP) project, to be built between Windsor, Ontario, and Detroit, Michigan. The Agency formed an interdepartmental screening committee, which includes representatives from 15 federal departments and agencies, as well as two ministries of the Ontario Government. In 2004, the Agency will release a draft project scoping document and solicit input from the various agencies on issues that need to be addressed in the assessment.

The Agency made one environmental screening decision in 2003, allowing the project to proceed when assured that the applicant took measures deemed by the Agency to be appropriate to mitigate any significant adverse environmental impacts.

The Agency continued screening the proposed relocation of part of the CPR Coutts Subdivision in Alberta near Milk River and the St. Albert bypass, as well as monitoring environmental compliance for previously approved rail line construction projects in Edmonton and Prentiss, AB.

In response to inquiries, the Agency also established a number of monitoring programs for major construction proposals including: a CN intermodal terminal near Milton, ON; a rail link to Toronto's Pearson Airport; a rail relocation project at Front Street in downtown Toronto; a power line near Sumas, BC; and the twinning of Highway 69 in Ontario.

Infrastructure Issues

The Agency resolves disputes over railway rights of way, tracks, crossings, supporting facilities, protective devices and other physical aspects of a railway's operation. In 2003, the Agency reached decisions in two disputes about road crossings of railways, one dispute over three utility crossings, and two disputes about private railway crossings. In 2003, the Federal Court of Appeal dismissed an appeal of an earlier Agency decision concerning a private crossing. The Agency also received 184 agreements filed by parties who had conducted their own negotiations related to railway crossings. The Agency may also issue decisions apportioning costs among railways and other parties for railway protective devices, such as crossing signals or fencing along rights of way. The Agency's jurisdiction to apportion such costs in a fencing dispute near Montréal was upheld by the Federal Court of Appeal in 2003. The Agency also completed 59 reviews of existing orders or decisions, primarily related to road crossings, where relevant facts or circumstances had changed. In most cases, legal responsibility for roads and road crossings had been transferred from one government to another. The Minister of Transport and the Province of Ontario had previously agreed that the federal railway crossing laws apply to railways under Ontario provincial jurisdiction, and that the Agency should administer those laws. The Agency has had preliminary discussions with three other provinces to enter into similar agreements.

Railway Charges for Crossing Maintenance and Construction

As part of the Agency's responsibility for resolving disputes arising between federal railway companies and other interested parties, such as utility companies, road authorities and landowners, the Agency develops guidelines which provide a third-party assessment of rail costs and set a consistent, country-wide rate structure for work performed by railway companies.

In 2003, the Agency completed its review of the existing guideline, titled Schedule "A" Directives, and replaced it with a new guideline called a Guide to Railway Charges for Crossing Maintenance and Construction. This guide, effective January 1, 2004, is intended for use by Canadian federally-regulated Class I railways when charging for construction or maintenance work performed at crossings, crossing warning systems or for any other crossing-related work, either agreed to by the parties or authorized by an order of the Agency.

In 2004, the Agency will continue to assess the feasibility of developing a similar guide to assist parties for work performed by federally-regulated short-line railways (non-Class I).

Transfer and Discontinuance

Railways may rationalize their lines without regulatory approval if they follow the process prescribed in Division V, Part III of the Act. Pursuant to Section 140(1) of the Act, a yard track, siding, spur or other track auxiliary to a railway line is exempt from the prescribed discontinuance process. The Agency may also be asked to determine whether a railway company has complied with the transfer and discontinuance process. As a result, the Agency may be asked to determine whether a specific piece of track is subject to the prescribed process.

On February 18, 2003, the Agency issued a decision in response to an application made by Burlington Northern (Manitoba) Limited to determine whether an unused piece of trackage, designated as the Pacific Avenue Spur, in the City of Winnipeg, constituted a yard track, siding, spur, or other track auxiliary to a railway line, under Subsection 140 (2) of the Act. The Agency decided the trackage in question was a spur, and therefore could be removed without being subject to the prescribed process of discontinuance under the Act.

