Transport Committee on April 23rd, 2015

[Lisa Raitt, Conservative, Halton, ON]

Madam Kinney is going to answer that.

[Laureen Kinney]

It's a good question. One of the things that did come up in a number of conversations is that kind of issue.

One of the things the minister announced last spring was an emergency response task force. The purpose of that was to bring together the broad community of people who are involved in this, from municipal firefighters, to aboriginal firefighter groups, to the companies that respond to these spills on behalf of the shippers, etc.

There are about 35 members of that task force. It has been meeting on a monthly basis and has developed a number of recommendations in response. It has developed new training curricula, which are nearly complete, to be put out for recommendation to those who do training in order to be able to improve the ability of firefighters to respond to—so they have the background to respond—oil pool fires, etc.

In terms of resources, that's something that hasn't been the key focus at this point, but certainly as the people work through the ways in which we can improve the system as a set of jurisdictions and responsible authorities, those questions will come up.

[The Chair, Conservative, Larry Miller]

Thank you.

Mr. Watson, two minutes is all I can give you.

[Jeff Watson, Conservative, Essex, ON]

Thank you, Mr. Chair.

Just briefly, to the point of exponential growth, oil by rail last year was down, and we don't know yet what impacts will be continued into 2015 on both extraction and transport of oil due to low pricing of oil globally. That said, we are doing what we can to ensure that as the trend picks up at some point in the future we have the best prevention and, ultimately, liability and compensation regime as well.

To that point, I want to move to the minimum insurance level requirements. I believe that's in schedule IV in clause 14. It comes into effect a year after the bill gains royal assent. What has the department determined in terms of the ability of the market to supply the insurance necessary and at a price that the short lines are able to afford? Then, of course, when those minimum requirements go up, is there plenty of room within the industry to continue or to sustain that growth, and what is the price effect on short-line railroads?

[Lisa Raitt, Conservative, Halton, ON]

Very quickly, Mr. Chair, from what we understand in consultation, insurance companies set premium costs based upon the risk profile of each individual railway. What we understand is that railways would typically pay between $650,000 and $850,000 per year for $250 million in third party liability insurance. For $100 million in insurance, it's approximately $200,000 per year.

We've heard from the short lines as well that they have concerns about their increase in operating costs because of the increases in their insurance premiums, and $200,000 to $650,000 is a significant amount. Some financially vulnerable short lines will have more limited capacity to absorb these additional short costs. To allow them to ramp up to that, we're going to adjust the new requirements so that those requirements would be phased in, as you pointed out, and we'll also get to see how the insurance market adjusts to these increases in demand.

But, Mr. Chair, if I may, this is very important. This is one of the big lessons that we learned out of Lac-Mégantic: that carrying $25 million when you're carrying crude oil is not enough insurance. We took a stand in the Speech from the Throne and we're following through on it.

[The Chair, Conservative, Larry Miller]

Thank you.

We're pretty well out of time, but if there's anything you want to add at the end in 30 seconds, Minister, the floor is yours.

[Lisa Raitt, Conservative, Halton, ON]

I have no surprises for the committee. I'm not asking you to bring any other witnesses forward, as I've done in the past, but I will mention, if I may, that next week is Rail Safety Week. If you do have something happening in your riding with respect to rail safety, such as Operation Lifesaver or something with respect to municipalities, let us know. We'd be happy to follow along on social media and make sure that we're publicizing the importance of rail safety.

[The Chair, Conservative, Larry Miller]

Thank you very much, Minister, and thank you to the department's staff.

I'd like to ask the minister and the other witnesses to please vacate the table. We'll have the witnesses for the second half move in as quickly as possible. We're going to suspend for a couple of minutes.

[The Chair, Conservative, Larry Miller]

I call the committee back to order.

I'd like to thank all of our witnesses for coming here today. I know that quite a number of you are from the railway association, and you're here as experts, I guess we should say. Everybody has a part in it.

Mr. Bourque, I think you're going to lead the discussion, so we'll turn it over to you.

[Michael Bourque, President and Chief Executive Officer, Railway Association of Canada]

Thank you very much. I'm only going to lead the discussion. We are going to start with Mr. James Beardsley from Marsh.

[The Chair, Conservative, Larry Miller]

As you wish, Mr. Bourque.

[James Beardsley, Chairman, Global Rail Practice, Marsh and McLennan Companies, Railway Association of Canada]

Thank you, Mr. Chairman.

Thanks to all of you for allowing us to speak today.

