Decision No. 294-R-1991
June 3, 1991
APPLICATION by Canadian Pacific Limited pursuant to section 160 of the National Transportation Act, 1987, R.S.C., 1985, c. 28 (3rd Supp.) for authority to abandon the operation of the segment of the Shogomoc Subdivision from mileage 54.2 to mileage 88.5 and the segment of the Gibson Subdivision from mileage 0.0 to mileage 22.0, a total distance of 56.3 miles, in the Province of New Brunswick.
File Nos. T 6120/080
HEARD in Florenceville, New Brunswick, between January 29 and February 1, 1991.
Mr. Craig S. Dickson Chairman of the Hearing, National Transportation Agency
Mr. J.D. Mutch Member
Mr. Edmund J. O'Brien Member
Mr. Louis Gautier Counsel, National Transportation Agency
Mr. Forrest C. Hume Counsel, Canadian Pacific Limited
Mr. P.A. Huband Counsel
Mr. D.D. Ekbote Witnesses, Canadian Pacific Limited
Mr. Fred Green
Mr. Robert Neil
Mr. Peter Michael Valade
Mr. Donald M. Gillis, Q.C. Counsel, McCain Foods Limited
Mr. Ron J. Gillis, Q.C. Counsel
Mr. Dave McInroy Witnesses, McCain Foods Limited
Mr. Wallace McCain
Mr. Archibald D. MacLean
Mr. John F. Edsforth
Mr. Deane Crabbe President, H.J. Crabbe & Sons, Ltd.
Mr. Iain Dunlop Rail Enterprises Limited
Mr. Albert R. Godbout Grand Falls Region Development Commission Inc.
Mr. Blair McInnis Chairman and Legislative Director, Brotherhood of Maintenance of Way Employees
Mr. William T. MacLean Town Manager, Town of Nackawic
Mr. Steven P. Hawkes Mayor, Town of Nackawic
Hon. Sheldon Lee Minister of Transportation of the Province of New Brunswick
Mr. Claude Bourgeois Department of Transportation of the Province of New Brunswick
Mr. Walter W. Steeves
Mr. John Taylor B.I.D. Canada Ltd.
Mr. David A. Young Comptroller, Hartland Agromart Ltd.
Mr. Gordon J. Roach Carleton Regional Development Commission
Mr. David Dow Town of Hartland, New Brunswick
Mr. Jack F. Sadler Ralph F. Sadler Limited
Ms. Shirley R. Morris Deputy Mayor, Florenceville, New Brunwick
E. Stickney Councillor, Florenceville, New Brunswick
Mr. Harold W. Culbert Town of Woodstock, New Brunswick
Mr. Willard Kitchen President, W.K. Lumber Ltd.
Mr. William J. Tompkins W.F. Tompkins and Sons Ltd.
S. Bolster Councillor, Village of Perth-Andover, New Brunswick
On January 18, 1990, Canadian Pacific Limited (hereinafter the applicant) gave notice pursuant to section 160 of the National Transportation Act, 1987 (hereinafter the NTA, 1987) of its intention to apply to the National Transportation Agency (hereinafter the Agency) for authority to abandon the operation of the segment of the Shogomoc Subdivision from mileage 54.2 to mileage 88.5 and the segment of the Gibson Subdivision from mileage 0.0 to mileage 22.0 (hereinafter the branch line), a total distance of 56.3 miles, in the Province of New Brunswick. A map of the area is attached as Appendix 1.
On June 6, 1990, the applicant filed with the Agency its application to abandon the branch line and gave public notice as required.
In accordance with section 161 of the NTA, 1987, any person may oppose an application for the abandonment of the operation of a branch line by filing with the Agency, not more than sixty (60) days after the date of the notice of application, a written statement setting forth the grounds on which that person opposes the application. If no opposition is received, the Agency must order the operation of a branch line abandoned. In response to this application, fourteen interventions were received by the Agency.
Where an application is opposed, the Agency is required to determine the actual loss, if any, of the railway company in each of the three prescribed years and to give notice of its determination pursuant to section 163 of the NTA, 1987. On October 25, 1990, the Agency published an interim determination based on the information submitted by the applicant of the actual losses incurred by the applicant in 1987, 1988 and 1989. This Notice invited further submissions, and asked specifically for evidence that the branch line could, with reasonable probability, become economic in the foreseeable future. Four persons replied reaffirming the position expressed in their earlier interventions and one new party intervened in opposition to the application.
