[Recorded by Electronic Apparatus]
Thursday, October 26, 1995
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[English]
The Chairman: Good morning, colleagues. I think we'll get this show on the road, or since this is about rail, we'll get this train on the tracks, or whatever would be appropriate. We are in consideration of Bill C-101, the Canada Transportation Act.
We resume this morning with a submission from the New Brunswick Southern Railway Limited. E. Scott Smith is the general manager. Mr. Smith, welcome to the committee. Joe Day is a familiar face to the committee; he's the in-house legal counsel. Robert Youden is the general manager of Irving Forest Services; we met him down on the east coast when we did our marine sector study.
Gentlemen, it's good to see you again here in Ottawa. We'll look forward to your submission, which will hopefully not be longer than 15 minutes so we can have time to ask questions of you. Welcome and please begin when you feel comfortable.
Mr. Joseph Day (In-house Legal Counsel, New Brunswick Southern Railway Limited): Thank you, Mr. Chairman. It's a pleasure for us to be here this morning. We would like to thank you and your committee for having come to Saint John, New Brunswick, during the marine aspect of the hearings.
We're here today on a rail transportation issue that we wanted to talked to you about. We thought since you had come to us last time, we would come to you this time. With the progressive manner in which this government is moving forward with legislated changes, we may well end up in Hamilton for the next meeting.
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The Chairman: You'd be most welcome there.
Mr. Day: Mr. Chairman, earlier we forwarded our written report to your committee. I wanted to make sure that you and all the members of your committee have received that.
The Chairman: Yes, indeed we have. Thank you very much. It's translated too, by the way.
Mr. Day: I have one change to make to the written report that was forwarded to you, and that appears on page 4, in the first full paragraph. It begins with:
- It is perhaps helpful for the Standing Committee to consider the former Canadian Pacific
line which runs from St. John, New Brunswick through northern Maine to Montreal as shown
on the attached map.
That line is not considered to be operating internationally. In the next paragraph I had said that it was. I said ``Eastern Maine Railway Company is a United States corporation operating into New Brunswick''. That was speculation on my part and on our part when we prepared this report. It is in fact not the position of that railway. It operates in Maine only and it is not subject to Canadian railway legislation.
That's the only change we wish to make to that report, Mr. Chairman.
The Chairman: Correction noted. Thanks, Mr. Day.
Mr. Day: The approach we'd like to take today is as you have suggested. We don't intend to read the report. If you or any members of your committee have any questions in relation to the points made in this report, we're here to answer those.
We would like to highlight and maybe emphasize two aspects of the report. We'll certainly be within the 15 minutes that you had suggested, and I expect quite a bit less than that.
The opening position of New Brunswick Southern Railway Company Limited is that we do indeed support the basic policy position of the government that rail transportation should be subject to market forces, which is the best way to achieve a viable and efficient railway system. That is the underlying tone of our written submission.
We are concerned about the unique position of the maritime provinces and in particular the shippers from the maritime provinces. We are also concerned about the evolution of the railway industry to short-line operators, which we believe will be increasing and is a direction in which rail transportation shall be going. I know the minister has indicated that another underlying policy of the proposed changes to railway legislation in Bill C-101 is to accommodate this evolution towards short-line operators.
We have with us today the general manager of one of those short-line operators, who will bring you some concerns as a short-line operator first of all, but more importantly, as a short-line operator from a New Brunswick perspective. A New Brunswick perspective could also be expanded into a maritime perspective, since Nova Scotia or P.E.I. shippers would also be coming through New Brunswick if they were shipping their products or bringing in products from Montreal or points west.
The other person who will be making a short submission and is here to answer questions isMr. Robert Youden. You have quite rightly introduced Mr. Youden as the general manager of Irving Forest Services Limited. He and his company are involved on a day-to-day basis in shipping issues, in bringing in supplies and sending out manufactured products from the Maritimes. Therefore, he would be described as a shipper within the context of the legislation.
So we have a carrier representative and a shipper representative.
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We're going to talk about two items in the oral part of our presentation. One of them is the competitive access issue - in particular, competitive line rates as they relate to New Brunswick shippers. We're also going to be discussing briefly the issue of a shipper's access to the agency. They're the two issues we wanted to highlight.
I'll now turn our presentation over to Mr. Scott Smith.
Mr. E. Scott Smith (General Manager, New Brunswick Southern Railway Limited): New Brunswick Southern Railway and its associated U.S. company, Eastern Main Railway, purchased the abandoned CP Rail line from Saint John, New Brunswick, to Brownville Junction, Maine, in January of this year. These rail lines, with the Canadian American Railroad Company join with CP Rail in Sherbrooke, Quebec.
The distance these three short lines span from Saint John to the class 1 connection in Sherbrooke is 370 miles and runs from Saint John to Brownville Junction. That's the New Brunswick to southeastern Maine portion. Canadian American runs through to Sherbrooke, or more precisely Lennoxville, and connects with Canadian Pacific at that point.
To put things in perspective, the alternative to Saint John and indeed to maritime shippers is Canadian National. For the Saint John shipper routing product with CN to central Canada, the journey would go from Saint John to Moncton, up through Edmundston to the St. Lawrence and then west along the St. Lawrence to Quebec City and points west.
The distance from Saint John to the nearest federally regulated rail connection on the CN route is about 530 miles. I point this out because most of the maritime traffic is routed in the direction of Montreal and Toronto. The CLR point for the Maritimes, which is now Saint John, will be Quebec City. That will leave the Atlantic provinces as the only provinces in Canada without two class 1 railways, and without a meaningful CLR point. We believe that maritime shippers should have a choice, and that choice should be closer than Quebec City.
Ten months ago rail ties and other physical assets now owned by New Brunswick Southern Railway were owned by Canadian Pacific. It was abandoning that line. We question why the purchase of these assets should create such a dramatic change in the protection of shippers in the Maritimes.
Competitive access provisions were introduced in the National Transportation Act of 1987 to help shippers balance monopolistic powers of carriers. The direction, we believe, of the rail industry in Canada is toward the creation of more short lines.
This very fact, coupled with CLR legislation as proposed, would lead to the conclusion that more and more shippers are going to be denied practical access to CLRs because an asset that was federally regulated was so old and fell into provincial territory.
Short lines are going to be an integral part of the rail transportation network in Canada, and this reality cannot be used to deny reasonable access to the CLR provisions of the legislation.
We don't suggest that Bill C-101 be amended to allow a CLR to be imposed on provincially regulated railways, but we do believe that CLRs should be available to be imposed on federally regulated railways, and the rights of a shipper should not be jeopardized just because one or more of the railways down the line to the point of destination is provincially regulated.
I should add that these railways down the line would have already voluntarily agreed to a rate. Any solution to this situation should minimize its impact on other clauses of the bill. We suggest a simple solution would be to word subclause 131(1) more generally to state that the local carrier shall establish a competitive line rate to the nearest exchange point with another carrier. If we did this, it would put the shipper on the same footing it had previously in relation to CLR provisions prior to the short-line evolution.
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Mr. Day is going to address this and other remedies sought in a few moments. Bob Youden has some points he'd now like to present.
Mr. Robert Youden (General Manager, Irving Forest Services): I'd like to just talk as a shipper this morning. We ship about 700,000 tonnes every year. We use rail, trucks and marine. Every day we're filling out bills of lading and moving product around the country, and we have some concerns. Very simply stated, we'd like to have access to someone we can go to with our problems when we get stuck.
I'd like to give you an example that I think would be close to home for a lot of us, and it's the telephone industry. Six years ago I moved to New Brunswick and called to get my telephone hooked up. They told me if I could be home on Thursday someone would come by. They wouldn't tell me when, but if I stuck around all day they'd show up sometime. They didn't; they came the next day. They left a little note that said I wasn't there and I was to call back to make another appointment. Eventually I got my phone hooked up.
I have moved since then, and when I called to have another phone hooked up they asked me when I would like them to come. I thought that was awfully nice. When I asked them if they would come in the evening, they agreed and asked me what night. When I told them I would be home Thursday, they asked me to pick a time and they would be there. They showed up Thursday night and hooked up my phone. They left me a little card to call if I had any problems. Then I got a customer survey call two days later to see if I was happy.
Somewhere between the first example, where I felt neglected and all by myself with nobody to talk to, and the second example is where I'd like to end up in the day-to-day shipping of product. That's what it's about.
I'll give you an example, and it's not in Canada, so it's not one that is meaningful under the sets of rules we're talking about. But I have a customer I ship to in the United States, in Rhode Island. It costs me exactly the same amount to go the first 400 miles as it does the last 60. There's no sense to that. Is there significant prejudice that I could come to a group and say I'm meaningfully harmed? No. I'm going to keep doing business. I'm going to sell to someone else. But is that the right thing for us? I really don't think so.
The suggestion I would bring is that we have a legal system that allows us access to the courts, and if we use it foolishly or unreasonably we have to pay the costs. Perhaps something like that would give us the right when we're hurt to speak to the right people, and if we do it foolishly we pay for it.
Mr. Day: The draftsmen and the minister have seen fit to include and continue the CLR provisions in Bill C-101. They were introduced in the 1987 legislation for the purpose of creating some balance between the shippers and the large national carriers, to avoid the potential for monopolistic pressures to be used by one of the major carriers against a shipper who was captive to one carrier. That was the whole purpose.
You will be told that those sections haven't been used very much, meaning that applications to the agency under those sections have not been that frequent. But our position is that those sections have been used, and they have been used quite a bit as a threat. The threat is that if the potential for use is there, then it's easy for the shipper to work out an arrangement with the carrier. But if the threat isn't there, or if the threat has been minimized or weakened, then it will not be as easy. We submit in our report that is what has occurred, in part unwittingly, as a result of the evolution to short-line carriers.
That is the position we're taking. The competitive line rate provisions are in clauses 130 to 137. It would get quite technical if I started analysing them, and I don't intend to do so. But if you want us to get into the various clauses and why we propose the wording we do, we'd be pleased to do so.
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We shouldn't be taken as being legislative draftsmen. The wording we have proposed here is more to get concepts in place.
The first concept is that the route must be wholly within Canada. You have to decide as a committee whether you think that restriction on a competitive line rate application is worthy of continuance, because it is a policy decision that if you are going to apply for a CLR, then you should ask for or you should outline another route that is wholly within Canada if one is available.
You have to decide first if that's worthy of continuation. If you say it is because it helps foster business in Canada and if we're giving a shipper in Canada a special right then we should try to help one of the other national rail lines in Canada, that's fine.
The next step down the line is that there was a deeming provision for the Maritimes. It's obvious why that deeming provision was there. It was there because there are two national carriers, CP and CN, and one of them ran through northern Maine. In 1987 the CP line wanted to be part of this. Basically the blue line that goes through northern Maine was a former CP line, and that was deemed to be wholly within Canada.
That has been dropped under this proposed legislation. You should ask why. Has it been dropped only because CP has sold that to a number of short-line carriers? Are the short-line carriers not as important as CP was? Is that the reason? Is it because the shippers are not as important in the Maritimes as they are everywhere else where there are two lines? Or is it because we want to make CN more attractive for sale? These are the decisions you're going to have to make, and you're going to have to determine why that has been dropped.
There are a number of other definition changes that we have suggested should be made. They should be changed because of short lines. If the definition changes and the other changes that we have suggested were to be made, then maybe that deeming provision wouldn't be necessary.
It's an interpretation of one of the clauses, subclause 131(1), of this CLR area that causes some problems.
If there's not another line wholly within Canada, if the company from which you're asking for a competitive line rate happens to have two lines, as you see two lines in New Brunswick, then surely you wouldn't be forced to go on another of their lines.
This is a company that you are asking. Because they won't cooperate with you, you're going to an agency to ask them to force this company to give you a competitive line. That surely is not the intent, but it's not clear in the clause that you can go to a carrier alternate to the local carrier from which you're asking for the competitive line rate. That's not clear, and we've asked for that to be clarified.
