Decision No. 719-R-2006
December 29, 2006
IN THE MATTER OF the 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 2005-2006, and
IN THE MATTER OF the determination by the Canadian Transportation Agency of a prescribed railway company's revenue for the movement of western grain for crop year 2005-2006 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.
File No. T6650-2
 This Decision provides the Canadian Transportation Agency's (hereinafter the Agency) determinations of the Western Grain Revenue Caps, and revenues, for the movement of western grain by prescribed railway companies for crop year 2005-2006. These determinations, which must be completed by December 31, 2006, 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 2005-2006 crop year; the Canadian National Railway Company (hereinafter CN) and the Canadian Pacific Railway Company (hereinafter CP), about which the Agency made its Revenue Cap determinations.
 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 (hereinafter the CTA). It also requires CN's and CP's specific tonnage and length of haul statistics for crop year 2005-2006.
 The Agency's determination of CN's and CP's western grain revenue complies with the matters contained in subsections 150(3),(4), (5) and (6) of the CTA. It also complies with Agency Decision No. 114-R-2001 (In the matter of the Western Grain Revenue Cap established pursuant to Division VI, Part III, of the CTA) 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 2005-2006
 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 of 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 of Canada and imported into Canada;
[Note: there are over 50 types of grain defined in Schedule II as eligible grains under the revenue cap. These include the six major grains - wheat, barley, canola, oats, rye and flax.]
- "crop year"
- means the period beginning on August 1 in any year and ending on July 31 in the next year;
- "prescribed railway company"
- means the Canadian National Railway Company, the Canadian Pacific Railway Company and any railway company that may be specified in the regulations.
 The Agency's determination of CN's and CP's volume and length of haul statistics for western grain movements for crop year 2005-2006 is shown in Table 1 below. This determination was based on detailed traffic submissions by CN and CP. The submissions were examined to ensure that the traffic qualified as western grain movements and that the related revenue, tonnage and mileage statistics were accurate. The examination led to the rejection of a relatively small amount of traffic.
|DESTINATION||TONNES MOVED CN||TONNES MOVED CP||TONNES MOVED TOTAL|
|AVERAGE LENGTH OF HAUL (Miles)||1,005||879||941|
|Prince Rupert||4,208,797||53,085Note 1||4,261,882|
 The above table indicates that 28,389,781 tonnes of western grain were moved in the 2005-2006 crop year. The 28,389,781 volume figure is 17 percent higher than the western grain volume for the previous crop year.
 The 2005-2006 crop year average length of haul of 941 miles shown in the above table is 37 miles higher than for the previous crop year.
 Churchill is an eligible western grain destination, however, the Churchill-bound movements which took place did not qualify to be included under the Revenue Cap regime. The reason is that the CTA requires the carriage of western grain to be by a "prescribed railway company" and the Hudson Bay Railway Company is not a prescribed railway company.
2.0 CN's and CP's Western Grain Revenue Caps for crop year 2005-2006
 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 2005-2006, the values for A, B, C, D, E and F are as follows:
- = $348,000,000
- = 12,437,000
- = 1,005
- = 1,045
- = 13,837,117
- = 1.0553
 The source of CN's values for A, B and D is prescribed by subsection 151(2) of the CTA. As shown earlier in section 1.0 of this Decision, the 2005-2006 crop year values for C and E were 1,005 miles and 13,837,117 tonnes respectively. The value of 1.0553 for the volume-related composite price index for crop year 2005-2006 was determined previously by the Agency pursuant to subsection 151(5) of the CTA in Decision No. 251-R-2005 dated April 28, 2005.
 Substitution of these CN values into the Revenue Cap formula results in a CN Revenue Cap for crop year 2005-2006 of $395,737,547. In other words, after accounting for the actual tonnage and actual length of haul in crop year 2005-2006, CN's Revenue Cap is $395,737,547.
 For CP, in respect of crop year 2005-2006, the values for A, B, C, D, E and F are as follows:
- = $362,900,000
- = 13,894,000
- = 879
- = 897
- = 14,552,664
- = 1.0553
 As above, CP's values for A, B and D are derived from subsection 151(3) of the CTA and as shown in section 1.0 of this Decision, the 2005-2006 crop year values for C and E were 879 miles and 14,552,664 tonnes respectively. The value of 1.0553 for the volume-related composite price index for crop year 2005-2006 was provided in Agency Decision No. 251-R-2005 dated April 28, 2005.
