Decision No. 529-R-2009
December 31, 2009
DETERMINATION by the Canadian Transportation Agency of the Western Grain Revenue Caps for the movement of western grain by prescribed railway companies for crop year 2008-2009.
DETERMINATION by the Canadian Transportation Agency of the IDF contributions claimed by the Canadian National Railway Company with respect to crop year 2007-2008.
DETERMINATION by the Canadian Transportation Agency of a prescribed railway company's revenue for the movement of western grain for crop year 2008-2009 and whether a prescribed railway company's western grain revenue exceeds its corresponding Revenue Cap, pursuant to sections 150 and 151 of Division VI, Part III of the Canada Transportation Act, S.C., 1996, c. 10, as amended.
 This Decision provides the Canadian Transportation Agency's (Agency) determinations of the Western Grain Revenue Caps, and revenues, for the movement of western grain by prescribed railway companies for crop year 2008-2009. These determinations are necessary to ensure that a prescribed railway company's western grain revenue does not exceed its maximum revenue entitlement, which is referred to as its Revenue Cap. If a prescribed railway company's revenue exceeds its Revenue Cap, the company must pay out the excess amount and penalties, as specified in the Railway Company Pay Out of Excess Revenue for the Movement of Grain Regulations, SOR/2001-207. There were two prescribed railway companies during the 2008-2009 crop year: the Canadian National Railway Company (CN) and the Canadian Pacific Railway Company (CP).
 The Agency's determination of CN's and CP's Revenue Caps must utilize the formula, the base year statistics, and the volume-related composite price index as defined in section 151 of the Canada Transportation Act (CTA). It also requires CN's and CP's specific tonnage and length of haul statistics for crop year 2008-2009.
 The Agency's determination of each of CN's and CP's western grain revenue complies with subsections 150(3),(4) and (5) of the CTA. It also complies with Agency Decision No. 114-R-2001 dated March 16, 2001 concerning the interpretation of a number of matters that are to be considered when the Agency determines a prescribed railway company's grain revenue for Revenue Cap purposes.
1.0 CN's and CP's western grain traffic statistics for crop year 2008-2009
 A western grain movement for a given crop year is defined in section 147 of the CTA. Key terms are as follows:
- in respect of grain, means the carriage of grain by a prescribed railway company over a railway line from a point on any line west of Thunder Bay or Armstrong, Ontario, to Thunder Bay or Armstrong, Ontario, or Churchill, Manitoba, or a port in British Columbia for export, but does not include the carriage of grain to a port in British Columbia for export to the United States for consumption in that country;
- any grain or crop included in Schedule II that is grown in the Western Division, or any product of it included in Schedule II that is processed in the Western Division, or
- any grain or crop included in Schedule II that is grown outside Canada and imported into Canada, or any product of any grain or crop included in Schedule II that is itself included in Schedule II and is processed outside Canada and imported into Canada;
- "crop year"
- means the period beginning on August 1 in any year and ending on July 31 in the next year.
 The Agency's determinations of CN's and CP's tonnage and length of haul statistics for western grain movements for crop year 2008-2009 are shown in Table 1 below. These determinations were based on detailed traffic submissions by CN and CP, which were verified to ensure that the traffic qualified as western grain movements and that the related revenue, tonnage and mileage statistics were accurate. This verification led to the rejection of a relatively small amount of traffic.
|Average length of haul (Miles)||1038||895||964|
 The above table indicates that 31.2 million tonnes of western grain were moved in the 2008-2009 crop year. The 31.2 million tonne figure is 16.4 percent higher than the western grain volume for the previous crop year.
 The 2008-2009 crop year average length of haul of 964 miles shown in the above table is 17 miles, or 1.8 percent, higher than for the previous crop year.
 Churchill is an eligible western grain destination. However, the Churchill-bound movements did not qualify to be included under the Revenue Cap Program because the CTA requires the carriage of western grain to be by a "prescribed railway company" and the only railway company "involved in the movement of western grain" (or) "that performs western grain movements" at Churchill, Hudson Bay Railway Company, is not a prescribed railway company.
2.0 CN's and CP's western grain revenue caps for crop year 2008-2009
 Subsection 151(1) of the CTA states that the following formula is to be used by the Agency in its determination of a prescribed railway company's Revenue Cap:
[A/B ( (C-D) x $0.022)] x E x F
- is the company's revenue for the movement of grain in the base year;
- is the number of tonnes of grain involved in the company's movement of grain in the base year;
- is the number of miles of the company's average length of haul for the movement of grain in that crop year as determined by the Agency;
- is the number of miles of the company's average length of haul for the movement of grain in the base year;
- is the number of tonnes of grain involved in the company's movement of grain in the crop year as determined by the Agency; and
- is the volume-related composite price index as determined by the Agency.
 For CN, in respect of crop year 2008-2009, the values for A, B, C, D, E and F are as follows:
- = $348,000,000
- = 12,437,000
- = 1,038
- = 1,045
- = 14,980,650
- = 1.1493
 CN's values for A, B and D are prescribed by subsection 151(2) of the CTA. As shown in section 1.0 of this Decision, the 2008-2009 crop year values for C and E were 1,038 miles and 14,980,650 tonnes respectively. The value of 1.1493 for the volume-related composite price index for crop year 2008-2009 was determined previously by the Agency pursuant to subsection 151(5) of the CTA in Decision No. 207-R-2008.
 Applying these values to the Revenue Cap formula results in a CN Revenue Cap for crop year 2008-2009 of $479,105,143.