At the present time there's an interchange point at Quebec City. Surely maritimers wouldn't be forced to go all the way to Quebec City on the local carrier. If you're shipping out of Sussex, New Brunswick, then you shouldn't have to go all the way up to Quebec City, which is five-sixths of the way to Montreal. Surely it doesn't make any sense to say that you get a competitive line rate for 90% of the distance.
We've suggested an amendment to one of the clauses that would solve that. We've suggested that in here. I'll refer to the clause in a moment. It refers to 1,200 kilometres or 50%, and then it goes on to say ``whichever is longer''.
The Chairman: I'm going to have to give you about one minute more, Joe.
Mr. Day: Those are the points. We are suggesting that the amendments that will be made should not force someone to go Quebec City. Change definitions. Don't leave the clause such that it requires the economic tests that are in there, because that creates confusion and indecision and makes the effects of the CLRs much less valuable.
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Basically, they are our submissions. We support in general the approach. In fact we support in large part the approaches that are being taken, but those clauses require some fine-tuning because of short lines and because of the peculiar situation in the maritime provinces.
Thank you, Mr. Chairman.
The Chairman: Thank you very much, gentlemen. Thank you for the submission from the New Brunswick Southern Railway Company. I think it would be fair to say it was a pretty focused submission. I'm already getting good indication from our members that they have some questions that may help to answer some of those concerns you have.
Mr. Hoeppner (Lisgar - Marquette): How feasible do you think it is that another short line will come into existence in the Maritimes? Is that feasible or not?
Mr. E.S. Smith: There's a lot of rumours around. The bet is that there will be more short lines rather than fewer down the road.
Mr. Hoeppner: Does it affect your freight significantly as far as price is concerned? Can you lower freight rates by forming more short lines?
Mr. E.S. Smith: I really can't answer that. The only thing we're looking for is to create a situation where shippers have a choice as to who they use. That's the key point we want to make. We believe we can be competitive with whoever's out there competing for the business we're competing for, but we need to have a level playing field.
Mr. Hoeppner: So the cost factor is not that important to you. It's the matter of access to certain areas.
Mr. E.S. Smith: That's correct.
Mr. Hoeppner: Thank you.
The Chairman: Mr. Fontana.
Mr. Fontana (London East): I appreciate the brief, but you have me a little confused. We're talking essentially about U.S. short-line companies for the most part, right? Some of your companies are U.S. short lines, which are in another jurisdiction, and you also have provincial short lines, right?
Mr. Day: Yes.
Mr. Fontana: You didn't ask for federal legislation to impose those shipper rights onto provincial short lines, and I appreciate that. Now that we've put our legislative framework in place, hopefully provinces will have mirror legislation. Ontario is looking at it, and New Brunswick and some other provinces that have been at the forefront of short lines obviously will have to mirror our legislation to take care some of the ambiguities.
Under subclause 131(4) of this bill it says a CLR route must be wholly within in Canada only if it is a cost-effective and reasonable routing, which essentially means if there's a U.S. routing that is much more cost-efficient, then that's fine. So essentially what you're doing is asking for an expansion of shipper rights for you, but then of course every other shipper will ask for the same sort of expansion of rights across this country.
Therefore, you're going to have to convince me why I ought to do something for your shippers that we're not prepared to do for all other shippers. Or are you prepared to say we ought to offer that to every other shipper in the country too?
I think that test of subclause 131(4) can effectively deal with your particular concern.
Mr. Day: Mr. Fontana, can I go back to the front part of that and just confirm what you said? It is not suggested in our brief that there should be any expansion of rights. There should not be any imposition of federal jurisdiction on provincially regulated or non-federally regulated rails.
For someone who is shipping from Sussex, which is on the line between Moncton and St. John, there would be a CLR against Canadian National, over which the federal government has jurisdiction, for the short haul so that he could interconnect with another line.
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We're looking at this from the point of view of the shipper. He looks at that line, which used to be a line through northern Maine that was owned by CP, and he wants to get his product up there. He had the option of going CN or CP. He asked for a CLR against CN at that time and he could get it. But now that there are a number of short lines on that same line, what difference does it make to the shipper?
Mr. Fontana: Well, one was a federally regulated railroad - Canadian Pacific - when it was there, but now there are U.S. short lines and/or provincial short lines -
Mr. Day: Carrying interprovincial trade from New Brunswick. From the shipper's point of view, it is interprovincial trade, over which the federal government has jurisdiction. So all that has to be agreed to beforehand anyway. You're not imposing anything on any of those short lines; you're just allowing the shipper in New Brunswick to have the same rights as he had before. That's all you're doing.
Mr. Fontana: I'm suggesting that. Of course, I think you are making a point, and we'll have to look at it. I suggest to you that the way subclause 131(4) is drafted, with those words ``only if'', may be sufficient enough for you or someone such as a shipper to go to the agency to have that determined.
I want to talk to Bob about his example. I didn't understand whether or not the last 60 miles were in the U.S. or in Canada. You said you paid as much for the first 400 as you did for the last sixty. Do I take it the last 60 were in Canada, or were they in the U.S.?
Mr. Youden: They were in the U.S. It's not an example that fits exactly today, but there are examples similar to that in Canada. We paid the same amount for 400 miles as we did for the last 60 or 70 miles. There was a single line, and that particular carrier decided to charge what he thought he could get.
Mr. Fontana: You wanted to know where you could go in the event you have a problem, just like you go to your telephone company or whatever the case may be. Well, that's the nature of what the agency is all about, save for and except if you are in fact operating over provincially regulated short lines.
As I said, the provinces are going to have to come in with mirror legislation in order to give you access to something in their jurisdiction. That's something I'm sure we will encourage, but I'm not sure we can do it on federally regulated railways precisely.
You'll be able to come to the agency with a particular question and the test would be, as you indicated, significant prejudice. You would put in an application to be looked at by the agency, but they don't determine significant prejudice until such time as they say, yes, you have a case before this agency; and yes, you should have remedy. They then test it by asking themselves whether or not there is significant prejudice. If 2¢, 3¢, or 5¢ is the difference, is that significant prejudice? Maybe it's not. You'll have to prove on an individual case whether or not that's significant prejudice, and that's the test.
So that's why we want to put that significant prejudice test in: to measure the remedy and the prejudice on someone who's applying to the agency. In your particular case, I think you obviously would have to make those representations to the Province of New Brunswick in order to have a similar feature provincially.
Mr. Youden: I would suggest that the words ``significant prejudice'' will keep our legal community busy and leave us people who are actually paying the freight bills without a definition that's workable. In terms of significant prejudice, a couple of cents a tonne is significant if I'm making pulp. Am I prejudiced? Well, it's very difficult. What's my framework for work, and what do I tell my people? We ship 700,000 tonnes every year. I don't see every transaction. We try to do the best job we can. It would be nice to have some framework within which we can run our business every day. It's very vague.
Mr. Fontana: But you negotiate each and every day with your railroad, don't you?
Mr. Youden: Mr. Fontana, we announced in December that we were starting a short-line railroad. I met with the railroads serving us at that time - and we were served by two large Canadian railroads. We told them we were going to start a railroad. We told them 90% of the business in the last two years had gone to their competitor. We told them they really needed to sharpen their pencils. Do you know what they told us? On the way out the door they said, we have to put your rates up 3% because we're losing money.
I'm back to the same example of my phone company: I'll be there Thursday, wait for me. I can't run my business. I need to be able to know that if you don't treat me fairly, I can go to get some access. If I take advantage of the access, then there's got to be a penalty to me. But my job is to get product to market, not to go to agencies every month.
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Mr. Fontana: If I could just make this one comment, since the present legislation says you have access to the agency now, you're assuming that without those words you still have to make your case for remedy.
The only thing we've introduced - and I'm sure you can understand this as a business person, because I'm sure that down the line you're dealing with a whole bunch of people who come to you and ask you to sharpen your pencil, too - is that there needs to be some test in order to determine what's commercially fair and reasonable, and to determine whether or not you are causing significant prejudice where there is in fact competition and other alternatives available to you in terms of competition.
Mr. Youden: I find this a very difficult time. We're changing our transportation act. Marine policy is changing. The coast guard is changing. I'm spending as much time in front of groups like this as I am running my business. It is important and we really support -
Mr. Fontana: But I guarantee that at the end of the day, you have a better system.
Mr. Youden: I agree with you. I think it's excellent. I think all this change and all that you are pushing and doing is very good, but if we slip somewhere along the way in an area, or if some shippers get in a difficult spot, there won't be the same access to solve the problems for them. There's so much happening that if we could err on the side of being cautious in terms of access to the agency until it all sorts itself out, it just seems like there would be a lot more comfort.
The Chairman: Thanks.
Joe, just as a point of clarification, I'm bewildered about your CLR request here on clause 131. You're a lawyer. We're not talking interprovincial here on that map; we're talking international. You're going from New Brunswick through the state of Maine and into Quebec. How does a federal government body like the NTA or CTA turn around and say to an American owner on American soil that they have to provide a CLR?
Mr. Day: You don't.
The Chairman: You show me how that's going to work.
Mr. Day: Sure.
Here is Sussex on the map. It's not shown, but this is where it is located, between Saint John and Moncton. The shipper from Sussex - we have a sawmill in Sussex - ships lumber to Montreal. We have the option, and Bob Youden's company has the option, of looking this way and going all the way up and around there, or we have the option of looking this way and going that way. That was on December 31, 1994, when it was operated by CP and was deemed to be a line wholly within Canada.
So what you did if you decided you'd like to go this way was ask CN to give you a rate down to the interconnect at Saint John. Either CN would do that, or you would go to the agency to get it. That is where you get the CLR on that short haul, because we're captive right here.
With the change, one thing that has happened is that this is no longer deemed to be wholly within Canada with the new legislation. Secondly, we now have a number of short-haul short lines through here. Under the wording that now appears, this is no longer an interchange point, and that line is not a connecting carrier. Under the legislation you're now proposing, the shipper right here, who could have gotten a CLR for this distance nine months ago, can't now unless you bring about those changes we've suggested. So we ask for a change in the wording for ``interchange''.
There is no reason why the shipper should be precluded from having an option to keep this open and to give these lines an option to compete with the national carrier because you've got definitions of ``interchange point'' and ``connecting carrier'' that are restricted to federal railway lines. That's one of the points we're asking for.
The Chairman: But this piece of the action you're talking about now is wholly within a provincial jurisdiction. You're not talking about something that is interprovincial.
Mr. Day: This strip right here?
The Chairman: No, the other one.
Mr. Day: This line?
The Chairman: No. The red chunk and the blue chunk you're talking about on the interconnect. That's all within the province of New Brunswick, so you have to deal with a provincial matter.
Mr. Day: CN is the line over which you have jurisdiction. We're asking for a CLR against CN.
The Chairman: And you'll get a CLR.
Mr. Day: We don't want CN to be able to say they're not going to give us a CLR because section -
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The Chairman: They're not going to say that. You're going to get that CLR.
Mr. Day: We can't get it.
The Chairman: On CN.
Mr. Day: We can't get it. You can't give it. CN are going to go to the agency and say, ``You can't give it, Agency, because that's not an interconnect point. That's not a connecting railway any longer.''
The Chairman: So you've gone to the Province of New Brunswick and asked for the province to designate that as the interconnect so CN can give you the CLR.
Mr. Day: The Province of New Brunswick designating something is not going to help us in any way under the legislation that you're proposing here, Bill C-101.
Look at subclause 131(1). It says that you can to ``the nearest interchange with a connecting carrier''. That is not an interchange. That is not a connecting carrier.
Mr. Fontana: Look at subclause 131(4): only if there's that test I just tried to quote to you. That catches that.
Mr. Day: No, it doesn't. You need to change the definitions of ``interchange'' and ``connecting carrier'', and then we have to get clarification.
The Chairman: There's another little complication or wrinkle in this thing that we have to look at, which is the fact that very shortly CN will be privatized.