 Substitution of these CP values into the Revenue Cap formula results in a CP Revenue Cap for crop year 2005-2006 of $395,041,967. In other words, after accounting for the actual tonnage and actual length of haul in crop year 2005-2006, CP's Revenue Cap is $395,041,967.
3.0 Determination of CN's and CP's western grain revenue for crop year 2005-2006
3.1 Revenue and revenue reductions
 The determination of a prescribed railway company's grain revenue requires many assessments as to what is, or is not, to be included as revenue, and what is, or is not, an allowable reduction to revenue. A partial listing of such matters appears in subsections 150(3), (4), and (5) of the CTA. A more comprehensive listing was established, following consultation with the grain industry, in Decision No. 114-R-2001.
 As a brief 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; amounts received for additional switching requested by the shipper; and, a portion of grain port demurrage charges. 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 railway 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; and, 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 with the carriage of grain, were submitted by CN and CP on a per movement basis. Both were verified, on a test basis, 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 key issues were addressed this year and they are discussed below with the exception of two issues that were deemed to be commercially-sensitive and thus, were dealt with in confidential Decisions to CN and CP. Taking all of the findings and adjustments into account, the Agency has determined CN's and CP's western grain revenue for crop year 2005-2006 to be: CN = $398,438,496; CP = $396,537,502.
(A) CN's submission under subsection 150(5) of the CTA
 CN submitted an expense related to the first phase of a project, requesting that it qualify as an eligible contribution under subsection 150(5) of the CTA. Qualifying amounts under subsection 150(5) are commonly called "Industrial Development Funds", or IDF.
 The Agency has reviewed the project and circumstances related to this expense and has decided that the expense as such does not qualify as an IDF. There are two major reasons. First, the project is not a capital project. This is consistent with CN's own accounting for this project. The project relates to repair and maintenance and such amounts do not qualify as an IDF.
 Secondly, the project does not create additional efficiencies and benefits to shippers. In this particular case, there is no new track, in the form of an extension of a siding at an existing elevator or construction of new multi-car siding at a new high-throughput elevator. In each of these cases a more efficient grain handling system would result - to the benefit of shippers (through the use of Multi-Car Block movements and the related discounts) - and this was the main reason that subsection 150(5) was included in the CTA. Because the track to which the repair and maintenance applies relates to an earlier, qualifying IDF, CN contends that the project should be approved because it is needed to sustain increased efficiencies generated at that time. But IDF are intended to create new, or additional efficiencies, and not to sustain previously-generated efficiencies; that is generally the role of repair and maintenance. The original project was designed and built according to CN engineering specifications and under CN supervision, and CN continues to receive reductions to revenue related to the original amount of the IDF contribution because qualifying amounts are amortized over a ten-year period.
(B) Traffic originating from the Stettler Subdivision
 When a western grain movement originates on track owned and operated by a shortline railway company and is forwarded to a "prescribed" railway company for further movement, the portion of the movement handled by the shortline railway company does not qualify as a Revenue Cap movement. In such cases, the prescribed railway company typically charges the shipper for the full movement from the shortline origin to the final destination, and then pays the shortline railway company an amount for the work it has performed. The amount that the prescribed railway company claims as revenue under the Revenue Cap Regime is the total amount collected for the movement, less the amount paid to the shortline railway company.
 Prior to January 19, 2006 the Stettler Subdivision was owned by Central Western Railway Corporation (hereinafter CWRC) which, in turn, contracted the Canadian Heartland Training Railway Company (hereinafter CHTR) to haul grain to Stettler where it was interchange forwarded to CP for the line haul. CP collected the revenue for the entire movement and then paid CWRC an amount for the shortline haul. CP's revenue was derived as the revenue it received for the entire movement, less the net amount paid to CWRC.
 As of January 19, 2006, CN became the owner of CWRC, inheriting the contract with CHTR. However, as CN is a federally-regulated railway company, and given that the length of haul over the Stettler Subdivision from the elevator's siding to the interchange falls within regulated interswitching limits, the entire movement over the Stettler Subdivision is now an interswitching movement. Consequently, since January 19, 2006, CP pays CN a prescribed interswitching fee for traffic originating from the Stettler Subdivision and CP's line haul revenue is derived as the total revenue it collects for the movement, less the amount paid to CN for interswitching.
 Another impact of CN's purchase of the CWRC Stettler track is that the portion of the movement from origin to Stettler is now Revenue-Cap eligible, because the owner of the track (CN) is a prescribed railway company. Accordingly, CN must claim the amount it receives from CP for interswitching, as revenue under the Revenue Cap Regime.
