Letter Decision No. LET-R-209-1999

August 3, 1999

Application by the Canadian National Railway Company for a determination of the Net Salvage Value - Cudworth Subdivision and the application by seven municipal governments in the Province of Saskatchewan for a preliminary ruling that the value of assets acquired under various Rehabilitation Agreements be excluded from net salvage value

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The Canadian Transportation Agency (Agency) has received an application from the Canadian National Railway Company (CN) dated June 22, 1999 requesting that the Agency determine the net salvage value of its interest in a line of railway, being a portion of its Cudworth Subdivision in the province of Saskatchewan. This application is filed pursuant to subsection 145(5) of the Canada Transportation Act (CTA) and is further to an acceptance by a government to purchase this railway line made pursuant to subsection 145(3) of the CTA.

The Agency has also received an application from seven rural municipalities (the RMs) in the province of Saskatchewan requesting, in part, that the Agency's determination of net salvage value in CN's net salvage value (NSV) application exclude the value of assets that have been funded pursuant to various Rehabilitation Agreements entered into between CN, the Canadian Pacific Railway Company (CP) and the federal government. These agreements were concluded between 1977 and 1990.

The RMs argue that the terms and conditions of the various Rehabilitation Agreements as well as historical regulatory treatment of these funds do not grant to CN or CP any beneficial ownership in the funded assets.

In their request, the RMs ask that CN produce all Rehabilitation Agreements or supplemental or amending agreements relevant to their case and that the Agency direct the immediate production of these documents. The RMs also request that the Agency direct a hearing of this preliminary issue and that the NSV proceedings in respect of the CN railway line in its Cudworth Subdivision be stayed.


The Agency has examined these requests and hereby directs that a hearing be held for a determination of the rehabilitation asset issue which has been raised by the RMs.

Specifically, the Agency shall hold a hearing into any impact the Rehabilitation Agreement funding may have on the nature and extent of a railway company's interest in railway lines that are to be transferred to governments pursuant to the provisions of Division V, Part III, of the CTA.

The Agency's jurisdiction under subsection 145(5) of the CTA, specifically requires a determination of the net salvage value of a railway line that is to be transferred to a government. Subsection 145(1) of the CTA, in turn, prescribes that the assets which are to be valued in such a determination are all of the railway company's interest in the railway line being conveyed. The Agency cannot make a final determination of net salvage value under subsection 145(5) of the CTA, without assessing which assets are to be valued and, by inference, which assets are to be excluded, if any.

While the RMs application has been filed as part of the CN Cudworth application, the Agency concludes that this issue has broad impact, not only on CN but on CP as well as other persons and governments who may be affected by or have an interest in railway lines that have been the subject of Rehabilitation Agreement funding. Accordingly, the Agency's hearing shall include an examination of the impact of this funding on affected CN as well as CP railway lines.

The Agency's hearing shall not examine and quantify affected assets on a railway line by railway line basis. This exercise shall be conducted if and when appropriate as part of an actual valuation proceeding under subsection 145(5) of the CTA.


In its letter dated July 21, 1999 CP advises the Agency of its interest in the rehabilitation asset issue. CP confirms that it is a federal railway company which entered into agreements with the federal government for the rehabilitation of prairie branch lines. Accordingly it has a direct interest in the determination of the ability of a railway company to include assets acquired under these agreements in an offer of sale under section 145 of the CTA.

The Agency hereby grants CP full participation rights as a party in the Agency's hearing of the rehabilitation asset issue.


The Agency shall provide notice of this hearing to various affected persons and governments including those affected who are located in the provinces of Manitoba, Saskatchewan and Alberta as well as the Minister of Transport.


The Agency hereby directs CN and CP to immediately file with the Agency all Rehabilitation Agreements and related agreements entered into between CN, CP and the federal government between 1977 and 1990. Subject to any claim of confidentiality being made pursuant to section 11 of the National Transportation Agency General Rules, the Agency intends to make copies of these documents available to the RMs and all other interested persons for the purposes of permitting a full and fair opportunity to comment on the issues herein.


In its letter dated July 23, 1999 the RMs agree to adjourn their application for a stay of the Cudworth NSV proceedings, reserving its right to raise this issue at a later time if necessary. Accordingly, the Agency shall not at this time entertain this stay application.


In its letter dated July 23, 1999 the RMs state that the deadline for a decision in the Cudworth NSV proceeding is October 20, 1999. If a decision in that proceeding is issued by that date, the RMs understand that such a decision will neither be final nor binding until after the Agency's decision on the rehabilitation asset issue. Depending on this latter decision, the Cudworth NSV decision may have to be revisited. The RMs also consent to an alternative approach being an extension of the deadline for the decision in the Cudworth proceeding until after the rehabilitation asset hearing and decision.

In its letter dated July 26, 1999 CN addresses this issue by stating, in part, that it understands that any Agency decision in the Cudworth NSV proceeding will be issued on a without prejudice basis and without regard to the implications, if any, of the Prairie Branch Line Rehabilitation Program. Further, CN confirms that the Cudworth NSV decision would be issued on or before October 20, 1999. CN did not consent to an extension of the time for the Cudworth decision.

The Agency finds that a more effective and efficient approach to deal with all the issues raised herein may be to delay the Cudworth NSV decision until after the hearing and decision on the rehabilitation asset issue. This approach would avoid two potential proceedings and decisions on the Cudworth NSV file. Instead, there would be one NSV determination which, upon meeting all requirements of fairness, would issue shortly after the rehabilitation asset decision.

Given the 120 day deadline established under section 29 of the CTA, and in the absence of the consent to an extension by both parties to the NSV proceeding, the rehabilitation asset hearing will be undertaken in a separate but parallel manner. However, the Agency finds that proceeding in this manner may place an inordinate administrative burden on the Agency and its staff who are involved in these proceedings. Accordingly it may become necessary in the future for the Agency to extend the time for issuance of the Cudworth NSV decision to a date subsequent to the issuance of the rehabilitation asset decision.


In its letter dated July 23, 1999, the RMs request an extension to August 11, 1999 for the filing of its answer to CN's application in the Cudworth NSV proceeding. Alternatively, the RMs request an extension of 14 days from the date of the Agency's decision on this request.

In its letter dated July 26, 1999 CN states that it is not opposed to this request, provided, however, that CN has a corresponding extension of time to file its reply. This extended date would be at least September 2, 1999. In its letter dated July 28, 1999 the RMs agree to this proposal.

The Agency hereby grants the requested extensions with the new date for the filing of the RMs answer being 14 days from the date of this letter decision. CN shall have 20 days thereafter to file its reply.

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