Mr. Day: Yes.
The Chairman: Now we're dealing with that.
Mr. Day: That's no reason for not dealing with facts as they exist. It's so easy to change the wording, as we've proposed for clause 131. It's so easy to change that -
The Chairman: I'm sorry for hogging time here. I just wanted to know what the heck this was.
Mr. Day: - to accommodate the short lines and the peculiar situation in the Maritimes. That's all we're asking for. Anywhere else, that line would also be in Canada.
Mrs. Wayne (Saint John): With regard to the telephone company, Mr. Youden, my daughter-in-law took over and that's why you got that nice call. It's just like her mother-in-law.
Also, I asked a question when our minister was here, because I know that the minister wants this line, the New Brunswick Southern Railway, to function and to be a success. When I asked him the question at that time, because I knew of the concerns that you had back home that you expressed, he stated that they were waiting basically for what you have here to see if he could correct this situation - because he definitely wants this line to function and to operate. There's no question about that. You just have to take a look at it.
The Chairman: That's right, Elsie. That's why we're having this committee meeting to try to perform amendments if they're necessary.
Mrs. Wayne: On page 12 of your presentation, Joe, you mention clause 132. But you have ``portion of the railway line to the neatest interchange''. It's ``the nearest'', isn't it?
Mr. Day: The nearest might be neatest, but I think you're right.
Mrs. Wayne: All of the changes you want and are suggesting here.... In your submission to this committee, on page 11, you have mentioned three clauses - 34(1), 27(2), and 113 - and you've underlined them.
Mr. Day: Yes.
Mrs. Wayne: You basically have problems with those. Is that why you have underlined them? When I first read them and they were underlined, I thought, my God, they want them to stay there but all the other shippers want them to go.
Mr. Day: No, we want to emphasize. You're quite right, Mrs. Wayne. I added those.
We didn't talk about the issue of ``frivolous and vexatious'', because it's a normal test in any legal or quasi-legal process.
We really don't have a major objection to that. We're not going to further that debate on that issue. A number of other people have brought it forward. The point here is to try to point out that there appear to be a number of new impediments to a shipper going to the agency, a number of other tests.
As I pointed out during the oral presentation earlier, the important aspect of this is the threat. It's not a threat if somebody sees a lot of ways in which his lawyer can scuttle the thing. The more arguments you can make, the less of a threat it is.
There is Mr. Fontana's point as well. He said that maybe it can be interpreted in that way. When you have the opportunity, why not make it clear that if there isn't another -
Mrs. Wayne: That's what every shipper in Canada is saying.
Mr. Day: - route wholly within Canada, then you can go through the States as long as you end up back in Canada?
Mrs. Wayne: That's right. Every shipper is saying that.
Mrs. Cowling (Dauphin - Swan River): My question is with respect to short lines, because I am from western Canada and we have a lot of branch lines that may well be moving into short lines.
Because this is a new concept and because of our geographics in the west in that we're so large, what are some of the obvious things that we should be watching for as a committee and as a government so that we'll do things right in the west when we take a look at short lines?
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I know that's a huge question, but we may need some help there.
Mr. Day: I'm sure Scott will be able to help. The only point I want to make before Scott gathers his thoughts together on this is the point I was just making, that you have to be careful. Because they've become provincially regulated, the interchange point.... The way the definition is now, a connecting carrier, if it's a provincially regulated short line...then that's not an interconnect point any longer for the purposes of the act, because it's defined as federal...and that's just historic. It still needs you to rectify that by changing the definition of ``connecting carrier'' or ``interchange''. Rather than use ``interchange'', which is defined, use some other word: a place where you change from one rail line to another. Don't call it ``a connecting carrier''.
As I pointed out in my brief, in paragraph 130(1)(b) they talk about ``companies'', as opposed to ``railroad companies''. That's an example of how you can do that.
But I'd like Scott to elaborate on it.
Mr. E.S. Smith: I concur with you. There are going to be more and more short lines as time goes on. I think most short line operators believe they can compete in the marketplace. What is critical is to create a situation where the shipper has a choice of where and how it ships. If there's legislation that directs the shipper's shipments, then I really believe we are dooming short lines, to a degree, before they even start. Most short lines, indeed. Level playing field, not a problem; but it has to be level.
Mr. Youden: Could I add one more point that maybe ties in a little more. I would hate to think, as a shipper, that to get a competitive rate if I'm going to send something across this country I'm going to end up in provincial transportation agencies and federal transportation agencies. I'm going to put it on a truck, because it's too hard. When it goes to provincial, whether it's in Canada or outside Canada is less of an issue. If another carrier wants to give you a rate and you can hold your monopolistic carrier competitive at that point, who cares what the carriers that are meeting right there are?
As a shipper, if I'm going to get a CLR in Quebec City, this is probably the last time I'll talk about CLRs. I would say in western Canada, if you have to go 500 miles on 1,000-mile trip, your people won't either.
The Chairman: But by the same token, if you're going to put it on a truck and ship it interprovincially...if you think you have problems with the railway, wait until you get into the trucking interprovincially. We have no jurisdiction over trucking interprovincially. You're going to be dealing with every province that truck's going to cross into.
Mr. Youden: But I can call three different trucks to come to my door; I can call only one rail carrier. That's the whole point. If I could call three rail lines into my yard I'd be the happiest fellow. Scott and I wouldn't be able to travel any more because we'd argue too much, but I'd be very happy, because I'd have all the choices. That's the difference.
Mrs. Cowling: I have one comment. In western Canada, because we are so large, we have heard from many witnesses that trucking is not an option for us, because of our distances and the geographics.
The Chairman: Seeing no indication of further questions, I'm going to thank the witnesses for their appearance before us today.
I appreciate the time you've taken to give us your submission and answer our questions. Thank you, gentlemen.
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PAUSE
.1022
The Chairman: Colleagues, we welcome to the table Thomas Payne, the president of Central Western Railway Corporation.
Welcome, Thomas. I've noticed you've been sitting in on a couple of days of these hearings. We're looking forward to your submission, sir. If you could keep it to an executive summary of 15 minutes or less, then we'll have some time to ask you, with all your experience on short lines, questions that are just burning in our thoughts at the moment. Thank you.
Mr. Thomas Payne (President, Central Western Railway Corporation): Thank you, Mr. Chairman.
Ladies and gentlemen, it's my honour to appear before this committee. I guess this is now the seventh committee of Parliament I've appeared before over the years respecting short lines in Canada. From a bright idea that started on the 2359 locomotive of the Canadian Pacific Railway in 1979, we've now grown into a good and prosperous little company.
With this bill, I think we're really on the threshold of the kind of revitalization of the railway industry that has been seen in the United States through the Staggers Act. Certainly we're going through some of the gestational things in the short-line industry in Canada that were a hallmark of what happened in the first five or six years of the implementation of the Staggers Act. We're doing the same things and we're discovering the same problems. Since that has all been said and done and settled down, they have had a very strong and prosperous regional industry.
It's been interesting to sit for a few days this week to listen to some of the concerns others have raised about the bill. I share some of them.
There was a question of road costs in one of the meetings. To that extent, I brought a study with me that I prepared five years ago and circulated to various government departments. It is the result of ten years' worth of on-line engineering detail costings, done by the northeastern and northwestern United States, of road costs following abandonments. Suffice it to say that road costs are high. The savings of consolidations and branch line rationalization are limited, but that's for some researcher to look at in due course.
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You have my submission, but I've brought some slides, and pictures are worth a thousand words.
Mr. Chairman, the purpose of this little exercise is to show you some of the benefits the regional railway can bring.
This is Castor, a typical branch line town. It has a population of 500 people. It generates some 15,000 or 20,000 tonnes of grain traffic for the Central Western Railway. As you can see, it's a siding designed for boxcar spotting and boxcar loading. People roll into each other's next adjoining elevator. There are fist fights between the elevator agents over who gets the cars on the siding.
What we do is run a demand service. We tell the Alberta Wheat Pool first up to order as many cars from the Wheat Board as they want. We say, we will come and take those four empties you're loading now; when they're loaded, we'll reverse them and give you four more cars.
In effect, what we have done is raise the ability of the elevators on Central Western to turn their elevator over more times than they have in the past. On average, the turnovers on the Central Western were two times a year. Now they're over five. So they're making more effective use of their plants. Tonnages have risen on the Stettler subdivision from a five-year long-term average of 130,000 tonnes under CN to 170,000 tonnes under Central Western Railway.
We bring that kind of service. When you see our engines and trains on the line, what you see is what you get. We have good, serviceable locomotives that are in a similar class and horsepower rating as our sister and brother national carriers. We run a demand service.
What happens is that you will see a small train and you will see a large train. This is Meeting Creek, one of the stations on the line. So where you had a small train, now you have a more average size of train for Central Western.
The ballast that you see spread on that grate wasn't there when we started. Over the years we have distributed some 600,000 tonnes of ballast on the lines. We've replaced about 75,000 or 80,000 ties. The suggestion that branch lines and short lines and regional railway operators survive on deferred maintenance and low-cost operations with underqualified staff and underqualified equipment is a plain, straight fiction.
Here's another picture. Again, this is a typical spot after we've respotted those cars. This is the kind of train we're pulling out of a conventional country siding, and we do this on a demand basis. On average, we service our lines twice a week.
There's maintenance of way. The level of the rail is where the black dirt was when we started. This is our machinery. I believe that if you put yourself in the hands of your connecting carriers to supply you goods and services, you're at their mercy. They have their own programs to take care of and they have their equipment to do that.
If we were to ask them to take equipment off their lines to supply a service to us, we would pay a premium for it and generally we would not get timely service because they're using their equipment to maintain their own lines. You're going to end up being forced either very early or very late in the maintenance of way season, when the time is critical to get equipment off the national road, so that dictates that you use your own stuff.
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This is a little work train.
We have bridges to maintain. This is one of our smaller bridges. It's only 150 feet long and 25 or 30 feet tall. We have steel bridges; we have wooden trestles. We had one bridge that we replaced in our first year of service, after six months of buying the line. It was 198 feet long and 45 feet tall, and we replaced it. So as to the idea that a short line or regional railway would fail because of some catastrophic engineering failure, again, you prepare for those things and you finance them.
Big Valley is another community on our lines. These stations were virtually derelict when we started. We believe that railways need to become once again part of the fabric of their communities and put things back in place so people can use them. We sponsored a steam train operation that now carries some 22,000 tourists a year in the summer season on Central Western. It's a good little train. It makes a little money. If anybody saw Legends of the Fall, that's where it got filmed.
These are the kinds of stations we started with.
These are the stations we have.
This is a station called Significant. It is the very end-of-the-tail track at a place called Compeer, where engines run around in a siding. The reason we named that Significant is that when we were in rate negotiations with the federal government and our rates were being pushed down to create significant savings, we got told that the government wouldn't do anything unless there were significant savings.
We said ``Well, if you take too much out of our pocket, then the savings will be significant. You'll end up with track with no shippers, no railway and no carriage.'' So we couldn't resist naming a little place in Alberta where no traffic originates Significant.
The Chairman: The next one isn't called Prejudice, is it?
Some hon. members: Oh, oh!
Mr. T. Payne: No.
So pictures speak louder than words.
If I can go back, Mr. Chairman, I'll touch on a few things in my brief and then I'd be delighted to answer any questions you have.
The observation we've made about the industry, both in the regulatory regime and in relations with carriers and shippers, is that the industry is very progressive as long as it doesn't involve any change. So this bill is a welcome and refreshing breath of fresh air.
You will see in our brief some of our statistics. Our view is that the railways need to have some freedom to move, continuing a process that started in the early 1980s and had some input in the 1987 NTA, which is really a shipper bill, which was needed at the time. Now we need a little bit of help for the railways.
Some significant issues need to be looked at in this bill, and it's the kind of thing that can be done through regulation.
