Speaking notes for Liz Barker to Railway Association of
Canada
Good afternoon
I was asked to speak to you today about the role of the
Canadian Transportation Agency and how it has evolved
since the introduction of the National Transportation Act in
1987 and the Canada Transportation Act in 1996. I have
to admit it is a daunting task, describing the role of the
regulator to the industry that has been subject to that
regulation all of these years. But here we go…
The Agency’s history runs on some parallel tracks with the
history of the railways.
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And what a history it is…the story of Canadian nation
building … great feats of railway engineering... the political
determination to get tracks out to the West coast …to
populate the prairies … to get goods to far-flung places
…from grain and livestock to lumber and flour.
There was one sure thing from the get-go though: as long
as there have been railways in Canada, there have been
issues about rates and service, and a view that the
government had a role to play.
Canadian rail regulation dates back to the mid-1800s
when some rates were regulated by the Railway
Committee of the Privy Council while others were not.
Freight rates were higher in regions with less competition,
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notably in the West, with an exception made for Western
grain rates under the Crowsnest Pass Agreement, which
gave CP a subsidy to compete with American lines
accessing mines in southern B.C..
Complaints from some shippers and some communities
were heard by the politicians in Ottawa. By the turn of the
Century, there was such a tangled thicket of rates – and
grievances –that the government assigned commissions
to look into the problems. One commission reported in
1899 that some shippers were bypassing their local rail
line and hauling their goods by wagon to another rail line
with cheaper freight rates. Sound familiar?
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By 1904, it was time to turn the clamour over to an
independent body. And so the Board of Railway
Commissioners was established. The Board was the first
incarnation of today's Canadian Transportation Agency.
The three-person Board had the powers of a Superior
Court to hear railway-related complaints. It had regulatory
authority over railway construction and repair, freight
rates, fares as well as derailments and other accidents.
The Board was a pioneer in economic regulation and
dispute adjudication and it served as a model for other
tribunals to come.
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Don’t worry. I am not going to walk you through more than
a century of history. But I wanted to take you back to the
origins of today’s Agency to make this important point:
The fundamental railway level of service provisions – the
common carrier obligations of federal railway companies
found in today’s Canada Transportation Act - have
remained largely unchanged for over 100 years.
Untouched, despite many reviews and opportunities for
legislative change.
This reflects the view of government after government,
Parliament after Parliament, over decades, that shippers
need access to remedies when there is a lack of market
competition.
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As early as 1906, language almost identical to the
current Canada Transportation Act was included in
the Railway Act. It required railway companies to
furnish "adequate and suitable" accommodation and it
gave the Board powers to order remedies when
service was not.
This fundamental level of service obligation has not only
survived but thrived in the modern era of deregulation
through the 1987 National Transportation Act and the
1996 Canada Transportation Act – the subject of our
discussion today.
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Both of these Acts were designed to place a greater
emphasis on shippers and carriers conducting their
business through commercial negotiations.
In most cases, railway companies and other parties
resolve disputes by negotiating agreements themselves.
When negotiations break down, they may turn to the
Agency to assist:
 through facilitation or mediation,
 through formal adjudication or arbitration; or
 through final offer arbitration.
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The Agency now has the mandate to consider applications
and investigate complaints on a wide range of rail-related
issues including:
 level of service;
 interswitching;
 charges, including for incidental services;
 rail noise and vibration;
 public passenger service providers;
 road, utility and private crossings;
 railway line construction;
 running rights and joint track usage;
 market entry, or certificates of fitness; and,
 market exit, or transfer and discontinuance of railway
lines.
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But how did this all come about?
In the early 1960s the McPherson Commission on
transportation recommended that all modes of
transportation be left to competition rather than regulation
– except in the case of "captive shippers" where little or no
competition existed.
But it was not until 1987 that the National Transportation
Act established that competition should be the prime force
driving the Canadian transportation industry. That meant
competition among modes of transportation and among
carriers.
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The newly-created National Transportation Agency of
1987 was stripped of its predecessor’s proactive policymaking role and was bound to follow the policy directives
of government. The Agency was supposed to respond to
problems, rather than seek them out.
The Agency would continue to hold public hearings into
transportation matters and settle disputes between
shippers and carriers, but now only in response to specific
complaints or at the government's request. The Agency
would also administer final-offer arbitration and provide
mediation upon request.
With this move toward deregulation, the Agency's
regulatory duties were also redefined.
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The new Act reduced regulations in the rail sector so that
shippers could negotiate confidential contracts with
individual railways, and file the agreements with the
Agency. The Agency reported that confidential contracting
was the principal competitive mechanism used in the
railway industry in 1988.
