Transport Committee on Feb. 12th, 2013

[Olivia Chow, NDP, Trinity—Spadina, ON]

Then the consultation and the discussion with the stakeholders, once that's been released, what plan would there be after the report's been finalized?

[Annette Gibbons]

Certainly, we could expect that the commodity supply chain table would provide a forum if stakeholders would like to address issues that are raised in the grain supply chain table. It's certainly the intention that the commodity supply chain table would cover the grain sector, as well as several other commodities, so that would provide a venue for addressing some of the issues that we see in that study.

[Olivia Chow, NDP, Trinity—Spadina, ON]

Is there a discussion of what you plan to do with the funds collected? Is there an estimation of how much it would be?

[Annette Gibbons]

The monetary penalties?

[Olivia Chow, NDP, Trinity—Spadina, ON]

I'm going back now to the arbitrated penalties that would be collected by the government. Do you have a ballpark figure per year of the amount as a result of these arbitrated contract awards?

[Annette Gibbons]

We really don't have a sense of that. The government's expectation is that there will be an attempt to respect the agreements that are imposed by the arbitrator. The specific amounts, they go to the consolidated revenue fund. It's a feature of administrative monetary penalty regimes that this is where they go, and there's no specific attribution of them to any particular activity.

[Olivia Chow, NDP, Trinity—Spadina, ON]

Would there be any legal impediments for those funds to be separated out of general revenue?

[Annette Gibbons]

I really can't answer that. I'm not aware.... I simply know that those schemes do exist in other statutes. My understanding is they just go to the consolidated revenue fund. They're not dedicated to particular purposes.

[Olivia Chow, NDP, Trinity—Spadina, ON]

I know the minister said that one size doesn't fit all, but it was very clear from the stakeholders' review that a template of some kind of guidelines would be in place so that the service contracts wouldn't be a complete blank slate to start. It would save a lot of time. It would save a lot of money. It would save a lot of unnecessary negotiation so there's at least some basic standard framework. Why isn't that part of this bill?

[Annette Gibbons]

The way the bill is drafted is very much consistent with the other sections around rail service in the act. There isn't a really detailed description of what service is in practice. I would refer you to section 113, which is essentially the main provision that railways are obligated to provide service to shippers. It's not a very long section. It simply lays out that railways have to provide adequate and suitable conditions for receiving traffic, for moving traffic, for delivering traffic. We're essentially, in drafting the bill, referring back to section 113.

In terms of a specific template, in practice there is reference to more detailed elements of service in the report that Mr. Jim Dinning prepared as the facilitator on service agreements and commercial dispute resolution—

[Olivia Chow, NDP, Trinity—Spadina, ON]

Is there a reason it can't be part of the bill?

[Annette Gibbons]

The decision was to follow the same approach with the new provisions as exist with the existing provisions on service in the act, to keep the language at a fairly high level.

[The Chair, Conservative, Larry Miller]

Your time has expired, Ms. Chow.

Mr. Goodale, for seven minutes.

[Ralph Goodale, Liberal, Wascana, SK]

Thank you very much, Mr. Chairman.

To pursue some of these issues a little more closely, I'll start with, again, the issue of the confidential contracts that may be in existence already, but of course by their very nature they're confidential, so no one knows for sure. If you were to look at proposed paragraph 169.31(3)(a), this is in the section that refers to those contracts and prohibits an application for arbitration while they're in existence.

I think it would be of some comfort to the committee if the department could consult a bit more extensively with both the railways and the shippers' coalition to give us a better feel for how many of these existing arrangements there are. Is it 8 or 10? Is it 200? How many are there? How many are beyond the timeframe that the minister referred to of just a year or two? Is there anyone out there who runs for 5 years, or for 10 years, for example? If the department had some statistics around that, I think it would give us more comfort as to how big a loophole that is in terms of access to arbitration. I wonder if the department could take a look at that.

Second, I'd be interested in your comments on the implications of this legislation for short-line rail operators. Is there anything in this bill that directly or indirectly has an impact for those typically farmer-owned or community-owned organizations that are running short-line rail systems, or are they completely exempt and unaffected by anything that is contained in Bill C-52?

Third, I wonder if you could give us a little help in understanding the new proposed subsection that appears on page 12 of the bill for section 177, which is the section that actually deals with the penalties. It talks in terms of “The Agency may, by regulation...designate” certain things as triggering penalties, and the penalties “shall not be more than $100,000”. I would like to know more about what actually triggers a penalty here and who decides.

If you have a commercial contract and one party is unhappy with the other side, typically they sue and present their case in court, but for these penalties, who will actually make the decision that a violation or, in the language of that section, a “contravention” has occurred? How does that contravention come to the attention of the decision-maker? Is it up to one side or the other to complain to the CTA, and then the CTA will decide whether or not there's been a contravention, and if so, what will be the level of penalty? Will it be not more than $100,000? I think we need a little more clarity around how those penalties work.

My fourth question, which I'll ask and then wait for answers to all of them, is that, since this is brand new legislation dealing with an area that has been a minefield of complaints for quite a few years, would it be a good idea to say that the department would, in two, three, or five years, review the practical impact of this legislation to identify whether or not the arbitration systems are working?

