Transport Committee on May 15th, 2014

[Pauline Quinlan]

Here is a quick answer.

That issue is discussed at all the working meetings of the Federation of Canadian Municipalities. Ontario has demonstrated great leadership in its urban planning legislation to better regulate the development of the rail system. We educate the other provinces and territories to ensure that we are good neighbours and that our plans also include regulations that limit the distances for railways.

[Daniel Rubinstein]

FCM has developed proximity guidelines with the railway associations. In our role at a federal level, we don't do land use planning, it's a provincial thing, but we do have guidelines adopted by the City of Montreal, by the City of Moncton. They have setbacks recommended in new development and also now a process for mitigating redevelopment of an urban area. We recognize there is a lot of work to do there. The more municipalities adopt this internally, the better the outcomes will be.

[The Chair, Conservative, Larry Miller]

Okay, thank you.

Mr. Chabot, just some clarification on a question that Ms. Young asked.... It was to do with the number of municipalities and I think the figure was around 800, correct? My question is, in my riding, I have 17 municipalities. Many of them are members but we have absolutely no railway in our riding anymore, they've been taken out, so is that 800 municipalities that have railways that run through them?

[Stéphane Émard-Chabot]

Yes, the 800 municipalities are directly affected by railway traffic. They're the only ones under PD 32 that have a right to receive the information. You have to have a railway to be able to access that data.

[The Chair, Conservative, Larry Miller]

Good. Thank you for that.

I'll move to Mr. Sullivan for five minutes.

[Mike Sullivan, NDP, York South—Weston, ON]

Thank you, Mr. Chair.

Sticking to liability, your suggestion that those in class I have over $1 billion of insurance is counterbalanced by the Association of American Railroads saying:

Should an incident occur within or near a densely populated area... [it] has the potential to be truly catastrophic and result in billions of dollars of personal injury and property damage claims.

The damages potentially resulting from an exposure could risk the financial soundness and viability of the rail transportation network in North America.

That's what the Association of American Railroads said to you in your study. How do you respond to that? How do we deal with that?

[Nina Frid]

I'll try to respond to this as best as I can. It might be interesting to note that in the United States, there is no requirement as there is in Canada for a railway to specifically acquire third party liability insurance. There is no government oversight or requirement in the United States similar to what we do at the agency,

I met with my colleagues at Surface Transportation Board, which is sort of a similar organization to ours. They told me that they do not have information at all about what levels of insurance U.S. railways are holding. I have some difficulty reconciling what the Association of American Railroads provided with the regime that exists in the United States.

[Mike Sullivan, NDP, York South—Weston, ON]

We're not here to study the U.S. regime; we're here to study the Canadian regime. If it's billions of dollars, and railroads only have $1 billion, it's still ruinous, is it not, even in Canada?

The second question is, MMA was a class II and carried $25 million of insurance, yet they're allowed by their certificate to carry dangerous goods. Should class II railways, with so little liability insurance, be allowed to carry dangerous goods?

[Nina Frid]

It's a very complex issue. The railway companies in Canada have what is called common carrier obligations. The law prescribes railway companies to accept freight that is offered to them for carriage, and they're supposed to carry the freight that the shipper provides at a certain fee, which they establish on a commercial basis. It would be difficult to suggest that the railways can pick and choose what they carry, or the government prescribes what the railways will carry.

[Mike Sullivan, NDP, York South—Weston, ON]

If there isn't enough insurance in a class II system, then why are those in class II actually operating dangerous goods?

I guess that's a question for the government, not for the regulators. I think the FCM had a comment, too.

[Daniel Rubinstein]

This is exactly why we're saying that we need a catastrophic regime for the short line. There are two policy questions there. How do you bridge the gap between whatever level the CTA establishes for MMA, say $25 million, and the billion or billion and a half dollars that CN has? That's the first policy question.

Then the second policy question is, how do you fund more serious incidents involving those in class I? We're not prescribing what an upper limit should be. There's going to have to be a pooling to deal with both situations.

[Mike Sullivan, NDP, York South—Weston, ON]

With regard to the study you're currently undertaking, can you supply to the committee all of the responses from the railroads and from everybody to the study so that we can actually see what everybody is saying? I've seen the summary, but there are clearly gaps in the summary.

With regard to densely populated areas, the insurance companies in their responses to you seem to suggest that a pattern of avoidance of densely populated areas is ideal for them. You don't have any regulatory ability in that regime. You can't order a railroad to avoid densely populated areas.

[Nina Frid]

In response to your first question, all submissions that were received by the agency are available on the agency website. They're completely public, so anybody can see, but we would be pleased to compile them for you and provide them.

[Mike Sullivan, NDP, York South—Weston, ON]

With regards to railroads operating in densely populated areas, railroads have expropriation ability. In fact, in my riding, they have expropriated land in order to move their railroads closer to homes, considerably closer to homes.

Is this an appropriate use of the railroads' expropriating ability in an urban area?

[The Chair, Conservative, Larry Miller]

I will allow for the answer.