The interswitching limit was also extended, from 4 miles
set in 1908 to 30 kilometres. Captive shippers beyond the
30-kilometre limit could ask their local carrier for a
competitive line rate. If a rate could not be agreed upon,
the Agency, on request, would set the rate.
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The new National Transportation Act also made it easier
for railways to sell an unprofitable line, and ensured a
government subsidy to establish other means of
transportation where necessary. The Agency could also
order the railway to continue service on a subsidy basis.
Following this, the Agency received a flood of applications
to close freight railway lines throughout Canada – in 1989
CN and CP alone reportedly planned to close 65 freight
lines covering more than 2,000 kilometres.
By the time the Canada Transportation Act came into
effect in 1996, the landscape had been dramatically
altered by rail industry deregulation and rail plant
rationalization.
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CP and CN were trying to shed their money-losing branch
lines; communities were fighting to preserve local service;
and short line railways were springing up in large
numbers.
The Canada Transportation Act included an easier
process for railways to sell rail lines or to discontinue
service. And it removed rail subsidies for continuing
uneconomic freight and passenger service.
Amid these changes, the Agency still dealt with many of
the same concerns that had led to the creation of the
Board of Railway Commissioners almost 100 years back.
One of the first major complaints to the new Agency
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involved the railways' movement of grain for export
markets.
The 1997 Estey review of the grain transportation and
handling system called for a more commercial graindelivery system that continued to protect the public
interest.
Arthur Kroeger, appointed to develop reforms, sought the
Agency's help in estimating transportation costs and
determining the extent to which the railways shared their
profits with shippers. Among Kroeger's recommendations
was a cap on railway grain revenues to replace the old
rate scale regime.
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As a result, the Maximum Revenue Entitlement Program
was established in 2000. The legislated formula, adjusted
each year by a railway inflation index, establishes a cap
on revenue per tonne of grain moved. The more grain that
is moved, the more revenues the railways are entitled to
earn.
The legislation, Bill C-34, also provided longer notice and
negotiation periods for discontinuance and transfers of
service on branch lines as well as remedies if parties didn't
negotiate the transfer of a line in good faith. Level-ofservice complaints on grain-dependent branch lines were
also addressed, providing additional remedies that
included the power to grant running rights. In addition,
railway companies were required to provide three years of
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annual compensation at a rate of $10,000 per mile to local
municipalities in order to discontinue service on graindependent branch-lines.
Finally, the new legislation made the final-offer arbitration
process more efficient by offering a streamlined process
for disputes valued at less than $750,000 and extended it
to designated commuter authorities and to passenger
railway service.
A statutory panel review of the Canada Transportation Act
in 2001, headed by Brian Fleming, concluded that the
government could promote even more deregulation.
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The panel supported removing the onus on a shipper of
proving "substantial commercial harm" in the case of a
level of service complaint, and recommended that the
grain handling and transportation system be put on a more
commercial basis … which might include removing the
maximum revenue entitlement on grain rates.
As a footnote, you're all aware of course that the
maximum revenue entitlement program was not removed,
although the way it is administered was changed in the
late 2000's to structure and streamline the process.
Some other Fleming panel recommendations did land in
legislation though. Bill C-11 in 2007 included a process at
the Agency to resolve rail noise and vibration complaints.
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A mechanism was also established to resolve disputes
between public passenger service providers and railway
companies over the use of railway company equipment
and rail and other facilities when the parties cannot
negotiate a commercial agreement.
Bill C-8 in 2008 extended the option of final offer
arbitration by the Agency from a single shipper to groups
of shippers seeking a common solution to a dispute.
In addition, with these amendments to the Act, the Agency
no longer had to be satisfied that a shipper would suffer
“substantial commercial harm” before granting a remedy to
a complainant.
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The legislation also gave the Agency the authority, upon
complaint by one or more shippers, to review and amend
unreasonable charges and associated terms and
conditions for the movement of traffic or for the provision
of incidental services.
Statutory notice that a railway must give for a freight rate
hike was increased from 20 days to 30 days so shippers
would have more time to adjust.
Now, the grain transportation system had changed
considerably over the previous decade, with a large
reduction in country grain elevators… consolidation of
branch railway lines in western Canada …and the
disbandment in 2000 of the Car Allocation Policy Group.
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This group of railways and shippers who used a formal
consultative process to avoid gridlock was replaced by
direct negotiations between railways and shippers.
This resulted in a higher than usual number of complaints
from shippers and led to a notable Agency decision in
2008 to impose performance benchmarks on a railway for
the first time. This decision required the railway company
to provide predictable, adequate rail car delivery to the
Canadian Wheat Board and five other grain shippers who
had complained about erratic service.
