February 20, 2008 / 1:37 PM / in 10 years

Railways hit by grain rate ruling

VANCOUVER, British Columbia (Reuters) - Canada’s two largest railways will appeal a ruling that retroactively lowers the cap on their revenue from hauling Prairie grain by about C$70 million ($69 million), officials said on Wednesday.

Canadian Pacific Railway Ltd and Canadian National Railway Co said the decision by the Canadian Transportation Agency was unfair, with CP warning its earning could be shaved by up to 13 Canadian cents a share in 2008.

On Tuesday, the CTA changed how CP and CN account for the cost of maintaining the fleet of government-owned hopper cars, a move that will cut the total revenue the railroads can earn from hauling Western Canadian grain, starting with the current crop year.

The agency, which sets an annual revenue cap on the carriers’ service, says this lowers that level by an estimated C$2.59 a tonne of grain, or C$70.2 million. When the railways exceed the cap they have to give the excess money, plus a 5 percent penalty, to an agricultural research foundation.

The railways are upset by how much regulators want them to reduce maintenance charges and by the fact the order is retroactive to August 1, 2007.

The railways will appeal the CTA decision in Federal Court.

Grain shippers have long complained the railways charge too much for car maintenance, and the federal government told regulators to develop a new system in 2006.

“Although we expected this announcement, the amount of the adjustment his higher than the assumptions we made for our 2008 outlook, confirmed on January 29, 2008,” Mike Lambert, CP’s chief financial officer, said in a statement.

Canadian Pacific said it now sees earnings per share being 5 Canadian cents lower, between C$4.65 and C$4.80 for 2008.

CP said the retroactive portion of the revenue cut could reduce earnings by another 8 Canadian cents a share, but it was not including that in its revised guidance because they were confident that would be overturned.

A Canadian National spokesman said it was too soon to speculate what impact would be on CN’s results.

The CTA said the railways’ historic cost estimate, which was “embedded” in the higher revenue cap, was C$4,379 per car, but the actual cost they can now charge is C$1,371 per car.

($1=$1.01 Canadian)

Reporting by Allan Dowd, Jonathan Spicer; Editing by Rob Wilson

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