 The issue here is that CN sees the movement over the Stettler Subdivision as more than just "CN interswitching". From CN's perspective, it accepts that it has to report the interswitching money it receives from CP as revenue under the Revenue Cap Regime. But it also wants to be able to deduct amounts it must pay to CHTR. CN maintains that the CHTR operation over the track is the same before, and after, its purchase of the CWRC, and that nothing should change because of CN's purchase of CWRC and thus, just as CP was allowed a deduction for a shortline operator, so should CN. CN also argues that the revenue under the Revenue Cap Regime should be the same before, and after, its purchase of CWRC, both for it or the CWRC, and for CP.
 The Agency finds that once CN purchased CWRC, the movement of grain over the Stettler Subdivision became Revenue-Cap eligible. Importantly, it became subject to the Railway Interswitching Regulations, SOR/88-41, which currently prescribe a rate of $185/car. The rate of $185/car is an average rate based on CN and CP interswitching costs for all of Canada. For a specific location, the actual underlying cost may be higher or lower than this rate but the legally-established rate nevertheless still applies. If a carrier such as CN, in this case, enters into a contract with another operator to perform the interswitching workload on CN's behalf, and if it actually pays that carrier more than the prescribed interswitching rate, this is a matter that is best resolved with the shortline carrier.
 Regarding CN's argument that the revenue under the Revenue Cap Regime should be the same before, and after, its purchase of CWRC, for it or CWRC, and for CP, the Agency finds that when a prescribed railway company sells track to, or purchases track from, a shortline railway company, statutory revenue does change under the Revenue Cap Regime - because the eligible portion of the movement changes and the corresponding revenue is altered.
 It is important to note that had the Agency allowed this deduction, it would have also had to take into account the payments and other financial benefits that CN receives from CHTR. This would ordinarily offset a significant portion of CHTR payments, in return for CHTR being able to operate over its track.
(C) CN uncollectibles (bad debts)
 CN submitted a total amount of $263,963 for uncollectibles for crop year 2005-2006, reflecting revenue that was payable to CN, but which has been written off in its accounting records because there is no expectation that the amount will be recovered, for example, due to ceased operations or bankruptcy of the owing parties.
 There may be a significant gap in time between the billing for a movement and the date that an uncollectible is written off. The reason is that once a movement takes place and a party becomes liable to pay, it may be many months, or years, before the railway company acknowledges - from an accounting perspective - that the amount will likely never be recovered. While the Agency will review each uncollectible amount submitted by a railway company on a case-by-case basis, the amounts must relate to the movement of western grain and the movements must have taken place after July 31, 2000, as the Revenue Cap Regime took effect on August 1, 2000. The Agency expects that the uncollectibles submitted for a crop year will reflect those amounts written off in the railway company's accounting records during that crop year. The Agency will also ensure that, in future years, if amounts are recovered by the railway companies from previously written-off uncollectibles, such amounts will be captured as revenue under the Revenue Cap Regime.
 Of the $263,963 total amount for uncollectibles submitted by CN, the Agency:
- rejects an amount of $2,857 because it relates to a movement that took place prior to the August 1, 2000, the date on which the Revenue Cap Regime took effect;
- rejects two amounts totalling $11,102 because they relate to movements that took place prior to the August 1, 2000, the date on which the Revenue Cap Regime took effect; [the amounts also related to demurrage and had the movements taken place after August 1, 2000, only a portion would have qualified as an uncollectible as only a portion would have been deemed to be revenue under the Revenue Cap Regime]
- rejects an amount of $4,481 because it relates to movements that were not Revenue-Cap eligible and the amount was never reported as revenue under the Revenue Cap Regime;
- rejects an amount of $176 because it relates to Manual Transaction Fees charged prior to crop year 2004-2005 and the amount was never reported as revenue under the Revenue Cap Regime; and
- rejects $73,713 from another claim because it relates to movements that were not Revenue-Cap eligible and the amount was never reported as revenue under the Revenue Cap Regime.
 Therefore, only $171,634 of the $263,963 claimed by CN as uncollectibles, was allowed as an uncollectible.
(D) CN's pickup and delivery trucking charges
 CN's intermodal customers are charged a "composite" amount for haulage requiring both rail and truck movements. In order to determine the amount of revenue related only to rail, pickup and delivery (hereinafter P&D) trucking charges, lifting charges, container maintenance costs, and ownership costs for CN-owned containers must be quantified and subtracted from the composite amount. Also, as many of CN's intermodal unit (hereinafter IMU) movements terminate east of Thunder Bay or Armstrong, Ontario, the rail-related revenue for these movements must be apportioned between the eligible western domain, and the ineligible eastern domain.