Pursuant to the public notice which issued on January 9, 1991, a public hearing commenced on January 29, 1991 in Florenceville, New Brunswick with eighteen parties registering with the Agency to appear.
Until March 1987, the Shogomoc Subdivision had been a contiguous 105 mile track connecting the McAdam Subdivision at the southern terminus of the Shogomoc Subdivision with the Edmundston Subdivision at its northern terminus.
In late March 1987, two major rail bridges crossing the Saint John River at mileages 54.0 and 100.4 were destroyed during spring flooding of the river. As a result, in order to serve both traffic originating and terminating on the Shogomoc Subdivision and traffic moving over the Subdivision, the applicant implemented operational changes using alternative rail lines. The alternative route for the segment of the Shogomoc Subdivision encompassed in this application was the Gibson and Fredericton Subdivisions including a segment of the Canadian National Railway Company (hereinafter CN) Nashwaak Subdivision to cross the Saint John River at Fredericton over which the applicant has running rights. This alternative route added some 60 miles to the distance for traffic moving through McAdam to or from the segment of the Shogomoc Subdivision encompassed in the branch line.
In 1988 and 1990, the Agency received and subsequently approved abandonment applications relating to adjacent segments of the Shogomoc and Edmundston Subdivisions of the applicant (Order Nos. 1989-R-90, 1989-R-91, 1991-R-10 and 1991-R-11).
HISTORY OF THE BRANCH LINE
The New Brunswick Railway Company (hereinafter NBR) built the Gibson segment in 1873 and the Shogomoc segment between 1871 and 1878. On July 1, 1890, these branch lines were leased to the applicant for a period of 990 years. In 1988, the applicant created the Canadian Atlantic Railway (hereinafter CAR) as a marketing and business unit with responsibilities for the management and operation of the transportation services of the applicant east of Mégantic, Quebec.
LOCATION OF THE BRANCH LINE
The segment of the Shogomoc Subdivision for which abandonment is sought runs from the Saint John River, south of Newburg near Woodstock, north to Upper Kent. It has a dead end at mileage 54.0 and at mileage 88.5. At mileage 54.2, the Gibson Subdivision begins and runs east and south. The Southampton Spur leaves the Gibson Subdivision at mileage 22.0 near Millville. The Gibson Subdivision continues south to connect at mileage 59.0 with CN Nashwaak Subdivision at South Devon near Fredericton crossing the Saint John River via a CN bridge and then connecting with the Fredericton Subdivision of the applicant and the rest of the network of the applicant at Fredericton Junction.
DESCRIPTION OF SERVICE
Train service is provided on the branch line three times per week in each direction by a wayfreight assignment operating on even days from Florenceville to Fredericton. The crew remains there overnight and returns the next day to Florenceville. The same assignment provides switching service north of Florenceville on an "as and when required" basis.
ALTERNATIVE TRANSPORTATION SERVICES
The nearest alternative rail loading points served only by the applicant are at Nackawic on the Southampton Spur portion of the Gibson Subdivision, and at Fredericton and McAdam. Both the applicant and CN serve Grand Falls and St. Léonard.
Trucking services are available from many trucking companies which operate in the region. The Trans Canada Highway, consisting of a single lane in each direction runs parallel to the branch line and within 5 kilometres of it.
Traffic moving on the branch line consists largely of fertilizer chemicals, food products, raw materials and fuel. Florenceville generates 90 percent of the traffic being handled on the branch line. The following table summarizes the annual total carload traffic during 1987-89:
|Station||1987 In||1987 Out||1988 In||1988 Out||1989 In||1989 Out||1989 In % Distribution||1989 Out % Distribution|
In addition to the information submitted to the Agency by way of its application of June 6, 1990, the applicant provided the following evidence at the hearing.
The CAR mandate was identified as "... to reduce the losses on these lines and ultimately to make any line that could become economically viable economically viable.". In this context, CAR renewed its efforts to uncover new rail traffic opportunities, cultivate and capture new customers, and motivate existing clients to increase its rail business. This was found to be difficult as changes in gross vehicle weights and dimensions had increased the ability of the trucking industry to make inroads into the market for line haul between 500 and 700 miles which previously had been the domain of the railway company. The effect of these inroads has put in question the ability of CP Rail to survive. The applicant also sought out the assistance of what it termed as "stakeholders" which included unionized employees, union representatives, shippers and municipal, provincial and federal government representatives and agencies to find ways and means of turning CAR into a profitable operation. While a number of cost saving and new revenue producing measures were introduced, little new traffic was generated from points on the branch line.
