CN, CP slightly over limits on Prairie grain revenue

Canada’s two main railways have both come in less than 0.1 per cent over their nine-figure limits on the annual revenue they’re allowed to keep from hauling Prairie farmers’ grain.

The Canadian Transportation Agency, which has set the railways’ revenue caps on domestic grain handling revenue since the end of the Crow Rate freight subsidy in the 1990s, announced Wednesday that Canadian Pacific Railway (CP) has come in $400,132 above its $494,036,573 revenue cap for the 2011-12 crop year.

Canadian National Railway (CN), meanwhile, is $240,185 over its cap of $542,516,131. The two federally-regulated railway companies now have 30 days to hand over the excess funds, plus five per cent penalties of $12,009 and $20,006, respectively.

Under federal legislation, that means $672,329 in total will go to the Western Grains Research Foundation, a farmer-financed and -directed research funding organization investing mainly in Prairie wheat and barley variety development.

In 2011-12, the CTA said Wednesday, 33.1 million tonnes of Prairie grain were moved, marking a 6.2 per cent increase over the volume moved during the previous crop year. The railways’ average length of haul for Prairie grain was 952 miles, down 1.3 per cent.

The Canada Transportation Act requires the Agency to determine each railway company’s revenue cap annually and whether each cap has been exceeded. The revenue cap is a form of economic regulation that enables CN and CP to set their own rates for services, provided the total amount of revenue collected remains below the ceiling set by the Agency.

The CTA calculates these revenue ceilings each year using a formula containing "numerous elements" including the volume-related composite price index (VRCPI), which the CTA sets each April. Other elements involved in the revenue cap include each railway’s actual tonnage of grain hauled and its average length of haul during the crop year.

The CTA’s VRCPI is an inflation index reflecting forecast price changes for railway labour, fuel, material and capital purchases by CN and CP.

The agency in April announced a 9.5 per cent hike in the VRCPI will take effect for the 2012-13 crop year, following hikes of 3.5 per cent in 2011 and seven per cent in 2010.

The CTA, in December and March respectively, changed its methodologies for calculating the railways’ cost of capital, and for recognizing the railways’ pension costs.

The revenue caps on CN and CP apply to the movement of grain from Prairie elevators or from U.S. origins to terminals at Vancouver, Prince Rupert, B.C. and Thunder Bay, Ont.

They also apply to CN’s and CP’s movements of grain bound for Eastern Canada or for export, up to either Thunder Bay or the CN station about 250 km north of the city at Armstrong, Ont.

Related stories:
Grain freight cost index hiked for pensions, capital costs, May 1, 2012
CP over limit on Prairie grain revenue, Dec. 22, 2011

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