 This year's review and verification of CN's revenue and revenue reductions included a review of the composite IMU revenue claimed by CN, in addition to a review of the P&D charges. The review found CN's composite revenue to be correctly stated for IMU movements, but resulted in a major revision to CN's P&D trucking charges.
 CN utilizes a tariff-based "estimation" methodology along with a set of inputs and assumptions to arrive at estimates for P&D charges for IMU traffic. Agency staff tested the methodology by comparing its results with CN-supplied invoiced amounts for a sample of 55 movements, involving 97 P&D charges. The final results indicated that CN's estimation methodology generated charges that exceeded invoiced amounts by an average of 26.9 percent.
 In response to a November 28, 2006 Summary of Findings sent to CN by Agency staff, CN noted that it had three critical problems with the Agency staff's P&D analysis. First, CN felt that the Agency staff analysis did not include trucking expenses for the P&D of the empty units that precede or follow the loaded hauls, despite the fact that CN had subsequently submitted it own analysis of empty P&D charges.
 The Agency finds that the Agency staff analysis did include allowances for the empty units, and CN confirmed this based upon its replication of these Agency staff results. In any event, the Agency staff analysis of P&D charges for the empty units produced charges that were higher than CN's own analysis. Although the Agency staff analysis required some assumptions, this approach was appropriate given irregularities in CN's analysis. The Agency accepts the higher results which are in CN's favour.
 CN also expressed concern that the Agency staff's November 28, 2006 Summary of Findings related to the P&D analysis failed to capture allowances for fuel subsidies related to P&D movements in CN-owned trucks. However, in their November 28, 2006 Summary of Findings, Agency staff wrote:
CN indicated, on November 9th, that the invoiced amounts for P&D do not capture a "fuel subsidy" that CN (indirectly) provides to its own truckers. [The invoiced amounts for P&D do capture fuel subsidies that may have applied to other truckers.] CN trucking fuel subsidy data only arrived on November 26th; but Agency staff will attempt to review, and incorporate, this data into its final assessment of P&D charges. The Members will ultimately decide as to what level of adjustment should be made to submitted P&D charges.
 CN failed to provide relevant fuel subsidy information according to Agency-determined deadlines, yet, as indicated above, Agency staff were trying to accommodate CN. The Agency finds, therefore, that CN's consternation is not warranted. Agency staff have reviewed the fuel subsidy expense data and following the correction of some anomalies, were able to arrive at an estimate for inclusion into the P&D charges. The Agency accepts that an allowance should be made for these subsidies.
 CN's third problem with Agency staff's November 28, 2006 Summary of Findings relating to the P&D analysis was that no allowance had been made to standard overhead expenses related to trucking (UCA 721).
 CN has never submitted any expenses related to trucking overheads. Nor has CP, since the Agency's first review of its P&D charges in respect of crop year 2003-2004, where significant disallowances were made, including a rejection of amounts claimed as overheads. Overall, the inclusion of such expenses is inappropriate. This is not a costing exercise. Rather, the Agency must estimate the amount of revenue embedded within a composite "rail plus trucking" IMU charge, that relates only to P&D trucking.
 CN also argues that the results of this year's P&D charge analysis (a 26.9 percent overstatement) should not be so different from last year's finding, which indicated an overstatement of only 9.5 percent. This year's analysis was based on a sample selected using a stratified random selection technique whereas last year's analysis was a judgmental/discovery sample (meaning that is was selected using one's judgement for the purpose of initial testing, to discover whether data was accurate or not). In addition, this year's sample for the P&D charge analysis is 20 percent larger than last year's sample and there is a better understanding of CN's estimation methodology. Lastly, no two samples provide the same result, especially when taken from different years. For these reasons, this year's P&D charge analysis is more reliable than last year's analysis.
 The Agency finds it appropriate to reduce CN's P&D charges by the overstatement of 26.9 percent. The overall impact of this adjustment is to lower CN's IMU P&D charges for the movement of western grain by about $380,000.
 Given that the variances between the invoice amounts and the estimates generated from CN's revised P&D estimation methodology were fairly significant, the Agency has instructed staff to continue to review this estimation methodology with CN during next year's Revenue Cap exercise.