Although the Agency was not notified of any discontinuances in 2003, the Agency did receive notice that CPR intended to proceed with the discontinuance of the Marpole Spur in Vancouver, frequently referred to as the Arbutus Corridor.

The following acquisitions and transfers occurred during the year:

• Montreal, Maine & Atlantic Railway, Ltd. and the Montreal, Maine & Atlantic Canada Company acquired the assets of the Bangor and Aroostook Railroad Company and its wholly-owned subsidiary, the Van Buren Bridge Company, and the Canadian American Railroad Company in order to continue the operation of these railways in Canada.

• 210.52 miles of CN trackage in the Province of Saskatchewan was transferred to Prairie Alliance for the Future Inc. through a lease agreement for continued railway operation.

• CPR sold the Edmundston Spur from Grand Falls to Cyr Junction, NB, to CN, a total of 7.8 miles.

Western Grain Revenue Caps and Revenue

Under Sections 150 and 151 of the Act, the Agency must determine the maximum revenue entitlement (or revenue cap) and actual revenue for a prescribed railway company (currently CN and CPR), for the movement of Western grain for each crop year. The determinations must be made by December 31 following the crop year, which ends on July 31. If the railway company revenue exceeds its revenue cap, it must pay the excess amount plus a penalty to the Western Grain Research Foundation, for research in the industry.

On December 29, 2003, the Agency ruled that CN and CPR revenues for the movement of Western grain did not exceed the revenue caps for the crop year 2002-03. CN's grain revenue of $175.6 million was $17.3 million below its revenue cap of $193 million, while CPR's Western grain revenue of $226 million was $6.6 million below its revenue cap of $232.6 million.

In March 2001, the Agency made a ruling on what constitutes grain revenue for the purpose of the Agency's Western grain railway revenue determinations under the revenue cap regime. Included in the determination was a finding in respect of CN's demurrage policy. The Agency also issued a decision in December 2001 on CPR's new grain port demurrage rules, that is, the penalty charges imposed on shippers for inefficient activities at port. These rules may affect grain revenues.

In its decision relating to CPR's new grain demurrage policy, the Agency found that it was unreasonable to characterize a portion of the amount earned by CPR, as a result of these new rules, to be demurrage. Consequently, a portion of the amount earned from demurrage was to be included in the calculation of the revenue cap. CPR appealed the Agency's demurrage decision. The appeal was upheld by the Federal Court of Appeal in a June 2003 decision, which directed the Agency to redetermine the matter. In redetermining the matter, the Agency found that no portion of the money collected by CPR for grain port demurrage should be deemed to be grain revenue in either of the two crop years 2000-2001 or 2001-2002. The grain revenue for both years was therefore adjusted.

As a result of the Federal Court ruling, CN requested that the Agency amend its 2001 decision in respect of its own demurrage policy and determine that no portion of its revenue collected for grain port demurrage, for crop year 2002-03, be deemed as revenue under the revenue cap. The Agency maintained its 2001 ruling and deemed it appropriate to include a portion of CN's grain port demurrage charges as revenue under the revenue cap regime for 2002-03. The Agency found that one of CN's terms and conditions – starting the demurrage clock immediately upon placement of rail cars at port for unloading rather than at midnight of the day of placement – resulted in CN's program falling outside the definition of demurrage. As a result, the Agency found that the amount that CN collected as grain port demurrage for crop year 2002-2003 cannot all be characterized as being in respect of demurrage.

In April 2003, the Agency announced a year-over-year decrease of 2.4 per cent in the Volume-Related Composite Price Index for the movement of Western grain for crop year 2003-04. The index is an inflation factor to reflect CN's and CPR's price changes for railway labour, fuel, material and capital inputs. It is used with other inputs (volume and length of haul) to calculate the Western grain revenue caps.

Grain Transportation Issues

In 2003, Agency staff assisted Transport Canada in assessing the potential impact of the disposal of the Government of Canada's grain hopper car fleet on the grain revenue cap.