 For CP, in respect of crop year 2008-2009, the values for A, B, C, D, E and F are as follows:
- = $362,900,000
- = 13,894,000
- = 895
- = 897
- = 16,215,713
- = 1.1493
 CP's values for A, B and D are prescribed by subsection 151(3) of the CTA. As shown in section 1.0 of this Decision, the 2008-2009 crop year values for C and E were 895 miles and 16,215,713 tonnes, respectively. The value of 1.1493 for the volume-related composite price index for crop year 2008-2009 was determined by the Agency in Decision No. No. 207-R-2008.
 Applying these values to the Revenue Cap formula results in a CP Revenue Cap for crop year 2008-2009 of $485,955,953.
3.0 Determination of CN's and CP'S western grain revenue for crop year 2008-2009
3.1 Revenue and revenue reductions
 The determination of a prescribed railway company's grain revenue requires many assessments by the Agency as to what is to be included as revenue or as an allowable reduction to revenue. While a partial list of such matters appears in subsections 150(3), (4), and (5) of the CTA, a more comprehensive list was established, following consultation with the grain industry, in Decision No. 114-R-2001.
 In summary, a prescribed railway company's statutory western grain revenue stems mostly from billings generated by application of rates contained in published tariffs or in confidential contracts applicable to western grain movements. A railway company's statutory grain revenue also includes:
- a portion of amounts received for ensuring car supply through the car ordering process;
- amounts received for providing premium service;
- amounts received for performing interswitching or exchange switching; and,
- amounts received for additional switching requested by the shipper.
 A railway company's statutory grain revenue is to be net of any amounts paid or allowed for incentives, rebates or any other similar reductions, and does not include:
- amounts that are earned which the Agency characterizes as a performance penalty or as being in respect of demurrage or for the storage of rail cars loaded with grain;
- amounts earned for staging of rail cars in transit;
- amounts for additional car switching, necessary due to shipper error or failure to meet obligations; nor
- compensation received for running rights.
 Allowable reductions to a railway company's statutory grain revenue include:
- the amortized amounts of contributions for the development of grain-related facilities to a grain handling undertaking that is not owned by the company (Industrial Development Fund contributions, or IDF);
- amounts paid or allowed for interswitching or exchange switching; and,
- amounts related to container pickup and delivery charges that are included in gross revenue amounts for intermodal movements.
 The following matters do not reduce a railway company's statutory grain revenue:
- amounts paid or allowed as dispatch;
- amounts paid by railway companies resulting from the discontinuance of grain-dependent branch lines;
- amounts paid by the railway companies as a performance penalty; and,
- amounts paid for running rights.
3.2 Agency review of revenue and revenue deductions, and general findings
 Railway company records relating to western grain revenue were audited by Agency staff. Initial freight revenue, including payments to other railway companies involved in the carriage of grain, were submitted by CN and CP on a per movement basis. Both were verified against company accounting records and source documents. Numerous onsite visits were also made to CN and CP offices to ensure that all western grain revenue was captured and to determine whether revenue exclusions or reductions were appropriate and accurate.
 Based on the audit findings, a number of adjustments were made to CN and CP revenue-related items. A number of issues were also reviewed this year that have implications for the Agency's determinations and they are addressed below. Taking all of the findings and adjustments into account, the Agency has determined CN's and CP's western grain revenue for crop year 2008-2009 to be: CN= $479,788,412; CP = $484,806,288.
3.3 Issues to be addressed
 The issues that the Agency will address are:
- Source of tonnage information to be used in the determination of Revenue Caps for each railway company.
- CP TRIEX system and the determination of rail revenues for intermodal movements.
Industrial Development Fund (IDF) Contributions
- cost of capital; and,
- amortization method.
1. Source of tonnage information to be used in the determination of Revenue Caps for each railway company.
 Subsection 151(1) of the CTA states that the formula used by the Agency in its determination of a prescribed railway company's Revenue Cap includes both the number of tonnes of grain involved in the company's movement of grain in the base year and the number of tonnes of grain involved in the company's movement of grain in the crop year as determined by the Agency.
 Until the 1995 repeal of the Western Grain Transportation Act, the National Transportation Agency, a predecessor to the Agency, received weight information directly from the Canadian Grain Commission (CGC) as the weights were required to administer the subsidy program under that Act. Since the inception of the Revenue Cap Program, the Agency has received unload weight information from the railway companies as part of the Grain Traffic Database. The Canadian Grain Commission (CGC) is the federal government agency responsible for weighing and grading grain unloaded at terminal and transfer elevators in Canada. The Agency also notes that the CGC provides both railway companies with weighing information on a daily basis.
 As part of the verification process, and following approval and authorization from the railway companies, Agency staff obtained unload weight information directly from the CGC. Staff compared the CGC information with the data received from the railway companies and found some minor differences, which CN and CP were asked to address.
Positions of the parties
 CP historically used CGC unload weights as its source of data for the Revenue Cap. However, according to CP, it no longer receives CGC unload data. Instead, for the 2008-2009 crop year CP used its records of the weight received from the shippers at origin. CP undertook its own analysis of origin weights versus CGC unload data and CP indicates that the difference was minor.
 CN maintains that the CGC data is problematic and is concerned with the Agency using it as a source to replace CN-reported tonnage. CN states that "In the near future CN plans to no longer use the CGC tonnes in its reporting for the revenue cap." Furthermore, CN staff have advised that they have been using "manually reviewed and corrected" CGC tonnes as the basis for the Revenue Cap reporting. CN indicates that its validation procedure ensured that the cars were in fact CN cars, that part unloads were accounted for and that data entry errors were corrected.
 Agency staff undertook a comparative analysis of the CGC data and the data submitted by the railway companies. The comparative analysis focused on hopper car movements to Thunder Bay, Prince Rupert and Vancouver, as these account for over 95 percent of the tonnage moved under the Revenue Cap. For the CGC data and data submitted by the railway companies, Agency staff matched records by car initial, car number, origin and destination.
