CTA Home : Rulings : Decisions : 1999

Decision No. 545-R-1999

With Order No. 1999-R-420

APPLICATION by the Canadian National Railway Company, pursuant to subsection 145(5) of the Canada Transportation Act, S.C. 1996, c. 10, for a determination of the net salvage value of the Canadian National Railway Company's Arborfield Subdivision between mileage 0.00 and mileage 19.4, in the province of Saskatchewan.

File No.T6338/315

The Canadian National Railway Company (hereinafter CN) applied to the Canadian Transportation Agency (hereinafter the Agency) for a determination of the net salvage value for CN's Arborfield Subdivision located between mileage 0.00 and 19.4 (hereinafter the railway line) in the province of Saskatchewan. The application was received on May 7, 1999.

The Arborfield Subdivision runs from Crane (mileage 0.00) to Arborfield (mileage 19.4) in the province of Saskatchewan. Traffic on this line is minimal with one train run per month.

On May 6, 1997, CN published a "Notice of Discontinuance of Railway Line" in respect of the railway line pursuant to subsection 143(1) of the Canada Transportation Act (hereinafter the CTA). By letter dated April 3, 1998, CN offered the railway line to the Government of the Province of Saskatchewan and to the Rural Municipality of Arborfield No. 456 for a net salvage value of $390,000. On June 3, 1998, the Rural Municipality of Arborfield No. 456, the Town of Arborfield and the Village of Zenon Park (hereinafter the municipal governments) communicated their acceptance of the railway company's offer to purchase the railway line. The parties were unable to reach agreement on the net salvage value of the said railway line within the statutory period of 90 days.

In its application, CN calculated a net salvage value of $560,222 while the municipal governments proposed a negative net salvage value of $240,811; however, a transfer value of $1.00 would be acceptable to the municipal governments. An engineering inspection of the railway line and site visit, as proposed by the Agency, were conducted on June 11 and 17, 1999, respectively, to assess the condition of the track and other material, as well as to confirm the quantity of the track and other material included in the application. Agency staff, representatives from CN, the municipal governments and the Government of the Province of Saskatchewan were in attendance. The minutes of the site visit and the staff engineering inspection report were prepared by Agency staff and distributed to the parties to confirm the quantity and condition of the track and other material included in the application. Neither party commented on the minutes of the site visit. CN provided comments on the engineering inspection report and these were incorporated into the Agency's staff final engineering report. The municipal governments did not provide comments.

The municipal governments filed their preliminary comments on CN's application on July 9, 1999, and subsequently filed their final answer on August 4, 1999. Pleadings closed on August 27, 1999; however, CN submitted its final answer on September 3, 1999. Notwithstanding this lateness, the Agency has accepted CN's comments, as filed.

Both parties exchanged interrogatories and responses thereto and pursuant to a request by the Agency, CN and the municipal governments also provided additional information.

An Agency Staff Market Research Data Report was sent to the parties containing quotations from various market sources on the value of various assets based on the quantities contained in the staff engineering inspection report. This information was released to the parties on August 26, 1999.

Pursuant to subsection 29(1) of the CTA, the Agency is required to make its decision no later than 120 days after the application is received unless the parties agree to an extension. In this case, the parties have agreed to an extension of the deadline to September 17, 1999.

Prior to discontinuing the operation of a line of railway, section 143 of the CTA requires a railway company to advertise the availability of the line for continued railway operation. Where the line is not transferred pursuant to this advertisement, the railway company must then offer to transfer all of its interests in the line to the provincial and the municipal and district governments for the net salvage value of the line. In accepting the offer, governments may use the line of railway for any purpose.

When a government has accepted the offer of a railway company to transfer a line, the parties have 90 days after the acceptance of the offer to agree on its net salvage value. If they cannot agree on this value, subsection 145(5) of the CTA allows either party to make an application to the Agency to determine the net salvage value.

In its preliminary answer to CN's application, the municipal governments requested that the Agency dismiss the application to determine the net salvage value. The municipal governments argued that as they were not notified of or consented to CN's application, the application is invalid. The Agency requested that both parties file arguments on the motion to dismiss.

By Decision No. LET-R-212-1999 dated August 3, 1999, the Agency rejected the municipal governments' motion requesting that CN's application be dismissed. The Agency, in its findings, stated the following:

... Requiring consent of another party before proceeding to the Agency would in effect limit the rights of the parties to come before the Agency, where clearly there was no intent on the part of the framers to do so.