While this decision was later rescinded as a result of
related preliminary decisions being overturned on appeal,
it was for reasons unrelated to the use of performance
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benchmarks and this concept remains in use today in
various contexts.
In the meantime, the government had appointed a Rail
Freight Service Review Panel to examine problems in the
freight transportation system. The two-year panel
focussed on CN and CP rail service to Canadian shippers,
but encompassed the entire rail-based logistics chain,
including railways, shippers, terminal operators, ports and
vessel operators.
In 2011 the Panel recommended further measures to
assist shippers. A key recommendation was that railways
should enter into good faith negotiations to establish
service agreements at the request of a shipper. Failure to
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reach agreement on the terms and conditions of service
agreements or renewals should be eligible for dispute
resolution.
The government responded to the panel’s
recommendations in Bill C-52, the Fair Rail Freight
Service Act. The intent was to give shippers better access
to rail service. The bill required a railway company, on a
shipper’s request, to offer a contract setting out level of
service commitments on rail car delivery and other
operational terms.
Where they have been unable to conclude an agreement,
the legislation created an arbitration process at the
Agency to establish level of service terms that will be
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binding on the shipper and the railway company for one
year.
A penalty of up to $100,000 per violation of the terms of an
arbitrator's decision could be imposed under the new
legislation.
Alternatively, in the adjudication of level of service
complaints, the Agency could now order a railway
company to compensate any person for expenses
incurred as a result of a breach of the railway's level of
service obligations.
This legislation received Royal Assent on June 26, 2013.
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By the winter of 2013/14, a record crop in western
Canada, combined with exceptionally cold weather, put a
huge strain on Canada's shipping system for grain, and
resulted in a significant backlog in grain delivery to export
ports.
The government responded with Bill C-30, the Fair Rail for
Grain Farmers Act, aimed at reducing bottlenecks, getting
grain to market more quickly and increasing transparency
in the supply chain.
This bill received Royal Assent on May 29, 2014.
The Agency was to expand interswitching limits; to define
operational terms used in railway level of service
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arbitrations; and to provide advice to the Minister so the
government could order CN and CP to move minimum
volumes of grain.
The Agency conducted consultations on all elements of its
new duties. Among those consulted were CN, CP, RAC,
members of the Western Grain Elevator Association,
shippers and shipper associations, as well as other
stakeholders.
The Agency was required to advise the Minister of
Transport on the minimum amount of grain that CN and
CP should move during each month of the crop year
beginning August 1st.
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The Agency expanded the radius for interswitching rates
for all commodities from 30 kilometres to 160 kilometres
in Saskatchewan, Alberta and Manitoba to increase
competition among railways and improve shippers’ access
to markets.
The Agency specified in regulations an extensive – though
not exhaustive – list of operational terms that may be
included in rail level of service arbitrations: terms such as
provision of rail cars or specifying pickup, transit and
delivery times, and routes.
The operational terms regulations are intended to reduce
time-consuming debates before the Agency about what is
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and what is not eligible for arbitration, and may assist
shippers and railways in their commercial negotiations.
In the fall of 2014, the Agency issued an important
decision in a level of service complaint filed by a grain
shipper against CN. In this decision the Agency set out a
clear, three-step approach to evaluate whether a railway
company has failed to fulfill its obligations.
The evaluation includes an examination of the factual
evidence from both parties to answer three questions:
 first, is the shipper's request for service reasonable?
 second, did the railway company fulfill the request?
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 finally, if the railway company failed to respond to a
reasonable request, are there reasons that could justify
the service failure?
That decision noted that the level of service provisions
have been a robust part of the Canada Transportation Act
and its predecessors since before Confederation –
providing a counterbalance to monopoly power that
railway companies may exert in some circumstances.
I quote from the decision: “The retention of these
provisions in federal legislation more than a century later
reflects Parliament’s acknowledgment that regulatory
intervention in railway level of service matters continues to
be necessary.”
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This decision is currently under appeal.
Legislation and regulations are key instruments of public
policy, expressing the will of Parliament and reflecting the
public interest. They are the foundation for the Agency’s
determinations on rail and other transportation industries.
The Agency provides an assessment of the Canada
Transportation Act each year in its Annual Report to
Parliament, citing any difficulties observed in administering
our enabling legislation.
And, of course as you all know, there is another statutory
review of the Canada Transportation Act underway at this
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time so we'll see what further recommendations will be
headed our way towards the end of the year.
The Agency consults widely and listens carefully. Our door
is always open to you.
Thank you
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