(E) CN's new demurrage rules
 In March 2006, CN advised operators of grain car unloading facilities at Canadian ports that the CN demurrage rules would change as a result of internal CN decisions aimed at promoting the, "[...] prompt release of loaded cars, and to make the cars available for other shippers". In that letter, CN alluded to the need for the demurrage program to evolve and that in order to enhance the competitiveness and efficiency of the Canadian grain logistics system, CN would be implementing a revised destination demurrage program, to be published in Tariff CN6060-M.
 Accordingly, effective April 1, 2006, a new set of rules took effect. They apply specifically to carloads of Western Grain unloaded at facilities served by CN at the ports of Vancouver, Prince Rupert, Thunder Bay, Montréal and Québec.
 The new rules:
- Switched to a "Straight plan" to calculate demurrage charges. Under straight plan demurrage, charges are computed on a per car per day basis when a car is held longer than the "free time" allowed for unloading. (Under the old tariff, CN used an averaging system that allowed shippers to gain credits for early unloads, which could be accumulated to offset instances where more than the "free time" was otherwise used).
- Allowed for dwell time as the demurrage "clock" does not begin to count "free time" until midnight (00:01) on the day after the car is made available. (Under the old tariff the demurrage clock started immediately, at the time of actual or constructive placement).
- Allowed one day of "free time" for each car unloaded. Under this change, a shipper will have one full calendar day for unloading a car before the demurrage charges apply. This compares to two full days under the replaced tariff.
- Reduced demurrage charge to $60 per car per day. This represents a reduction from $75 per day that applies to a car held after the expiry of the "free time".
 Once CN's new demurrage rules were announced, CN and grain shippers notified the Agency of the new rules. For this reason, amounts collected by CN under its new demurrage rules must be assessed within the meaning of paragraph 150(3)(b) of the CTA.
ii) Statutory context
 Subsection 150(3) of the CTA provides, in part, as follows:
[...] a prescribed railway company's revenue for the movement of grain in a crop year shall not include
- incentives, rebates or any similar reductions paid or allowed by the company;
- any amount that is earned by the company and that the Agency determines is reasonable to characterize as a performance penalty or as being in respect of demurrage or for the storage of railway cars loaded with grain [...] [emphasis added]
 The task before the Agency is now to determine whether the amounts collected by CN under its demurrage policy are, within the meaning of paragraph 150(3)(b) of the CTA, reasonably characterized as being in respect of demurrage.
 The interpretation of this paragraph came before the Agency in respect of its determination of both CN and CP revenues for the crop years 2000-2001 and 2001-2002 respectively. At that time, both railway companies had changed their demurrage policies by narrowing or eliminating what had been regarded as shipper entitlements.
 As a result of that examination, the Agency found that part of CN's demurrage revenues could not be reasonably characterized as being in respect of demurrage and the Agency therefore included a portion of overall grain demurrage payments as being part of CN's grain revenues. This continued for the following four crop years.
 The Agency also found that part of CP's demurrage revenues could not be reasonably characterized as being in respect of demurrage. CP disagreed with this ruling and appealed it to the Federal Court of Appeal.
 In a decision of the Court dated June 23, 2003 with respect to Canadian Pacific Railway Company v. Canadian Transportation Agency and Canadian Wheat Board (hereinafter the Court Decision), Justice Marshal Rothstein in speaking for the Court quashed the Agency's ruling and remitted it to the Agency for redetermination. The Court, concerning the Agency's determination under paragraph 150(3)(b) of the CTA, found:
Therefore, the Agency may consider the level of charges and the revenues earned from imposition of those charges. However, its mandate is not to determine the reasonableness of the charges or revenues. It is to determine if the level of charges or the manner of imposing the charges indicates that any part of the revenues arising therefrom is not reasonable to be characterized as being in respect of demurrage.
 This judicial review of the Agency's decision noted several matters that while strictly speaking are not binding as they were ancillary to the main decision, provide judicial guidance on what may or may not form part of a reasonably constituted demurrage policy. In this respect, the Court noted that a policy that attempted to impose extreme demurrage charges may fall outside of what is reasonable. Similarly, the Court found that calling a tariff a demurrage tariff did not necessarily make it so, and endorsed the finding of a dissenting Member in Agency Decision No. 664-R-2001 that the elimination of "free days" could make unreasonable an otherwise reasonable demurrage policy. The Court also found that the mere switch from an average demurrage policy to a straight plan did not make the plan unreasonable.