The municipal governments also allege that the application is premature as there have been no negotiations prior to the filing of CN's application. Section 145 of the CTA establishes two conditions precedent to the filing of an application for the determination of the net salvage value of a line of railway. A railway's offer to transfer its interest in a line of railway must have been accepted by a municipality and the parties must have failed to reach agreement on the net salvage value of the line within ninety days after the acceptance of the offer. In the present case, both conditions have been met; the application is therefore properly before the Agency for determination.

In its preliminary answer to the application, the municipal governments provided an estimate of the cost to remove three bridges on the railway line. The exhibit detailing the cost was submitted as confidential in the pleadings. In its preliminary reply, CN argued that the municipal governments had not presented arguments as to why the exhibit should be confidential. The Agency requested that parties submit arguments on the confidentiality of the exhibit.

The Agency considered the comments of the parties and by Decision No. LET-R-218-1999 dated August 11, 1999, directed the municipal governments to provide CN with the estimate of the bridge removal costs, omitting the name of the contractor.

The Agency has already determined, in a number of previous Decisions, that the expression "net salvage value" refers to the market value of an asset less the costs associated with its disposal. These costs can include, but are not limited to, sales commissions, excavation, disposal, and environmental restoration. In essence, net salvage value is the realizable value of the assets - the track, land and other structures - less the costs associated with their disposal to be used for any purpose.

CN offered its interest in the railway line to the Government of the Province of Saskatchewan and the municipal governments on April 3, 1998, at net salvage value, which was stated to be $390,000. In its application received by the Agency on May 7, 1999, the net salvage value of the line was restated as $560,222. The municipal governments argue that CN should not be able to increase the net salvage value that was contained in the original offer that was conditionally accepted by the municipal governments.

It should first be noted that the municipal governments accepted the offer to acquire CN's interest in the railway line but did not agree to the price asked by CN. An acceptance of the price would have had the effect of freezing that price; however, as the municipal governments' acceptance specifically rejected the price asked, such an acceptance, even if conditional, cannot have the effect of preventing CN from reviewing its original price offer.

In order to be valid, a railway company's offer to the provincial and municipal governments under section 145 of the CTA must include all of the company's interest in the line of railway for an amount not exceeding its net salvage value. The offer itself need not specify the amount but where an amount is specified, it is merely the railway company's assessment of an amount which does not exceed the net salvage value. This amount is generally subject to negotiations between the parties. In the absence of an agreement, there is nothing precluding the parties from revising their original offers when making an application to the Agency. Once an application has been made pursuant to subsection 145(5), it is the Agency who will be determining the net salvage value of the line and the fact that one or both parties have revised their original offers is not a relevant factor in itself. In this regard, the Agency can determine the net salvage value at the net salvage contained in the offer, less than or in excess of that amount if there is substantiating information to do so. To hold the parties to their original positions and to require them to justify the reasons for their departure from their original positions is not an obligation imposed by the law and would only be cause for the parties to assume extreme positions in their initial discussions and diminish the possibilities of ever reaching agreement.

Based on the parties' submissions, there are two matters to be addressed in respect of the interests to be transferred by CN: does the transfer of the Arborfield Subdivision include the east portion of the wye connecting the Arborfield and the Tisdale Subdivisions and does it include the land with respect to the first 0.5 mile of the Arborfield Subdivision?

Dealing first with the east portion of the wye, CN states, in its application, that a railway 'wye' exists at the junction of the CN Tisdale Subdivision and the CN Arborfield Subdivision. The west portion of the wye is the first portion of the Arborfield Subdivision and is therefore included in its offer and in the application for determination of the net salvage value. CN argues that the east portion of the wye is an auxiliary track off the Tisdale Subdivision and therefore does not form part of this application. CN further argues that the municipal governments have not submitted any evidence that would indicate that the east portion of the wye is not part of the Tisdale Subdivision.

The municipal governments argue that they have accepted all of CN's interest in the Arborfield Subdivision, which includes all auxiliary siding and main trackage, facilities and land, all other lands and mineral rights held by CN. The municipal governments contend that the wye would not exist if it were not for the Arborfield Subdivision, as it only exists to provide access to the Subdivision from the Tisdale Subdivision. Further, they argue that the east leg of the wye is not auxiliary track of the Tisdale Subdivision, rather it is a part of the main track of the Arborfield Subdivision, and therefore should be included in the determination of net salvage value.

In Decision No. 530-R-1998, the Agency found that if trackage is integral to the rail service of a particular subdivision, that trackage should be included in a net salvage value determination. The fact that the line of railway is being offered to governments for any purpose as opposed to being offered to any person interested in continuing its operation as a railway is not material as it is the same line of railway which is being offered in both cases. Accordingly, in this case, the question is whether the east leg of the wye is integral to the operation of the Arborfield Subdivision.