My name is Jim Beardsley, and I am the chairman of Marsh’s Global Rail practice. I am here with Ms. Lois Gardiner, senior vice-president with Aon Global Risk Consulting. We represent the two largest rail insurance brokers in Canada.

We appreciate the opportunity to offer our collective view on some of the potential ramifications in the railway insurance market if Bill C-52 is passed into law in its current form. We believe these potential ramifications could hinder the railways in their effort to comply with the bill and perhaps create unintended and negative repercussions in the delivery of these essential services that the railways provide for the Canadian economy and in the wider economic benefits for all organizations in the supply chain.

The general insurance market today is one where the insurance buyers are enjoying an abundant supply of insurance. However, it is important to note that the railroad liability is not a general insurance market, but a global specialty market. Specialty markets are more limited than the general market when it comes to the number of insurers available and the amount of insurance or capacity. In addition, due to varying appetites for risk among those same specialty insurers capacity is not interchangeable throughout a program tower.

If you review the program tower graph that we had submitted, you can see that the insurers that write the risk at the top of the tower are usually different from those that write at the bottom or in the middle. The point is that if capacity is lost from one part of the placement, there is no guarantee their vacancies can be filled from the other existing insurers.

In 2008, for the first time in Canada, the railways were able to construct a liability tower to over $1 billion, suggesting now that market disruption might jeopardize the ability for the most active railways, through insurance, to meet the $1-billion minimum limit that the bill requires. For short lines, this level of coverage is theoretically available; however, it would not be financially viable, nor would it be likely to be self-insured.

Insurance underwriters manage their exposure through the use of familiar data that adds security to their underwriting process. A major concern is that in a fluid, cyclical market, some of the proposed wording in Bill C-52 and some of the coverage extensions could create enough uncertainty in the underwriting community to undermine the railways’ ability to comply with the bill.

Lois.

[Lois Gardiner, Senior Vice-President, Risk Consulting, Western Canada, Aon Global Risk Consulting, Railway Association of Canada]

Uncertainty in insurance underwriting historically has manifested in reduced limits, coverage constraints, and increased pricing. Our wish today is to encourage the committee to reduce some of the underwriting uncertainty with clarifying amendments to the bill, which will assist in stabilizing available capacity.

The example of strict liability in lieu of at-fault or negligence-based liability as outlined in proposed section 152.8 is a major change that could be problematic for underwriters. While we understand that strict liability is a feature of the new legislation, it is unclear in the bill which “involved” railways would be subject to strict liability as the term “involved” is not specifically described or defined in the bill, as you can see in proposed section 152.7. Underwriters in this market are likely to write multiple companies that could be “involved”, while not physically involved in the goods movement causing the loss.

Under the proposed strict liability wording, insurers might think they could be paying out far more limit than they might have paid under a fault-based regime. This change could create uncertainty and encourage insurers to pull back on capacity, protecting themselves from the unfamiliar. Similarly, the use of phrases like “any action or measures” and “all loss of non-use”, instead of something like “reasonably incurred”, all referred to in proposed section 153, leaves an underwriter with a sense of limitlessness, which could be met with a similar overreaction. It is possible that this uncertainty could severely limit the capacity available in the rail insurance market that is global.

Additionally, further clarity is required in describing that the minimum limit also acts as a per-accident cap on liability, as alluded to in proposed section 152.7. We feel that this will add to loss forecasting certainty for the underwriters. We also recommend clarifying the role of approved self-insurance as noted in proposed paragraph 92.1(b), as a potential substitute for third-party liability insurance. This feature adds flexibility to the railways’ ability to comply with the bill.

According to proposed section 94.2 of the bill, “The agency shall suspend or cancel a certificate of fitness” of a non-compliant railway. We would recommend substituting more flexible wording so that the agency might be able to make a decision that benefits all stakeholders. As an example, substituting the word “may” versus “shall” could allow for greater flexibility.

Another concern is that we can imagine that stacking limits under strict liability might actually discourage cooperation among the railways, especially if they suspect that direct cause of a loss could be the responsibility of a railway not covered by the act. The economy does depends on this inter-rail cooperation.

[James Beardsley]

In closing, we urge the committee to consider more clearly defining the bill’s language in those areas noted and to work to eliminate or minimize the wording that adds to underwriter uncertainty before final voting on the bill’s passage.

Thank you for your time. We welcome your questions, but first we will hear from Mr. Robert Taylor of Canadian Pacific.

[Robert Taylor, Assistant Vice-President, North American Advocacy, Canadian Pacific Railway, Railway Association of Canada]

Good afternoon, Mr. Chairman and committee members.