 These guidelines are useful in determining the matter which is presently before the Agency.
iv) Agency Assessment:
 CN's new tariff differs from the preceding one in several areas, each of which are set out below.
a) Straight vs. Average Plan: As of April 1, 2006, the computation of demurrage charges became based on a "straight plan" rather than an averaging one. Comments filed with the Agency by representative shippers (including the Canadian Wheat Board, Western Grain Elevator Association and Pulse Canada) were to the effect that restrictions such as this in the new demurrage policy were more severe than those tariffs applicable to other CN commodities and that issues of car bunching and cycle times were more treatable by internal CN actions.
 The Agency is well aware of the issues of car bunching, cycle times and port congestion as well as the overall grain transportation and handling system. Nonetheless, the Federal Court of Appeal made it clear that a change from an average demurrage program to a straight one was not enough to make the latter unreasonable.
b) Decrease in the per diem per car demurrage penalty charge from $75 to $60: the Agency finds that this charge is an integral part of any reasonable demurrage policy with the only constraint being that "extreme charges" could make the policy something other than demurrage. The $60 daily charge is not an extreme charge.
c) Demurrage clock starts at the first midnight following placement: Under Tariff CN 6060 (November 1, 2004 to March 31, 2006) the demurrage clock had started at the time of actual or constructive placement of the car at destination.
 For the purposes of comparing these two commencement times, it is generally acknowledged that the time that trains arrive to place cars at destination varies uniformly over the 24-hour day. This is confirmed by an Agency staff assessment of actual car placement times for CN. Therefore, a reasonable proxy for placement time is mid-day on any given day (basically, one half of the cars would arrive before noon and one half after noon). Accordingly, it is reasonable to conclude that for comparison purposes, the train arrived at noon on the day of placement.
 In this analysis, the difference between the old and new demurrage tariffs is a gain for the shipper of one-half day. Notwithstanding, and as is set out more fully below, this gain is more than offset by a reduction in the free time available.
 CN indicated to the Agency (in its October 3, 2006 submission) that for most of CN carload traffic (under Tariff CN 9000) the start time was also midnight on the day of placement and as such, this change for grain was consistent with prevailing industry standards. By implication, as the new start time is comparable to other commodities, it is reasonable according to CN. At the same time, CN asserts (in a November 17, 2006 submission) that demurrage policies should be different between commodities so that they can be sensitive to differing logistical patterns associated with the nature of commodities (e.g. bulk v. non-bulk traffic; type of equipment and port constraints).
 The Agency acknowledges this latter point. That is, any reasonable railway demurrage policy cannot be "one size fits all". To find otherwise would not make sense as it would mean that certain industries or shippers, with difficult or time-consuming logistical constraints would be unduly hurt. For example, due to matters that relate to port congestion or bunching and which are totally beyond the shippers' control, their unload time at destination will rarely meet a tariff allowance of only one day free time. In the end, such shippers would effectively subsidize those shippers where the commodities, equipment or other factors lead to easy and fast unloading. In other words, everything else being equal, demurrage tariffs can and should, where circumstances warrant, differ between broad commodity groups.
 In light of the above, while the comparability of the new tariff policy on the starting of the clock is comparable to other general commodities covered by CN Tariff 9000, this does not mean that the new policy on this particular issue is, therefore, reasonable. On this point, the Agency acknowledges the statement contained at page 5 of the CN's submission dated November 17, 2006 to the effect that differences between Tariff CN 9004-B (for coal) and Tariff CN 6060-M relative to Tariff CN 9000 do not make the former two tariffs (9004-B and 6060-M) something other than "demurrage". Put another way, similar demurrage treatment should be based upon similar logistical patterns and structures. The CN evidence in this matter shows that grain shipments are in fact different than coal shipments, steel shipments, other non-bulk commodities or even the BN "shuttle and scoot" trains that move as a complete unit.
d) Free Time: Under the new tariff, the "free time" is one day, as opposed to two days under the old tariff representing a reduction of one full day. In conjunction with the change to the time of starting for the demurrage clock (measured from midnight start time as opposed to immediately following placement under the old approach), the time available for grain shippers to unload before a demurrage charge applies is, on average, one and one-half days.
 The impact of these two tariff conditions indicates to the Agency the importance of assessing a tariff program as a whole, rather than breaking out each item separately. As such, it is appropriate to compare CN's grain port demurrage rules to: (i) the demurrage rules in CN's Optional services Tariff CN 9000, which applies generally to carload shipments, or to ii) the demurrage rules in CP's Tariff CP 6666 applicable generally to carload shipments. It is also relevant to compare CN's grain port demurrage rules to iii) CP's grain port demurrage rules. Table 2 shows a summary of the following:
- CN Grain vs CN Other Commodities: For commodities subject to CN's Tariff CN 9000, the demurrage rules reflect: an "average" plan with debits and credits, two days of free time for unloading, an average additional time of one half a day as the clock does not begin ticking until midnight following placement, and the per car per day penalty charge is $75. This plan, as a whole, is considerably less strict than CN's new grain port demurrage rules.