Take a look at page 7 of our brief, ``Certificate of Fitness (Sections 91 to 95)''. One of the fears that has been expressed to us by communities, shippers, farmers, producers and grain companies is how do we know that the person who goes out and takes on a regional railway is going to be fit to operate it? How do we know that we're not going to get some buccaneer who will go out there and run the railway into the ground?
This is where the certificate of fitness test comes into the process. The agency can put the appropriate measurements in place to ensure that the people who go to buy a regional railway from CN or CP to serve those communities are going to be able to go the distance in the long term.
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In our initial creation, we appeared in front of the private bills committee of the Alberta legislature, and it was tough sledding, I can tell you. Legislators were very concerned about our financial fitness, how we paid our people, what safety standards we had - all of those good things - and before we got our act passed, we had to satisfy the Legislature of the Province of Alberta that these things were going to be done properly. I think that's a process that should be continued.
On page 9 we mention transferring and discontinuing the operation of railway lines. The first line we bought took six years to buy. It took six years to get the deal done from the time we agreed with the CNR that we could buy it. The next purchase we made was from Canadian Pacific for portions of the Coronation and Lacombe subdivisions. We started that process in March 1987 and we turned the wheel in March 1992.
Mr. Fontana: It's better.
Mr. T. Payne: Yes, it's improving. Mr. Flohr got it down to two years and one year.
But, gentlemen, when you go across the border to the country states they do transactions in 30 days. They've been doing transactions in 30 days for 10 years. What's the problem here?
The problem here is twofold. There are certainly lines that need to be abandoned. There are lines that can be sold between a willing buyer and a willing seller as good bona fide carriers.
If we, Central Western, are authorized to operate railways in the province of Albert and we go to Canadian Pacific or Canadian National and say we want to buy that branch line and continue to operate it, we should be able to do that between ourselves and not have to talk to anybody. We should be able to just go and do it. That's what the Americans can do. They file a notice with the ICC that they've got a deal and they're going to do it. There's a seven-day notice period of the change, and it happens just like that.
I don't see why the process in clauses 140 to 146 can't be strengthened a little bit to allow that kind of a conveyance procedure on lines that are going to continue in operation. For lines that are going to be abandoned, the cascading process contemplated in this bill is ideal because it gives everybody a shot.
I don't think the problem for the purchaser of railways is the purchase of the line. The problem is its rates. How do you get divisions? Again, we fall into this jurisdictional problem. The CTA doesn't give jurisdiction to a provincial carrier to come before the agency and have status to apply.
We have had three applications to various federal regulatory agencies over the years where we needed access to the incentive rate programs when Canadian National and Canadian Pacific had them. We went to apply to get included as a connecting carrier in that. We were told that we had no jurisdiction to apply. The fundamental problems for our industry are jurisdictional ones. The problem isn't an operational one. It's not rate. It's not running rights. It's not any of those things. It's jurisdiction.
On page 10 we discuss the maximum rate scale. There's another handout here that shows a rate scale. I'm going to touch on this briefly because this is how we need to survive. We have 10¢ added in the freight rate. We now get paid like everybody else in the system. We're not subsidized. We're commercial. I urge the committee to preserve that 10¢ because if it's not left in this bill, then we won't be operating railways in Alberta any more.
As for the rate scale, shippers are concerned that they're going to have runaway rates. Railways are concerned that they don't get paid enough. I've given you a handout on that. I would like to see us go back to an agency-calculated, cost-based rate. Clause 149 could allow the minister to provide an Order in Council authority for a regulation to be proclaimed. The agency could use sections 35 to 37 from the WGTA to provide for costs.
What does that do for me as a regional carrier? It allows me to go to the agency and say I want to buy that line. They cost out what the CN or CP operations are. That's a saving. The rate collapses to reflect that saving. Then we go along and we say to the agency, we want you to cost our operation and amend the rate scale so we can get paid.
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On the Stettler and Coronation-Lacombe subdivisions, the difference in cents per tonne over every tonne shipped on the western Canadian grain system is 6¢ a tonne. The shippers have benefited to that extent courtesy of Central Western.
So the suggestion that we're somehow not creating a saving again is a misunderstanding.
The Chairman: Thomas, as much as I hate to do it, I'm going to have to ask you to wrap up.
Mr. T. Payne: That's pretty well it. Those are the key points.
The Chairman: Would you like to make a final remark?
Mr. T. Payne: I'm encouraged by the review. I think it's going to be a healthy process. It's hopefully going to allow for amendment to the bill. I think you have a good bill. I don't think it needs a lot of tinkering.
I'm pleased to have been able to put in my submission. If you want any more material or assistance, we'd be delighted to provide it.
The Chairman: Thomas, thanks a lot for enlightening us on the operations of CWR. There's no doubt in my mind you're a true railroader.
We'll go to questions. Mr. Chatters.
Mr. Chatters (Athabasca): I'm just curious, Tom. In spite of some of the problems you've had, mainly with jurisdiction, as you said, and access to the agency, you're operating a line not only with freight but, heaven forbid, passenger service, and making money at it, where the national railroads can't make money at it. And part of what's driving this legislation is to allow national railroads to be profitable, or more profitable. How are you doing it when they aren't? Can they do the same things you are to become more efficient and to make money, the same as you are?
Mr. T. Payne: They can do some of the things we do, but it's very difficult, given their culture and their regulatory and labour structures, to do them. Our long-term reduction in cost on the subdivision has been $1 million per subdivision per year out of approximately.... In one case a $2.9 million subdivision is running at $1.7 million. The other subdivision was a $2.4 million subdivision and it's running at $1.6 million, more or less.
How do we do it? Well, you really have to rewrite the policy manual on how you operate your railway. You analyse it in this way. Why do we do the engineering the way we do it? Why do we do the operations, train handling, management, and train cycles the way we do it? Why do we spot cars the way we do it?
You become really customer driven. I don't know of any railway in Canada that would go out and spot two cars on a branch line after a 75-mile haul. We do it. We spotted one car for a farmer who had a specialty load of peas. We had to find the car. It was a specialty car. We found the car from Canadian Pacific, and we got it for him on a specialty order. He had a spot market with a three-day window to meet and we found him the car with Canadian Pacific and got him the car. It went to the United States.
You really have to overturn a lot of the standard practices the nationals have built up over a hundred years. It's hard to do, but you have to do it. We have, and it pays.
Mr. Chatters: You're doing it in good measure because you have fewer restrictions with union labour contracts. That is an understanding of mine. Yet I haven't heard a huge outcry from the union side in this situation, with this proposal to create short lines, and even internal short lines, as a way of circumventing union labour contracts. Why is that?
Mr. T. Payne: I'm not sure. I think a willing bargain between a regional railway and the unions can take place. It can take place in the federal jurisdiction. The unions are changing. The railroads are changing. It's just that nobody has quite got there yet.
We're well on the way. I was the secretary-treasurer for the BLE for three years. I know the issue. I think it can be done. That would allow operations in the federal jurisdiction, which would satisfy a lot of shipper concerns.
Mr. Chatters: What about the running rights issue? Do you have running rights? Is it an issue?
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Mr. T. Payne: No. I'm with Mr. Flohr on that issue. I think if we need some running rights, we can commercially negotiate them. If everybody's better off after we deliver traffic a little further down the line to a junction point, everybody's better off. So CP doesn't run a high-cost branch line crew out. We deliver to a main track point. Everybody's better off, so we pay for some wheelage, and we'll deliver the traffic. I think that's a negotiating thing.
Mr. Chatters: Finally, I would think the whole issue of car allocation is critical to your success and your being able to provide service.
Mr. T. Payne: Absolutely. Car allocation is going to be the next big thorn in the side of western carriers.
We work very well with the Wheat Board, and I have to say that it has supplied cars to meet our demands. Sometimes the delivery has been a little rocky because of cars getting tied up in Vancouver at the port. However, the Wheat Board management of the car system has to be second to none. It really works, and I'm delighted to see that one government agency has been taken out of the mix. The GTA is no longer there. It's Wheat Board and shipper and railway, and it works. So that's good.
We want to buy some of our own cars.
Mr. Fontana: We've got them for sale.
Mr. T. Payne: We'd better talk about a price.
The Chairman: Mrs. Cowling.
Mrs. Cowling: It would appear as if you have taken a non-viable line and made it very viable. You indicated that you would help this committee as much as you possibly could.
What government incentives has Central Western received to enhance its viability? If you have that information for us, could you table that before the committee?
My other question, of course, is the life expectancy of that line. What is the timeframe of the line? Could you provide us with that information?
Mr. T. Payne: You ask about government incentives. When we started the railway,Mr. Mazankowski, through an Order in Council, authorized the senior commissioner of the CTC of the day, Mr. Jim McDonough from Saskatoon, to implement the start-up of Central Western Railway.
We negotiated a contract under section 60 of the WGTA to provide for the payment of rates to Central Western, then we went out to finance it. We found out that there's a legislated impediment against the securing of financing by railways. The payment of principal and interest is secondary to the working expenditures of the railway.
Well, please find a bank or a financial institution that will lend you money second to your working expenditures.
Let's just say that I had some bank chairman who said they would be delighted to do this with a sovereign guarantee. The Government of Canada was not in the sovereign guarantee business in 1985 and 1986, so we had to come up with another structure.
We looked at the costs of Central Western and said, ``We have reduced costs. What would be the present value over the payment of the freight to the year 1995'' - that was one target we had, and 2000 was the other - ``to get some cash to Central Western now?''
So we discounted our freight rate at the CP cost of capital rate, which in the year we started was 36% before taxes. So we got the money from the federal government, used it to buy the line, and then had our freight rates discounted in order to take care of that cost. It was a financing mechanism, but it was the only one we could use inside the environment.
We operated for four years. The contract expired. We had enough of a commercial history to be able to go to a bank and a life insurance company, finance the purchase of the Coronation-Lacombe subdivision, and pay that investment back.
So we don't owe the Government of Canada a dime. We're commercially financed. We're paid a rate.
Mrs. Cowling: My last question, of course, was the life expectancy of the line. What are you putting back into that line to keep it alive and well?
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Mr. T. Payne: On the Stettler subdivision we have replaced - again, this is the big cost: rail replacement - a little over 3.5 miles worth of rail on curves and in places where it's highly needed. We have put thousands of ties into the track. We've put hundreds of thousands of tonnes of ballast into the track.
The life of the line is going to be dictated by the shippers. On the Central Western we face being a three-delivery-point railway within five years, through consolidation of elevators. The big elevators on the prairies are reaching out 45 miles to close elevators. So there's a very real possibility we could end up with three high through-put facilities on the whole railway and all the little local elevators will close. We'll serve those big points.
The Chairman: Mr. Fontana.
Mr. Fontana: Thank you for your presentation, Mr. Payne. There's no doubt people such as you and others who have started short lines have blazed a track. Obviously that's what we want to do more of.
You talked a little about the time it takes to complete those negotiations. As you know, the bill tries to address that and lays out a five-month timeframe. Do you think that's sufficient? Do you think it can be done a lot more quickly? I would agree: five years, six years - or maybe it's taking one year now - is much too long. I'm not sure it's in our regulations to prevent something from being completed even within thirty days or so - because we talk about a five-month timeframe here - but there have to be some other impediments. I think it's provincial law you're talking about, not necessarily federal law.
Mr. T. Payne: No, our experience is that the problem with the creation of these things has not been in the provinces. It's been in the federal working of the departments.
Mr. Fontana: Of course that was in the old days. Bill C-101 is trying to take away all those things that existed for 100 or 125 years. That's the whole purpose behind this new bill. We think five months is reasonable. If you can do it a heck of a lot sooner, of course....
Secondly, you talked about jurisdictional problems; and I don't understand, because you didn't finish it off. There's no doubt - and the minister is meeting with his provincial counterparts today and tomorrow - that there probably will be some discussions about Bill 101. The fact is that as we create this new regulatory environment in the creation of short lines - and we believe an awful lot of short lines are going to be created throughout the country - they're going to have to bring their legislative house in order too, and put in place those necessary regulations to deal with short lines, which are under provincial jurisdiction.