 Using the above methodology, 73 percent of CP hopper car movements were matched with CGC data, accounting for more than 11 million tonnes. The Agency finds that in 84 percent of the matches, the tonnage differences were within half a tonne; for 11 percent of the matches, the differences were within two tonnes; and, for the remaining 5 percent of the matches, the differences were more than two tonnes. The Agency finds that using the CGC tonnage data instead of the CP-reported tonnage raised the tonnage total for CP for this crop year by roughly 400 tonnes.
 The remaining 27 percent of the hopper car movements submitted by CP could not be easily matched to the CGC data due to time constraints and, therefore, the CP weight information for those movements was used as submitted by CP.
 Using the aforementioned method of comparative analysis, 85 percent of CN's hopper car movements were matched with CGC data, accounting for more than 12 million tonnes. For just under 90 percent of the matches, the Agency finds that the tonnage differences were within half a tonne; for an additional 6 percent of the matches, the tonnage differences were within two tonnes; and, for the remaining 4 percent of the matches, tonnages differed by more than two tonnes. The Agency finds that using the CGC tonnage data instead of the CN-reported tonnage lowered the tonnage total for CN for this crop year by about 7,000 tonnes.
 The remaining 15 percent of the hopper car movements within the traffic submitted by CN could not be easily matched to the CGC data due to time constraints and, therefore, the CN weight information for those movements was used as submitted by CN.
 The Agency only became aware in 2009 that in this and previous crop years CN has not been submitting CGC data. Rather, CN has adjusted the CGC data without the prior authorization or agreement of the Agency. Furthermore, both railway companies have advised that they do not intend to use CGC data for Revenue Cap purposes and intend to submit tonnage information from other sources in the future.
 The Agency finds that CN and CP have not made compelling arguments as to why the Agency should reject CGC data and accept other sources of information of their choosing. The Agency notes that this data is being used for regulatory purposes only and this usage by the Agency does not in any manner restrict the commercial practices of the railway companies. Subsection 151(1) of the CTA requires the Agency to determine the tonnage moved. The CGC regularly tests and, if necessary, recalibrates the terminal scales, and it certifies terminal scales on behalf of Measurement Canada. The Agency also notes that CGC has an extensive validation process as well as a dispute resolution process in place that is open to all parties.
 The Agency finds that the CGC unload weights represent the most accurate and neutral accounting of the grain tonnage shipped to terminals and transfer elevators and its methodologies are applied consistently to both railway companies.
 In the interest of fairness, before accepting any alternate methodology, the Agency would need to be satisfied that the methodology would meet essential requirements of consistency and reliability and that it be verifiable by a qualified third party and/or the Agency. Furthermore, another data source meeting these requirements would need to be fully tested before adoption and would only be applied following the testing process.
 Based on its analysis, and the use of CGC tonnage and railway company-submitted weight information as noted above, the Agency finds that the tonnage for CN is 14,980,650 and for CP is 16,215,713.
 Unless otherwise determined by the Agency, the Agency also directs CN and CP to report, for all future years' determinations (beginning with crop year 2009-2010), Revenue Cap tonnages using the weights obtained from the CGC, without any adjustments.
 The Agency encourages the railway companies to use the CGC's dispute resolution program if they have difficulties with the data being submitted to them by that organization.
2. CP TRIEX system and the determination of rail revenues for intermodal movements
 Where a bundled rate is charged by a railway company for the intermodal movement of grain that falls within the scope of the Revenue Cap Program, the Agency must isolate the component that constitutes rail revenues, as only the rail portion of the movement of western grain is Revenue Cap eligible.
 For its part, CP has historically submitted annual cost-based figures as a proxy for estimating the portion of truck revenue to the total (rail and trucking) revenue received for moving intermodal containers where the overall rate includes the pricing for both rail and truck. Starting with crop year 2008-09, CP has refined its cost-based approach within a system called TRIEX (Truck Rail Intermodal Excellence).
 CP states that TRIEX is a new intermodal shipment management system that was designed to utilize web processes and real-time communication technologies to enhance CP's intermodal product and services. The implementation of TRIEX occurred in stages with full corporate roll-out in October 2008.
 In the past, a cost-based approach was used to assess embedded trucking costs and remove those costs from intermodal movement revenues. However, more recently, Agency staff worked with CN to develop a revenue-based approach that has been in place for that railway company since the last crop year, as this approach is more consistent with the revenue-based approach adopted by the Agency for the Revenue Cap Program as a whole. Since February 2009, Agency staff have had ongoing discussions with CP staff related to the development of a revenue-based approach for determining the rail portion of the overall intermodal revenues.
 On December 3, 2009, the Agency, in Decision No. LET-R-174-2009, outlined the Agency's general proposal to delay decisions, on certain specific issues where warranted, until such time as proper consultation and analysis could be completed on each issue. The Agency indicated its intention to consult with stakeholders on this general proposal in 2010, but sought comments immediately on its proposal to adopt this process for the TRIEX issue to permit Agency staff time to work with CP to develop a revenue-based approach.
 In response, CP opposed the proposal to delay a decision on the TRIEX system. It states that the only acceptable approach for crop year 2008-2009 is to accept CP TRIEX data. CP did commit, however, to the development of a revenue-based approach in 2010. Specifically, CP indicates that, with respect to the proposal to move to a revenue-based approach, "There are prospects for improvement in revenue attribution under the Revenue Cap Program by switching to a "revenue based" approach. To this end, CP will commit all necessary resources to work collaboratively with the Agency to ensure its use for the upcoming year."
Agency analysis and findings
 Agency staff have conducted an audit of the CP TRIEX System and the Agency is prepared to utilize the costing information from this system in the Revenue Cap decision of this year. However, this will be the last year in which this cost-based approach will be accepted.
