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Transportation Law - Railways - Regulation - Interswitching

Thursday, December 15, 2016 @ 7:00 PM  

Appeal by the Canadian National Railway (CN) from a decision of the Canadian Transportation Agency (Agency) finding that CN exceeded the Maximum Revenue Entitlement (MRE) imposed by the Canada Transportation Act (Act)for moving western grain during the 2013-2014 crop year. In 2000, the MRE program was instituted. Its objective was to reform the western grain handling and transportation system to a more deregulated model. In 2001, the Agency determined that interswitching revenue, namely revenue derived from shipping another carrier’s good a short distance from their hub to an interchange point, fell with the definition of “grain movement” under the Act. As a result, pursuant to the adopted methodology, a switching carrier was required to include its interswitching revenues in its total revenue for the purpose of determining its annual MRE. The linehaul carrier was required to include the entire grain movement, including the interswitching portion, in its MRE and could deduct the sum paid to the switching carrier from its revenues. However, the tonnage associated with interswitching movements was excluded from the Agency’s calculation of a railway’s revenue cap. Ever since the MRE program was implemented, CN raised concerns with the Agency’s methodology and claimed that the costs it incurred by performing switching were not adequately accounted for in its revenue entitlement. It requested a reconsideration of its interswitching revenues under the MRE program. The Agency concluded that CN had exceeded its MRE and it ordered CN to pay the overage along with a penalty, totaling $5,231,011, to the Western Grain Research Foundation. In 2015, the Agency discontinued the methodology it had used since 2001 and adopted a new methodology. The new approach allowed the interswitching carrier to retain some of the revenues accrued from switching movements. CN appealed the decision of the Agency arguing that its interpretation and application for the MRE provisions was unreasonable and that the Agency violated its rights to procedural fairness.

HELD: Appeal dismissed. The Agency’s interpretation and application of its own statute regarding interswitching was reasonable. Had Parliament intended to exclude interswitching revenue from the MRE determinations, it would have expressly mentioned it. CN was not denied procedural fairness. For the 2013-2014 year, CN filed its submissions three and one-half months after the deadline. The Agency followed a fair procedure for hearing and addressing the complaints of its stakeholders, including CN’s, by way of consultation.