The east portion of the wye has no specific purpose in relation to the Tisdale Subdivision in the absence of the Arborfield Subdivision. In fact, it has no purpose other than to connect the two subdivisions. It is the only efficient way to move eastbound traffic from Arborfield to the Tisdale Subdivision. The absence of this portion of the wye would render the operation of the Arborfield Subdivision difficult and inefficient in respect of all eastbound movement. In the absence of any other identified need for this portion of the wye, its existence indicates that it was integral to the operation of the branch line when it was owned by CN. The fact that CN is now transferring the railway line does not make the trackage any less integral to the operation of the Arborfield Subdivision. Consequently, the Agency finds that the east portion of the wye is integral to the operation of the Arborfield Subdivision.

With respect to the second matter, CN submits that the land associated with this Subdivision which should be transferred should only begin at mileage 0.5 for safety reasons and to minimize costs. CN is prepared to provide the municipal governments with an easement in perpetuity for the land between mileage 0.0 and mileage 0.5. CN argues that this arrangement will allow the new owners to have their track on the right of way of the CN Tisdale Subdivision, but would also ensure that CN retain operational control of the junction. CN states that this proposal is of great benefit to the municipal governments. It would reduce the cost to the municipal governments and provide greater certainty as to the land being transferred as it respects the existing legal boundaries and avoids further subdivision to complete the transfer.

The municipal governments argue that the Agency should not entertain the easement option. They state that they have accepted and expect to receive the entirety of CN's interest in the railway line as advertised and reject the option of an easement.

The Arborfield Subdivision commences at mileage 0.00; this mileage point is where the tracks of the two subdivisions physically connect. Therefore, the first part of the Arborfield Subdivision is situated within the right of way of the Tisdale Subdivision. A schematic is included in Appendix A for a detailed examination of the area. The Agency agrees with CN's proposal for an easement in perpetuity but finds that this is only required in respect of that portion of the Arborfield Subdivision tracks located within the CN's Tisdale Subdivision right of way. According to the Agency's estimate, this would only apply from mileage 0.00 to mileage 0.05 approximately. This means that the remaining land from mileage 0.05 to mileage 0.50 will be valued as land to be transferred to the municipal governments.

In its interrogatories, the municipal governments requested CN to confirm the existence of assets funded through the Prairie Branch Line Rehabilitation Program on the railway line and the extent of those assets if any. In response, CN stated that there were no assets on the line that were funded through the Prairie Branch Line Rehabilitation Program. After reviewing Agency records which indicated that there were assets on the railway line that were classified as 'Donations', an accounting designation which would include such funded assets, the Agency requested CN to clarify this information. In its reply dated August 20, 1999, CN stated that on the advice of counsel, it would not be able to respond to the Agency's request for information. It stated that it had already responded to the municipal governments stating the fact that no rehabilitation program work was done on the line, and it questioned the relevance of the information.

The Agency finds that CN has not responded adequately to its request for information on this matter. A party to a proceeding before the Agency may object to the production of information on the grounds that the information is confidential or that it is not relevant. In its response to the Agency's request, CN does not raise reasons of confidentiality for its refusal to produce the information. While CN questions the relevance of the information requested, no reasons or arguments are presented other than the statement that on advice of counsel the information would not be provided.

This is an important matter as the Agency is currently considering the treatment of assets placed on lines of railway that were funded through the Prairie Branch Line Rehabilitation Program. As such, the Agency finds that the information requested in Decision No. LET-R-211-1999 dated August 3, 1999, is relevant and an order to that effect will be issued.

The process for arriving at a net salvage value for a line of railway involves several elements. The quantities and condition of the track and other materials forming part of the line of railway are first determined. The market value is then established for each component of the track structure. The product of the values and the quantities results in the gross salvage value of the track and other materials.

The next element is the determination of the cost of removal and salvage of the track and other materials. This cost is then deducted from the gross salvage value for track materials to arrive at the net salvage value for track materials.

The valuation of the land component of the line of railway is the next step. The land value is generally determined by evaluating the submissions of the parties and any supporting documentation. In some cases, however, the Agency may request an independent accredited land appraiser to provide an opinion on the submissions of the parties or for the appraiser to conduct an assessment.

The final element in the valuation exercise is the Agency's consideration of any benefit, financial or otherwise, resulting from a lease or agreement which may impact on the calculation of net salvage value.

When the land value and other associated obligations that the Agency may consider are known, these values are then added to the net salvage value for track materials to arrive at the net salvage value of the line of railway.

The net salvage value for the track assets determined by each party varied significantly. In determining the gross salvage value of the track assets, CN obtained a quote from CANAC Inc. in January 1999. The gross salvage value of the assets was $688,858 as determined by CN. The salvage cost for the railway line as submitted by CN was $197,578 which was developed from historical data and projected by CANAC Inc. in January 1999. The resulting net salvage value for the track assets submitted by CN was $491,280.