- CN Grain vs CP Other Commodities: For commodities subject to CP's Tariff CP 6666, the demurrage rules reflect: an "average" plan with debits and credits, two days of free time for unloading, an average additional time of one half a day as the clock does not begin ticking until midnight following placement, and the per car per day penalty charge is $75. This plan is the same as CN's, and as a whole, is considerably less strict than CN's new grain port demurrage rules.
- CN Grain vs CP Grain: CP's grain port demurrage rules are found in Tariff CP 6666, under an Item specifically for grain. CP's rules reflect: a "straight" plan, two days of free time for unloading, an average additional time of one half a day as the clock does not begin ticking until midnight following placement, and the per car per day penalty charge is $75. In addition, CP allows for a shipper to earn dispatch, for the quick unloading of grain cars. CP's grain port demurrage rules are, as a whole, considerably less strict than CN's new grain port demurrage rules.
 The conclusion drawn from the above comparison is that CN's new grain port demurrage rules are far more strict than those which apply to general carload shipments for both CN and CP, or which apply to CP's transport of grain. In fact, the tariff evolution at CN over the past 5 years, from 2001 to 2006, shows a tightening of conditions by CN to the point where the most important variable to shippers - free time allowance - is down to one day. In effect, there has been an elimination of up to four days over this interval, having regard to the total time available under averaging system which CN previously permitted. The Agency finds that an overall reduction of this magnitude is tantamount to the "elimination of free days" and, as referenced by Justice Rothstein in the Court Decision, such an elimination would take a demurrage policy beyond what can be reasonably characterized as one. The most recent changes to CN's demurrage rules become manifestly a total elimination of free days because, apart from multi-car block incentives, in the ordinary course it will become extremely difficult if not impossible for grain shippers to unload within the allotted "free day" - there are just too many variables in the transportation chain for export grains on the way to and at port that are beyond their control. Basically, it has become an incentive for unloading efficiencies at port that cannot serve its purpose because it has become so narrow in application.
CN April 1, 2006
[New GRAIN demurrage rules]
CN OTHER COMMODITIES
CP OTHER COMMODITIES
|Free time||1.0 days||2.0 days||2.0 days||2.0 days|
|Clock impact||0.5 days add'l time||0.5 days add'l time||0.5 days add'l time||0.5 days add'l time|
|Total Time (Free time + Clock)||1.5 days||2.5 days||2.5 days||2.5 days|
|Per car per day penalty charge||$60||$75||$75||$75|
|Other aspects||DispatchNote 2|
 In support of its tightening of the grain port demurrage rules, CN states that 87 percent of its grain traffic is already being unloaded in one and a half day's time or less and that this should improve under the new rules. The Agency acknowledges, as a matter that is well known in the industry, that most of this particular grain traffic is moving under "Multi-Car-Block" incentive programs (for movements in 50 or 100 car blocks). Typically, these incentives save the shippers as much as $7 per tonne if certain conditions are met, failing this, the shippers will lose part or all of their potential incentive savings. The Agency finds that this is a predominant reason why such a high percentage of grain unloads are presently completed within the stated one and a half day's time. Basically, the one and a half day time for unloading is being met here because of exceptional measures being undertaken by shippers (e.g. shipper unload crews being on call 24 hours). This is exceptional in terms of practice and costs to shippers and, therefore, can not be an overriding standard by which to assess overall grain industry demurrage policies.
 In further support of its position, CN in its submission dated November 17, 2006 compared grain port demurrage rules to those for coal which, as conditions go, are more severe. The Agency finds that this comparison is misleading. First, coal moves in unit trains as compared to regular or multi-car-block trains. Consequently, diesel power and cars move as one continuous unit and do not require switching. Coal involves a more homogeneous product, and does not involve the varieties that exist for grain. It is stockpiled on the ground and does not have to be elevated into different elevators. Finally, coal cars are unloaded much more quickly than hopper cars given differences in car design (coal cars are rotated and dumped while moving - while hopper cars are stopped and unloading is achieved by opening a series of bottom gates).