 With CP's commitment to provide all necessary resources to work collaboratively with the Agency, the intent is to have in place, in time for the Revenue Cap decision of December 2010, a revenue-based approach for the determination of the rail revenues in intermodal movements.
3. IDF Contributions - Should a railway company be entitled, under the Revenue Cap Program, to retain ownership of a contributed asset as an IDF contribution, and if so, what should be the appropriate amortization methodology.
 For each crop year, the Agency determines statutory revenue for the purposes of the Revenue Cap Program as: the sum of qualifying revenue less total permissible reductions to revenue. The CTA defines what constitutes a permissible reduction to revenue under the Revenue Cap Program. This issue relates to one of the permissible reductions to revenue identified in subsection 150(5) of the CTA, commonly known as an IDF contribution.
 Subsection 150(5) of the CTA states:
For the purposes of this section, if the Agency determines that it was reasonable for a prescribed railway company to make a contribution for the development of grain-related facilities to a grain handling undertaking that is not owned by the company, the company's revenue for the movement of grain in a crop year shall be reduced by any amount that the Agency determines constitutes the amortized amount of the contribution by the company in the crop year.
 It is also important to refer to Decision No. 114-R-2001 dated March 16, 2001 (the 2001 Decision) which was issued at the outset of the Revenue Cap Program. In that Decision, the Agency interpreted a number of items that are to be considered when the Agency determines a railway company's grain revenue for Revenue Cap purposes. The 2001 Decision was issued following consultations with stakeholders, part of which was based on a consultation document (2000 Consultation Document) prepared by staff which is referenced in the 2001 Decision.
 In the 2001 Decision, the Agency addressed definitions relevant to IDF contributions as follows:
- Contribution: any assistance or tangible benefit that can be valued in money such as cash, property or services provided by the railway company.
- Grain handling undertaking: licensed operators at primary, terminal or processing elevators, licensed under the Canada Grain Act, and unlicensed operators at grain-related facilities such as seed processing plants, dehydration plants, facilities for the shipment of specialty crops and various processed grain products.
- Ownership: could refer to direct or indirect ownership, majority or minority equity interests, non-voting equity positions, and may include beneficial ownerships.
 With respect to i), the Agency noted that the general definition proposed in the 2000 Consultation Document was "accepted by everyone." With respect to iii), the Agency noted that the definition proposed in the 2000 Consultation Document was "basically accepted by all respondents" and noted that at that time neither CN nor CP owned any grain handling undertakings. With respect to ii), the Agency determined this to be the appropriate definition after considering the various positions of the participants.
 The 2001 Decision was silent on whether the cost of capital would be included in the calculations of the amortized amount of IDF contributions.
 The Agency also notes that the 10-year amortization period for IDF contributions was established at the beginning of the Revenue Cap Program, following a review of the duration of the IDF contracts, none of which reflected that the railway company would retain ownership of the asset that it had contributed, or contributed towards.
IDF contributions for 2007-2008 and 2008-2009 crop years
 CN submitted for crop year 2007- 2008 eleven amounts for consideration as IDF contributions. Four qualifying IDF contributions have been amortized over a 10-year period and these amortized amounts, including the associated cost of capital, have been accepted by the Agency as permissible reductions to the railway company's revenue.
 At issue for the remaining seven IDF contributions is whether subsection 150(5) allows for a railway company to retain ownership of its contribution. CN submits that subsection 150(5) of the CTA allows for contributions where the railway company owns the asset being provided. In Decision No. 628-R-2008, the Agency determined that this was a complex new issue that would require a careful interpretation of subsection 150(5) of the CTA. Furthermore, the Agency indicated that, should it determine that such contributions, in whole or in part, qualify as IDF contributions, the Agency would need to review and evaluate appropriate methodologies for determining the amortized amounts for such contributions. Finally, the Agency noted in Decision No. 628-R-2008 that such matters normally warrant a full industry-wide consultation and determined that a ruling on this matter would be more appropriately delayed to 2008-09 to allow for such consultation to be completed.
 For the 2008-2009 crop year, CN submitted another IDF contribution in which it retained ownership of the assets. The Agency thus needs to rule on the eligibility of eight IDF contributions in total, and should they be eligible, on the amortized amount of these contributions.
 On July 22, 2009, Agency staff prepared and circulated a consultation document (2009 Consultation Document) addressing the delayed issues, identified as follows:
- Whether the wording of subsection 150(5) of the CTA allows a railway company to retain ownership of the asset that it is contributing, or contributing money towards, in which case the contribution would be the use of the asset - (Ownership issue);
- If the answer to the above question is affirmative, what methodology should be used for such contributions, in determining the "amortized amount" of the contribution, under the subsection 150(5) of the CTA - (Amortization method issue);
 During the consultation, a third issue was raised, which, while separate from the issue of ownership, has a bearing on the determination of the amortized amount, namely:
- Whether the wording of subsection 150(5) of the CTA provides the legislative authority for the Agency to apply a cost of capital deduction when calculating the amortized amount of the contribution - (Cost of capital issue).
Position of CN
 CN indicates that it generally has two agreements to facilitate the provision of trackage to shippers to allow them to benefit from multiple-car block freight rates. The first agreement is an IDF contract with negotiated provisions respecting the railway company's undertakings for construction or extension of the siding and the customer's undertakings for minimum volumes to be shipped during the contract's term. The second agreement is a siding agreement, typically executed once construction is completed, that addresses a number of issues, and which contains, as a standard clause, that CN retains ownership of the material as a security.
 CN asserts that subsection 150(5) of the CTA has been included as an incentive to railway companies' investments in grain-related facilities and the provision of the free use of the asset is consistent with that objective. According to CN, subsection 150(5) of the CTA refers to a contribution, and not the ownership of assets that may form the contribution. CN notes that subsection 150(5) of the CTA is silent with respect to any requirement respecting ownership or transfer of property. It contends that the provision of sidings creates extended capacity and the opportunity to obtain better rates associated with multiple-car shipments, all of which contribute to the efficiency of the grain transportation system and benefit all stakeholders..