CAR investigated establishing with CN a co-service agreement for portions of the New Brunswick CAR network but concluded that no mutually satisfactory agreement could be reached. CAR also investigated the potential for selling the branch line to a short line operator and concluded that a short line operation could not become viable. As a last resort, CAR concluded it had no recourse but to seek relief by applying for abandonment.
With respect to the costs, revenues and traffic, the applicant indicated that the 1990 traffic on the branch line was 475 carloads, a decline of 6 percent from 1989 levels. This resulted in claimed actual losses of $792,393. The applicant also calculated that in order for it to break even on the 1989 actual losses, a 40.5 percent increase in rates would be required or if rates remained the same, 3,800 carloads would have to be handled on the branch line based upon the 1989 traffic mix. The applicant based this analysis on 1989 information instead of 1990 to avoid any detrimental influence the December 1989 fire at McCain Foods Limited (hereinafter McCain) plant may have had on the 1990 economics. With respect to future expenditures required for the continuing operation of the branch line, the applicant indicated that "To keep the lines in service, assuming that we handle the same traffic volumes and types that we would today, it would require expenditures of $939,000 spread over the next five years. These expenditures are over and above the normal, day-to-day maintenance expenses which we would continue to incur. The bulk of this $939,000 relates to programmed replacement of cross and switch ties....". Of this, $570,000 would be in capital replacement, the rest would be labour and other expenses.
The applicant also estimated that the average daily truck movements on the Trans Canada Highway in the area served by the branch line was 630 trucks per day. It was the position of the applicant that if the present rail traffic were to be moved by truck, this could add 7 trucks per day to the existing traffic.
With respect to the potential for future traffic volumes being handled on the branch line, the applicant indicated that McCain, the major shipper on the branch line, had advised that the applicant was "... already handling all available carload opportunities, both inbound and outbound. The only potential identified was a Plan One piggyback trailer [service] McCain suggested we study....", that being trailers loaded onto flatcars to move between Florenceville and Montréal or Toronto.
After discussing this potential piggyback traffic with McCain from May 1988 to October 1989, the applicant concluded that it could not handle the traffic at rate levels requested by McCain and improve the viability of the branch line. The applicant testified that it required a rate of $1.36 per mile compared to a rate of 95 cents per mile which McCain indicated was required to be competitive with truck broker rates. As a result, the applicant concluded that there was no probability of this traffic transferring to rail and of the branch line becoming economic in the foreseeable future.
Prior to and during the course of the public hearing, the Agency heard evidence from over twenty parties.
McCain gave evidence of the importance of rail service to the operation of its company and the impact which would be realized with the loss of rail service. McCain argued that CAR had not tried sufficiently to market its services and capture new business for the branch line with McCain, Thomas Equipment and the McCain Fertilizer business units. McCain was willing to consider moving a substantial volume of its existing truck shipments from both the Florenceville and Grand Falls plants onto rail. In exchange, McCain required service guarantees from CAR along with a truck competitive tariff. McCain testified that it would put whatever traffic it could on the branch line to ensure rail service retention, however, the selection of transport was made ultimately within the McCain group of companies by the various traffic managers and the owners of the companies.
With respect to the discussions held between the applicant and McCain for the "Plan `1'" piggyback traffic, this additional potential was indicated to be between 7,800 to 15,600 trailers for transportation between Florenceville and both Montréal and Toronto. At the outset, McCain insisted that it required a truck competitive rate of 95 cents per highway mile.
McCain also presented evidence to suggest that, in addition to the piggyback business, certain cost adjustments with respect to the operation of the branch line in 1989 could result in the applicant realizing a net contribution rather than a loss. McCain proposed these should be considered when assessing the future viability of the branch line. McCain raised seven points on this matter.
- McCain urged the Agency to consider making a separate determination of the economic viability of the twelve mile segment north of Florenceville since it handled only 12 inbound carloads of traffic in 1989 and 11 in 1990, but contributed as much as $178,000 of the 1989 losses.
- If current train service were reduced to twice a week, it was suggested by McCain that the applicant could save $42,000.
- McCain suggested that a further $13,000 saving per annum could result because the applicant could be operating cabooseless trains in the future.
- With respect to the potential trailer on flatcar movements between Montréal and Toronto, McCain submitted that the applicant could realize an annual profit of $1,324,000 over the costs incurred in providing this service.