So when you talked about jurisdictional problems, what are you talking about?
Mr. T. Payne: Here are two issues, one on your conveyances. The problem is not the purchase. You can negotiate a price. You can pay your money for it. How are you going to get paid to operate it?
I see nothing in this bill that allows me to get a division of freight rate. That's going to be where the rubber hits the road. As a provincial carrier, I do not have jurisdiction under this bill to apply to the agency if I can't make a commercial deal.
The railways are very commercial. They will take the position, look, why should we pay you a division when if we abandon this track, in some cases, that traffic's going to come to us anyway and we don't have to pay you anything; the track can go abandoned, and be abandoned, and the traffic's going to come to our main track, and then we don't have to give you a division.
But let's say it's in the public interest to have a line maintained. The local communities want it. The shippers want it. The provincial government wants it. Nothing in this bill....
I can't get that jurisdictionally -
Mr. Fontana: You may be right again. That's why I say there's going to have to be some harmonization...not unless you want to consider yourself a shipper; and I'm not sure whether you can define yourself as a shipper and hence apply to the CTA as a shipper. I don't know.
Mr. T. Payne: We tried that and got turned down by the Federal Court of Appeal.
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Mr. Fontana: I think you're probably one of the pioneers in terms of short lines, and it would seem to me that the main railroads want to create short lines. I think they also need feeder companies to bring the product to their main lines because they can't do it with regard to the short line. So there's a good partnership there.
You were successful in convincing our government to give you the 10¢; I think you deserved it and that's why you got it. But from what I understand regarding negotiations on sale or rate, a lot of these things are commercial in nature anyway. You don't need legislation or regulation to force two parties to come to the table. If in fact there is a problem and you don't have access, you're unique, you're provincially regulated. That's why I say there's going to be a need for some provincial regulations as they relate to issues between provincially and federally regulated railroads.
Mr. T. Payne: In the old Railway Act, the Board of Transport Commissioners and a provincial public utility board had the ability to make joint orders. That fell away in the 1960s and hasn't been updated. Maybe something like that is needed in here to allow this provincial-federal harmonization so that a joint order could be made by a provincial board and the federal agency to harmonize those kinds of things. We haven't found a problem with the harmonization or the operating provisions of the Railway Act, but there has to be some kind of a link between the two jurisdictions. I don't know what it is, but it needs to be forged.
The Chairman: There are just a couple of brief questions from Mr. Hoeppner and Mr. Nault.
Mr. Hoeppner: Thank you, Mr. Chairman.
Thanks for coming again, Mr. Payne. I was interested when I saw you had a tourist train on that part of your railway line. What are the sites, or is it just the matter of having a train ride?
Mr. T. Payne: People aren't out there for transportation. The train doesn't go faster than the bees and birds that fly by it. People are going out for a railway and a tourism experience.
For the communities along the line, it has been an economic godsend. You take 450 people off that train and drop them into a community like Big Valley, with a population of 250, of which half are cats and dogs, and people spend a lot of money. Air conditioning on the train is open windows. It gets warm down by Drumheller in the summertime, and the recipe when you get to Big Valley is to head for the pub.
We have created wealth in those communities. Businesses have started, taxes are being paid, and a lot of people ride that train and have a lot of fun. You can go get robbed on the train.
Mr. Hoeppner: That brings my next question up for you. Have you ever been to Churchill on the train?
Mr. T. Payne: I have never been to Churchill on the train.
Mr. Hoeppner: Oh gosh, I was hoping you had, because I see tremendous opportunities there. I took that trip last year.
The Chairman: Jake's the only one, by the way.
Mr. Hoeppner: Why wouldn't you be interested in buying that line to Churchill, Mr. Payne? Or would you?
Mr. T. Payne: The muskeg question is an issue, but I believe that can be overcome.
I visited the Alaska State Railway. The Alaska State Railway between Denali, where there is a coal mine, and Fairbanks is running full tonnage cars at 40 miles an hour on coal trains twice or three times a day on permafrost that makes Churchill look sick. They have much worse conditions and they're running passenger trains at 50 miles an hour and coal trains at 30 and 40 miles an hour. It can be done.
You have to change the standards of how you treat that line to be able to make those changes. We're not running the railway. Whether that remains open is a public policy question.
Mr. Hoeppner: That's very interesting. It's very important to northern Manitoba. I wish I could encourage you to take a trip up there and give us some insight into what you thought should be happening. You need a holiday once in a while, so I would suggest that.
Mr. T. Payne: I have to make sure this legislation keeps my 10¢ and I remain on my feet.
Mr. Hoeppner: Thanks very much.
The Chairman: We'll do our best, and in the meantime we thank you for your submission to the committee. As I said earlier, you've enlightened us on the work of the CWR.
I also want to thank you for your kind offer. I know that members of this committee were offered to come up and experience your railroad.
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Mr. Nault (Kenora - Rainy River): And stop at the pub.
The Chairman: And stop at the pub. Maybe a few of us took the opportunity. We thank you for that experience as well.
Mr. T. Payne: Thank you.
The Chairman: We appreciate your having answered our questions.
We now welcome to the table Doug Smith, president of the Chamber of Maritime Commerce.
Welcome back, Mr. Smith and Mr. Campbell. We look forward to your submission.
Mr. Jim Campbell (General Manager, Chamber of Maritime Commerce): Thank you very much, Mr. Chair. Once again, the Chamber of Maritime Commerce has the pleasure of appearing before this committee to discuss a matter that is of importance to our many members.
I find it interesting that we're in between four railroads. It's a little bit like a pigeon amongst the cats, but we should prevail.
I have with me Doug Smith. He's the president of the chamber. Doug is the former vice-president of Ontario Hydro, whose responsibilities were the fuel supply and transportation arrangements for the Ontario Hydro corporation.
We'll try to keep our comments brief so that we can help the committee get back on schedule and we can all break to attend to more important matters across the country in the next few days. So I give you Mr. Doug Smith.
Mr. Doug Smith (President, Chamber of Maritime Commerce): Thank you for taking the time to let the chamber speak with you this morning.
We have a new team at the chamber. You probably don't recognize us. Different people were here the last time you had presentations from the Chamber of Maritime Commerce.
The chamber represents over 100 companies that utilize marine transportation or provide service within the marine sector. Economic transportation is critical to their competitive strength. But they are also intimately connected to rail as a means of transport to the marine mode and, in some cases, as a competitive alternative to the marine mode.
Most shippers of bulk commodities must use rail to get their product to a port for further transport, and many receive goods and raw materials by water and rail. Our members embrace major economic sectors such as steel, iron ore, salt, grain, potash, cement, power generation, and of course ports and carriers.
We understand that the committee has received numerous briefs and interventions with respect to this bill. We also understand that many of the concerns expressed are similar. At the risk of being repetitive, some of the things we shall say today will sound familiar.
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Before getting right into our brief, we would like to emphasize three points. First, we do represent the concerns of major shippers, ports, and carriers who are very experienced in their dealings with Canadian railroads and the issues raised by this bill. Second, the commonality of the issues raised by the chamber and other groups should alert the committee to the seriousness and validity of these concerns...rather than being seen as repetitive, trivial, or, even worse, frivolous or vexatious. Third, the existing legislation of the NTA act of 1987 has worked very well for shippers in achieving competitive rates.
Very briefly let me say, though, that the chamber supports the overall direction of Bill C-101, its intent, and the majority of its content. We think it is important that the railroads become more viable and competitive. We understand potential annual savings of $260 million can be achieved, and there are other opportunities for even larger savings.
The chamber is primarily concerned with three clauses of the bill that we feel can be addressed without significantly diminishing the overall direction or effect of the bill. The essence of our concerns lies in, first, ensuring mechanisms exist for shippers to receive rates that allow them to be competitive and allow them to receive the benefits of railway cost reductions; second, that third parties not be restricted from opposing unfair competition; and third, that reduced regulation is not at the expense of increased regulatory complexity or reduced access by users. The clauses and subclauses we are concerned about are 27(2), 34(1), and 113.
Let me deal with subclause 27(2) first. I don't need to read it. I know you've heard time after time what's in that subclause.
In essence, this subclause accomplishes for the railroads the effect of reduced regulation. However, like beauty and fairness, it's in the eye of the beholder. It's being accomplished by reducing access to regulation by shippers and third parties; and worse, increasing the regulatory involvement for them by having the regulator decide whether they have a right to federal agency review at all.
In capsule form, our objections related to subclause 27(2) are these. First, it is inconsistent with the minister's assurance that the NTA of 1987 provisions designed to improve the bargaining power of shippers are preserved in Bill C-101. Second, it adds to the costly burden of regulation by introducing unnecessary regulatory intervention. Third, it introduces a new barrier to, and thereby limits shipper access to, important captive-shipper provisions. Fourth, it restricts the opportunity for third-party or public access to the appeals process within the Canadian Transport Agency. Fifth, it constitutes the reintroduction of regulatory involvement in private rate disputes between shippers and carriers. Finally, sixth, it represents a return to a discarded regulatory approach of the past by introducing a legislative precondition.
The CMC supports competition and a competitive business environment. But we would ask the committee to consider that in Canada with rail service we do not have an open market or anything like an efficient competition situation. That is because many shippers, and in particular large-volume or bulk shippers, have no realistic economic option but to use rail and often have access to only one carrier. Market prices for transportation are defined by the railroad, whereas the market price for shippers' product is well defined in another marketplace and does not take into account the shipper's transportation cost.
A test to prove significant prejudice is extreme. Many market conditions can affect the competitiveness of a shipper and his business strength. Those should be enough reason to seek an appropriate rate.
The United States is often raised as an example of a deregulated rail environment. However, the committee should be aware - I know you've heard this before - that it's quite distinctly different in Canada from in the United States. U.S. shippers have more options for alternative transportation and numbers of rail servers than in Canada, a well as shorter distances, and they're much less reliant on the export market for their prosperity. In addition, running rights have been provided where competition is otherwise limited.
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Railroads in Canada have been less profitable than desired. However, this is not because of rates charged to large and/or bulk shippers. For years this sector has contributed to the railway's ability to sustain losses in serving other sectors. Rail annual reports have consistently attributed annual increases or decreases in their profits to volume fluctuations in major commodities such as grain, steel, coal, sulphur, automobiles, etc.
Our members want to see cost reductions in the railways passed on in rates to enhance their competitive position. However, by restricting their rights to agency review or arbitration, shippers will have no means of ensuring this takes place. Further, by restricting access, they fear the opposite will take place: rates will increase unnecessarily.
The chamber is in a unique position. I now have to argue the other side of the coin.
Removal of third-party rights to apply for a review of rail rights is a major change. Further, this act does not set minimum rate requirements for railroads. This leaves the railroads free to establish predatory rates with impunity. Our carriers and port members have experienced such practices before - and I know Mr. Hall gave you a long discourse on that yesterday - but were able to seek review and potential correction. This should not be denied in the new bill.
``The changes suggested in Bill C-101 related to subclause 27(2) are justified by less regulatory cost and time'', etc. I believe this premise is flawed. In fact, existing rights to agency review or arbitration have been used judiciously and sparingly, so the reduced regulatory benefit that would occur by introducing or reducing access is a fictitious benefit.
The original legislation provided shippers with the lever of regulation to improve their bargaining power when negotiating rates without requiring the intervention of a regulatory body, and a vast majority of rates have been settled by negotiation, not by appeal to an agency.
I'd like to turn to subclause 34(1) now. As you know, it provides for the agency to assess costs to proponents if a shipper's appeal to regulatory review is frivolous or vexatious. This is a further deterrent to shippers' use of regulatory review. Not only do they incur their own significant costs for undertaking a rate challenge, but they're exposed to additional costs under poorly defined and judgmental conditions.
In addition, the subclause is redundant, given the need to obtain agency approval under subclause 27(2) to even get to a review. Surely the agency would not proceed on a frivolous case.