 CN also argues that the 2000 Consultation Document indicates that the Agency contemplated situations where ownership of the contribution would remain with the railway company. CN also contends that the agreements that it has filed are no different from what was contemplated in the 2000 Consultation Document, and that this situation is not new and has been allowed by the Agency since the inception of the Revenue Cap Program.
 Relying on the definition of contribution in the 2001 Decision, CN has taken the position that the property of the asset does not have to be transferred. CN asserts that it provides to a grain handling undertaking that is not owned by CN a tangible benefit in the form of free infrastructure (no rent payable), and that the benefit can be measured in money. Finally, it indicates that under the siding agreement, ownership of the material is retained by CN for the duration of the siding agreement, at which time ownership is transferred to the grain-handling undertaking.
 CN disagrees with the notion that the expression "that is not owned by the railway company" applies to the "contribution". Rather, it contends that the word "that", as reflected in subsection 150(5) of the CTA, is used to introduce a defining clause that qualifies the immediately preceding word "undertaking". CN also refers to the French version of the legislation and contends that it is even clearer in this respect.
 CN does agree that it cannot own the undertaking to which an IDF contribution is made, nor should it be allowed to submit public sidings as IDF contributions.
Position of CP
 CP indicates that if it owns any asset funded through IDF, the associated investment would be recorded in CP's owned assets investment base and it would be captured as a component of the Volume-Related Composite Price Index (VRCPI). Therefore, there would be no need to consider these assets as part of the IDF contributions consultation.
Positions of others
 The Canadian Wheat Board (CWB) maintains that the intent of subsection 150(5) of the CTA is to require that the railway company not retain ownership of an asset for that asset to be considered an IDF contribution. CWB asserts that the favourable treatment of these assets under the Revenue Cap Program is the incentive for contributing these assets, and should railway companies be allowed to retain ownership of the assets, there would be little to distinguish an IDF contribution from any other investment of a railway company.
 KAP-APAS (Keystone Agricultural Producers and Agricultural Producers Association of Saskatchewan) asserts that in subsection 150(5) of the CTA, the principle noun in the sentence in question is the "contribution" and the adjective phrase "not owned by the railway company" is clearly applied to that noun. KAP-APAS contends that the claim of CN that the rent-free provision of infrastructure constitutes an IDF contribution is counter to the legislative intent that a contribution be for the "development of grain-related facilities". KAP-APAS argues that the requirement that the contribution be "for the development of a grain-related facility" can be construed as a restriction on the railway company retaining ownership of the contribution. KAP-APAS also disagrees with CN's arguments referring to the 2000 Consultation Document and notes that the Document was prepared for consultation purposes only and the material of the 2000 Consultation Document referred to by CN was not in the 2001 Decision. Furthermore, KAP-APAS contends that had the Agency wanted to make a ruling on this matter, it would have done so in the 2001 Decision in the section on "Ownership".
 The Western Grain Elevator Association (WGEA) supports the view that the free use of materials installed on grain elevator sidings promotes efficiencies and is a benefit to producers and grain elevators. The WGEA contends that subsection 150(5) of the CTA should be flexible enough to allow a railway company to retain ownership of the asset that it is contributing, or contributing money towards. At the same time, the WGEA emphasizes that the contribution must be made to a grain handling undertaking that is not owned by the railway company, as per the clear legislative requirement.
 Transportation Policy and Service Development, Manitoba Infrastructure and Transportation (Manitoba) submits that the actual ownership of the asset should be applied in determining if it is a permissible reduction under subsection 150(5) of the CTA. Manitoba adds that it is difficult to realistically determine if the use of track infrastructure is provided for "free" to grain customers, noting, for instance, that the right to store its own cars on the siding at its own discretion can be retained by the railway company. Manitoba also raises concerns about recognizing the use of an asset as an IDF contribution with a reduced amortization period of 10 years, as it might open the door to other situations not originally intended in the Revenue Cap Program, for instance the numerous grain facilities served by public sidings that are owned by the railway companies.
Agency analysis and findings
 The Agency notes that some of the arguments raised by CN relied on the 2000 Consultation Document. It is important to note, however, that as stated by KAP-APAS, this document was prepared by Agency staff and shared with participants in the grain industry for consultation purposes only. Therefore, no inferences can be drawn from that document as to the Agency's interpretation of ownership unless specifically adopted in the 2001 Decision.
 This is the first time that the Agency has had to address the issue of ownership of IDF contributions.
 The Agency notes that the 10-year amortization period used for IDF contributions reflected an analysis of the length of the existing IDF contracts at that time, none of which involved ownership of the assets remaining with the railway company. This understanding that the assets would not remain with the railway company led the Agency not only to adopt a 10-year amortization period for the IDF contribution but also to make adjustments to the property accounts used for developing the VRCPI. Furthermore, all contributions under subsection 150(5) of the CTA have been removed during the development of CN and CP's investment price indices because assets not owned by a railway company are not to influence a railway company's price determinations.
 The Agency became aware in 2009 of certain provisions in the siding agreements that make it clear that, in fact, CN does retain ownership of the assets under some IDF contributions. The Agency finds that the 10-year amortization period and the adjustments to the property accounts used for developing the VRCPI are not necessarily appropriate where the railway company continues to own the assets that form the IDF contribution.
 With respect to the interpretation to be given to subsection 150(5) of the CTA, the Agency finds that it is the grain handling undertaking that cannot be owned by the railway company. The English version of the text supports this interpretation and there is no other possible interpretation of the French version of the text. The Agency has applied this interpretation consistently since the inception of the Revenue Cap Program and the 2001 Decision clearly indicates that the restriction on ownership was clearly associated with the "undertaking", as the title of the section that addressed this question makes clear: "9.5 Definition of ownership of undertakings". The Agency finds no basis in law to come to a different conclusion.