My name is Robert Taylor, and I'm the AVP for North American advocacy at CP. We operate a 22,000-kilometre network throughout Canada and the United States. In 2014, we moved over 2.7 million carloads of traffic.

I am proud to say that CP is the safest railway in North America. We have achieved the lowest frequency of train accidents in each of the last eight years. In 2014, we had 1.2 train accidents for every million train miles. Our performance in 2014 was a 30% improvement over the previous year, which is a new record.

Rail safety is critically important, as is modernizing the liability and insurance regime for Canada. Our journey is not yet complete, but continuous improvement in safety is evident.

It’s important to recognize that North America's rail network moves 99.998% of hazardous materials, including crude, without incident. Because even one accident is one too many, we are continuously working to eliminate the last 0.002% of risk from our operations. We can safely and securely move dangerous goods.

Now I will talk about the bill.

We support the intent of Bill C-52, which is to better define and make accountable all those involved in the production, manufacture, transportation, and distribution of dangerous goods. We need to strengthen the safety and security of the rail supply chain so we can maintain a world-class transportation system, one that is accountable and responsive and works to prevent incidents from occurring as well as to provide compensation and liability in the event of an incident.

Several elements of this bill are items that CP has been calling for over the last number of years, and we welcome action. We do think, however, that in a few important areas the bill lacks policy clarity, and we urge the committee to consider this as you perform your review of this bill. The most important of these are as follows.

One, in proposed section 152.7, is the wording “involved in a railway accident”, especially in instances where traffic is interchanged or passed between railways. The second is proposed section 152.9, which references other acts that could negate the railways strict liability cap. The third is how how the shipper fund is to be recapitalized if depleted. Fourth, we also question why the shipper fund is only initially capitalized to $250 million while the railway has a strict liability of $1 billion.

These are important items that need to be clarified in your consideration of this bill.

Thank you.

[The Chair, Conservative, Larry Miller]

Mr. Bourque.

[Michael Bourque]

Mr. Chair, our last presenter is Terry Berthiaume from Essex Terminal Railway. He is a short-line operator.

[The Chair, Conservative, Larry Miller]

Thank you.

Please be as brief as possible.

[Terry Berthiaume, President and Chief Executive Officer, Essex Terminal Railway Company, Railway Association of Canada]

Thank you, Mr. Chair. I'm very grateful to have this opportunity to speak about how Bill C-52 may have some unintended consequences that will affect my company and the community in which we operate.

I will start by saying first that while all men are created equal, all railways are not. That's especially true in the case of the Essex Terminal Railway Company. One hundred per cent of our revenue is from interswitching. It's from servicing the industries that are located on our line and taking those goods to and from the main-line carriers that we connect with. I believe that we are unique in that aspect. The CTA recognized that when they exempted us from the interswitching regulations due to the fact that 90% of our revenue is from interswitching operations.

We're unique in other ways. We operate totally within yard limits. We do not have main-line track. Our main track is only 19 kilometres in length. Although we don't handle crude oil, we do handle dangerous commodities in excess of 40,000 tonnes. Seventy per cent of those commodities travel only 4.4 kilometres on our railroad at speeds of 10 kilometres per hour or less during daylight hours, on very flat geography where there are no hills. We have an incredible safety record.

I have been with the company for 34 years. We have a very strong safety culture. Never in the 34 years has our insurer had to pay a claim due to damages to third party property or rail.

But because of Bill C-52, we will be forced to increase our insurance four times. That will come with very significant costs, and they are costs that we cannot pass on to our customers. We are operating in a very competitive environment in a very depressed local economy. We have the highest unemployment in Canada. We have lost 50% of our business in the last 10 years. We've lost that business because plants have closed. They've moved their operations to other areas where operating is more economical. Anything we do to increase the cost of our customers' business will undoubtedly result in lost business for them and lost jobs for the 850 or so people who work for the industries we serve.

I was glad to hear the minister say that the railway liability limits should be equal to the risk of the company. The risk of our operations obviously is not the same as that of MM and A. We operate at very slow speeds. As I said before, we have an impeccable safety culture.

[The Chair, Conservative, Larry Miller]

Could you wrap up, Mr. Berthiaume?

[Michael Bourque]

We'll handle the rest through questions.

Thank you.

[The Chair, Conservative, Larry Miller]

Thank you very much.

Last, we have you, Mr. Benson, for 10 minutes or less, please.

[Phil Benson, Lobbyist, Teamsters Canada]

Thank you, Mr. Chair.

