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CN, CPR way over new grain revenue caps

Canada’s two major railways will have to hand over not only almost $60 million in Prairie grain handling revenue overage for 2007-08, but also nearly $9 million in extra penalties.

The Canadian Transportation Agency on Tuesday ruled that Canadian National (CN) ended the 2007-08 crop year $25,961,880 above its revenue cap of $383.3 million, while Canadian Pacific Railway (CPR) topped its cap of $373.6 million by $33,806,200.

The agency also imposed a 15 per cent penalty of $3,894,282 for CN and $5,070,930 for CPR.

The excess revenue, now due to be paid to the Western Grains Research Foundation’s (WGRF) endowment fund within 30 days, is by far the largest amount by which any railway has exceeded its revenue cap. It’s also the second time both railways overshot their caps in the same year, the CTA noted.

The record-high overages come from the CTA’s adjustment in February to the volume-related composite price index, or VRCPI, a figure it uses in calculating the annual cap.

“This adjustment reflects the actual costs incurred by CN and CPR for the maintenance of grain hopper cars and reduces the historical maintenance costs that were ’embedded’ in the revenue caps,” the CTA said in its release Tuesday.

The adjustment followed federal legislation passed in June 2007 to remove the “embedded” hopper car maintenance costs, and an order from then-Transport Minister Lawrence Cannon to the CTA to adjust the caps accordingly.

Both railways tried to challenge the final VRCPI adjustment at the Federal Court of Appeal, but their case was dismissed last month.

The impact of the CTA’s once-only adjustment takes effect in 2007-08 and carries forth into future years, the agency said. Given that the amount of Prairie grain traffic for 2007-08 was 26.8 million tonnes — which falls below the CTA’s previous forecast — its actual reduction to the revenue caps was $2.60 per tonne, or $69.6 million in total.

Neither railway offered official comment Tuesday, but Toronto’s Globe and Mail newspaper quoted spokespeople for both as saying they may consider challenging the CTA’s order.

Railways’ loss, research’s gain

Barring any successful challenges, the CTA’s decision Tuesday means a substantial windfall for the WGRF to invest in Prairie grains research.

The federal government, when it passed the Canada Transportation Act in 2000 and established the revenue cap model, had deemed the WGRF’s endowment fund to be “a logical place” for the railways’ overage, going toward research that would benefit farmers.

“Administrative costs would be high to return the money directly to producers and it would be difficult to do this equitably,” the WGRF said in a release Tuesday, mindful of the size of the pending donations.

“We realize these are farmer dollars,” WGRF executive director Lanette Kuchenski said in the fund’s press release Tuesday.

“We’re often asked why the excess railway funds can’t be returned to individual producers. WGRF is not in a position to change legislation and I don’t believe it was ever envisioned when this legislation was passed that the excess revenue cap dollars would ever be this high,” she said.

The WGRF is also aware that the CTA’s charges to the railways can be challenged and have previously left the WGRF having to refund money to the railways. CN and CPR won back about $128,000 and $871,000 respectively after challenging their 2005-06 caps.

“Until all of the court proceedings are final, the WGRF will hold the money in trust,” Kuchenski said. “Once the amount to be retained by WGRF is clear, it will be added to the WGRF endowment fund, and like all endowment fund dollars the principal will never be spent.”

The WGRF’s other main funding stream for research and seed breeding work comes from a checkoff it collects through Canadian Wheat Board final payments on wheat and barley. The endowment fund since 1981 has put up between $350,000 to $750,000 per year in interest income to back crop research.

The WGRF on Tuesday noted a number of projects to be supported this year through the endowment fund, including the use of natural enemies to control cereal leaf beetle; better nitrogen management through genetics in cereal-legume rotations; and development of fusarium-resistant oats for the eastern Prairies.

Bad year

The CTA’s ruling comes the same day as the Railway Association of Canada warned of coming challenges for railways after a “banner year” in 2007.

Railways in 2008 were hit with the “double economic whammy that pushed the world into a recession-soaring fuel prices, followed by the international
credit squeeze that slashed imports and softened international demand for
Canadian resources,” the association said Tuesday.

In September this year, Statistics Canada said, both intermodal and other
freight traffic were down 1.4 per cent from the same month in 2007, the association noted.

“Hardest hit
were loadings of grains, potash, coal, iron ore and concentrates, and lumber
which represent about 40 per cent of the total non-intermodal loadings,” the RAC said Tuesday.

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