CPR’s Revenue Cap Overage Reduced Due To Court Ruling

Although the WGRF regrets the loss of any revenue, it knows overages it collects from the railways is farmers’ money.

Canadian Pacific Railway (CPR) didn’t overcharge western farmers for hauling their grain during the 2007-08 crop year by quite as much as first determined by the Canadian Transportation Agency (CTA).

As a result, the Western Grains Research Foundation (WGRF), which by law gets excess grain-shipping revenues, has to repay CPR $205,896. That includes a 15 per cent penalty of $26,856 levied for exceeding the revenue cap.

CPR gets the money back after the Federal Court of Appeal ruled Feb. 18 in its favour. CPR argued the CTA was wrong to include as “revenue” some of the penalties the railway charged grain companies for failing to meet a 24-hour unloading condition, required under its Multi-Car Block (MCB) Incentive program

Following the court’s ruling, the CTA recalculated CPR’s revenue cap, increasing it by $179,040.

Still, CPR exceeded its revenue cap by $33.8 million. That means farmers collectively who shipped grain via CPR were overcharged by $2.45 a tonne instead of $2.47 as first calculated.

That same court ruling resulted in the CTA last month adjusting the CPR’s revenue cap for the 2006-07 crop year, up $395,762.

That forced the WGRF to repay the money, plus a five per cent penalty of $19,788.

HOPPER CARS

The WGRF keeps the excess rail revenues in a trust fund until all legal disputes regarding the money have concluded. Although the WGRF is $621,446 poorer due to the court’s ruling, it still expects to keep most of the $68 million in excess rail revenues and penalties collected from CPR and Canadian National Railway (CN) for the 2007-08 crop year.

The Supreme Court of Canada in April rejected the railways’ request to appeal the CTA’s Feb. 19, 2008 decision to retroactively reduce the revenue cap by $2.23 a tonne, or almost $72.2 million, in the 2007-08 crop year. The reduction reflects changes in how much the railways can collect in revenue to maintain the government’s hopper cars.

The railways were allowed annually to collect $4,379 a car for maintenance, but were only spending $1,371 a car. As of last Aug. 1, what the railways traditionally spent is all the railways are allowed to collect.

The $1,371 in revenue allowed for car maintenance is based on the government cars being used, on average, 75 per cent of the time for the movement of grain under the revenue cap. In other words, if the cars were dedicated to revenue cap grain movement all the time, the allowance for maintenance would be $1,820 a car.

Although the WGRF regrets the loss of any revenue, it knows overages it collects from the railways is farmers’ money.

Now that the dispute over car maintenance is over, at least in the courts, industry observers don’t expect the railways to exceed their revenue caps by as much in the future.

A statutory cap on rail revenues was introduced in 2000. It gives the railways the flexibility to set freights at whatever level they want. That way they can encourage efficient grain transportation by charging less to move multi-car trains.

“CREEPING REREGULATION”

The cap on total revenue, initially set to give the railways a decent return on investment, protects farmers concerned about a lack of competition between the railways, from paying whatever the market will bear.

The cap is adjusted annually to reflect changes in railway costs such as fuel, labour and the cost of capital, as well as the volume of grain hauled and the distance. That way the cap doesn’t limit the amount of grain the railways will transport.

However, the formula isn’t adjusted to reflect increased railway efficiency. Farm groups and the Canadian Wheat Board are calling for a review of railway costs so the revenue cap can be adjusted accordingly.

The groups suspect farmers are paying much more to ship grain than they would in a competitive market.

The railways disagree, pointing out western Canadian farmers pay some of the lowest freight rates in the world.CNsays the revenue cap

should be abolished and calls a costing review “creeping reregulation.” [email protected]

About the author

Reporter

Allan Dawson

Allan Dawson is a reporter with the Manitoba Co-operator based near Miami, Man. Covering agriculture since 1980, Dawson has spent most of his career with the Co-operator except for several years with Farmers’ Independent Weekly and before that a Morden-Winkler area radio station.

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