This is really two bills, the first dealing with insurance. We called for the creation of these types of funds. We are supportive of them. After inquiries, we were informed that the money deposited to the fund would go to a special purpose account. Our question is, is that in a CPP lockbox or in an EI cash till? We would recommend that it go into a lockbox, as all special purpose accounts should.

The second issue, of course, is the sufficiency of the fund. We do understand that risk assessments were made. However, after Lac-Mégantic, we're hearing costs of $800 million to a billion dollars. We thought that perhaps to be consistent with marine, a billion dollars in the fund or some higher amount may be required, but I'll leave it to the committee to deal with.

The second part of the bill is where we want to focus. These are the Railway Safety Act portions of it. Just as a note, sometimes when bills are reviewed and amended, parties know what has to be done but they just don't get done at the time. I suggest that this is what happened in 2011 when we reviewed the act, but post-Lac-Mégantic, the landscape has changed. Overall, we welcome the powers this act gives to the minister and department to oversee rail operations, but we do have a few concerns we would consider that you address.

We ask again, where's our 1-800 number? The answer is, it's locked up in the safety management system regulations, where it doesn't really belong. When this idea was included as an amendment to the Railway Safety Act, it was understood that it really should be more like a rule. That's why we're asking you to amend section 18 of the Railway Safety Act to give the minister the power to move forward with the implementation of non-punitive internal reporting and confidential reporting to Transport Canada employees of contradictions of the act, etc.

Clause 17(1) of the bill we are dealing with today deletes the definition of “fatigue science”. We think that should be read with changes made to fatigue management between the Gazette, part I and the Gazette, part II, in the new safety management systems regulations. Gazette I clearly spelled out the running trades—the locomotive engineers, conductors, etc.—to which the regs must apply, which disappeared in Gazette II, coupled with what we think is rather vague language.

We asked, “Why the deletion?” First, it was an outright mistaken belief we were given that the definition came from this committee. It didn't. It was demanded by Justice as a requirement. Second, they said, as you heard earlier, that the definition caused drafting problems. Curious, we said, that it wasn't picked up in Gazette I. Finally, we were told the definition would require the industry to use scientific and peer-reviewed studies and in dealing with fatigue science it would be difficult. Really? That's exactly what happens in air and road when we deal with these issues. We're asking you to strike out clause 17(1), put the definition back in, and, if Ms. Kinney was correct, amend it appropriately.

At the same time, let's rectify another item that was left out of the review. Fatigue management should definitely be in the safety management system, but the rules should be set industry-wide. Without this change, each railway could create its own concept of fatigue management, resulting in each trying to gain competitive advantage through manipulation of a safety issue. We propose a further amendment to Railway Safety Act section 18 giving the minister the power to—quote—create safety management systems including the principle of fatigue science applicable to scheduling.

We think it might be time to look at anachronism in this act, the Railway Safety Act's section 20. I won't go through the whole thing. I'll paraphrase it: “A company shall file with the Minister for approval any rules” with respect to “subsection 18(1) or (2.1) that it proposes to formulate or revise” of its own accord. Further, in section 20.1, the act permits the Railway Association of Canada, a lobby group, to act on behalf of the companies.

It's unique. I can't think of anywhere else in transportation this occurs. This is a section that resulted in a retiring ADM of Transport signing off on rule changes on December 26, rules that we opposed and objected to because we believed they weakened the ministerial directive on rail safety post-Lac-Mégantic, changes that were less about public safety and more about a corporate bottom line—business as usual.

Let's be serious. Does the public believe the RAC rail companies will put the public interest before the bottom line?

We think this act, if you look at the section on rail safety, could be renamed the “we don't trust the companies act”. The powers to inspect or the powers to the minister are all very good things, things that probably should have been included in 2011 but weren't. Let's get rid of sections 20 and 21. Let's put an end to the perception—the reality, we think—of the industry's self-governance and self-regulation.

We think rule changes should be consistent with other sectors, where rule changes are brought, for example, to the CCMTA or the advisory council for TDG, and we have set up the advisory council on rail safety. Let's make the act modern. If we're going to get into it, let's get into it.

I welcome any questions you have.

[The Chair, Conservative, Larry Miller]

Thank you very much, Mr. Benson.

We'll move to Mr. Mai for seven minutes, please.

[Hoang Mai, NDP, Brossard—La Prairie, QC]

Thank you, Mr. Chair.

My thanks to the witnesses for joining us today.

Mr. Benson, let me start with you. I do not know whether you were here when I asked the minister about why the definition of fatigue management had been removed. What do you think about the answer the officials gave?