We respectfully submit that the subclause is unnecessary with subclause 27(2), and quite frankly unnecessary without it. There is no evidence to suggest that shippers have abused existing rights to agency review.
Our last comments are on clause 113, which states:
- A rate or condition of service established by the Agency under this Division must be
commercially fair and reasonable.
It should be noted that in the past railways were required to set rates to at least recover minimal cost, the long-term variable cost. They are no longer required to do so in this act. However, interestingly enough, the act forbids the agency to set rates under agency review that are below those minimal costs, those compensatory costs.
So they have it both ways. They're protected but they don't have to use it. They can set rates any way they want without review by third parties.
This clause must be clarified. A minimum rate provision should be retained, and the test to apply to a dispute on high rates should consider market conditions, competition and railway costs.
Let me summarize by saying the chamber does support the majority of Bill C-101. We welcome it. We hope it will lead to reduced costs for shippers and a more competitive environment. But we do ask for subclauses 27(2) and 34(1) to be eliminated. We believe clause 113 should be strengthened and clarified.
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Thank you.
The Chairman: Thank you, Mr. Smith, for your submission to the committee.
Mr. Chatters, did you have any questions?
Mr. Chatters: No, I can't think of anything.
The Chairman: Mr. Fontana?
Mr. Fontana: Thank you very much for your presentation.
What if we were to start regulating your rates? How would you like it as a marine sector?
Sometimes I find it incredible that in a free enterprise, free market system, which everybody proposes to support, everybody says, ``Don't regulate me, but regulate everybody else''. So what if we were to impose the same regulation on the marine sector as you are asking us to do on the railway section?
I know you tried to argue both sides of the coin. Well, I'm sorry, but you can't argue the shippers and the carriers point and hopefully come out the same. I have to ask you this fundamental philosophical question.
Mr. D. Smith: I think the marine sector operates in a perfectly competitive world. There are lots of alternatives. If there was regulation, it wouldn't be a factor.
In my view, if there's real competition, then there won't be any agency appeals. If there's real competition, then you will get an appropriate freight rate, either from the railroad or from the alternative means of transportation. In this country there is not real competition for this service, and that's why you need the back-up.
The existing legislation has worked very well. There have been very few appeals. Parties have sorted out their differences. The railways aren't crying poor. They might be, but they don't have to accept the settlements that they've made over and over again on these rates.
Mr. Fontana: But, Mr. Smith, you can't argue that the rates are too high and then start talking about minimum rates because you're afraid of competition in terms of predatory pricing by the railroads. You can't have it both ways.
Mr. D. Smith: They're having it both ways. They are capable of having it both ways.
Mr. Fontana: You haven't answered my question. Would you like us to regulate your rates?
Mr. D. Smith: I don't think we want regulation of the marine sector, but I don't think it would have any effect, because there's open competition in the marine sector and no one would need to appeal to that regulatory review. They would have more competitive alternatives than they would ever need.
Mr. Fontana: May I address your questions or concerns with regard to subclause 27(2). Don't you think it would be reasonable and responsible for any agency, court, or what have you, in determining the remedy, to take on an application to come to the agency, on level of service or rate of service, to be able to look at the merit of the case to determine what the remedy should be on an individual-case basis?
Therefore, when you argue that subclause 27(2) denies access - which is wrong - that subclause 27(2) is completely a blanket without looking at the individual case that a person would bring to the agency....
I'm having a hard time in understanding where quasi-judicial bodies that exist now.... You're absolutely right: nobody has gone before the agency before. What makes you think that because you put a further test on the remedy side, all of a sudden people are going to go to the agency?
Mr. D. Smith: I'm sorry; I think what we say is that they won't go to the agency.
Mr. Fontana: But they're not going now.
Mr. D. Smith: We don't interpret it as being on the remedy side. We see it as a test that you have to pass before they'll even look at your case, and we don't think that's appropriate.
Mr. Fontana: That's not what the legislation says.
Mr. D. Smith: It also goes on and talks about it being significantly prejudicial. I'd like to address that. Significant prejudice could be termed ``go out of business''. That's not what we're talking about.
A railway can set a rate. Let's say that its costs are $20, but it has freedom to set that rate or try to set that rate for anything that it can get above $20. That might mean $40 or it might mean $27 or $25. If I'm a shipper, I can't sell my product if it's $40. I might be able to sell it if it's $27.
Prejudice is a real issue to me. I need to get an appropriate rate.
I won't go out of business this year because of that. But I will lose business. Ten years later, I might be out of business.
The test of significant prejudice sounds to me like a very Draconian test: ``Are you going to fail and go out of business and go bankrupt? If not, then we're not going to hear the case''. We think it should be -
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Mr. Fontana: And your clients never tell you you charge too much in the shipping industry?
Mr. D. Smith: Sure they do; and then they negotiate with other shippers.
Mr. Fontana: Can I ask you, then, is it unreasonable that an agency be given some direction on rates or level of service and the requirement be set as ``commercially fair and reasonable''? What is wrong with ``commercially fair and reasonable''? And if you have a problem with those terms, why don't you tell me a better term, or how subclause 27(2) can be improved. Rather than just saying we ought to throw it out, help us design a clause that might be a lot more helpful than essentially just saying -
Mr. D. Smith: I did try to address that. That's clause 113, not subclause 27(2).
I didn't suggest wording. What I did suggest was that rather than ``fair and reasonable'', it should be broadened to consider...and some of the things I would see as factors to be considered are the competitive situation - the market situation of the shipper - and railway costs. Your previous submission talked about railway costs as being the determinant that would set the rate. What about the market condition? What about the competition from Australia, or South Africa or wherever? I'm just saying ``fair and reasonable'' sounds too broad, too vague, but things such as ``competitive position in the marketplace'' make some sense.
Mrs. Wayne: Mr. Smith, do you work in conjunction with the Atlantic Provinces Chamber of Commerce?
Mr. D. Smith: No, we don't.
Mrs. Wayne: You don't. You're separate and independent.
Mr. D. Smith: Yes.
Mrs. Wayne: And how long have you been in place in the Maritimes?
Mr. D. Smith: The chamber has existed -
An hon. member: Off and on.
Mr. D. Smith: Off and on is the correct response. It's an organization that's been around for some thirty years, I believe. It's been ineffective at times - very small at times. As of the moment, because we're quite concerned with and interested in the issue of marine reform, have been active in that, it's very active. We have a hundred member organizations.
Mrs. Wayne: The reason I ask that question is I'm very aware of and conversant with the Atlantic Provinces Chamber of Commerce, and when I looked at yours I just wondered if you were working hand in glove with each other.
Mr. Fontana asked you about the possibility of rewording subclause 27(2) or 34(1). We've had many people before us who have asked that it be eliminated totally, as you have. If it were perhaps reworded so perhaps it spells out exactly and defines exactly what Bill C-101 would mean by ``significant prejudice'' and ``frivolous and vexatious'' and so on, do you feel it could be defined in such a manner as to eliminate the concerns of the shippers?
Mr. D. Smith: I believe it could be. I firmly believe the clause is unnecessary, because there hasn't been abuse of the privilege of having regulatory review. At the moment it just sets up another barrier. That's all.
Mrs. Wayne: You don't have any wording at this time, a change in the wording that would suffice for what the shippers would like to see? Have you given any thought to that at all?
The Chairman: They want it out.
Mr. D. Smith: I haven't thought of the words, no.
The Chairman: Speaking of wanting it out...suggestions have been put to groups before you, and maybe they have filtered down to you, that given your response already to clauses 27, 34, and 113, if they were to be eliminated...the suggestion that's been floated is that if they're removed, and to create a balance the shippers' provisions are also removed, leaving final-offer arbitration, or FOA, to be the determinant in case there's a dispute between the shipper and the railroad.... Do you see that as an option?
Mr. D. Smith: Yes, I think it's a very effective option.
I'd like to qualify the comment by saying my understanding is that today it is available only to those people who are deemed to be captive shippers, and that's defined in physical terms as much as anything. I believe many people have no option but to use rail even if it's not physically limiting. It's an economic issue. As I said about this, there is a broad range of what a railway can charge for a service, and there needs to be a mechanism to narrow down what that rate is for a shipper, whether he is eligible under the captive-shipper provision for that review or not. But I think final offer is a good solution that has worked.
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Mr. Chatters: I have a short question. You talk about a level playing field and your concerns about predatory rates and minimum rates, and Mr. Fontana's suggestion about how you would feel about regulation. Don't these ships operating in Canada under the so-called flags of convenience to avoid a repressive Canadian tax regime not give you a substantial advantage? How would you feel about that provision perhaps being regulated out?
Mr. D. Smith: One of our members is foreign-flagged.
Mr. Chatters: I saw a familiar name on yesterday's letterhead.
Mr. D. Smith: Other members are Canadian-flag vessels, so it's a different situation. I don't think we could take a position that would represent the views of all our members on that one.
Mr. Chatters: That's a slippery answer.
Mr. D. Smith: I'm sorry. I don't mean to be slippery. Obviously I mentioned the difficulty we have in arguing for the right -
The Chairman: Now you understand why the Chamber of Maritime Commerce is a kind of on-again, off-again organization.
Are there any other questions, colleagues?
Mrs. Sheridan (Saskatoon - Humboldt): I don't know if we're going to ask the same thing, Mr. Nault, so you may still want to hold your place.
I have to say at the outset I disagree with your interpretation of subclause 27(2) acting as a bar, as some kind of new threshold that would deny access. I do feel, however, it changes the possibility of the remedy you might grant it at the end of the day.
Yours is the first submission I can remember - and I've been here for most of these hearings - that actually makes reference to the second part of the significant prejudice phrase, and that is ``if the relief sought were not otherwise available''. I direct your attention specifically to ``not otherwise available''.
Since you are in this unique position, I would like you to comment a little further on how you feel that ``not otherwise available'' reflects back on ``significant prejudice'' and what it does to the definition itself, if you're able to do that.
Mr. D. Smith: I'll try. Jim, you may have some comments on this as well.
The reason you're there at the agency is because there is no other way of getting relief. You can't get an appropriate negotiated rate. Presumably the shipper wouldn't have had access to the final-offer arbitration approach to get those rates.
Mrs. Sheridan: Why would that be?
Mr. D. Smith: I may be misinterpreting this, but I didn't believe that provision was available to every shipper, nor is it available under the act to third parties. There are two sides to this issue. We have third parties, our marine industry, that are concerned about low rates as well. We have no mechanism to go in and challenge a rail rate that has been set to take away business from that mode.
Mrs. Sheridan: From a practical point of view, I don't see why final-offer arbitration wouldn't be available to any shipper. I not so sure about third parties, but as I read it, it is.
Mr. D. Smith: So we've been reading this as a precondition to even getting to final-offer arbitration. I know you've had discussions about that. I don't know how many submissions you've had, but you've had a lot of people concerned about this clause. Many of us, obviously, are interpreting it as a barrier, so clarifying it would help.
I think significant prejudice is a problem, though, as I tried to describe. I think it can be interpreted as dropping off a cliff, and I don't think you should have to prove that in order to get some relief. We are concerned about the elimination of any third-party access to those situations, which we know the railways have done before, where they set rates below their costs.
Mr. Nault: I just want to ask this question. I'm having a really tough time with this whole process of wanting to define ``significant prejudice'' because, under the old act as well, for captive shippers there was no definition as to when you went to the agency for some sort of relief. The agency went and made a ruling based on good common sense as to whether in fact there was a significant and acceptable argument by the shipper, and either the rates were rolled back or service was improved or something of that nature.
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Now, on this issue you're saying we had better define this if we're going to have it there, so let me give you an example of why I think that's very dangerous from your perspective, and why I'm questioning the fact that people are asking us to do that. In that, it could be classified that one particular shipper raising the rates from 10% to 12% wouldn't be significant. Therefore it would then be acceptable and the agency could say you don't have a case because raising the rates 2% is not that big a deal, but a 2% raise for another shipper could put them out of business -
Mr. D. Smith: That's right.