 CN also suggests that quicker unload times at port are needed in order to avoid growing congestion there. In this respect, CN's unload volume of grain at Vancouver where most demurrage charges occur was 6.1 million tonnes for the 2005-2006 crop year. In 2000-2001, when the free time allowance fell to two days - from five and one half days for the previous crop year CN's volume at Vancouver was greater, at 6.5 million tonnes. CN's volumes or tariff policies, therefore, do not appear to be the sole source of congestion. In fact, it is generally accepted in the industry - by shippers, the CWB, grain elevators and other industry participants - that one of the most significant issues relating to logistical problems at port relate to car "bunching" wherein more than one train arrives at a terminal within a short time period. The Agency finds that a tightening of a demurrage policy will have little if any impact on car "bunching".
 The Agency finds that the amounts that CN collected as grain port demurrage for crop year 2005-2006 cannot all reasonably be characterized as being in respect of demurrage pursuant to paragraph 150(3)(b) of the CTA. Accordingly, a portion of CN's grain port demurrage receipts will constitute revenue under the Revenue Cap Regime. That portion will be an amount equal to the difference between what CN billed shippers under its new rules less what would have been generated under the rules using the previous tariff allowance of two and one half days of total free time at port.
(F) Inclusion of traffic originating from outside Canada
 Effective August 1, 2005, the definition of "grain" set out in section 147 of the CTA was amended to include grain (and crops) that are "grown outside Canada and imported into Canada". About 300 movements were submitted by the railway companies as being, or potentially qualifying as, Revenue-Cap movements.
 One railway company questioned whether any of its traffic qualified as Revenue-Cap movements. Based on the information presented, the Agency has determined that 65 of 101 movements qualify as Revenue-Cap movements. However, in respect of future years, the Agency will direct staff to look more closely at border documents evidencing the transactions in order to ensure that eligible movements form part of the statutory grain revenue for a prescribed railway company.
(G) Other issues
 There are a number of other issues, of a confidential nature due to their commercial sensitivity, that the Agency must rule on during the course of determining railway revenue and Revenue Caps under the Revenue Cap Regime. Because of their commercially-sensitive nature, the Agency rulings are confidential and will be provided to the parties involved in confidence under separate cover. These rulings will not form part of the public record.
 Such rulings have dealt with i) an issue as to whether certain funds paid by a shipper to a prescribed railway company constitute a "return of IDF" ii) an issue as to whether a type of equipment charge should be taken into account when determining the amount of payment a prescribed railway company makes to a shortline railway company and, iii) an issue concerning whether amounts returned by a shipper to a prescribed railway company constitute a cancellation or disqualification of an incentive or rebate, or whether it is reasonably characterized as being a performance penalty.
(H) Review of the railway companies' miscellaneous and ancillary revenue accounts
 The Agency has instructed staff to expand their reviews of the railway companies' miscellaneous and ancillary revenue accounts annually under the Revenue Cap Regime in order to ensure that all qualifying western grain revenue is captured.
4.0 Comparison of CN's and CP's Revenue Caps and revenue
 The Agency has determined the western grain Revenue Caps and revenue for CN and CP for the crop year 2005-2006 as summarized below. Both CN and CP exceed their Revenue Caps.
|REVENUE CAP||REVENUE||EXCESS AMOUNT||AMOUNT BELOW REVENUE CAP|
 Subsection 150(2) of the CTA provides that if a prescribed railway company's revenues, as determined by the Agency, for the movement of grain in a given crop year 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 (hereinafter the 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 per cent 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 2005-06 by an amount of $2,700,949, CN is hereby ordered, pursuant to subsection 150(2) of the CTA and subsection 3(1) of the Regulations, to pay the Western Grains Research Foundation, within 30 days from the date of this Decision, an amount of $2,835,996 representing the sum of the excess amount of $2,700,949 and the prescribed penalty of $135,047 as provided for under paragraph 2(a) of the Regulations.
 Given that CP's statutory grain revenue exceeds its Revenue Cap for crop year 2005-2006 by an amount of $1,495,535, CP is hereby ordered, pursuant to subsection 150(2) of the CTA and subsection 3(1) of the Regulations, to pay the Western Grains Research Foundation, within 30 days from the date of this Decision, an amount of $1,570,312 representing the sum of the excess amount of $1,495,535 and the prescribed penalty of $74,777 as provided for under paragraph 2(a) of the Regulations.
 Upon payment of the excess amount and the applicable penalty, CN and CP, pursuant to subsection 4(2) of the Regulations, are hereby requested to notify the Agency, in writing, of the amount paid out and the date on which it was paid.
- Guy Delisle
- Baljinder Gill
- Beaton Tulk