The municipal governments obtained quotes to estimate the gross salvage value of the track assets. The municipal governments submit that the gross salvage value of the assets is $603,355. The municipal governments based their salvaging costs on a previous Agency Decision (175-R-1999) and adjusted it for the differences between the subdivision discussed in that Decision and the Arborfield Subdivision. The municipal governments' salvage cost also included a cost for the environmentally sound disposal of scrap ties. In addition, the cost to transport the salvaged assets to the nearest steel mill or market, as well as the cost to transport the scrap ties to an incineration site were also added. The salvaging cost as calculated by the municipal governments was $844,166 resulting in a negative net salvage value of $240,811.

As previously mentioned, Agency staff prepared an engineering inspection report setting out staff's assessment of the quantity and condition (i.e. scrap or reusable) of the track and other material included in the application. The purpose of this report is to attempt to reach agreement between the parties on some basic facts. This information was sent out to the parties for comment. The municipal governments did not provide any comments. CN did not dispute the total quantity of materials. With respect to the assessment of the condition of the material, CN had some concerns essentially in respect of the rail component. This matter is addressed further in considering the valuation of the rail component.

Agency staff also prepared a Market Research Data Report setting out quotations from various market sources on the value of various assets based on the information contained in the engineering inspection report. This information was also sent to the parties for comment. The municipal governments' comments were submitted on August 27, 1999 and noted that their value for scrap ties should have been stated as negative $5.00. By letter dated September 10, 1999, CN filed with the Agency its comments on the Agency Staff Market Data Report. The deadline for the filing of these comments had been set earlier by the Agency as being August 27, 1999. CN did not request any extension of time for the filing of its comments and offered no explanation for its lateness.

By letter dated September 13, 1999, the municipal governments requested that CN's submission not be considered by the Agency because of its lateness and, in the alternative, if the comments were to be accepted, the municipal governments should be given an opportunity to respond. For this purpose, the municipal governments consented to an extension of the statutory deadline for the Agency's final decision.

CN replied by letter dated September 14, 1999, stating, in part, that its comments ought to be accepted as they also related to an ongoing separate net salvage value proceeding. CN also submitted that the municipal governments have no right of reply to CN's comments and further, that strict adherence with the Agency's procedural rules has not been applied to the municipal governments in these proceedings, so these procedural rules ought not now apply to CN.

The Agency finds that its deliberations on the net salvage value of the railway line at issue in this case commenced on September 3, 1999, when CN filed its final reply. Since these deliberations were well underway as of September 10, 1999 (i.e. the date of filing of CN's comments on the Agency Staff Market Research Data Report), the Agency cannot accept them.

In so finding, the Agency acknowledges that the Agency Staff Market Research Data Report was distributed by the Agency to CN and the municipal governments on August 26, 1999, with a direction for any comments thereon to be filed the following day. The Agency acknowledges that this time frame for responding was extremely short. However, this short time frame was necessitated by the impending statutory deadline for an Agency decision which had to be issued by September 17, 1999. Given this deadline, it was crucial for the Agency's deliberations to commence no later than September 3, 1999.

It is in light of this deadline, the necessary commencement of deliberations, the absence of any motion for an extension by CN or reasons for lateness and CN's refusal to grant a further extension of time to this statutory deadline that mandates the Agency returning to CN its late comments on the Agency Staff Market Data Report.

A summary of the quantities and conditions of the track and other material proposed by CN and the municipal governments and those contained in the Agency staff's engineering inspection report is set out in Table 1. The values assigned to the various assets by CN and the municipal governments are also included in the Table.

*OTM = Other Track Material: For CN, this quantity includes bolts, spikes and rail anchors. For the municipal governments, their quantity includes bolts, spikes, rail anchors, joint bars and tie plates.

SS = Single Shoulder

DS = Double Shoulder

**The quantities found in the Agency's staff engineering assessment do not include the assets contained in the east portion of the wye of the Arborfield Subdivision.

In commenting on the Agency staff's engineering report, CN stated that "For the purpose of determining net salvage value we do not believe it is sufficient to classify materials as either reusable or scrap. There are categories in addition to "reusable" and "scrap". Material that is not reusable as main line relay material still has a number of other potential railway uses."

Each portion of the track material is assessed to determine the proportion that is reusable and the proportion that would be scrapped. In either case, however, the classification will be of little importance if there is no market for the asset. For example, the fact that 60 lb rail is in good condition and could be reused is of little importance in the valuation of the rail if there is no market for this type of rail. In such a case, the 60 lb rail, even if reusable, will be valued at the price of scrap rail, namely the price of steel.