The Agency continued to assist Government of Canada departments in responding to the U.S. Department of Commerce's investigation of the North Dakota Wheat Commission's petition for a countervail duty on Canadian wheat exports to the United States. The Agency's analysis of similar grain traffic movements under the revenue cap regime versus non-revenue cap movements was used in the U.S. Department of Commerce's finding. That finding was upheld in the U.S. International Trade Administration ruling that the revenue cap regime is not a countervailable subsidy.

In 2003, the Agency also assisted Government of Canada departments in responding to the U.S. Trade Representative's petition to the World Trade Organization (WTO), under Article XXII of the General Agreement on Tariffs and Trade, 1994, on the export of wheat by the Canadian Wheat Board and Canada's treatment of imported grain. Agency staff provided expert advice to the Canadian delegation team at two WTO hearings in Geneva. The WTO is expected to rule on the U.S. complaint in early 2004.

Cost-of-Capital

In early 2003, the Agency approved separate cost-of-capital rates for CN and CPR. The annual rates are used to develop the volume-related price index which, in turn, is used to determine the railway revenue cap for the movement of Western grain. The Agency also determines rates for cost-of-capital for other railway costing requirements, including the development of interswitching costs and rates.

The cost-of-capital rates for CN and CPR, which will be used in calculating their respective revenue caps for crop year 2003-04, are 9.96 per cent and 10.09 per cent, respectively. The cost-of-capital is the return expected and required from an investment in a firm's debt or equity. The Act and applicable regulations recognize it as an established economic cost of railway operations. The cost-of-capital includes the costs of financing the acquisition of capital assets – namely, interest on debt and return on equity. The cost of debt is equal to the interest on related bonds. Measuring cost of equity, or the return that shareholders expect, involves an analysis of various financial models, risk assessment and other technical relationships.

In September 2003, the Agency initiated a dialogue with CN, CPR and other interested parties on recurring issues raised by the railways regarding the Agency's estimate of cost-of-common-equity rates. The main issues under review are the appropriateness of financial models to be used in estimating the cost-of-common-equity and the source of relevant data as required inputs to the various models. The Agency will render its decision in 2004.

Net Salvage Value Determinations

Section 143 of the Act requires railway companies to advertise the availability of railway lines for continued operation before discontinuing them. Parties are free to negotiate an acceptable sale price. However, any party to the negotiation for transfer of a line can ask the Agency to set the net salvage value of the line for continued operation. The requesting party must reimburse the Agency for its costs in handling the application. If the railway does not transfer the line after advertising it, it must offer to transfer the line to the federal, provincial, municipal or district government for not more than net salvage value of the line. Governments may use the line for any purpose after taking possession.

In November 2002, the Nova Scotia Utility and Review Board granted an application from the Cape Breton and Central Nova Scotia Railway to discontinue service and abandon a portion of the Sydney Subdivision, pursuant to the Province of Nova Scotia's Railways Act, 1993. The Province of Nova Scotia asked the Agency to determine the net salvage value of the line. The Agency completed its report for the Province in early 2003. Subsequently, the Province co-ordinated an agreement that would provide for increased traffic on the line. As part of the agreement, the Cape Breton and Central Nova Scotia Railway withdrew its discontinuance and abandonment plans.

In April 2002, the Hudson Bay Railway Company, a wholly owned subsidiary of OmniTRAX Canada, Inc., indicated, in its three-year rail network plan, its intention to discontinue service of its Sherridon Subdivision. The rail line provides the only all-weather surface access to the Mathias Colomb Cree Nation at Pukatawagan, in northern Manitoba. The Hudson Bay Railway Company provides freight service to Pukatawagan, and also passenger service under contract with VIA Rail. In January 2003, the Mathias Colomb Cree Nation expressed interest in buying the line and asked Indian and Northern Affairs Canada for funding to buy the rail line. The Government of Canada department said that it would support a study to prepare a business plan for a rail service on the line, but its funding programs required the Mathias Colomb Cree Nation to find other partners for the project.

