Prairie farmers paid $59.8 million more than they should have to ship grain by rail in 2007-08.
That’s the amount by which the two national railways exceeded their revenue caps for the crop year that ended July 31, 2008.
Based on 2007-08 grain shipments of 26.8 million tonnes, that means farmers overpaid for rail freight by $2.23 per tonne.
That’s mainly because the railways didn’t adjust their freight rates during the year to reflect the impact of a reduction in allowable costs for hopper car maintenance costs.
The Canadian Transportation Agency, which administers the cap, announced Dec. 30 that Canadian Pacific Railway’s grain revenue of $407.4 million was $33.8 million above its cap, while Canadian National Railway’s revenue of $409.3 million was $25.9 million above its cap.
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Both railways have 30 days to repay that amount, along with a 15 percent penalty, to the Western Grains Research Foundation.
The total amount going to the WGRF, pending the outcome of possible legal appeals, will be $29.9 million from CN and $38.9 million from CPR, for a total of $68.7 million.
“We never imagined, and I’m sure neither did those who drafted the regulations, that we would ever be receiving and holding this size of a payment,” said WGRF executive director Lanette Kuchenski.
This isn’t the first time the railways have exceeded their revenue caps, but it’s certainly the largest amount.
In the first seven years the cap was in effect, the two railways exceeded their maximum allowable revenue by a total of $8.9 million, with the highest single overage being CPR’s $3.8 million in 2006-07.
This year’s amount is so large because of a one-time reduction of $69.6 million, or $2.60 a tonne, in the amount paid to the railways to cover hopper car maintenance to more accurately reflect actual costs.
The CTA announced its intention to reduce the hopper car payments for the 2007-08 crop year in July 2007.
The railways appealed to the Federal Court of Appeal, which in November 2008 upheld the CTA decision.
The rail companies now have until Jan. 23 to decide whether to seek leave to appeal that November ruling to the Supreme Court. Spokespersons for both railways said last week they were still considering their next step.
“We’re not in a position to make a decision right now,” said Breanne Feigel of CPR. “We’re still assessing our options.”
She said the railway knew that the number was going to be large because of the hopper car ruling, but added CPR was $14 million under its cap during the previous seven years.
Jim Feeny of CN said his company expected about a $23 million overage as a result of the hopper car ruling alone.
Asked why the rail company didn’t adjust its grain freight rates during the year to reduce the overage, given the CTA’s advance notice, he offered two reasons.
First, the case was under appeal and the outcome uncertain. Second, CN had already moved 75 percent of its expected grain volume by the beginning of April, 2008, so its ability to reduce its total grain revenue as the year wound down was limited.
In the meantime, both railways said they will make the required payments to the WGRF within 30 days.
Kuchenski said that money will be held in some sort of trust or escrow account until any legal appeals have been resolved.
However, much of the money the foundation eventually receives will be invested into its endowment fund, with annual interest earnings paid out to fund research projects for a variety of crops.