- McCain also submitted that the entire amount the applicant claimed for its cost of capital with respect to on-line road property should be excluded. McCain argued that since the applicant leases the branch line (rather than owns it) and if the operation of the branch line were to be abandoned, the road property assets in this case could not be retired, but rather should be returned to NBR (the lessor). If unable to retire the assets in the sense of liquidating them, McCain concluded, the applicant should not claim them as the basis for the cost of capital that is otherwise allowable. McCain estimated this amount to be $279,000. McCain also requested that the Agency review the depreciation rates used by the applicant to ensure that the claimed depreciation costs were consistent with the Agency findings in the Chapais and Chester Decisions.
- In addition, McCain raised the issue of the treatment of "on company service" traffic (hereinafter OCS) related costs. Materials purchased by the applicant and transported over its lines for installation in its system are treated as moving at no cost to the applicant. In the case at bar, McCain argued that if the operation of the branch line were abandoned, the applicant would not be able to transport OCS material over the branch line, and therefore, the additional costs incurred in acquiring and transporting OCS material should be credited against the actual loss. McCain did not estimate these additional costs. Instead, McCain recommended that the Agency develop this cost and if that was unfeasible, the Agency should consider this factor as an intangible favouring the probability of the branch line becoming economic.
- Finally, McCain requested the Agency to review the empty return methodology which has been used by the applicant in developing the costs associated with the outbound movement of frozen foods from Florenceville to Portage la Prairie, and to make an adjustment in the cost, if appropriate, to reflect a specific empty return ratio as opposed to a train run average.
McCain also speculated that a new McCain plant starting up in Prince Edward Island might become a source of unquantified additional shipments which could perhaps be trucked to Florenceville and from there forwarded by rail to other points. According to Mr. W. McCain, "...we will ship product from [P.E.I.] and transship either from Moncton or ship up here, bring it here, and put it on trucks and go from here, and/or some by rail, to Western Canada. Some of it will go -- it has to be by rail. So it will either have to come from Moncton or it will come up here and be transshipped by truck or transshipped with other [rail] loads going west."
Hartland Agromart Ltd.
This company receives about 50 carloads of fertilizer ingredients from points in Ontario, Quebec and New Mexico, mainly during a six week period in the spring when road restrictions are in place. The regional road system, and therefore highway freight traffic, is subject to load restrictions due to the spring thaw. This limits truck load capacity and increases the numbers of truck loads moved during that season. Thus, demand for commercial trucking services also peaks in the spring in this region, particularly among agricultural chemicals/fertilizer supply companies such as Hartland Agromart Ltd. Hartland Agromart Ltd. indicated that the loss of rail service could require the company to double its storage facilities. In addition, the company would have to move to trucking during the period when weight restrictions and peak demand for trucks occur which could result in increased transportation costs to this company. Hartland Agromart Ltd. alleged that CAR did not market its services adequately and referred to difficulties one of the Hartland Agromart Ltd. suppliers had in obtaining CAR rate quotations. No future traffic projection was submitted as evidence. The company is partially owned by ICI Chemicals and that company controls choice of transportation in some cases.
B.I.D. Canada Ltd.
This company was recently established on the Trans Canada Highway in Woodstock and manufactures material handling equipment primarily for chips and logs in pulp mills. Some products are very bulky which means that the only practical means to ship from coast to coast is by rail. In 1989, the first year of operation, it forwarded one shipment of 27 carloads from Edmundston via CN since the terminating point for the shipment was served by CN. The company forecasted a seven to ten car shipment destined for Thunder Bay to move in April 1991, and it was exploring the suitability of facilities at Nackawic and Hartland. B.I.D. Canada Ltd. stated that, ideally, it would still like to see its future shipments going from Woodstock.
H.J. Crabbe & Sons, Ltd.
H.J. Crabbe & Sons, Ltd., operator of a lumber mill and building supply outlet, indicated in a written intervention that it would "like to build a warehouse on a rail line in the area within five years, if the rail service is still here". Mr. Crabbe also took the position that an abandonment application would not be before the Agency at present if the applicant had managed its business properly.
Restigouche Cedar Ltd. of St. Quentin, W.K. Lumber Ltd. of Woodstock, Ralph F. Sadler Limited of Perth-Andover, and W.F. Tompkins and Sons Ltd. of Bath opposed the rail abandonment. Most of the traffic of these interveners was OCS traffic, such as railway ties and timbers which the applicant transported over the branch line for use in its system. From available data in three of the four submissions it was estimated that their rail shipments totalled about 205 carloads. W.K. Lumber Ltd. indicated that its rail usage would increase 10 percent annually; none of the other interveners offered any future traffic projections.