[Daniel Rubinstein]

Obviously we've been focused on making sure that the railways are doing appropriate risk assessment so that this kind of thing is minimized. Again, the ministerial order that was announced two weeks ago does look at a series of factors, including proximity and population density. It also looks at identifying and comparing alternative routes, if available. We are being consulted on that process. That was mentioned in the order. We're pleased to see that because, frankly, that hasn't always been the case. Rule making is happening, and we'll be notified after the fact.

This will be one of the issues that we're raising. This process has to work, and there has to be mitigation at the end. We know that in a lot of communities, there won't be an alternative railway to use. That doesn't mean there won't be places where mitigation is still necessary.

[The Chair, Conservative, Larry Miller]

Thank you.

We now move to Mr. Komarnicki for five minutes.

[Ed Komarnicki, Conservative, Souris—Moose Mountain, SK]

Thank you, Mr. Chair.

Thank you for appearing before us today.

I understand that there are various types of accidents. Some can be intentional and some can be purely accidental. I think you'd have agreement that the general public would like to see the damages or injury paid for entirely, without regard to one or the other, something close to strict liability perhaps.

I also gather from hearing your statements that, in the case of Lac-Mégantic, something obviously went perhaps terribly wrong in terms of determining the certificate of fitness amount, or perhaps those are only meant for day-to-day operations and you can't really face the issue of a catastrophic event.

Am I correct in those observations, and are we really at the place of saying we can deal with day-to-day operations but catastrophic events are not something we can actually adequately plan for in terms of insurance?

[Nina Frid]

Yes, your last expression I would agree with. As I mentioned in my presentation, we have analyzed the claims history of every federal railway over 10 years, and we never had a situation where those claims exceeded the levels of their insurance.

Lac-Mégantic was clearly a unique, a very unfortunate, tragic event that brought everyone to review the way we look at insurance.

For day-to-day operations, MMA's level of insurance was $25 million per occurrence and actually $50 million in aggregate, which means they could have two events of $25 million each in one year. So for day-to-day operations, we consider that adequate, also because it was in line with what similar railways with similar operations held.

[Ed Komarnicki, Conservative, Souris—Moose Mountain, SK]

I guess I'm hearing that, if you're going to have two tiers, the ultimate question is who's going to pay for the upside in the cost. I have a sense that ultimately, if it's not going to be the taxpayer, it's going to be somebody very close, because if it gets very broad it's going to be passed on to the consumer and, ultimately, that will perhaps end up in the taxpayer's realm.

We had some testimony that said the person who handles the product should be primarily responsible and insured because they have the care and handling of the product. When you start moving away from that principle, there may be less care in the handler. So they're opposed to broadening the coverage beyond the person who handles and carries. What's your thought about that?

Second, there was some testimony that rail companies, which are insured as much as they can be, charge premiums or extra costs depending on the type of goods the customers caused the rail to carry. So they're already paying an amount to offset the cost of insurance and they think it's inappropriate to include them in yet additional insurance. What do you have to say about that?

[Nina Frid]

I am aware of the various testimonies that were presented to this committee. There were some shippers representing chemical producers testifying. I can say that the creation of a pooled mechanism or some catastrophic insurance type fund is beyond the agency's authority and jurisdiction, but we will work with all the stakeholders and we'll help in any way we can.

In terms of railways passing on the cost to the shippers, from the economic standpoint the industry is supposed to be working on a commercial basis, so the rates that the railways charge the shippers are established usually through commercial negotiations. It could be in a confidential contract, in the service agreement, or it could be in the tariff. The government has no oversight over the transportation rate. It has been deregulated for a long time.

[Ed Komarnicki, Conservative, Souris—Moose Mountain, SK]

Do you want to make a quick comment? I have another question and I'm sure my time is getting close to being up, but go ahead.

[Stéphane Émard-Chabot]

If I may.

The key thing is, if we want to put in a regime, who's going to fund it? Is it the public, or the private sector, and who is best placed to do that? The free market insurance can't cover that kind of incident, we know that. Spreading the burden so that everybody chips in seems to make the most sense, because it will not, hopefully, bankrupt any of the railways.

On the shipper versus the producer or the carrier debate, you have to keep in mind that a lot of dangerous goods, and more and more, are being imported. If the liability or the financial obligation is placed only on the person carrying it, they don't know what's being imported. We didn't know that crude oil would behave the way it did until Lac-Mégantic happened. Now we're realizing it's not the same thing; it has different properties.

The only person who knows the exact properties of what is being shipped is the person who manufactured it. The person in China, who is shipping chlorine through the country because we're not producing any more here...we're not sure what they're sending in. The railway companies don't test those shipments. They have to take them. There are risks there that it makes sense that everybody participate in this, not only the carrier.

[Daniel Rubinstein]

There's a precedent here with the emergency response assistance plans system that places the onus for providing training, specialized equipment, and resources on the shippers because they know best about the specific characteristics of the product.

[The Chair, Conservative, Larry Miller]

Mr. Toet, five minutes.