Mr. Nault: - put them under. So how do you expect us to define this in that case? You make it sound in your brief as if we have a bunch of bureaucrats making this decision. I thought this was a quasi-judicial panel with some expertise on it and that's why you had faith in it, and that when you went to them it was because you would accept their ruling.
Now, if you are telling us the reverse, that these people are just nothing but a bunch of bureaucrats who always rule in favour of the railroads, then maybe we should just scrap it and go to final-offer arbitration, period.
Those are the two parts to the question. Why would you want us to define something like that when we didn't define it in the previous bill? Basically you had some sort of impediment. You had to be a shipper who was captive. That's a definition of its own.
Mr. D. Smith: I may have said this, but I don't believe I did. I don't think I asked for it to be redefined; I asked for it to be eliminated. I was asked whether I could redefine it, and I suggested that if I thought about it long enough and hard enough I might be able to do it.
What I do think we asked for is elimination. I think the words set up a thought process that means it has to be something Draconian or we're not going to do it, and a 2% change wouldn't be judged as that, although I agree with you entirely. That's our point. It's perfectly valid for a shipper facing a 2% increase in rates who would lose his market to bring a case forward and ask for relief. It may not be seen as significantly prejudicial, but in his view it would be and it's a valid reason to ask for a review in a situation where you do not have true competitive alternatives.
Mr. Nault: And that's my point. That's where the agency would rule in favour of that shipper if it were significant prejudice because 2% would cause harm in that particular company, but on the other hand 2% for someone else, a shipper somewhere else in the country, may be acceptable. Obviously the railways, if treated like an industry and like a business, have a right to jack up their fees to make a profit. Don't you think so? Their costs are going up just like yours and everybody else's.
Mr. D. Smith: Actually, their costs are going to go down.
Mr. Nault: Are they?
Mr. D. Smith: That's what we've been told. Our position is you don't need the test.
Mr. Nault: ...get rid of every employee -
Mr. D. Smith: Review it and make the decision. This looks like a test you have to pass before you can get into the fray.
Mr. Nault: Thank you.
The Chairman: Gentlemen, thank you very much for your submission to the committee. Thanks for answering our questions.
Mr. D. Smith: Thank you very much.
The Chairman: We invite the Quebec North Shore & Labrador Railway representatives to the table, please.
Colleagues, we welcome Derek Rance, president of the Quebec North Shore & Labrador Railway.
Welcome, sir. Could you introduce the gentlemen you've brought with you and give us your executive summary of your submission, which you submitted to us earlier, in under fifteen minutes so we can have time to ask you questions? Thank you, sir.
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Mr. Derek Rance (President, Quebec North Shore & Labrador Railway): I'd like to introduce Marc Duclos, the general manager of the Quebec North Shore Railroad, and Jean Bazin, the attorney who has helped us with this submission.
Thank you for inviting the QNS&L representatives to this hearing and for giving us an opportunity to answer your questions. We have already filed our brief with the committee and I imagine you've had time to review it, so it is not my intention to go through this in detail. I would prefer to answer any questions you may have.
There are a few points in the brief that I would, however, like to highlight.
From our perspective, Bill C-101 was drafted with the two main carriers, CNR and CPR, as the main focus. Contrary to this, the QNS&L is a railroad that was constructed to be a carrier of iron ore. The QNS&L has built and paid for its own railroad.
The QNS&L, unlike the railroad of its main competitor, Quebec Cartier Mining, is forced to provide passenger and freight service because of a federal charter we are placed under.
As well, since the filing of our brief, two important events have occurred, which I would now like to review with you.
First, as you may know, the QNS&L has been subject to a very recent decision of the National Transportation Agency that effectively forces the QNS&L to continue operating its passenger service regardless of the fact that the NTA has determined this service to be uneconomic and likely to remain so.
As demonstrated at the agency, the QNS&L's passenger train service has been operating at a loss, against its will, for the past ten years, in the name of public interest. Decisions and orders in 1985, 1990 and most recently in September 1995 have all testified to the QNS&L's continuous loss-generating position for the service. On this subject I may mention that negotiations for a support agreement with the federal government are now ongoing.
Second, a recent arbitration decision was rendered that was most unfavourable to the QNS&L. The arbitration ruling of the Hon. R.E. Holland on August 30, 1995, has underscored the importance of making changes in Bill C-101's final-arbitration provisions.
At issue was the dispute of the 1995 rates charged by the QNS&L to Wabush Mines for the transportation by the QNS&L of Wabush's iron ore from Ross Bay Junction to Arnaud Junction, a distance of some 216 miles. Wabush and QNS&L both submitted final-offer rates. Wabush's rate was ultimately accepted by the arbitrator, who in our opinion did not give full consideration to the necessity of providing for an adequate return on investment, which any carrier should be allowed.
We found a major detriment to the present arbitration process was the inability to provide the arbitrator with adequate information on comparable shipping rates that are ``commercially fair and reasonable'', to quote the act. These rates do exist primarily as private contracts and therefore cannot be divulged during the arbitration process, even though they are generally known by the industry.
The new Canada transportation act, Bill C-101, offers the possibility of addressing such issues in a more equitable fashion in the years to come. It is our firm belief that the process leading to arbitration should only be invoked as a result of a shipper proving it has suffered substantial impairment in its ability to operate or to compete. Alternatively, arbitration could be invoked should a shipper claim it must cease its shipping operations following the imposition by the carrier of an excessively high rate.
The current reading of Bill C-101 does not incorporate any such onus. Rather, it allows any shipper who is dissatisfied with the rate or the proposed rate to submit the matter for final arbitration under subclause 161(1). Such a situation really creates a no-lose option for any shipper. At the very worst, even with an unfavourable arbitration decision, the only penalty imposed on the shipper is the continuance of the rate already being charged.
It is the QNS&L's contention that market forces should be allowed to determine rates between captive shippers and captive carriers. It goes without saying that any carrier that establishes outrageous rates will put a captive shipper out of business, which would result in the reduction of the carrier's own business to a significant degree. We submit there are sufficient compelling commercial checks and balances present in this aspect alone that would allow agreement to be reached even in the absence of government intervention.
However, in the event of an impasse, the QNS&L sees great merit in establishing by statute a mediation process after the first three months of negotiations. This is not currently set out in Bill C-101 but could easily be placed inside the bill's current framework.
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A mediator would be chosen by the parties and would ideally be knowledgeable in railroad and financial matters.
Should the mediation process fail after a three-month period, QNS&L sees arbitration, preferably in the form of a three-man board, as an ultimate decision. The decision of such an arbitration panel would be based on economic and market factors.
As well, any ruling on the proper rate on a final-offer basis should take into consideration the risk incurred by the carrier and the necessity of allowing for a reasonable rate of return on the investment that has been made.
Under Bill C-101's current provisions, under subclause 164(2), the arbitrator is not required to give due consideration to either of these two factors.
Finally, it is QNS&L's submission that the losing party should bear the cost not only of the arbitration but also of mediation. This would, we believe, help enforce the potential economic penalties. This would not only prevent trivial cases but also strongly encourage the parties to enter into serious negotiations if they wish to avoid incurring the risk of serious additional financial penalties through the loss of an arbitration case.
As a result of the system that is currently in place, a railway could be forced to continue operating a loss-generating service following an arbitration decision. QNS&L urges this committee to provide for a minimum rate that would ensure that no carrier incurs a loss in providing services for a shipper.
In its provisions governing running rights and joint trackage under clause 138, Bill C-101 also fails to recognize that in our case a considerable amount of private capital investment was used to create the railroad line. Bill C-101 would permit open access to a privately owned railroad such as the QNS&L for any federally regulated railroad company seeking to use the track, regardless of the size of the new company.
Considering the heavy usage of our line - it is the heaviest usage in Canada on a tonnage-mile basis - which is principally single-track, such access has the potential to cause unmanageable delays and congestion, as well as a commensurate safety hazard.
It is the QNS&L's submission that Bill C-101 should provide greater direction to the NTA when it uses the discretion conferred by subclause 138(2).
In comparing the situation for expropriation, the NTA should be in a position to award proper compensation.
In order to prevent access, the QNS&L also contends that no running rights should be granted when the proposed traffic to be hauled represents less than the threshold volume of the overall traffic on a per-tonne-kilometre basis. This threshold volume could be set by regulation, and we would suggest a threshold volume of 5% of the present overall traffic.
Furthermore, flat-rate charges to help defray the capital investment made by the railroad builder should be permitted. Rental rates should also be provided for, in order to take into account not only the upkeep of the railroad but also reasonable profit, which would be subject to negotiations between the parties.
After reviewing Bill C-101, the QNS&L fully supports, as is, the equity espoused by the bill's proposed scheme for transferring and discontinuing operation of railroad lines, assuming that the same principle applies to the discontinuation of services.
It is the QNS&L's opinion that the changes detailed above, if incorporated into the new Canada Transportation Act, would create far greater fairness and equity for the Canadian railway transportation industry.
These comments, together with our brief, constitute the submission the QNS&L wishes to make to this committee. I shall be glad to answer any questions
The Chairman: Thank you very much, Mr. Rance, for your submission to the committee.
We'll go right to questions. Mr. Chatters.
Mr. Chatters: I'm a bit confused about exactly how you're operating. Are you a provincial short-line railway?
Mr. Rance: We are a federal long-line railroad. We operate between Newfoundland and Quebec.
Mr. Chatters: Because of the interprovincial thing. Okay, that does answer some....
And through regulation, others are being allowed running rights on the particular rail line that you own and built?
Mr. Rance: No, we don't have running rights on the railroad at present, but this could in fact happen in the future.
Mr. Chatters: And you're opposed to that?
Mr. Rance: We're opposed to that, yes.
Mr. Fontana: I thank you very much for at least putting forward some positive alternatives that we can look forward to, unlike some people who just like to come to bitch, complain, and say just throw things out, and that the status quo should remain. We're trying to build a new infrastructure here so that everybody will benefit by new transportation.
With respect to FOA - and of course you have firsthand experience under an old system - you suggest that the new system we have here is probably not going to be workable, if you were to use your own example, and you've really asked for a mediation-arbitration sort of system.
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At the end of the day, if mediation fails, then it's going to be left to the arbitrator to determine a final offer. I know it's a pretty blunt instrument. You have indicated in your recent decision the arbitrator couldn't, because he has to pick one or the other; you can't massage one or the other to get to the middle, which sometimes is preferable.
I'm just trying to understand, though.... Logically, if you have a mediation period of, as you suggested, three months, and if at the end of three months nothing's happened, aren't you really left in the same place as where you were?
Mr. Rance: That is true.
Actually, I can suggest two differences. One is the mediation process. In a bargaining situation, where you're basically writing letters one to the other, you don't really do true face-to-face, hard-nosed bargaining, with somebody in the middle trying to act as a go-between. This is what mediation is.
We're saying this is a very important phase. It works well in labour relations. We hope therefore it will work well in this situation.
For arbitration we suggest a panel; and the reason we suggest a panel is that in our experience the honourable judge who viewed the arbitration case unfortunately was not an economic expert, nor was he a market expert, nor was he an expert on rate-setting. It was very obvious in his decision that he was wandering in this decision; and quite frankly it was a bad decision, from our standpoint. Obviously for the people who won it was a good decision.
Mr. Fontana: But that's why I think Bill C-101, if I were to apply your case and how subclause 27(2) helps you, with ``significant prejudice''.... I think you indicated that would be helpful. A shipper essentially couldn't determine on a remedy based on having to prove significant prejudice and so on. That's why the ``vexatious''.... Those additional protections are in there to allow for that kind of dialogue - ``fair and reasonable commercial rates'' also. It's so the NTA, with a body of expertise, can determine it, as opposed to an arbitrator, who may not.
Don't you think, though, our system...? I know some people have suggested it should be a double-blind FOA. Perhaps the fact that you're given an opportunity to take a look at that final offer made by the shipper and therefore are able to respond to it.... I know the shippers don't like that, but does that present a possible solution to your problem?