Province of New Brunswick
The Honourable Sheldon Lee, Minister of Transportation of the Province of New Brunswick, presented the opposition of the government to the rail abandonment. He expected that rail abandonment would have negative consequences, such as additional truck traffic on overburdened highways and related public interest and safety factors.
Although the Minister suggested that the applicant had the expertise to operate a viable short line operation, he acknowledged that with the existing level of traffic on the branch line it would have little chance of success.
The Minister stated that piecemeal abandonment should not occur but rather the rail system as a whole must be addressed.
New Brunswick Railway Company
In its written submission, NBR stated that the Agency did not have the jurisdiction to consider the application before it as the applicant only operated the branch line and was not the owner. In addition, NBR submitted that the applicant was not allowed to combine two segments of two different branch lines of railway.
NBR also argued that the branch line should not be abandoned since it would result in the de facto abandonment of an adjacent segment of the Shogomoc Subdivision which had been ordered abandoned previously, although the abandonment had been stayed pending an appeal to the Federal Court and the Governor in Council. Finally, NBR submitted that the Agency should take into consideration the economics of the entire rail system of the applicant in western New Brunswick rather than looking at lines in isolation.
Rail Enterprises Limited
Rail Enterprises Limited (hereinafter REL) intended to create a short line railway company and to offer to purchase certain rail line segments in western New Brunswick in the future. In opposing the abandonment application, Rail Enterprises Limited submitted that the operation of the branch line could be economic if operated by a short line type of railway company.
Other Public Interest Interveners
Submissions were also made by the Carleton Regional Development Commission, the Grand Falls Industrial Development Commission, the Towns of Nackawic, Hartland and Woodstock, and the Brotherhood of Maintenance of Way Employees of New Brunswick. Among these groups, the evidence pertained to considerations such as poor service being offered by the applicant; marketing of the rail service; the need for rail service for regional progress and development; the potential for intermodal development in the area; the potential increases in highway congestion resulting from abandonment; and environmental implications.
The Agency also received written submissions containing arguments on public interest grounds from the Village of Perth-Andover, G. Thompson, M.P. for Carleton-Charlotte, and from the New Brunswick Federation of Labour.
The Lease with the New Brunswick Railway Company
Submissions were made that the Agency could not accept this abandonment application as the applicant was not the owner of the facilities but rather the lessee. This issue was raised and addressed by the Agency in Decision No. 350-R-1989 respecting an application by the applicant to abandon certain segments of the Dominion Atlantic Railway (hereinafter DAR) and in the Reasons for Order No. 1989-R-90, another application by the applicant to abandon segments of the Shogomoc Subdivision.
In the Decision regarding the applicant and DAR the Agency determined that "the abandonment provisions of the NTA, 1987 are not affected by the long-term lease of the line between the DAR and CP. Subsection 160(4) of the NTA, 1987 specifically states that an application for abandonment is for the abandonment of the operation of a branch line and not for the abandonment of a line." In the Reasons for Order No. 1989-R-90, the Agency determined that "... the fact that there is a long lease of the line is not of itself a bar to the granting of an abandonment application. Parliament has made provisions for abandonment of operation upon application to and order of the Agency. The abandonment provisions of the NTA, 1987 are not subject to the lease and are not rendered ineffective or inoperative by it.".
In the case at bar, the Agency confirms this position and finds that the applicant is the appropriate party to exercise the legal right to apply for the abandonment of the operation of the branch line.
NBR had also argued that the statutory agreement between NBR and the Province of New Brunswick (hereinafter the Province) committing NBR to operate the branch line also committed the applicant to operate the branch line until expiration of the lease. The Agency has determined that any statutory obligation between NBR and the Province remains with NBR and is not transferred to the applicant.
Stay of Previous Orders
Certain interveners proposed that the Agency should not process the present application as an appeal had been filed with the Federal Court of Appeal against Agency Order No. 1989-R-90 dated May 12, 1989 and since that Order had been stayed preventing its execution. That Order dealt with portions of the Shogomoc Subdivision between Woodstock and Newburg and from Upper Kent to Aroostook. The Agency must issue a decision with respect to this application. The NTA, 1987 does not permit the suspension or rejection of an abandonment application on these grounds.
