Agriculture Committee on May 16th, 2006

[The Chair, Conservative, Gerry Ritz]

Yes. The clerk will get them from you. Thanks, Sinc.

[The Chair, Conservative, Gerry Ritz]

Let's take our places and move on, ladies and gentlemen.

We have with us Mr. Frank Urban, acting director, rail economics directorate; and, Alain Langlois, counsel.

Thank you, gentlemen.

I understand you have a short presentation. We'll have some short, concise questions for you at the end of it.

[Frank Urban, Acting Director, Rail Economics Directorate, Canadian Transportation Agency]

Good morning, Mr. Chairman, committee members.

Thank you for providing me and agency counsel with the opportunity to speak before the committee on this very interesting topic--government hopper cars. The agency has been involved with this file for a number of years.

I would like to preface my presentation with some preliminary remarks. As noted, I am acting director of the rail economics directorate of the Canadian Transportation Agency and have occupied this position since the beginning of April. However, I have been a manager within the directorate for a number of years, and while I have not directly worked on this file until very recently, I have participated on an ongoing basis.

Yesterday afternoon I was requested to provide a presentation to this committee, which provided me with only a short time to prepare. Having said that, I will endeavour to answer all questions within the purview of the agency, either at this time or as soon as possible after the conclusion of the meeting, while respecting the confidentiality of any information that is requested.

I trust this meets with your satisfaction, Mr. Chairman.

While I was invited to make a presentation about hopper cars, I am a little uncertain as to the committee's specific interest. If I may, I think it is important to understand the context of the hopper cars as it relates to the agency's statutory responsibilities. The agency is a quasi-judicial body whose decisions have the full authority of a court of law. This is important to note, as the agency's roles and actions are bound by the Canada Transportation Act as passed by the Parliament of Canada.

One of the agency's primary responsibilities is the determination of the maximum grain revenue entitlement as prescribed in subsection 151(1) of the Canada Transportation Act and ensuring that railways do not exceed this entitlement. The act directs the agency to determine the amount of the maximum revenue entitlement for Canadian National and Canadian Pacific Railways for the movement of regulated grain during each crop year. This started in crop year 2000-01. I would like to emphasize that the agency's responsibility is to determine revenues, not costs.

Determining the revenues is done by applying a price index, determined by the agency, to the base year revenues as prescribed by the act after adjusting for differences, the tonnes moved, and the average length of haul between the base year and the crop year under review. Further, the agency conducts detailed audits to ensure that neither Canadian National nor Canadian Pacific exceed their prescribed entitlements. In the event that a railway exceeds its entitlement, the railway is obligated to pay the excess plus a penalty to the Western Grain Research Foundation.

As I mentioned, the price index is determined by the agency. As part of its determination, the price index is further directed by subsection 151(4) of the act to adjust for any leasing cost arising from the sale, lease, or other disposal or withdrawal from service of the government hopper cars. This was applied for the first time by the agency in its current determination of the price index for the upcoming 2006-07 crop year. The additional leasing cost added approximately 1.2% to the price index.

It is important to note that the maximum revenue of grain entitlement is designed to compensate the railways for their operating costs for the movement of regulated grain. This includes the cost of maintenance of the hopper cars. There are approximately 12,000 government hopper cars, 3,400 Canadian Wheat Board cars, 2,000 provincial cars, and 8,000 railway cars, for a total of 26,000 hopper cars.

This concludes my presentation, and I would be pleased to answer any questions you may have.

Thank you.

[The Chair, Conservative, Gerry Ritz]

Thank you, Mr. Urban.

Mr. Langlois, anything at this point? Nothing?

All right, we will move to Paul for one short question.

[Paul Steckle, Liberal, Huron—Bruce, ON]

I'll try to keep it short.

For clarification for all of us around this table, we talk about a price index, and that's a variable. I'm wondering, how long has the price index been in effect? How long have you been using it or calling it a price index? How can you make the proper assessment of costs attributable to the farmers' rates when in fact you really don't know the costs because some of them are hidden? How do you arrive at what you believe is the correct number?

[Frank Urban]

The correct number, from the agency perspective, would be as prescribed by statute. The agency is allowed to look at changes in prices.

[Paul Steckle, Liberal, Huron—Bruce, ON]

Prices of what?

[Frank Urban]

Prices of the various inputs in the railway operation, like labour--

[Paul Steckle, Liberal, Huron—Bruce, ON]

But when you don't get correct numbers, how do you know what those input costs are? We've been told this morning that you haven't been able to get that information. How are we to expect to get the proper numbers from you in assessments to farmers' costs when in fact you don't know?

[Frank Urban]

Now we're talking about the maintenance cost.

[Paul Steckle, Liberal, Huron—Bruce, ON]

Absolutely. That's one of them.

[Frank Urban]

In the report that was just tabled this morning, which was undertaken at special request from Transport Canada, $1,800 was the estimate of the cost. That determination or study is not normally within the responsibility of the agency. Now we did undertake that study, investigate the costs, consult with the railways, and talk to main shop personnel to determine their costs.

[Paul Steckle, Liberal, Huron—Bruce, ON]

When and why did you do that?

[Frank Urban]

We undertook that study because of a direct request from Transport Canada.

[The Chair, Conservative, Gerry Ritz]

Thank you, Mr. Steckle.

Mr. Bellavance, do you have any questions? No.

Madam.

[Claude DeBellefeuille, Bloc, Beauharnois—Salaberry, QC]

Good morning. Thank you for your presentation.

The last witnesses informed us that they had information to the effect that the maintenance of the hopper cars could be qualified as questionable. What tools do you have to ensure a more rigorous follow-up of the state of the hopper car fleet?

[Frank Urban]

Quite simply, we do not monitor the state of maintenance of the hopper cars. It is not within the purview or responsibility of the agency to do so.

[Claude DeBellefeuille, Bloc, Beauharnois—Salaberry, QC]

And yet, the government owns the hopper cars and spends a significant amount on them. You have no report from either CN or CP on the state of the hopper cars?

[Frank Urban]

As I mentioned earlier, we're a quasi-judicial court that applies the statute and the policy of the government. That's a policy issue, and questions about the actual ongoing maintenance costs of the hopper car fleet, as owned by the Government of Canada, should be directed to Transport Canada.

[Alain Langlois, Counsel, Canadian Transportation Agency]

I would like to make it clear that the hopper cars are the property of the government, and not of the Canadian Transportation Agency. Our office's role is to create economic controls and to administer the law. The maintenance issues come under a contract that was signed between the Canadian government, which Transport Canada is part of, and the railways. The Canadian Transportation Agency has nothing to do with those contractual terms.

That does not mean that the agency has no responsibilities regarding the quality of cars put at the disposal of the shippers. There are provisions in the Transport Act dealing with complaints regarding service, and a shipper who is dissatisfied can file a complaint with the agency, which will investigate the complaint, hear from all the parties and render a decision.

[Claude DeBellefeuille, Bloc, Beauharnois—Salaberry, QC]

Have you received any complaints recently? The previous witnesses seemed to be complaining about the quality of maintenance of hopper cars.

[Alain Langlois]

We have received some, but very few.

[Claude DeBellefeuille, Bloc, Beauharnois—Salaberry, QC]

Thank you.

[The Chair, Conservative, Gerry Ritz]

Thank you.

Mr. Anderson.

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

I would like to follow up on that question. I think it's fair enough to say that the government owns the cars, and the government also assigns agencies to be responsible for some of these issues.

Are you telling me that for 13 years the government has not assigned you the job of finding out what those maintenance costs are?