In the present case, a review of the information supplied to the Agency indicates that there is no demand for reusable 60 lb and 80 lb rail as CN contends in its application, as the market value for such rail is equal to the value for scrap steel. There is also no evidence of this type of rail being reused in other rail networks. Therefore the value of the rail assets on the line, even those classified as reusable, will be valued at the market price for scrap steel. Based on the available evidence of market value, the Agency concludes that a value of $119 per ton for 60 lb and 80 lb rail (scrap and reusable) is appropriate in this case. In reaching this value, the Agency has averaged the values assigned to rail by both parties and the results of four of the five quotations included in the Market Research Data Report. One of the quotations was excluded because it was considered far too low when compared to the quotations obtained from the other market sources.

The Agency finds that a reusable tie has a value and determines it to be $9.00 per reusable tie, which represents the value agreed upon by both parties. The Agency also finds that there are ties on the railway line that cannot be classified as either reusable for railway operations or scrap. This other classification of ties would be those ties that could be considered reusable for other purposes such as landscaping. The Agency finds that a tie which is reusable for purposes other than railway operations has a value in the current market. Based on discussions with various market sources and CN's evidence, the Agency concludes that a value for a tie which is reusable for other purposes is $4.80 and $0.00 for scrap ties.

Based upon the staff engineering inspection report, the Agency finds that none of the switch ties are reusable and therefore, the Agency assigns no salvage value to the switch ties.

The approaches taken by the parties in valuing the other track material did not differ from the methodology they used to value rail and cross ties.

The Agency used the same approach for establishing the market values for other track material as for rail. That is, based upon the market value evidence presented, as well as that obtained independently by the Agency, the Agency determines that the value of reusable and scrap ties plates is $129 per ton. For reusable and scrap joint bars, the value is $134 per ton. The scrap bolts and spikes and the reusable and scrap rail anchors are valued at $121 per ton. The value of the scrap switches is $119 per ton.

There are three small wooden trestle bridges on the railway line. Both parties have agreed that they should be removed if the line were abandoned. The Agency finds that there would be only a negligible value obtained even if the pieces were to be classified as reusable. Accordingly, in this case, the Agency assigns no salvage value to these assets.

As previously indicated, the Agency finds that the east portion of the wye is integral to the operation of the Arborfield Subdivision. The quantities that form the east portion of the wye are based on estimations of its length, number of ties and amount of rail and other track material. The east portion of the wye is similar in quality to the west portion, and the Agency has, therefore, assessed it in a similar manner as the west portion of the wye. The quantities for the east leg of the wye are shown in Table 2.

In summary, relevant track material includes for example, rail, other track material and cross ties. Several sources were surveyed by the parties, as well as by the Agency on its own, to determine current market conditions and values. As noted above, the relevant quantities were determined during the engineering inspection. The unit values for the various assets were multiplied by the respective quantities to arrive at the gross salvage value. The Agency determines the gross salvage value for the track material to be $638,805.

In estimating the salvage costs for the railway line, CN submitted estimates that it had received from various contractors to salvage the Arborfield Subdivision. CN argues that the relevant dismantling costs are those which would be incurred by CN, not the costs incurred if the line were dismantled by another party. According to CN, it must, pursuant to section 145 of the CTA, transfer all of its interest in the railway line. Therefore, the determination of net salvage value by the Agency must relate to CN's interest in the railway line, not the interest of the purchaser if it were to decide to salvage the line at some future point.

CN argues that the values that it had determined for the track assets were 'FOB site', which means that the value of the assets submitted by CN are the values as if CANAC were to transport the materials from Arborfield. According to CN, if it were to deliver the assets to CANAC at its own cost, it would receive a much higher value for the assets. CN argues that including the transportation costs as a separate cost of salvaging would in effect double count these costs as they are already reflected in the value of the assets.

CN argues that it supports the environmentally sound disposal of scrap ties; however, it contends that there are no incremental costs to dispose of these ties. The cost to dispose of the ties in a manner that is consistent with regulations would be included in the overall cost from the contractor to CN to dismantle the line. CN submitted a copy of requests for quotations to dismantle the Arborfield Subdivision. In its request, CN states, "Scrap ties are those ties not marked as re-usable. Scrap ties are to be picked up and disposed of by the Contractor as per Governmental Regulations."

The municipal governments argue that the salvage costs that are to be included in a net salvage value determination should not be based on CN's tenders to contractors but on salvage costs that may be incurred by the municipal governments as they have accepted CN's offer to purchase the line. The municipal governments based their calculation of the costs of salvaging on those costs included in a previous Agency Decision (175-R-1999) and adjusted it for the differences between that subdivision and the Arborfield Subdivision.

