Thank you, Mr. Chairman.
I'm pleased to be here to address the committee.
I'm delighted to be here today to meet with committee members. I will be speaking in English, but I will be happy to answer your questions in either English or French following my presentation.
If I could, I'd like to say a few words about the CTA process, about the state of the rail industry, and also give you the details of the comments that we have about Bill C-11 as it stands today. I think having a sense of the process and the state of the rail industry provides good context through understanding to help you make your policy decisions in the right way.
It was about ten years ago that the current legislation of the CTA was put in place. The previous CTA act of 1996 was put forward with a view to bringing commercial forces and an agenda of change to the rail industry, and it's been quite a successful process. The previous legislation introduced, for instance, more streamlined rules for the abandonment and the transfer of lines. It created an opportunity for the mainline carriers in Canada, CN and CP, to significantly improve their cost structure, but at the same time it created a vibrant short-line industry.
There were a number of other commercial initiatives in the previous legislation that have paid dividends in terms of the improvement of the rail industry over the last ten years. At about the same time, the Government of Canada also decided to privatize CN, which was also a very bold agenda of change. That has also been a remarkable transformation, which I believe improved the rail system in Canada to a great degree.
I think the federal government and your predecessors as members of the transport committee should be proud of where we stand today in the rail industry. CN has transformed itself from a laggard railroad ten years ago to a leading railroad in the North American industry. CP Limited has created CP Rail, which is today a focused, lean railroad serving all of Canada. I invite you to look at the hard facts, because too often you're hearing your constituency talk about various specific points of concerns or issues they have with the railway, but not often enough do we hear the broad picture about where the rail industry is and the progress that's been made over the last ten years.
Today the service is better than it's ever been. If I take CN's example, for instance, our transit time and the reliability with which we achieve our transit time has improved by more than 50% over the last ten years. We went from quoting a service, for instance, from Edmonton to Chicago, which was a week to ten days; today we measure our service one trip planned at a time, and our service from Edmonton to Chicago is 102 hours, which is four days, and we achieve it more than 90% of the time.
Efficiency has improved dramatically through cost reductions, through initiatives on asset utilization. For instance, today CN has 800 fewer locomotives to carry more business than it did ten years ago. With efficiency comes the ability to lower rates and share productivity with the shippers, our customers. Rates are lower today than they were ten years ago. Grain rates, I mentioned to your colleagues in the agriculture committee, as one example, are 35% lower in Canada than they are just south of the border in the U.S.
Safety has also improved dramatically. I'm proud to say that the two Canadian railroads today are by far the safest railroads in North America. We are 40% safer than our four peers in the industry, objectively and consistently measured using the same metric. I know it's a topic of interest and I know it's an area we have to continue to make progress on, but the facts are that the two railroads in Canada are the safest in North America. Of course we're also a lot more profitable, and that's a good thing. With profit comes the ability to invest, and we are a very capital-intensive business. CN this year will invest $1.6 billion back into its plants.
So I think it's fair to say, and I'm a bit biased, we have the best rail system in the world, and we should be proud of that. It's 100% privately funded, and it's a key asset for Canada in terms of transportation for a trading nation.
In terms of the CTA review process, it brings a lot of challenges for railroads. I'll tell you, we're a very unique business. Very few businesses touch more than 200 ridings, as CN does, and we touch every one of your constituencies. We understand the challenge. We are two of us, and there are many out there that have specific issues and have a lobbying agenda. I think it's very important that you, as members of Parliament, relay those constituencies' concerns into policy, but at the same time I think as transport committee members you have to take a balanced view and you have to focus on what's right for the transportation sector.
I think the keeping of that balanced view is very important as you review some of the provisions of Bill C-11. I will tell you from the outset that we are in general agreement with the bill.
We agree, for instance, on the role of the agency for mediation, whether it's for passenger issues or for noise. We also agree on the public interest review for mergers that the minister and Parliament should have in case of transactions. We agree on provisions such as the setting of a list for urban area sidings and spurs.