For example, is it just a backdrop and commercial arrangements are being worked out and nobody really has to have recourse to the legislation? Is it working out in the way that it was intended? Are shippers finding the arbitration process accessible if they need it, or are there financial or administrative barriers that are getting in the way? Would it be a good idea to have in the law a provision whereby the practical experience here gets reviewed a few years down the road to see if it's working out in the way the government intends?

[Annette Gibbons]

I'll start with the last question, and raise a couple of points.

The agency will be reporting on the use of the provision, so certainly in its annual report it will be providing a sense of the number of arbitration cases it is seeing.

In terms of the use of arbitration agreements, certainly the department and the minister interact frequently with railways and shippers, and we get a good sense from them of changes that are happening out on the ground.

The final point I'd make on that is that there is a review of the Canada Transportation Act coming up in 2015. Certainly we would expect that stakeholders will discuss how they're finding this new provision on service agreements to be working in practice in the context of discussions in that review. That is a mandatory review.

In terms of the third question, on penalties, the agency's understanding is that they are intending to prepare regulations to implement the administrative monetary penalty regime for these arbitrated service agreements. In terms of what triggers a penalty and who decides, essentially the service agreements themselves will provide the framework for the specific penalties that may be applicable in each case.

Just to give you an example, if the service agreement has a performance standard in it that the railway is to provide service to the shipper on a certain day of the week and to provide a certain number of cars, that's what would determine, then, whether or not there's been a violation.

You asked who would determine it. It would be the shipper who would claim there has been a violation. The shipper would approach the agency. The agency would have the authority to conduct an investigation of the shipper's assessment of the situation. It would seek evidence as to whether or not there's been a breach. If it finds that there has, in fact, been a breach, then it would be in a position to impose an administrative monetary penalty. It would be brought to the attention of the agency by the shipper, and then the agency would do the assessment.

In terms of the second question on short lines, short lines are subject to the requirement to offer shippers a service agreement if they are federally regulated. I don't have the exact number, but we understand that there are between 20 and 25 short-line railways that are federally regulated. Those would be subject to the provision and required to offer service agreements to shippers who ask for one.

In terms of shippers, I think you may have been referring to producer-car loaders and whether or not they're eligible. They certainly are. A producer-car loader organization is a shipper, and can seek a service agreement, whether it's with a short line or with a class I railway.

On the question on statistics, on how many railways have confidential contracts greater than one or two years, we really don't have specific details on that because of the confidential nature of these contracts. What we do know from the railways, what they tell us is that the vast majority of the agreements, the contracts they sign with shippers, are for one- to two-year periods. We know there have been some agreements that are for longer periods, but we understand, again from the railways, that those are in the minority. They tend to be of more short duration.

[The Chair, Conservative, Larry Miller]

Thank you.

Mr. Poilievre, for seven minutes.

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

On the question of pricing, can you discuss the existing framework for the management of pricing disputes, particularly in agricultural commodities?

[Annette Gibbons]

Rail rates are generally set by the railways. They are published in a tariff. At the same time, very often there are confidential contracts where a shipper and a railway will negotiate a rate that is different from the rate in the tariff.

In the grain sector—and this is the only sector where it applies—there is a revenue cap on the total revenues the railways can earn from the movement of grain in a calendar year. There's a formula under the act to determine that amount, and that of course varies. There are certain factors where it can change year over year related to the volume. There is an inflation factor that is considered. So there is a revenue cap for the grain sector.

In general terms, when shippers do not like the rate they are paying for rail service, they do have access to a final arbitration provision under the act, and that is different, and will remain different, from the new provision on service agreements.

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

None of this is removed by the bill before the House.

[Annette Gibbons]

No.

The government was very clear in launching the consultations to draft the new provision that there would be no change to the existing provisions of the act.

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

Thank you.

I'd like to defer now to Mr. Daniel.

[Joe Daniel, Conservative, Don Valley East, ON]

Thank you to the witnesses.

I want to go back to the monetary penalty we talked about. Are there any guidelines on determining a confirmed breach? The implication of what we have here suggests you can have multiple breaches occurring in one agreement. Can you expand on that a bit?

[Annette Gibbons]

You could have multiple breaches.

Again, it's the arbitrated service agreement, which will differ from shipper to shipper, that will lay out the framework for what service obligations the railway has to that shipper. There are details, such as that the service will be on a certain day, at a certain hour, and in there is how they will get along in the event the railway cannot provide service, if there's been an avalanche, or whatever. It will have the protocol for recovery of the service.

All of those things can be laid out in the service agreement. There will be parameters for determining whether the railway is respecting the agreement. For example, if you had a case where the service is supposed to be on a certain day and it's supposed to be a certain number of cars, then if both of those things did not happen, the agency would have the authority to determine whether that's one breach or two breaches.

That is within the purview of the agency to determine, based on what is in the specific agreement that a shipper is claiming has been breached. It does depend, case by case, but if there are multiple requirements, certainly the scope is there for the shipper to claim there have been multiple breaches and for the agency to apply multiple AMPs in a particular case.

[Joe Daniel, Conservative, Don Valley East, ON]

For example, if they comply with all of that, yet 10% of the cars don't meet quality standards—the doors don't work; there are holes in it, what have you—can that be part of the breach? In other words, some of them are not usable. Is there any definition of that?

[Annette Gibbons]

It's going back to what it says in the agreement and what the standards are with respect to car quality.

If that's addressed in the agreement and then not respected, whether or not there's been a breach is something the agency could assess.