Agency Decision lowers revenue caps for the movement of Western grain



    OTTAWA, Feb. 19 /CNW Telbec/ - The Canadian Transportation Agency today
announced a final adjusted volume-related composite price index (VRCPI) of
1.0639 for railway revenue caps for the movement of Western grain for crop
year 2007-2008. This represents a $72.2 million reduction to 2007-2008 revenue
caps, which translates to $2.59 per tonne based on forecasted tonnage of
27.85 million metric tonnes.

    This Decision will have a direct impact on grain farmers by way of
lowered revenue caps for the Canadian National Railway (CN) and the Canadian
Pacific Railway (CPR), which should result in lower freight rates for shipping
their Western grain to export markets.

    The Minister of Transport requested that the Agency adjust the VRCPI to
reflect the costs incurred by CN and CPR for the maintenance of grain hopper
cars. The adjustment removes the historical hopper car maintenance costs that
were "embedded" within the revenue caps and replaces them with costs incurred.

    While the adjustment is a once-only process, its impact will begin this
crop year 2007-2008 and carry forward into future years.

    The Canadian Transportation Agency is a Government of Canada
quasi-judicial tribunal with court-like powers that is responsible for helping
achieve an accessible and efficient transportation system. The Agency deals
with, among other things, rate and service complaints arising in the rail
industry; disputes between railway companies and other parties; applications
for certificates of fitness for the proposed construction and operation of
railways; approvals for railway line construction; regulated railway
interswitching rates; and revenue caps for the movement of Western grain by
rail. The Agency also develops costing standards and regulations, and audits
railway companies' accounting and statistics-generating systems.

    
                                 BACKGROUNDER

                Revenue Caps and Hopper Car Maintenance Costs

    February 19, 2008

    Western grain movement in Canada is regulated by the Canadian
Transportation Agency in the form of revenue caps. The objective is to balance
railways' freedom in setting rates with protection for grain producers.

    The Agency establishes revenue caps for each crop year (August 1 - July
30) for each of the Canadian National Railway (CN) and the Canadian Pacific
Railway (CPR). The railways establish specific freight rates provided the
total amount collected remains below the caps set by the Agency. If it is
determined by the Agency that a revenue cap is exceeded, the railway has
30 days to pay the excess amount plus a five per cent penalty to the Western
Grains Research Foundation.

    The revenue caps are calculated using a formula containing numerous
factors. One such factor, the volume-related composite price index (VRCPI), is
determined by the Agency by April 30. In determining the VRCPI, the Agency
examines, consults and verifies detailed railway submissions of grain traffic
and revenue information. Essentially an inflation factor, the VRCPI reflects a
composite of the forecasted prices for railway labour, fuel, material and
capital purchases.

    Within the revenue caps are "embedded" hopper car maintenance costs per
car. "Embedded" maintenance costs were based on a 1992 costing review and
subsequently built into legislation establishing the Revenue Cap Program in
2000.

    A hopper car is a type of railroad freight car used to transport loose
bulk commodities such as grain. Because of the serious problems meeting
Western grain export demands in the 1970s, the Government of Canada began
purchasing covered hopper cars for the benefit of Western producers. Since
then, it has been providing these cars free of charge to CN and CPR for the
movement of Western grain. The railways have day-to-day control of the cars
and allocate them to grain shippers on a commercial basis.

    In 2004-2005, the government was considering future options for its hopper
car fleet and asked the Agency to undertake costing assessments. The
assessments indicated that hopper car maintenance costs had declined over the
years due mostly to significant improvements to railway operating
efficiencies.

    Amendments to the Canada Transportation Act in 2007 gave the Agency the
mandate, upon request by the Minister of Transport, to adjust the VRCPI to
reflect the costs incurred by CN and CPR for the maintenance of grain hopper
cars. The adjustment would remove the amount of hopper car maintenance costs
that were "embedded" within the caps and replace it with current "actual"
maintenance costs.

    Over the past six months, the Agency consulted on hopper car maintenance
with CN, CPR and 30 other organizations including the grain industry and
provincial governments and verified the expense data for recent years. The
Agency analysed and audited the information and data provided to arrive at an
adjusted VRCPI for the 2007-2008 crop year.

