Decision Date: September 16, 2010

Panel: David Ormerod

Keywords:  Forest Act – s. 105(1); Interior Appraisal Manual – ss. 2.5, 4.3(2), 4.3.1, 4.3.1.1.4; engineered cost estimates; extended road amortization agreement; forest service road; first tributary cutting authority

Atco Wood Products Ltd. (“Atco”) appealed a stumpage rate determination issued in September 2009 by the Timber Pricing Coordinator (the “Coordinator”), Southern Interior Forest Region, Ministry of Forests and Range (the “Ministry”).  In determining the stumpage rate, the Coordinator rejected six engineered cost estimates (“ECEs”) in Atco’s appraisal data submissions for cutting permit (“CP”) 28 of forest licence A20218.  Three of the ECEs were for upgrading existing bridges on a forest service road.  The other three ECEs were for terrain stability field assessments associated with Atco’s development of a logging road, extending from the forest service road, pursuant to a road permit issued under the forest licence.  Atco used both roads when harvesting timber under its forest licence.

All of the ECEs were for work completed before June 2006.  The ECEs were not included in any of Atco’s appraisal data submissions until July 2009, when it applied for CP 28.  Atco did not include the ECEs in appraisal data submissions for earlier cutting authorities because applying the ECEs towards the stumpage rates for those cutting authorities would have resulted in negative indicated stumpage rates, and therefore, the statutory minimum stumpage rate would have applied and Atco would have essentially received no financial compensation for the ECEs.  Based on conversations with Ministry staff about cutting authorities issued under the forest licence before 2009, Atco staff believed that the ECEs could be ‘held back’ and applied to a future cutting permit, such as CP 28, that would have a positive stumpage rate even with the inclusion of the ECEs.

The Coordinator rejected the ECEs on the basis that CP 28 was not the first tributary cutting authority for the forest licence, and there was no extended road amortization agreement (“Agreement”) between Atco and the Ministry in respect of CP 28 or any other cutting authorities issued under the forest licence.

On appeal to the Commission, Atco acknowledged that it had no Agreement with the Ministry regarding the ECEs, but Atco argued that the Interior Appraisal Manual (“IAM”) did not require it to have an Agreement in order to claim ECEs that pertain to a forest service road.  Alternatively, Atco submitted that if the IAM did require an Agreement in this case, then the Ministry should redetermine the stumpage rate under section 2.5 of the IAM to prevent Atco from suffering an inequity.

The Government submitted that the IAM required an Agreement because CP 28 was not the first tributary cutting authority in this case, and section 2.5 could not be used to retroactively create an Agreement.

First, the Commission considered whether the ‘first tributary’ rules for road development cost amortization apply to the ECEs relating to the upgrade of bridges on the forest service road.  The Commission found that section 4.3 of the IAM, which allows road development costs to be claimed only in the appraisal of a licensee’s first fully appraised tributary cutting authority area, is specific to road permits and cutting permits.  Section 4.3 does not refer to road reconstruction and replacement costs in relation to forest service roads.  Similarly, section 4.3.1.1.4 of the IAM, which sets out the requirement for an Agreement, is also specific to road development occurring under the authority of a road permit or cutting permit.  Further, section 4.3.1 of the IAM, addresses only new construction costs for roads, and not road reconstruction and replacement costs.  The Commission found that the three ECEs pertaining to bridge upgrades on the forest service road were neither “new” development nor “development occurring under the authority of a road permit or cutting permit”, and therefore, those ECEs were not covered by the requirements in the IAM to allocate certain road development costs to the first fully appraised tributary cutting authority.

In addition, the Commission found that paragraph 4(b) of section 4.3.1 applies to forest service roads, but only when the costs for bridge replacements on a forest service road have been funded by the Crown, which is not the case here.  The Commission held that nothing in the IAM expressly prohibits the type of costs in the three bridge-related ECEs from being included in the appraisal in this case.  The Commission also noted that those ECEs had not been included in any previous appraisal.

For all of those reasons, the Commission concluded that the three ECEs pertaining to the upgrade of bridges on the forest service road should have been included in the appraisal of CP 28.

Next, the Commission considered whether section 2.5 of the IAM could be applied to allow the inclusion of the other three ECEs, which pertained to development of the logging road under a road permit, in the appraisal of CP 28.  The Commission held that section 2.5 contemplates circumstances where the licensee and the Coordinator “agree” that a stumpage rate should be redetermined, and in this case the parties did not agree.  Consequently, the Commission concluded that section 2.5 did not apply in this case.

In summary, the Commission concluded that the ECEs associated with upgrades of the bridges on the forest service road should have been allowed in the appraisal of CP 28, but the Coordinator correctly rejected the ECEs for development of the logging road under Atco’s road permit.  The Commission referred the matter back to the Coordinator with directions to redetermine the stumpage rate for CP 28 to account for the ECEs associated with the forest service road.

Accordingly, the appeal was allowed, in part.