The municipal governments argue that there is a distinct cost associated with the transportation of the salvaged material from the site where the material would be stockpiled to the nearest appropriate market. Therefore, the municipal governments contend that the transportation cost should be included as a cost to salvage the railway line. In estimating this cost, the municipal governments state that the nearest market for the assets would be in Regina, a distance of approximately 200 miles. The municipal governments then applied a shipping cost per ton and estimated the transportation cost of the materials from Arborfield to market to be $73,737.

The municipal governments argue that there is a distinct cost associated with the disposal of scrap railway ties which would be borne by the party salvaging the line. This distinct cost arises due to the fact that the rules governing the disposal of creosote impregnated ties are stringent. The municipal governments argue that Saskatchewan law essentially prohibits the burning of railway ties and the municipal governments cite the Province of Saskatchewan's Municipal Refuse Management Regulations which provide that any material treated with hazardous wastes cannot be disposed of at waste disposal grounds. Since creosote is classified as a poisonous liquid and an environmentally hazardous substance, creosote impregnated railway ties could only be disposed of at facilities that are equipped to handle industrial hazardous waste which do not exist in the province of Saskatchewan.

The municipal governments argument is that as there are few options, if any, with respect to the disposal of scrap ties. The most feasible solution and the only environmentally acceptable option is to transport ties to a site where they can be safely incinerated. The municipal governments have identified one such incineration facility and have estimated the cost to transport the ties to the facility and the cost to dispose of the scrap ties in an environmentally safe manner. The municipal governments submitted that "Ties delivered to these facilities must be chipped and mixed with other wood waste to enable them to be burned safely."

The cost of track removal varies with each line of railway and therefore it is not possible to apply one system average cost in any particular case. As part of its examination, the Agency consulted contractors who specialize in track removal work and obtained estimates based on the actual quantities of scrap and reusable track materials as recorded in the engineering inspection report. It is difficult, however, to quantify the actual cost of a dismantling contract because of the value of the track assets ceded to the contractor in lieu of payment.

The results of the Agency's market survey and the cost estimates provided by both parties were averaged to determine a reasonable estimate of costs for track removal. Accordingly, the Agency finds that a salvage cost of $11,700 per mile is appropriate. This includes the cost for restoring the paved crossings, dismantling the three small bridges, stockpiling and loading material at a specific point on the railway line, and the transportation of the scrap and reusable material. This cost, however, does not include the environmentally sound disposal and transportation of scrap ties. In addition, the Agency determines that the cost to restore the 12 gravel grid road crossings is $5,196.

In the Agency's Decisions regarding the CN Chatham Subdivision (a decision under the National Transportation Act, 1987, R.S.C., 1985, c. 28 (3rd Supp.)), the Canadian Pacific Railway Company (hereinafter CP) Goderich Subdivision and the CN Tisdale Subdivision, the Agency factored an amount into the cost of salvaging for the environmentally sound disposal of scrap ties. The Agency finds that this cost is also appropriate in this case, in part, because burning at the removal site is not an option in the province of Saskatchewan, and indefinite storage is not an environmentally sound practice. The Agency accepts the municipal governments' evidence on this matter, and finds, in this particular case, that there are two distinct costs associated with the environmentally sound disposal of scrap ties. They are: i) the transportation of the scrap ties to an incineration facility and ii) the disposal of the scrap ties, which includes the chipping/shredding and mixing of the scrap ties with other wood waste prior to incineration. The Agency finds that the cost to transport these ties to the nearest incineration facility amounts to $162,814 and the cost to dispose of them in an environmentally sound manner would be $127,896 or $3.00 per tie.

The Agency's determination of the cost of removal and salvage of track assets is provided in Table 3.

* This includes the east portion of the wye.

As indicated in the above-noted table, the Agency finds that the cost to dismantle all three bridges is included in the dismantling cost per mile and therefore no additional cost to dismantle the bridges is included.

Culverts are not normally backfilled when a line of railway is abandoned; however, there are circumstances where certain culverts would need to be removed. This would occur if a culvert was not functioning and caused water to flow outside the normal channel, resulting in damage to adjacent landowners. In this case, all culverts are functional and therefore there is no provision for their removal.

The Agency finds that the salvage cost for the track assets amounts to $560,326.

The net salvage value for track material is obtained by subtracting the cost of removal, salvage and transportation of $560,326 from the gross salvage value of the track materials of $638,805 yielding a net salvage value of the track materials on the railway line of $78,479.