    On February 19, 2008, the Agency's Decision found that historical
"embedded" hopper car maintenance costs were $4,379 per car, where as "actual"
costs are now $1,371 per car. This difference represents a $72.2 million
reduction to 2007-2008 revenue caps which translates to $2.59 per tonne based
on forecasted tonnage of 27.85 million metric tonnes.

    While the adjustment is a once-only process, its impact will begin with
crop year 2007-2008 and carry forward into future crop years.

    Chronology
    ----------

    1970s              Government of Canada begins purchasing covered hopper
                       cars for the benefit of Western producers. It provides
                       these cars free of charge to CN and CPR for the
                       movement of Western grain.

    1995               Legislative change removes the subsidy for Western
                       grain movement and gives the Agency the mandate to
                       establish maximum freight rates.

    2000               Other legislative amendments change the Agency's
                       mandate from determining freight rates to setting
                       revenue caps. This change embeds the grain hopper car
                       maintenance costs into the revenue caps.

    May 4, 2006        Minister of Transport announces proposed amendments to
                       the Canada Transportation Act that would take into
                       account adjusting the hopper car maintenance costs.

    April 27, 2007     Agency determines the volume-related composite price
                       index of 1.1611 for crop year 2007-2008.

    June 22, 2007      Bill C-11, an Act to amend the Canada Transportation
                       Act and the Railway Safety Act and to make
                       consequential amendments to other Acts, receives Royal
                       Assent. Clause 57 states: Despite subsection 151(5) of
                       the Canada Transportation Act, the Canadian
                       Transportation Agency shall, once only, on request of
                       the Minister of Transport and on the date set by the
                       Agency, adjust the VRCPI to reflect the costs incurred
                       by the prescribed railway companies, as defined in
                       section 147 of that Act, for the maintenance of hopper
                       cars used for the movement of grain, as defined in
                       section 147 of that Act.

    June 26, 2007      As per the legislative requirement, the Agency is
                       requested by the Minister of Transport to make an
                       adjustment to the VRCPI to remove the "embedded" grain
                       hopper car maintenance costs and replace with costs
                       incurred.

    June 28, 2007      Agency issues an Advisory providing advance notice to
                       the railways, in order to assist them in planning
                       their commercial operations, of the Agency's
                       preliminary estimate of the probable range for the
                       adjustment which could reduce the VRCPI to about 1.07
                       for the new crop year. The Agency indicates that it
                       plans to make its determination on or before
                       January 31, 2008, and the adjusted index will be
                       effective for the 2007-2008 crop year starting
                       August 1, 2007.

    July 2007          CN and CPR question whether the Advisory has any legal
                       effect and maintain that the change to the statutory
                       index can only be changed by way of a formal order or
                       decision.

    August 1, 2007     Agency issues Decision No. 388-R-2007 setting an
                       interim VRCPI of 1.0884 effective immediately for
                       revenue caps for crop year 2007-2008. The interim
                       index adjustment is equal to a $2 per tonne reduction
                       from the VRCPI established April 27, 2007.

    September 2007     CN and CPR file appeals on the interim Decision to the
                       Federal Court of Appeal. The Court grants a stay of
                       the August Decision.

    September 2007     Agency undertakes consultations with CN, CPR and
    February 2008      30 other organizations including the grain industry
                       and provincial governments. The Agency verifies,
                       analyses and audits the data provided by CN and CPR.

    February 19, 2008  Agency announces a final adjusted VRCPI of 1.0639 for
                       railway revenue caps for crop year 2007-2008. This
                       removes the historical "embedded" hopper car
                       maintenance costs and replaces it with "actual" costs
                       incurred. While the adjustment is a once-only process,
                       its impact will begin this crop year 2007-2008 and
                       carry forward into future years.
    




For further information:

For further information: News Media Enquiries: Marc Comeau, (819)
953-9961; General Public Enquiries: 1-888-222-2592, info@otc-cta.gc.ca; The
Canadian Transportation Agency is online at www.cta.gc.ca; To keep up-to-date
with our latest news releases and other information, subscribe to our
electronic mail service; For more information on the consultations, please see
the Consultation Document on the Agency's website at www.cta.gc.ca.


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