The Government of Manitoba's Department of Transportation and Government Services offered to contribute to the business plan study in part by contracting with the Agency for a determination of the net salvage value of the rail line. Indian and Northern Affairs Canada agreed to accept this contract as part of Manitoba's contribution to the study. OmniTRAX Canada, Inc. agreed to co-operate with the Agency in its determination of the net salvage value. The Agency completed its report for the Province of Manitoba by the end of July.

Regulatory Railway Costing

The Agency maintains a railway costing model to estimate the railway operating costs for CN and CPR. The costing model is based on railway-submitted costing data, which is reviewed and approved by the Agency. It is used in a variety of applications, such as adjudicating rail service and rate disputes; in setting interswitching rates under the Railway Interswitching Regulations; in determining overhead used for charges in the construction and the maintenance of railway crossing protection at railway crossings and, in estimating the impact of possible changes in transportation policy as well as other related regulatory activities.

As part of the process of setting interswitching rates, the Agency makes visits to railway yards to review interswitching operations. Each year, the Agency visits different yards to ensure that the rates reflect the cost of interswitching traffic at all locations across Canada. In 2003, the Agency visited rail yards in Vancouver, Edmonton, Moose Jaw, Winnipeg, Montréal and Québec City.

Historical Price Indices

The Agency develops indices to measure the change in the prices of labour, fuel and material for CN and for CPR. The Agency uses these prices to establish the maximum revenue cap for Western grain movement by CN and CPR. The indices, updated annually, are also used to develop railway costs when using more than one year of data.

Mediation

In 2003, the Agency dealt with 21 mediation cases regarding rail disputes. Of those, 13 were new requests and eight were continued from the previous year. Of the 21 cases, six were mediated successfully, four were resolved during pre-mediation and four cases were pending at the end of the year. Of the remaining seven cases, one was withdrawn, one was not accepted because of jurisdictional issues, and five did not proceed because the respondents declined to mediate.

The Agency observed increased opportunities to use mediation in the rail sector in 2003, as this method of dispute resolution became more widely accepted among users and carriers. Participants in the mediation program included a major municipality, a provincial utility, two provincial ministries and various private businesses and transportation providers. Issues ranged from infrastructure and noise disputes to level-of-service problems and rates.

The Agency continued its efforts to inform interested parties about mediation as an option in dispute resolution, through targeted advertising and publications. In addition, several meetings were held with users and carriers to discuss when and how mediation could be effective in dealing with some specific areas of chronic conflict.

Communicating with Canadians

In its continued commitment to inform and consult the railway industry and its users, the Agency carried on a wide variety of communication activities in 2003.

The Agency responded to over 350 inquiries and requests for information from various parties in the rail industry. Most of these queries were related to the existing provisions of the Act, namely, the competitive access provisions, such as level-of-service, interswitching and final offer arbitration, railway crossing agreements and disputes, certificates of fitness, transfer and discontinuance and western grain revenue cap.

A number of inquiries also came from grain shippers and from producers who load their own grain into railway cars. Their questions related to car supply, car maintenance and various aspects of railway service.

Formal consultations about the Railway Interswitching Regulations, the Procedures for the Conduct of Final Offer Arbitration and the Rules of Ethics for Prospective Arbitrators were conducted with railways, shippers, provincial governments, Government of Canada departments, municipalities and other interested parties. There were also formal consultations regarding maintenance rates and charges for railway work at road/rail crossings, and railway noise and proximity issues.

A new Guide on Railway Charges for Crossing Maintenance and Construction was published by the Agency in 2003. It is available in print form or can be downloaded from the Agency's Web site (www.cta-otc.gc.ca).

Early in 2003, the Agency was approached by the Canadian Grain Commission regarding the provisions of the Act in relation to grain producers loading producer cars. In March and April, Agency staff gave presentations in Saskatchewan to a diverse audience of grain transportation industry stakeholders regarding level-of-service provisions, final offer arbitration and the Agency's mediation services. Discussions continued with representatives of federal and provincial government agencies, shippers and railways, including short-line railway companies. An advisory committee was formed to produce a Best Practices Guide for Producer Car Loading. Agency staff was asked to provide information to the committee on dispute-resolution mechanisms available under the current legislation. It is expected that the Best Practices Guide for Producer Car Loading will be released in 2004.