We agree with the broad goals; we have issues with the devil that is in the details, and we believe that in a certain number of areas the bill goes too far and has risks you should consider very carefully.
On noise, for instance, Cliff gave you a good outline. But there are a lot of efforts. Things can improve, but it's not as though we're sitting still and trying to be good neighbours. Often the issues are land use issues. It's about having harmonious co-habitation. When the residential areas are too close to our rail lines, the proximity creates unavoidable difficulties. The reality is we have a steel rail technology that's outdoors. It's a 24-hour operation and it creates noise.
We have to find ways to address that noise, and the fact that there is a court of appeal and a recourse to the agency with powers to enforce specific mitigation is something we agree with. We would very seriously, though, caution you against changing the wording on some of the criteria.
For instance, “unreasonable noise” is the right test. The notion of having the “least noise” approach is very difficult to manage. Least noise would be a rubber railroad, or it would mean taking the yards out of town altogether.
I think you should give a chance to this new system. Nothing exists today. I think the standard is the right one and that the agency has the power and expertise to address issues going forward.
On passenger and commuter rail provisions, we have some concerns too. We agree with the notion that the passenger or commuter could have the right to go to the agency to settle issues with the railroad, but I take exception to some of the comments I read from the transcript of my colleagues from GO Transit, AMT, and West Coast Express. The impression that CN or that the railroads are gouging commuters or passengers is simply not true. The reality is that in most instances—and there are exceptions, but in most instances—we have a fair approach to those issues.
I'll give you a few examples to explain to you where we have the most difficulty. The most difficulty comes with the notion of setting the rate on the basis of the net book value of our assets.
We agree with the concept that the agency could set the rate and also agree with the concept that the agency could set the rate with a view to the public interest and that the public interest includes a notion that does not necessarily address fair market value or highest best use. But to go as far as setting the policy on net book value would be a big mistake.
I'll give you an example from Quebec of an agreement I just recently personally negotiated with the AMT. It's for the Deux Montagnes line that goes into Montreal through the Mount Royal tunnel. The value of the land on which this railroad sits, as it is assessed by municipal authorities, is $60 million across the fence.
If we were charging or if the AMT were paying the CTA cost of capital on the value that is being assessed by municipalities, the access fee would be $5 million per year. I can tell you that the AMT does not pay half of that.
If they were to pay on the basis of net book value, the amount they would pay would be near zero. It would be a fraction of what they pay today, and there's a very simple reason for that. Net book value is an historical concept. The land we own at CN for this property was purchased in 1912. CN paid, in 1912, $225,000 for the land. That's our book value. If you applied the 8% on that $225,000, you would get thousands of dollars for the use of something that municipalities value at $60 million and tax us on using as a basis that same $60 million.
I know a lot of you have experience in the world of the municipal sector. How would you like it if railroads were paying their tax bills on the basis of historical net book value? That concept would not fly a minute, because it is just not a fair concept. So I urge the committee to think about this particular aspect very carefully.
The federal Expropriation Act recognizes the concept of fair market value. The Canada Transportation Act recognizes the concept of net salvage value if a line is to be sold to a government. The notion that net book value at historical prices from the beginning of the last century would guide the rate-setting is just not the right concept. It's not a fair one and it's not one I would encourage the committee to endorse. In my view, net salvage value would not only be more consistent with the current CTA, it would also be a lot fairer and would give a lot of leeway for the agency to decide in the matter with a view to what the public interest is.
I think you should review this carefully, because the devil is in the details. I think at net book value the provisions themselves ultimately will not succeed; they would be open to challenge as unfair expropriation.
So there is a delicate balance. We agree with the concept that a commuter agency should have the right to go to the agency for recourse, but it should not be done on an artificial measure such as historical book value, because it just doesn't work.
Members of the committee, as you can see, we agree with many of the things that are in the bill. We are asking you to consider a few areas that could be improved and we urge caution and balance in your views about the state of the rail industry.
I'm open for questions with my colleague here.