The methodology to value the land component of the railway line differed between the parties. CN based its estimate of the land value on the tax assessment of the land to be transferred and on historic sales of former railway lands in rural areas of the Prairies. CN submitted that the value of the land on the right of way is approximately $45 per acre and the land on the station grounds would be $246 per acre. CN states that as the non-railway right of way land does not require levelling, it is, by the definition of the municipal governments, in fact materially different than the land on the right of way. CN also states that the municipal governments themselves recognize that this land is materially different as it is assessed by those municipal governments at a higher value to collect higher property taxes. The gross salvage value for the land was estimated to be $17,007.35. CN submitted that the total acreage to be transferred is 262 acres which is based on the land for which it is taxed. Of the total, approximately 236 acres is railway right of way land and approximately 26 acres is non-railway right of way land. As mentioned above, CN has excluded the acreage between mileage 0.0 and mileage 0.5.

The municipal governments disagree with CN's methodology in valuing land. The municipal governments argue that the land, in its current condition, would require substantial levelling and restoration in order for it to be used in a manner similar to the adjacent land. The municipal governments argue that this levelling cost would in effect reduce the value of the land to zero. The municipal governments also contend that the non-railway right of way property that is to be included in the transfer is not materially different from the land on the right of way and therefore should not be valued differently. The municipal governments have submitted in an Exhibit attached to their preliminary answer that the total acreage would be approximately 272 acres, of which approximately 233 is railway right of way land and 39 acres is for non-railway right of way land.

In its request for particulars, the Agency requested the municipal governments to provide copies of tax assessments for the right of way and information on previous sales of railway rights of way to support its valuation of land. The assessments that the municipal governments provided indicate that the assessment of the station grounds is higher than that for the right of way. In support of their position with respect to the land value, the municipal governments also submitted a copy of a 1989 agreement between Her Majesty the Queen in Right of the Province of Saskatchewan and a railway company. The substance of the agreement was the purchase of a portion of an abandoned right of way whereby the total purchase price was $1.00.

The Agency finds that, in this particular case, the most appropriate indication of value is the assessment of land for tax purposes. While the Agency notes that the agreement submitted by the municipal governments does indicate that lines of railway have been transferred at a nominal price, it does not provide any substantiation as to a nominal price for land in this particular case. As such, the Agency finds that in this case, land on the railway right of way should be valued at $45.00 per acre. The Agency also finds that the tax assessment for the station grounds is higher than that on the right of way. This indicates that this land has a value that is materially different from the remainder of the right of way. The Agency finds that the value for the land on the station grounds is $246.00 per acre for this particular case.

The Agency accepts the municipal governments' approximation of 272 acres from mileage 0.00 to mileage 19.4 which consists of all of the railway's interests, including the land of the east leg of the wye. However, from this total acreage must be excluded the land that will be subject to an easement from mileage 0.00 to mileage 0.05 for right of way on CN's Tisdale Subdivision. The actual number of acres to be transferred to the municipal governments will be determined by surveying the land in question at a later date. Until such time as the actual acreage is determined, the net salvage value of the land is $20,079. This determination will vary accordingly based upon the results of the land survey.

CN conducted a Phase 1 environmental site assessment of the Arborfield Subdivision. The Phase 1 report stated that "For the most part, the environmental concerns associated with the investigated portion of the Arborfield Subdivision are considered moderate." The exceptions, which the report noted, were located on some of the sidings. According to CN, the responsibility for any environmental contamination on these sidings or on the right of way resulting from activities on these sidings, rests with the lessee. CN argues that the lessee would be responsible for contamination that may originate on the lessee's property. Therefore, CN argues that there need not be any adjustment for environmental remediation or liability.

The municipal governments have argued that there has been migration of contaminants on the railway line from adjacent properties. This migration, according to the municipal governments, exposes the purchasers to "serious environmental risk and liability". The municipal governments argue that the environmental liability that results from the potential contamination could cost "hundreds of thousands of dollars to remediate to acceptable standards." The municipal governments further argue that under provincial legislation, "the person who owns or controls an environmental contaminant or contaminated area is responsible for the clean-up of said contaminant." The municipal governments contend that as the ownership of the railway line is being transferred by CN, the liability for the contamination is also transferred to the municipal governments. An estimate of the remediation cost, per cubic metre, was provided by the municipal governments. The remediation cost would vary therefore, based on the volume of soil that would need to be excavated. The municipal governments requested that, because it is difficult to specify the costs to remediate until it is actually carried out, the Agency order CN to indemnify the municipal governments for the environmental liability and the related costs.

