Agriculture Committee on May 16th, 2006

[Frank Urban]

With the total exception of the report you have that was tabled this morning.... That was the first time they approached us for the cost of the maintenance of the hopper cars.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

So if they wouldn't have approached Transport Canada, do you have any idea which agencies they might have suggested go after this information, if it wasn't you folks?

[Frank Urban]

The request would have been put forward from Transport Canada, which has responsibility for the ownership of the hopper car fleet.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

Okay, but my point is that in 10 years, or whatever, the government never took seriously the issue of what those maintenance costs were. You still don't have an exact figure on those, from reading your report. Is that right? That's basically, if you want to call it, hearsay evidence--

[Frank Urban]

No, it's not hearsay.

A considerable amount of effort was undertaken by agency staff in visiting with the railways at the main shops where the activity was undertaken. Part of the problem, which was discussed in the earlier proceedings, was that the railways do not collect detailed information with respect to the maintenance of the hopper cars, which made the assignment or study more difficult to undertake. The $1,800 determination was the best figure that could be determined under the circumstances.

Whether a better estimate can be undertaken remains to be seen, and it's something we will be looking at very closely in the next month or so.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

Can you tell me what makes up the $600 in regulatory overhead?

[The Chair, Conservative, Gerry Ritz]

You need to be brief.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

Mr. Harrison was talking about administration. Is that what they would assign to government regulatory overhead or is it their own internal overhead?

[Frank Urban]

It would be their internal overhead.

To call it “administration” is an oversimplification. The overhead encompasses much broader costs; these are normally indirect costs that are in support of the operation but not directly assignable to the operation. The president's salary would be a part of the overhead, but it would be a smaller component of that amount. It is fringe benefits such as health and welfare costs, Canada pension plans, company pension plans, accounting costs for the company, and inventory costs for the material. It would be the first-line supervision costs for the supervisors and foremen at the shops.

All of those are in support of the maintenance. The maintenance could not be undertaken without this supporting cast or supporting role provided by the railway.

[The Chair, Conservative, Gerry Ritz]

Thank you, Mr. Anderson.

Mr. Atamanenko, do you have a final point?

[Alex Atamanenko, NDP, British Columbia Southern Interior, BC]

No, thank you, Mr. Chair.

[The Chair, Conservative, Gerry Ritz]

Mr. Boshcoff.

[Ken Boshcoff, Liberal, Thunder Bay—Rainy River, ON]

Over the past eight or nine years of the process, your role involved Transport Canada. When you get a proposal from an organization such as FRCC, of course, your interest is in protecting the interests of the Canadian government. Would you view the perspective as positive in terms of trying to encourage the sale to the rail coalition?

[Frank Urban]

Unfortunately, that's not an opinion that I am at liberty to share.

[Ken Boshcoff, Liberal, Thunder Bay—Rainy River, ON]

Okay. Now that you've examined this, you found that 75% of the fleet isn't suitable. Although it's been claimed that the fleet has been maintained, 75% of the cars are being repaired on an ad hoc basis in the field, by farmers or themselves, just to get the grain moving. As a system, how can we ensure that doesn't happen or continue to occur?

[Frank Urban]

Again, unfortunately, I would direct that comment to Transport Canada. I would suggest, if I may, that it would be part of the negotiations going into the new lease agreement that is currently being negotiated with the railways.

[Ken Boshcoff, Liberal, Thunder Bay—Rainy River, ON]

When you do an economic analysis of all these things, would you say that the presidential salary and the shop foreman's pension plan are valid overhead costs to add to the cost of this operation?

[Frank Urban]

Simply, yes, the founding principles of costings are long-run variable costs; they're economic costs. That is to suggest after a period of time, if those costs were not incurred, they would be avoided. That's not to say the president would no longer exist. But if the company decreased in size or increased in size, his responsibilities would theoretically increase or decrease, which would then have a trickle-down effect on the overall organization.

[Ken Boshcoff, Liberal, Thunder Bay—Rainy River, ON]

Thank you very much for allowing the question.

[The Chair, Conservative, Gerry Ritz]

Mr. Bezan, a very short one

[James Bezan, Conservative, Selkirk—Interlake, MB]

Mr. Urban, on the money that was given to the railroads, you mentioned that if more money was received than it actually cost, there was a penalty assigned and they would have to make a donation to the Western Grain Research Foundation.

[Frank Urban]

Not quite, I don't believe. What we determine is the maximum amount of revenues they're entitled to earn if those revenues exceed that maximum amount. That maximum amount is a function of the number of times moved, length of haul, and it is also adjusted for inflation starting from the year 2000-01.

They're at liberty to charge the farmers whatever rate they want as long as collectively the sum total of those rates does not exceed the maximum revenue cap. Should they exceed--and therein the presumption is that they have overcharged the farmers--the maximum revenue cap, then any amount that is above the revenue cap is clawed back from the railway, plus a penalty. And there's a sliding scale in the regulations to determine the exact amount, which is then payable to the Western Grains Research Foundation.

[James Bezan, Conservative, Selkirk—Interlake, MB]

Have there been times in the last few years that there have been penalties assessed?

[Frank Urban]

Yes. In the last couple of years there has been a recoupment of, I would say, a couple of hundred thousand dollars. I'm not sure of the exact amount.

[Alain Langlois]

I'm not sure of the exact amount, but two crop years ago CP was over their revenue cap so they had to pay an amount to the Western Grains Research Foundation. Last year, CN was over the cap so they had to pay an amount; CP was underneath. So on two occasions the railways actually had to pay an amount to the Western Grains Research Foundation.