Some interveners proposed that the Agency should examine the entire railway network of the applicant in north and western New Brunswick rather than dealing with a segment in isolation. Under the NTA, 1987, the applicant has the right to apply for abandonment of operations over any segment of any branch line it operates. Furthermore, the Agency is obligated to make a determination of the economic status of the branch line based upon its findings regarding the revenues and expenditures required to operate the branch line and to consider the originating and terminating traffic. The Agency has decided not to extend the scope of its investigation beyond consideration of the trackage referred to in this application.
Relationship Between CAR and the Applicant
Certain interveners submitted that the costs attributable to the operation of the branch line should be based upon the costs of operations of CAR rather than the costs of the applicant. In examining the evidence adduced at the hearing, the Agency has determined that where possible, all costs specifically identifiable through company records and reported by the applicant, are CAR costs incurred in operating the branch line. The remaining costs have been approved by the Agency in accordance with the Railway Costing Regulations, SOR/80-310.
Marketing of the Branch Line
Several interveners alleged that CAR failed to market its rail carload services sufficiently which led to declining carload traffic volumes and resulted in the operation of the branch line becoming non-viable. The interveners cited examples such as non-competitive rates in relation to highway transport, and promotion of other modal services and reload centres off the branch line. However, through direct evidence and cross-examination, the Agency found that the applicant had expended significant effort in retaining customers and uncovering potential customers. The Agency concludes that the unprofitability of the branch line was not caused by the alleged lack of marketing effort of the applicant.
On Company Service Traffic
Lumber companies in the northwest portion of the province deliver to this branch line rail ties and timber which the applicant purchased and shipped for use in the maintenance of its rail network. These materials were carried by the applicant at its own expense and this traffic is termed OCS. The evidence indicated that the applicant handled approximately 205 carloads of OCS traffic on the branch line in 1989. There was also an additional, though unquantified, amount of one-time OCS traffic associated with the removal of material salvaged from a washed out bridge at mileage 100.4. Interveners have proposed that the traffic, costs and any revenues from OCS movements should be considered in the actual loss determination in this application.
In determining the actual loss attributable to the operation of a branch line, no costs associated with the movement of this particular traffic are allowed. This traffic does not actually generate revenue in the sense that commercial freight would, although it might have an intrinsic revenue value. If the applicant should bill itself for these movements, it should set a rate equal to the cost of the movement. The intrinsic revenue value would be equal to the avoidable cost of the carriage of that traffic. Neither the intrinsic revenue nor the avoidable costs of this traffic movement is allowed. The Agency has determined that in the case at bar the avoidable costs of these OCS movements should not be allowed, pursuant to paragraph 157(3)(a) of the NTA, 1987, in its determination of the amounts of the actual losses attributable to the operation of the branch line. The Agency has also confirmed that OCS traffic and its avoidable costs have been properly excluded and no revenues were in fact claimed by the applicant.
As a result of recent Court decisions, it is mandatory that the Environmental Assessment and Review Guidelines Order, SOR/84-467, be applied to all government decisions, including decisions and orders issued by the Agency.
The Agency has established, in consultation with the Federal Environmental Assessment Review Office, an exclusion list of Agency activities which do not warrant environmental assessment. This branch line abandonment case has been excluded from the federal environmental regulatory process on the grounds that the abandonment would not produce any adverse environmental effects or that there are readily available to all parties measures to mitigate any negative environmental impacts which could conceivably arise in the foreseeable future.
Short Line Railway
While REL expressed an interest in developing a short line railway using all or portions of the branch line, section 174 of the NTA, 1987 prescribes that a railway company proposing to purchase a branch line must (1) make an offer of not less than the net salvage value of the branch line in question and (2) the railway company proposing to purchase the branch line must be authorized to operate railway lines. As the above criteria have not been met, the Agency is unable to consider the possibility of the branch line being sold.
The applicant stated that although it remained open to discussions with REL, the CP/CAR policy was that any short line proposal had to be based upon a solid business plan which demonstrated that a short line operation could be profitable. The REL business plan had not achieved this objective.
DETERMINATION OF ACTUAL LOSS
Where an application is opposed under section 161 of the NTA, 1987, section 163 requires the Agency to determine the amount of actual loss, if any, of the railway company attributable to the operation of the branch line in each of the prescribed financial years and to cause public notice of the determination made and of the principal factors applied in making that determination. In a Notice dated October 25, 1990, the Agency published an interim determination of the amounts of the actual losses incurred by the applicant in the operation of the branch line during 1987, 1988 and 1989, based on information submitted by the applicant.