In Appendix K of the Phase 1 report, UMA Engineering Ltd. made reference to residual diesel contamination on the south side of the site of the former Beeland Cooperative Association bulk plant in Arborfield, Saskatchewan (CNR 7931 PIN 35005). It appears, from Figure 10 of the site assessment, that the Beeland site may already be sold. However, the suspected source of the contamination (former UGG elevators) is lot 11424 on that same Figure. The former Beeland site appears to be part of a parcel of land (36448/A) already sold by CN. In its request for particulars, the Agency requested CN to provide further information regarding the contaminated site. CN responded that it did not have the requested information. The Agency considers that the issue of diesel contamination must be resolved and an order to this effect will be issued.

In addition, UMA Engineering Ltd. indicated that a former Parkland Alfalfa site had a siding track. It noted the presence of cement pads and a few buildings where, ten years ago, Parkland had produced alfalfa pellets for animal feed. UMA Engineering Ltd. further mentioned a spill of brown/black fluid which did not have a hydrocarbon colour. It did not specify whether the building from which the fluid emanated was on CN property or whether any CN property had been contaminated by the fluid. The Agency considers that the issue of the unknown fluid must also be resolved and an order to this effect will be issued.

In its calculation of net salvage value, CN has included a value of $51,935 which represents the present value of its lease agreements over a ten-year period. The leases upon which this calculation was located were for crossings, grain storage etc. located between mileage 1.42 to mileage 31.50. CN indicated that the methodology used to calculate the interest was consistent with the methodology used in Decision Nos. 530-R-1998 and 175-R-1999. The municipal governments argue that net salvage value is determined on a 'for any purpose' basis. As that purpose is not currently known, the municipal governments argue that certain uses may preclude it from receiving any revenue arising from the various leases and agreements. The municipal governments also argue that as leases and agreements are not 'real' assets that cannot be salvaged, they should not form a part of a net salvage value determination.

In its interrogatories, the municipal governments requested CN to provide the termination periods for the leases and agreements. The municipal governments argue that if the Agency decides to include the revenue from leases as an asset, it should only do so based on the minimum cancellation periods for each lease. The municipal governments also argue that if lease revenue is to be included, the costs for maintaining the track should be deducted. The supporting rationale is that the track is necessary for the leases to provide income.

Similar to the Agency's Decisions regarding the CP Goderich Subdivision and the CN Tisdale Subdivision, the Agency finds that the stream of income provided by leases and other agreements are assets and ought to be included in net salvage value determinations.

The municipal governments' contention that the track maintenance costs be netted against the interest in leases is not relevant as only the residual leases that remain after the track has been completely dismantled are included. The municipal governments argument pertaining to the period of time on which the value of the leases is calculated is, however, relevant. The Agency finds that there should be some certainty as to the period over which the value of leases is based. In determining the period, the Agency must consider the reasonable likelihood that an agreement would be terminated or continued. If, for example, there is a wire crossing with a 90-day cancellation period it would be extremely unlikely that the utility who owns the wire crossing would incur additional expense to change the location of the crossing. On the other hand, if there is a grain elevator with a 90-day cancellation period, it would be extremely unlikely that the elevator company would renew that lease after the line has been salvaged.

The Agency has excluded lease revenues that result from activities outside the boundaries of mileage 0.0 to mileage 19.4. The annual fees that CN currently receives from its lease agreements on this railway line amount to $2,535 per year. The leases have a 90-day cancellation period, with one lease ending on September 30, 1999. The Agency finds that the lease revenues would continue even after the line has been dismantled. In order for the lease revenues to cease, the companies leasing the land would have to remove any structures and subsequently cancel their lease. The Agency finds that this would not likely happen in the immediate future and has therefore included the present value of these leases for five years. In this case, the Agency will apply a rate of return on long-term Canadian bonds of 5.51 percent. The result is a $10,822 benefit representing an increase in net salvage value.

Based on the information currently made available, the Agency determines that the net salvage value for CN's Arborfield Subdivision between mileage 0.00 and mileage 19.4 is $109,380 as detailed below. However, CN has not provided adequate information with respect to i) clarification of data with respect to donated assets and ii) the extent of contamination on the right of way. Based on the above, the Agency cannot make a final determination of net salvage value of the Arborfield Subdivision. Consequently, this determination is made on an interim basis pursuant to subsection 28(2) of the CTA.

Furthermore, pursuant to section 25 of the CTA and section 18 of the National Transportation Agency General Rules, SOR/88-23, an order requesting additional information with respect to i) clarification of data concerning donated assets and ii) the extent of contamination on the right of way, will be issued.

Once this additional information is filed to the satisfaction of the Agency and is subsequently assessed by the Agency, this interim determination for CN's Arborfield Subdivision will be finalized and the salvage value amount will be adjusted as may be required.