Agency staff also met with Government of Québec officials to discuss the manner and conditions under which short lines or tourist trains could operate on the network of a federal railway.

The Agency continued to carry on information exchanges in 2003 with railway carriers and shippers' organizations, including the Canadian Fertilizer Institute, the Canadian Canola Growers Association, the Western Transportation Advisory Council, the Canadian Industrial Transportation Association, the Saskatchewan Association of Rural Municipalities and the Council of Forest Industries. The Agency provided information about its mandate and responsibilities, and explained current legislative and regulatory provisions for transportation services in Canada.

Formal presentations were made to visiting railway delegations from China, the Philippines and Russia, and to the Ontario Good Roads Association.

The Agency hosted its annual forum for members of the Railway Association of Canada to meet Agency staff and representatives of other Government of Canada departments and agencies.

The Agency participated in seven municipal trade shows in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario and Québec.

Cases Before The Courts

Federal Court of Appeal - Cases Decided in 2003

Real Fafard et Jacques Borduas v. Canadian National Railway Company, Ville de St-Basile-Le-Grand and Transport Canada

Court File No.: A-374-01

Appeal of Agency Decision No. 18-R-2001, dated January 12, 2001, made in the matter of an application by Real Fafard and Jacques Borduas pursuant to Section 103 of the Canada Transportation Act to construct and maintain a private level crossing in the town of St-Basile-le-Grand, in the Province of Québec. On June 3, 2003, the Federal Court of Appeal dismissed the appeal.

Ville de Montréal v. Canadian Pacific Railway Company

Court File No.: A-608-01

Application for judicial review of Agency Decision No. 499-R-2001, dated September 21, 2001, regarding an application for a determination of the apportionment of costs for the construction and future maintenance of a fence along a railway track in the City of Montréal, in the province of Québec. On February 27, 2003, the Federal Court of Appeal determined that it did not have the jurisdiction to deal with a direct judicial review application. On April 8, 2003, the Federal Court of Appeal denied the City of Montréal's application for an extension of time to seek leave to appeal Agency Decision No. 499-R-2001.

Canadian Pacific Railway Company v. Canadian Transportation Agency

Court File No.: A-193-02

Appeal of Agency Decision No. 664-R-2001, dated December 21, 2001, wherein the Agency determined that it had jurisdiction to examine the reasonableness of the revenue amount charges by a railway under a demurrage program. On June 23, 2003, the Federal Court of Appeal quashed the Agency's decision and ordered a redetermination.

Ferroequus Railway Company v. Canadian National Railway Company and the Canadian Transportation Agency

Court File No.: A-89-03

Appeal of Agency Decision No. 505-R-2002, dated September 10, 2002, made in the matter of an application to the Agency for an order granting Ferroequus the right to run and operate its trains on and over specified lines of CN and for an order varying Ferroequus's certificate of fitness in accordance with the requested running rights. On November 26, 2003, the Federal Court of Appeal dismissed the appeal.

Federal Court of Appeal - Cases Pending in 2003

Canadian National Railway Company v. Regional Municipality of York and the Canadian Transportation Agency

Court File No.: 03-A-45

Application for leave to appeal Agency Decision No. 517-R-2003, dated September 10, 2003, made in the matter of an application for a determination of the apportionment of costs for the reconstruction of an at-grade road crossing in the town of Richmond Hill, in the regional municipality of York, in the province of Ontario. On December 10, 2003, the Federal Court of Appeal granted leave to appeal.

Petitions to the Governor in Council - Cases Pending in 2003

Village of Stenen v. Canadian Transportation Agency

Petition to the Governor-in-Council regarding Agency Decision No. 703-R-2000, dated February 15, 2000, which dismissed the complaint of the Mayor of Stenen, Saskatchewan, against the Canadian National Railway Company for removing a siding.

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