 The Agency notes that the term "contribution" has already been defined in the 2001 Decision. This definition is very broad, and does not explicitly or implicitly prohibit the "assistance or tangible benefit" from taking the form of the use of an asset. It is clear that an asset may convey "assistance or tangible benefit" when it is being offered for use, and not only when it is given. Furthermore, the provision of an asset without rental charges, as is the case here, can be valued in monetary terms. As such, the Agency finds that the free provision of an asset falls within the definition of contribution.
 In response to the contention of KAP-APAS that the requirement that the contribution be "for the development of a grain-related facility", the Agency finds that the placement of track or other physical assets contributes to the development of the grain-related facility. In examining this question in the past, the Agency, in the 2001 Decision, found it reasonable that IDF contributions "for the development of a grain-related facility" be restricted to contributions of a physical nature. The Agency finds that the physical nature of the contributions is not affected by whether the asset is owned by the railway company or not.
 The Agency, therefore, finds that an IDF contribution can take the form of the use of a physical asset owned by a railway company.
(b) Cost of capital
Positions of the parties
 CN indicates that the economic methodology used by the Agency to determine the amortized amount properly is consistent with the subsection 150(5) of the CTA.
 KAP-APAS contends that the Agency does not have the legislated authority to afford railway companies a cost of capital deduction from the Revenue Cap. It indicates that in all accounting methodologies, the amortized value is only the amortized cost of the contribution over a set period of time and that there is no indication in the legislation that this is the cost allowed to be deducted from capped earnings. It speculates that this mistake was likely made when the Agency transitioned from a cost-based regulatory regime to a revenue-based regime. It claims that the cost of capital deduction forces farmers to pay the railway companies risk-free interest for the privilege of making that investment on their behalf.
 Manitoba does not support the inclusion of the cost of capital, arguing that amortization for accounting purposes does not generally include an interest payment and that there is sufficient incentive to make these investments without an additional cost of capital deduction.
Agency analysis and findings
 The Agency has consistently amortized the contribution with the associated cost of capital since the beginning of the Revenue Cap Program and this practice was not seen as contentious until the question was raised in the context of the consultation in 2009 on IDF contributions.
 The Agency also notes that the concept of amortization should be defined independently of the concept of ownership, as ownership has no bearing on what should constitute the amortized amount under the law.
 Under subsection 150(5) of the CTA, the Agency has very broad discretion to determine what constitutes the amortized amount for IDF contributions. The term amortized is not defined in the CTA, but is commonly accepted to have two possible meanings, one that focuses on the liquidation of a debt, mortgage, or other obligation by payments or by periodic payments to a sinking fund, and another that focuses on the gradual write-off of an asset. In the first interpretation, the consideration of cost of capital would be appropriate, whereas in the second instance, it would not be.
 The Agency is of the opinion that subsection 150(5) of the CTA was conceived as an incentive scheme to encourage railway companies to continue to make contributions for the development of grain-related facilities; it is appropriate, therefore, for the Agency to take this objective into consideration when determining what constitutes the "amortized amount." More specifically, because the Agency is of the opinion that this provision was constructed as an incentive scheme for railway companies, the Agency finds it more reasonable to give it a liberal, rather than a restrictive, interpretation. Further, the Agency finds this approach to be appropriate given that the term amortized is not defined in the legislation and it has two meanings, one of which provides for the inclusion of the cost of capital.
 Accordingly, the Agency finds no compelling reason to change its interpretation and practice, and finds it appropriate to continue to include cost of capital in its determination of the amortized amount for IDF contributions.
(c) Amortization method issue
Position of CP
 CP states that with respect to IDF financed assets in customer ownership, the current IDF contribution amortization process is appropriate.
 CP submits that, if indeed CP owns any asset funded through IDF contributions, as described in the consultation plan, then the associated investment is recorded in CP's owned assets investment base. Consequently, the depreciation and cost of capital associated with those assets is included in the annual determination of investment indices calculated and approved by the Agency. According to CP, the investment index is a component of the VRCPI and thus there is no need to consider those assets as part of the IDF contribution consultation.
Position of CN
 On the issue of the amortization method, CN maintains that the 10-year amortization period was established by the Agency prior to 2000 when Agency staff provided that amortization period to the Kroeger Review and subsequently to Transport Canada when legislation implementing the Kroeger recommendations was under development. CN argues that it was on the basis of the 10-year amortization period that the Revenue Caps were determined by Parliament and enacted in the current legislation. CN also submits that all investment decisions it has made have been on the basis of a 10-year amortization period. CN therefore maintains that if the Agency were to change the amortization period, it would be highly prejudicial to CN, would cause railway companies to reassess their investment programs in the future and would amount to changing the scope and effect of a legislative provision without the required amendment by Parliament. In response to CP's position, CN states that it is not asking the Agency, when making its VRCPI calculation, to account for investments made as IDF contributions. It is CN's position that the appropriate treatment of IDF contributions is that afforded by subsection 150(5) of the CTA.
Positions of others
 The CWB indicates that there is no need to consider the most appropriate means of amortizing IDF contribution assets owned by railway companies as they should not be considered an IDF contribution in the first place.
 KAP-APAS states that should the Agency rule that railway companies are entitled to retain ownership of an IDF qualified asset, then the value of the contribution should be amortized over the approximate life expectancy of the asset, and take into consideration the salvage value of the materials. This treatment, it contends, would be consistent with the accounting methodology for other assets owned by railway companies. KAP-APAS also notes that the ten-year amortization period was established because it was assumed that the railway companies would not retain ownership of the asset. The period was an estimate of the average length of the many existing IDF contracts and it reflected the average length of the contract that railway companies were assured to receive benefit from their investment.
