Transport Committee on Sept. 20th, 2016

[Fred Gaspar]

We consider it effective. The interswitching rules are beneficial not only because the companies have the right to use them and can ask the agency to participate in discussions to ensure that they have access to them. That also has an impact on market conditions. If the rail companies know they can give access to their rights, that has an impact on negotiations. In that case—and these things are expected informally only—it creates a more effective climate for negotiations between carriers and clients.

[The Vice-Chair, Conservative, Luc Berthold]

Mr. Hardie, as requested, you have three minutes.

[Ken Hardie, Liberal, Fleetwood—Port Kells, BC]

Thank you, Mr. Chair, and welcome back, everyone.

I notice that your mandate is to ensure the transportation system runs efficiently and smoothly. I guess the basic question is whether interswitching promotes or hinders system efficiency and smoothness of operation.

[Randall Meades]

If you look at section 5 of the Canada Transportation Act, in large measure, decades ago, decisions were made to privatize the transportation system in general. Section 5 is consistent with that; let the market work. In instances where we have market failure or the market doesn't work, there's perhaps a monopoly situation created, which creates an inefficiency in the system. In simple terms, the market is broken at that point. To the extent that interswitching provides more than one option for a shipper, one could make a strong argument that that is beneficial overall to the market, to the economy, and to the smooth flowing transportation system.

[Ken Hardie, Liberal, Fleetwood—Port Kells, BC]

Can you describe the nature of any conflicts between the railways and the shippers that have arisen over the interswitching issue?

[Fred Gaspar]

Actually, I would suggest, in reference to my last answer, that it has probably reduced conflict because of what it does to create market balance. On the narrow question of interswitching, knowing that they must provide access and that this is not a debatable point, what it actually does is—and again this is only anecdotal evidence—create better market conditions because it allows the shippers and the railways, when they're negotiating, to understand that there is an option. In effect, it reduces the opportunity for conflict by providing clarity.

[Ken Hardie, Liberal, Fleetwood—Port Kells, BC]

We hear quite often from shippers that—whereas they have to pay penalties if they're not ready to use the railcars, or the terminals have to pay penalties if they don't unload the railcars; up to this point anyway—the perception is that the railways get off scot-free if they don't actually perform according to what they promised to do. In your view, has Bill C-30 adequately addressed that and returned a bit of balance between rights and responsibilities of the railways?

[Fred Gaspar]

I think—being careful to defer to the policy question you're raising because that's in the purview of Transport Canada—in terms of our operational experience, it's important to note that the railways do have some financial exposure. You mentioned that for the legislation, the difference being that they are liable for administrative monetary penalties, any fines they may incur in that case would go to the Receiver General for Canada and would not return to the shipper. I understand that shippers might believe there's an imbalance because costs that they have to pay go to the railway directly, but it's not as though the railways are without any financial exposure at all. They do have some.

[The Vice-Chair, Conservative, Luc Berthold]

Thank you very much, Mr. Gaspar.

I would like to remind you that you promised to provide committee members with the data about sanctions and penalties. We would very much appreciate that.

Mr. Aubin now has the floor for six minutes.

[Robert Aubin, NDP, Trois-Rivières, QC]

Thank you, Mr. Chair.

First of all, I would like to thank each of you for your warm welcome to the Standing Committee on Transport, Infrastructure and Communities. I am pleased to be working with you.

I was a member of this committee in 2013 when we talked about service level agreements. It seems like we are picking up right about where I left off.

Mr. Gaspar, do you have an estimate of the number of service level agreements that have been negotiated with rail companies?

[Fred Gaspar]

We can provide you those figures later on. We do not have them right now.

[Robert Aubin, NDP, Trois-Rivières, QC]

As I recall, the discussion at that time revolved around the outstanding bumper crop that year, combined with disastrous weather conditions and a major polar vortex. That was described as an exceptional case caused by the combination of two factors.

You said earlier that the fines were paid not to the public treasury but to research. Did I understand that correctly?

[Fred Gaspar]

Yes.

[Robert Aubin, NDP, Trois-Rivières, QC]

So you are saying that, with innovative farming practices and the fines paid to research, we will be able to further increase agriculture production. So what was an exception in 2013 could now become the rule.

My question is very simple. Should the temporary provision on the 160 km distance not become permanent?

[Fred Gaspar]

Perhaps, but that is a policy matter for Transport Canada. I can assure you though that the rail companies are also increasing their efficiency. We have witnessed an increase in the efficiency not only of farmers but also of rail companies, and the link between them under the agreements they reach. In short, there are ongoing developments in this regard. That is why we have to review the regulations every five years.

[Robert Aubin, NDP, Trois-Rivières, QC]

I would like to go back to the circumstances you explained.

Can the lull or balance that we see in the market right now not be explained by other circumstances, namely, the drop in oil prices? This drop can mean that carriers use more cars to transport grain than they do for oil.

[Fred Gaspar]

That could be one of the factors, but I cannot say for sure that is the case. It is like tasting a good soup but not knowing exactly which ingredient makes it so delicious.

[Robert Aubin, NDP, Trois-Rivières, QC]

Thank you.

I have a bit of time for a final question.

Should the investigation powers of the Canadian Transportation Agency be strengthened as recommended in the Emerson report, specifically as regards quality of service? Should your investigation powers be strengthened or do you feel you have to tools you need to do the job required of you?

[Fred Gaspar]

My colleagues and I have the tools we need at this time to carry out our mandate under the act and the regulations. Should the committee or the minister decide to increase our role and mandate, we would of course need additional tools.

[Robert Aubin, NDP, Trois-Rivières, QC]

I have a final question about the 160 km interswitching distance.

I was not part of the committee when that guideline was set. Can you tell me why it was set at 160 km? Why not 150 km or 180 km?

[Fred Gaspar]

In preparation for the meeting today, I talked to my colleagues who are economists and asked them the same question. They said that the research has not identified a magic distance. In other words, they have been unable to determine whether demand would be lower with a longer distance or higher with a shorter distance. It is a continuum. Later on, we can provide the committee the details on how we arrived at this figure. In general, we found that this distance was optimal for access to rail lines.

[Randall Meades]

When we did this as well, we undertook extensive consultations with shippers.

As Fred said, we didn't do a line, we actually did a circle. We did the circle around the interchange points and we determined that there would be over 80% coverage, in some instances 85%...that you, as a shipper, had alternatives to a secondary source. Going out even further would start getting into serious problems because then you're creating almost a different system. So 160 kilometres seemed to provide a good balance between providing access to more than one carrier for the greatest number of shippers.

[The Vice-Chair, Conservative, Luc Berthold]

Thank you very much, Mr. Meades.

Mr. Sikand now has the floor for six minutes.

[Gagan Sikand, Liberal, Mississauga—Streetsville, ON]

Good morning.

In regard to Bill C-30, the bill establishes requirements regarding the minimum amount of grain to be moved by certain rail companies. It sets maximum penalties of $100,000 a day for rail companies that do not meet these requirements. You made mention of this as well. To me, $100,000 a day seems like a large number.

Would you agree that for any company, rail or otherwise, that's actually a large number?

[Fred Gaspar]

Yes.