Canadian farmers have inadvertently contributed an extra $125,000 to the Western Grains Research Foundation this year.
That’s because Canadian National Railway charged more than it was allowed to for grain hauling during the 2004-05 crop year. It has to pay the amount above the revenue cap plus a five percent penalty to the foundation.
“It’s a very minor overage, less than a tenth of one percent,” said CN spokesperson Jim Feeny.
For Keystone Agricultural Producers transportation committee chair Les Felsch, the penalty is a sign that the system is working. Without the revenue cap, the railways would probably charge more.
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“To appease their shareholders I assume they have to get as close to that cap as possible,” said Felsch. “The penalty keeps them in line.”
The revenue cap applies to both CN and Canadian Pacific Railway. It is only calculated after the crop year is over, but it uses a base year to calculate an allowable average charge per tonne per kilometre.
A number of factors go into the complicated formula, but the result is supposed to approximate a fair rate for hauling grain.
Last year CN Rail fell under the revenue cap by about $1.2 million. CP exceeded the cap by $321,912 in 2003-04 and had to pay that to the foundation.
If, as in this year’s case, a railway’s excess charges are less than one percent of its revenue cap, the penalty it has to pay is the amount it is over plus five percent. If it goes over by more than one percent, the penalty is the overage amount plus 15 percent.
Felsch said farmers’ organizations like KAP fought hard for the cap. Farmers don’t believe that enough real competition exists between the two railways so a regulatory maximum is needed. As it turns out, the maximum limit appears to become a target the railways can hit.
“They do seem to adjust their freight rates toward the end of the year to get closer to the cap all the time,” said Felsch.
“But at least there’s something that there are penalties if they exceed it.”
He said the situation on the Prairies is far better than in places like the northern U.S. plains states, which have little regulatory control over the monopoly railway.
“There are advantages to the system we’re operating under,” said Felsch.
“Compared to the U.S. system, we’re still being benefited.”
Feeny said CN is used to working with the revenue cap and is not publicly complaining about it.