 The WGEA notes that it is its understanding that the 10-year amortization period was developed in the context of the Kroeger process and by examining various IDF contracts. It stresses that altering a process upon which investment decisions have been made over the last ten years would be problematic. It recommends that the 10-year amortization period be retained, regardless of the ownership of the siding and/or materials.
 Manitoba supports an amortization period consistent with the expected life of the assets rather than a 10-year period, should a railway company own any asset funded through IDF contributions.
 As stated above, the Agency has very broad discretion under the CTA to determine what constitutes the amortized amount for IDF contributions.
 It has been argued that the Agency, in determining the appropriate amortization period for IDF contributions, should be consistent with the development of the base year's revenues for railway companies as set out in component A of subsection 151(1) of the CTA (CTA's Base Year Revenues), which are used to determine the annual Revenue Caps. For example, if a 10-year amortization period was used to derive the CTA's Base Year Revenues, then the same 10-year amortization period should apply to allowable contributions under subsection 150(5) of the CTA.
 The Agency notes that, at the request of Transport Canada, Agency staff documents prepared for Transport Canada at the early stages of consideration of a Revenue Cap Program were shared with the railway companies. These documents contained options for deriving Base Year Revenues and one option reflected a reduction for IDF contributions. However, this option was not chosen for legislative purposes and consequently, the Base Year Revenues set out in subsections 151(2) and (3) of the CTA do not reflect any reductions for IDF contributions. Therefore, the Agency rejects the suggestion that it must maintain a specific amortization period to maintain consistency with the development of Base Year Revenues, as the Base Year Revenues were not reduced for IDF contributions.
 While there may have been exchanges at the time between Agency staff and Transport Canada in which Agency staff provided approximations of the IDF contribution amortized amounts to reduce the eligible revenues of railway companies, they cannot be ascribed more than an illustrative value for the sake of assisting policy advisors in developing proposed legislation. The Agency also notes that the legislator had the option of prescribing, in more detail, how the amortized amount for IDF contributions should be computed. However, instead of prescribing a fixed amortization period in law, the legislator chose to give the Agency broad discretion to determine "any amount that the Agency determines constitutes the amortized amount?".
 As set out above, the Agency has already noted that the 10-year amortization period was applied, based on the Agency's assessment, at the beginning of the Revenue Cap Program, of the length of IDF contracts which did not reflect that the IDF contributions were assets owned by the railway companies. The choice of a single amortization period of 10 years also took into account the need for administrative efficiencies, as there were hundreds of IDF contribution amounts to be considered at the beginning of the program. It cannot be presumed that the Agency would necessarily conclude that the same amortization period would apply when the railway company owns the asset. In fact, the Agency is of the opinion that a more refined and detailed approach is appropriate in the future to new IDF contributions, one that approximates the value of the railway company's contribution in light of the specific circumstances of each IDF contribution.
 The Agency recognizes that both the prescribed railway companies and grain handling undertakings are free to negotiate IDF contracts that best serve their respective interests. The Agency is primarily concerned that any such contracts are valid IDF agreements and contributions made pursuant to those contracts constitute eligible reductions to the Western Grain Revenue entitlements under the CTA, and secondly that any related amortized amount best reflects the amortized value of the contribution being given by the railway company.
 The Agency is of the opinion that the value of the contribution of the railway company, for the same asset, is different depending upon whether that asset remains or does not remain the property of the railway company. Indeed, both the railway company and the grain handling undertaking should consider this in reaching their agreement.
 There are different scenarios to consider in determining the amortized amount. These depend on who owns the assets, the length of the contract and any residual value established under the contract. Considering these scenarios, the Agency has come to the following conclusions:
- When ownership of the asset is transferred to the grain handling undertaking and the life of the contract is of a fixed duration, the Agency will amortize the original amount for the acquisition of the asset, including the associated cost of capital, over the life of the contract. This approach recognizes that the contribution has been exchanged for consideration that only extends for the life of the contract and the value of that consideration needs to be amortized accordingly.
- When the ownership of the asset remains with the railway company, the contract is of a fixed duration, and there is an agreed residual value whereby the grain handling undertaking can obtain ownership of the asset for that agreed value at the end of the contract, the amortized amount will be established based on the original amount for the acquisition of the asset minus the agreed residual value, amortized over the life of the contract with the associated cost of capital. In this case, the Agency finds that the value of the contribution is best approximated by the difference between the original amount minus the residual value agreed between the two parties, which would need to be amortized over the life of the contract.
- When ownership of the asset remains with the railway company, there is no end date to the contract, and there is an agreed amortization schedule whereby the grain handling undertaking could eventually acquire the asset for a nominal fee, the amortized amount in each year will be based on the agreed amortization charges in each year of the contract (the agreed residual value in the prior year minus the residual value in the current year), plus the associated cost of capital on the unamortized amount. In this case, the Agency finds that the value of the contribution in each year of the IDF contribution is best approximated by the residual values agreed to between the two parties.
- When ownership of the asset remains with the railway company, and there is no end date to the contract, and there is no agreed residual value for the grain handling undertaking to acquire the asset, the amortized amount will be based on the latest Agency-approved UCA rate, and include an amount for the cost of capital. In such cases, the Agency finds it appropriate to apply the UCA rates to the assets owned by the railway company, like any other railway asset. As there may be many types of assets involved in an IDF contribution, the Agency will use a weighted average of the Agency-approved UCA amortization rates, on the cost components for each category of asset.