During the hearing, direct evidence was presented with respect to the specific aging characteristics of the branch line, depreciation rates, bridge traffic, empty return ratios, reduced crew costs and OCS costs. With the exception of bridge traffic and reduced crew costs, the Agency determined that the costs as submitted by the applicant were reasonable.
Although the applicant adjusted its costs for bridge traffic, the Agency disallowed further costs. The applicant objected to the Agency method of adjusting for bridge traffic on the basis that such an adjustment was not reasonable for light traffic density lines such as this branch line. However, the Agency could not accept the proposition of the applicant that only $2,004 in track and roadway maintenance costs should be removed from a claimed amount of $511,807 when overhead traffic represented 37 percent of the total gross ton miles handled in 1987.
With respect to reduced crew costs, when the applicant operated a train with an engineman, a conductor and one brakeman, the applicant was required to pay 25 percent of the wages of the unused second brakeman into a special compensation fund for crew members who would be affected when a train operated in this fashion. This agreement was reached between the applicant and the labour unions and expired in July 1989. In addition, branch line abandonment could mean a portion of the wages of the second brakeman would be avoided. The interim determination did not reflect the operation of reduced crews on the branch line and the corresponding reduction in a portion of the wages of the second brakeman. After analyzing the impact, the adjustment was applied to the final determination of actual loss. The adjustment, however, only reduces total costs fractionally.
Therefore, after considering all the evidence, the Agency, in accordance with the provisions of the Railway Costing Regulations section 157 of the NTA, 1987, rules that the final determination of actual loss occurred in the operation of the branch line is as follows:
|Year||Total Costs $||Revenues $||Actual Losses $|
Pursuant to paragraph 163(1)(c) of the NTA, 1987, the Agency hereby causes public notice of the final determination of actual loss and attaches a breakdown of these costs as Appendix 2.
Section 164 of the NTA, 1987 requires the Agency to determine if the operation of the branch line is economic or uneconomic, and, if uneconomic, whether there is a reasonable probability of the operation of the branch line becoming economic in the foreseeable future.
From the evidence submitted by the applicant, it is evident that the station of Florenceville generates 90 percent of the traffic or 454 carloads on the branch line in 1989. The four stations north of Florenceville account for approximately 2 percent of the traffic base or 12 carloads.
Under the provisions of section 164 of the NTA, 1987, the Agency has the authority to make a separate economic determination of a segment of this branch line. The Agency has concluded that the branch line should be segmented into two segments; the trackage north of Florenceville from the McCain siding, mileage 75.96 to Upper Kent, mileage 88.5, and the remaining trackage of the Shogomoc Subdivision from Newburg, mileage 54.2 to Florenceville, mileage 75.96 including the Gibson Subdivision from Newburg, mileage 0.0 to Southampton Junction, mileage 22.0.
Mileage 75.96 to Mileage 88.5
Carload traffic volumes are extremely low on this segment. The evidence presented by McCain suggests that the costs of operating this segment in 1989 were approximately $180,000. In performing its own analysis, the Agency concluded that this estimate was reasonable. As no evidence was provided which suggested that carload volumes would be increasing in the foreseeable future, the Agency determines that the operation of this segment of the branch line is uneconomic and there is no reasonable probability of its operation becoming economic in the foreseeable future.
Mileage 54.2 to Mileage 75.96/Mileage 0.0 to Mileage 22.0
In deducting the estimated amount of the 1989 operating costs of the segment north of Florenceville from the remaining segment of the branch line, the operation of this segment still incurs actual losses. The evidence indicates that the applicant provides service three times a week on this segment. Despite this level of service, carload volumes have continued to decline. Accordingly, the Agency concludes that the operation of this segment is uneconomic.
In determining whether there is a reasonable probability of this segment becoming economic in the foreseeable future, the Agency considered all the evidence presented by all interveners, but in particular the evidence of McCain as it was evident that future traffic commitments from McCain were necessary in order to retain the branch line. The McCain business represents 81 percent of incoming traffic and 100 percent of outgoing traffic. Neither Hartland Agromart Ltd. nor the B.I.D. Canada Ltd. traffic is of sufficient volume to aid much in making the branch line an economic operation.
McCain had argued that when assessing the future viability of the branch line, the Agency should consider the impact of a reduction in train service levels from three times a week to twice a week, the cost savings associated with the utilization of cabooseless trains, the segmentation of the track to exclude the costs from Florenceville north, disallowing on-line road property cost of capital and the contribution of the trailer on flatcar traffic. Further, McCain submitted that the Agency should review the methodology utilized to calculate empty return ratios and OCS traffic.