 In all cases, the Agency will deduct from the amortized amount of the contribution any applicable monetary transfers from the grain handling undertaking that can be reasonably characterized as a rent fee. Furthermore, for determining the life of the contract, the Agency will consider all applicable contracts for which there is an exchange of relevant consideration for the contribution of the railway company. The railway companies will be required to file all such applicable contracts, including, without limitation, siding agreements.
 This is the first time that the Agency has made clear determinations on these issues. The Agency also accepts that the current practice for the amortization of IDF contributions may have led the railway companies to make investments from which they were expecting returns based on an understanding, not unreasonable in the circumstances, that the Agency would allow such an IDF contribution, using a 10-year amortization period.
 The Agency finds CN's request to include the one IDF contribution for crop year 2008-2009 reasonable.
 In addition, the Agency has determined that any IDF contribution investments made prior to this Decision will be based on the current 10-year amortization period. However, the Agency finds it appropriate that the determinations set out in this Decision with respect to amortization of the IDF contributions be applied to any new IDF contributions where the relevant contracts are executed after the date of this Decision.
Section 32 review of the Agency's determination of CN's 2007-2008 Revenue Cap
 The Agency delayed its decision on the seven IDF contributions submitted by CN in the 2007-2008 crop year to permit completion of full industry-wide consultations and appropriate consideration of the issues arising from these IDF contributions. Having now made findings on these issues following completion of the consultations, the Agency finds CN's request to include five IDF contributions commencing with the 2007-2008 crop year, seeking the remaining 4-5 years allowances that would remain had the amounts been submitted and approved in 2001 and 2002, to be reasonable. The Agency also finds CN's request to include two other contributions commencing in crop year 2007-2008 to be reasonable.
 Accordingly, the Agency concludes that there are new facts or circumstances sufficient to trigger the Agency's jurisdiction under section 32 of the CTA. Furthermore, the Agency finds it appropriate to review and vary the 2007-2008 Decision to incorporate these findings and, in particular, to vary its determination with respect to CN's revenue for the 2007-2008 crop year.
 Accordingly, the Agency, pursuant to section 32 of the CTA, varies Decision No. 628-R-2008 as follows:
The 2007-2008 CN revenue figure shown in Table 2 of Decision No. 628-R-2008 is revised from $409,267,319 to $408,808,916 and the excess amount is revised from $25,961,880 to $25,503,477.
 Under the Agency's original determination, CN exceeded its Revenue Cap for crop year 2007-2008 and consequently paid the Western Grains Research Foundation (Foundation) the amount of excess plus a 15-percent penalty. As this Decision lowers CN's excess amount in its Revenue Cap for crop year 2007-2008, CN overpaid the Foundation in respect of that crop year. Consequently, the Foundation is requested to return the amount of $527,165.
 The IDF contributions adjustment has been taken into account and applied in the Agency's determination of CN's Revenue Cap for crop year 2008-2009.
4.0 Comparison of CN's and CP's 2008-2009 Revenue Caps and Revenue
 In summary, the Agency has determined the western grain Revenue Caps and revenue for CN and CP for crop year 2008-2009 as set out below. CN has exceeded its cap by $683,269 whereas CP has remained below the cap by $1,149,665.
|Crop year 2008-2009||Revenue cap||Revenue||Excess amount||Amount below revenue cap|
 Subsection 150(2) of the CTA provides that if a prescribed railway company's revenues for the movement of grain in a given crop year, as determined by the Agency, exceed the company's Revenue Cap for that year, the company shall pay out the excess amount, and any penalty that may be specified in the regulations. The Railway Company Pay Out of Excess Revenue for the Movement of Grain Regulations, SOR/2001-207 (Regulations) provide, in part:
[2.] The penalty that a prescribed railway company shall pay out pursuant to subsection 150(2) of the Act, if the company's revenues for the movement of grain in a crop year exceed the company's maximum revenue entitlement for that year, as determined under subsection 151(1) of the Act, is
- five per cent of the excess amount, if that excess amount is one per cent or less of the company's maximum revenue entitlement; or
- 15 percent of the excess amount, if that excess amount is more than one per cent of the company's maximum revenue entitlement.
[3.] (1) If the Agency concludes that a prescribed railway company's revenues for the movement of grain in a crop year exceed the company's maximum revenue entitlement for that year, as determined under subsection 151(1) of the Act, the Agency must make a decision or order requiring the company to pay out the excess amount and the applicable penalty, as determined under section 2, in accordance with subsection 150(2) of the Act.
(2) A decision or order in relation to a crop year must be sent to a prescribed railway company no later than 10 days after the Agency determines the company's revenues for the movement of grain and maximum revenue entitlement for that year.
[4.] (1) The excess amount and the penalty that a prescribed railway company shall pay out pursuant to subsection 150(2) of the Act must be paid out to the Western Grains Research Foundation in the form of a certified cheque, money order or bank draft.
(2) At the time an excess amount and the applicable penalty are paid out, the prescribed railway company must notify the Agency, in writing, of the amount paid out and the date on which it was paid out.
(3) An excess amount and the applicable penalty must be paid out no later than 30 days after the day on which the prescribed railway company receives the decision or order referred to in section 3.
 Given that CN's statutory grain revenue exceeds its Revenue Cap for crop year 2008-2009 by an amount of $683,269, the Agency, pursuant to subsection 150(2) of the CTA and subsection 3(1) of the Regulations, orders CN to pay to the Western Grains Research Foundation, within 30 days from the date of this Decision, the amount of $717,432 representing the sum of the excess amount of $683,269 and the prescribed penalty of $34,163 as provided for under paragraph 2(a) of the Regulations.
 Upon payment of the excess amount and the applicable penalty, CN, pursuant to subsection 4(2) of the Regulations, is to notify the Agency, in writing, of the amount paid out and the date on which it was paid.
- Geoffrey C. Hare
- Raymon J. Kaduck
- John Scott