With respect to reducing train service levels and operating with cabooseless trains, the Agency recognizes that cost savings could result. The magnitude of these savings, however, does not significantly impact the overall economic situation of this branch line. In fact, reducing train service levels could discourage shippers from using the railway to move time sensitive traffic.
The Agency has segmented the branch line and excluded the costs incurred north of Florenceville.
In reviewing the issue of on-line road property, the Agency has determined that the applicant has the authority to claim costs for this asset. Although the applicant is only the operator of the branch line and not the actual owner, the fact exists that since the applicant has invested its own amounts in the branch line in order to operate it over the years, it will have some return on investment if the branch line is abandoned and the assets are retired, and as such, can therefore claim for cost of capital.
In considering empty return ratios, the applicant developed its costs using an average empty return ratio on a train run by a specific car type which was used in the carriage of traffic by McCain rather than a specific ratio determined from a detailed analysis of the utilization of the actual cars employed. The applicant indicated that the average was a close approximation of the likely specific ratio. The Agency was satisfied that the adjustment was appropriate to the case.
Finally, McCain submitted that the Agency should consider the impact of the trailer on flatcar traffic. The Agency has determined that with the current volume of carload traffic, the operation of the branch line is uneconomic. The applicant testified that the operation of the branch line could become viable if rates were increased 40.5 percent or carload volumes increased by a factor of 7.5 based on 1989. The Agency does not believe that McCain or the other present shippers can absorb such a rate increase or provide the necessary carload volumes. Therefore, the only way the operation of this branch line could become economic in the foreseeable future relates to the trailer on flatcar traffic or as previously referenced, the "Plan `1'" piggyback traffic. McCain and the applicant also recognized that this was the only means to return the branch line to viability. During the hearing, the Agency was presented with the costing scenarios of McCain and the applicant with respect to this traffic. It was evident that the main disagreement between both parties was the tariff for the carriage of this traffic which is an issue that must be resolved by the two parties.
Both parties seemed to accept this situation; this was strengthened by the fact that McCain proposed reduced traffic and service requirements for consideration by the applicant at the hearing. The applicant, in reply, filed Exhibit CP-13 which was a contract for McCain to commit 10,400 trailer loads annually between Florenceville and Toronto at a rate of $735 per load as submitted by McCain in its own evidence, with a penalty payment upon shortfall equal to the transportation charges that would have been paid if the full volume was shipped. No agreement had been reached between the two parties as of May 1, 1991.
The Agency is of the understanding that this offer by the applicant remains open to McCain for further negotiation or acceptance. However, it must also be noted that according to the evidence, both parties have been negotiating over this traffic since May 1988. As three years have expired since discussions began regarding this traffic and in light of the evidence presented, the Agency cannot reasonably conclude that the trailer traffic would likely be offered to the applicant in the foreseeable future.
Accordingly, the Agency determines that this segment of the branch line is uneconomic and there is no reasonable probability of it becoming economic in the foreseeable future.
Pursuant to sections 164 and 165 of the NTA, 1987, the Agency determines that the operation of the Shogomoc Subdivision from mileage 54.2 (near Newburg) to mileage 88.5 (near Upper Kent) and of the Gibson Subdivision from mileage 0.0 (near Newburg) to the Southampton Junction at mileage 22.0 is uneconomic and that there is no reasonable probability of its operation becoming economic in the foreseeable future and that the operation thereof shall be abandoned.
Section 168 of the NTA, 1987 provides that the Agency shall fix the date of abandonment of the operation of a branch line not less than thirty (30) days or more than one (1) year from the date of the order. In view of the low level of traffic currently using the portion of the Shogomoc Subdivision between mileage 75.96 (north of the junction with the McCain Foods Ltd. plant siding near Florenceville) and Upper Kent (mileage 88.5), the Agency determines that the operation of this segment of the branch line should be abandoned thirty (30) days from the date of the Order giving effect to this Decision.
In view of the moderate level of traffic currently using the Shogomoc Subdivision from mileage 54.2 (near Newburg) to a point in Florenceville at mileage 75.96 including the Gibson Subdivision from mileage 0.0 (near Newburg) to the Southampton Junction at mileage 22.0, the Agency determines that the operation of the segment of the branch line should be abandoned on December 31, 1991. An order to this effect will issue.