I like the mediation idea. It's a matter of looking at it a little further. I'm just trying to -
Mr. Rance: To my mind the problem we ran into with arbitration.... The reason I like the concept of mediation is that we weren't allowed in arbitration, because it's a quasi-legal process, to bring up, for example, competitive rates we knew existed. We know the rates. We knew railroad X was charging this much, railroad Y was charging this much, for the same commodity. We could not put that into evidence. In a mediation process you could do that, because it is not the same quasi-legal system as arbitration is.
Mr. Fontana: I want to ask you finally about the passenger rail stuff, because that's an important matter. We will obviously look at it in maybe even more detail when we get to the passenger rail services down the road. I think the minister has clarified that while this bill may eliminate the subsidy, in fact there are provisions in this new bill that allow him to make those payments for the subsidy.
There are two things. Obviously it's not a business you want to be in, because you're losing money and you're not going to stay in unless somebody can guarantee that subsidy is paid. Right?
Mr. Rance: Right.
Mr. Fontana: What do you think the other alternatives are for you with this bill, in terms of making sure passenger rail service is available to those people? Is there a possibility of a provincial short line, as an example, existing - a separate passenger service spun off? I'm just looking at ideas on where you're coming from.
Mr. Rance: What's happening right now is we are negotiating with the minister, the Hon. Douglas Young, to pay the QNS&L to provide that service over a period. We have gone a substantial way down the road on that, and quite frankly we think that works. Of course obviously this is in accord with the spirit of Bill C-101. Provided something is deemed to be in the public interest and the carrier is not forced to make a loss on that, we are quite satisfied with continuing to provide that service.
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The Chairman: Thanks, Joe.
Elsie.
Mrs. Wayne: I have a point of order, Mr. Chairman.
I know you are busy, but I don't believe those who came before this body here were bitching and complaining, as the parliamentary secretary said. I think it's the democratic process that if they have concerns, they can come and make them to you.
First and foremost, I'd like to ask you, with regard to the rail passenger service, what population does that rail passenger service serve?
Mr. Rance: The Labrador city of Wabush has a population base of about 15,000 people, and Schefferville has a population base of about 800.
Mrs. Wayne: So as far as you're concerned, subclauses 27(2) and 34(1) should be in the bill. You are in favour of them remaining there and not being clarified. There is no need for rewording or clarification whatsoever.
Mr. Rance: We have said that under subclause 27(2), we're a little concerned about whether this grants a transportation rate or precludes the use of final-offer arbitration. In other words, who is going to provide that if this falls to pieces? Is there any process beyond that which would enable some sort of solution to be reached?
Also, we would like to see what sort of guidelines are to be used by the NTA. We're a bit concerned under subclause 27(2). It doesn't really specify what set of guidelines should be used by the NTA.
Mrs. Wayne: Thank you.
The Chairman: Mr. Nault.
Mr. Nault: I just want to follow up on Mr. Fontana's remark as it relates to this mediation process. What's stopping the two parties from having their own mediation process privately before you go to the final-offer arbitration mechanism? We know there are private mediation companies available out there to get both sides to sit down and work out their differences. What makes you think we have to have this built into a government piece of legislation when in fact you could do that on your own?
Mr. Rance: There's no question that could be done, provided both parties are willing. It does take two parties to agree to this. Arbitration is simple; one party simply serves the other party and says we're taking you to arbitration. That's why we believe it should be enshrined in the bill.
Mr. Nault: Are you suggesting, then, that it's not necessary that minister or someone have the ability to accept the argument of one party or the other that they should go to mediation? Right now under labour laws, you know that's not a necessity. The government could say we're not going to give you mediation; we've decided to let you go on your own.
But who would make that decision? It's not guaranteed that you'd go to mediation, but there is the possibility of going to mediation in some cases. How would you see that being done? This is obviously at arm's length here. The government just lays it down in legislation; the agency and the process of final-offer arbitration exist.
Mr. Rance: In labour relations law, somebody has to apply to the government for mediation services. Once the Department of Labour has said that you should use mediation services, then you will use mediation services. It is not something where the union and the company say let's go out and get a mediator. It's always an application by one party or the other to have mediation services.
Mr. Nault: So who do you think they should be applying to for mediation services?
Mr. Rance: I see the NTA providing the mediator in this particular case.
Mr. Nault: The problem with that whole process, of course, is that you have to have people who understand the industry. Do you have to have some professionalism and some people on staff, or do you see it being done similar to...? I'm just trying to find out where you get the expertise for that.
Mr. Rance: That's why I suggest the NTA. Quite frankly, I don't believe the expertise exists outside of the NTA. It may very well be that the NTA would contract with private consultants to provide their mediation services, but I do believe it should be through the auspices of the NTA.
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Mr. Nault: The last issue is the one dealing with passengers. We have, of course, had some other presentations by corporations that have made it very clear they don't want to run passengers. Could I be so bold as to suggest the reason why you lose money is because you don't want to be in the passenger business, and if you were more interested in it as a corporation you'd probably do a better job? Is there a better way of dealing with that?
I don't think it's fair, quite frankly, for the government or anybody else to force a private corporation to do something they don't want to do, especially when it relates to losing money. It doesn't seem to make a lot of good, common, economic sense to me.
But on the other hand, there is the necessity for governments to deal with the public interest. How do we deal with the public interest in this particular case, in the northland and other areas of the country? We want those passenger trains to stay there. We don't think, quite frankly.... I look at the numbers here from 1982-93, when we went from actual losses of $816,000 to $3.3 million. Is that all inflation, or are we just doing things a lot worse than we used to?
I'm speaking from a railroader's point of view because that's what I was in my past world. I know that a lot of times the companies were forced to do certain things by government decree that they didn't want to do. I can recall us running passenger trains on CP, and it wasn't exactly a high priority for CP either. It sat in the hole when it was useful, and away went the other trains because they were the ones making money.
Can I get some sort of explanation or idea from you? If you don't want to run it and we let somebody else run it, how do you propose we do that on your line?
Mr. Rance: I'll start off with the why of the continued losses and the why of the accelerated losses.
First, Schefferville shut down and the population basically declined. Our ridership almost went down 50% because of that. Second, a road was finally forced through as a result of various employee actions and, as a matter of fact, by Quebec [Inaudible - Editor] along the Fermont railroad. So there is now a road access out where there wasn't one before; and if people don't mind driving 400 terrifying miles over a dirt road, you can in fact drive out, and a lot of people take advantage of that.
In terms of whether or not we are running this, we have in fact put bud cars on rail diesel cars in order to reduce the cost of the service, to speed it up. We have advertised. We have encouraged tourist groups to use the service. Frankly, our biggest detriment is unfortunately our own union contracts. Under our union contracts, we have to have six people on a bud car, so you've got three people crammed into the cab of a single-unit rail diesel car. Our biggest problem has been our inability to negotiate those people out of the train. So quite frankly, those rail diesel cars are vastly over-manned. We are obviously trying to correct this. We will continue to try to negotiate our way down but we certainly are trying to reduce the cost of running that service. We won't run the service at a loss.
Secondly, we feel that unfortunately most of the people we serve are our own employees. It is therefore not to our benefit to disadvantage them, but of course the real problem is that in the long and the short of it, we do lose real money by operating that service.
Mr. Nault: Why does the government seem to think that your corporation should subsidize passenger service? Would it not be, in your mind at least, somewhat fair to expect the government to pay for it in a transparent fashion one way or the other if they want something done for the public interest and public good? Shouldn't they either have you run it or get somebody else who is more interested to run it, but in fact pay for the service? Why do they think governments in the past, whether they were Conservative or Liberal, seemed to think that private sector corporations should subsidize public interest policy?
Mr. Rance: I couldn't agree with you more. As a matter of fact, this is why we are negotiating with the government right now: to do just exactly that. They're going to contract us to run their service.
The Chairman: Gentlemen, just in conclusion, in the NTA 1987 there is a provision for mediation. How many times did you use it?
Mr. Rance: We didn't use it.
The Chairman: I'm going to say this because of your request for this particular provision in the new act: you'll never guess how many times it was used from 1987 until today.
Mr. Rance: I have no idea.
The Chairman: Once.
Mr. Rance: Maybe it is a not-too-well-known provision of the act.
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The Chairman: So we go to FOA, no problem.
Some hon. members: Oh, oh!
The Chairman: Gentlemen, thank you very much for your contribution and your submission to this committee.
Colleagues, we welcome here, from a host of companies - the Canadian American Railroad Company, the Bangor & Aroostook Railroad Company, The Windsor & Hantsport Railroad Company Limited, and Iron Road Railways Inc. - the Queen's counsel, George Cooper, a former member of Parliament. We welcome him back to the precincts of Parliament and look forward to his submission to this committee.
Welcome, sir.
Mr. George T.H. Cooper, Q.C. (Canadian American Railroad Company; Bangor & Aroostook Railroad Company; The Windsor & Hantsport Railway Company; Iron Road Railways Inc.): Thank you, Mr. Chair.
Members of the committee, I want to begin by congratulating the government for bringing forward Bill C-101. As has been mentioned by a number of the witnesses before the committee today, the bill goes a long way toward implementing market solutions to the problems faced by the transportation industries of the country, the railroad in particular. The companies I represent support this initiative in almost all respects. My submission today will talk about the one area where we feel some changes are needed.
I represent a company called Iron Road Railways Inc., which is a Washington, D.C.-based short-line railway holding company. It has four operating companies under its wing at the moment, having started in business about fifteen months ago.
The first acquisition was The Windsor & Hantsport Railway Company, which is a small provincially regulated short line in Nova Scotia. It constitutes all that's left of the old Dominion Atlantic Railway, which was a CP railway in Nova Scotia.
It also owns a company in the U.S. state of Iowa and called the Iowa Northern.
In January and March of this year, the company bought two railways with which we will be concerned today. One of them is the Bangor & Aroostook Railroad, which is a U.S. railway located wholly within the state of Maine, except where it does come across the bridge into northern New Brunswick. The other is the Canadian American Railroad Company, which operates part of the old CP line that used to go from Montreal to Saint John.
You heard earlier today from the representatives of the Irving companies. They own and operate the other part of that railway, that is the part from Brownville Junction, in central Maine, to Saint John. Canadian American owns and operates the line from Brownville Junction over to Lennoxville, Quebec, and thence by CP into Montreal.
So that is who I represent.
My purpose in being here today.... I had hoped I would be able to have a projector, but apparently the overhead projector is not available. However, if you will all turn to the last page of the submission that I have given to the committee, I would like to simply walk through the argument rather than deal with it point by point in the brief.
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The line from Brownville Junction to Lennoxville is the line I'm representing - the Canadian American. If you go from Lennoxville into Montreal, the red line is Canadian Pacific. If you backtrack to Brownville Junction, the green and red lines into Saint John across Maine into New Brunswick and down to Saint John are the Irving companies you heard from earlier today. Everything else in Atlantic Canada, with a couple of exceptions, is CN. The exceptions are the little red line between St. Leonard and Grand Falls in New Brunswick; the Windsor & Hantsport Railway in Nova Scotia, which is yellow; and the road from Truro, Nova Scotia up to Sydney, Cape Breton, which used to be CN but was sold to a short-line operator in September 1993 by CN. The short line is Cape Breton and Central Nova Scotia Railway.
Until the stroke of midnight, December 31, 1994, the line from Montreal to Saint John was owned and operated by Canadian Pacific. I'll go to Bathurst, and with apologies to both Mr. Hubbard and Mr. Young, Bathurst is not geographically located where the map says. It's a little distance away, but let's pretend it is there. If I were a shipper in Bathurst, being a captive railway - that is captive to Canadian National because you were on the CN line - I had the right to request a competitive line rate from CN. I could request a rate on your railroad down through Moncton to Saint John so I could connect to the CP Rail line from Saint John through to Montreal.
As a precondition to getting that CLR from Canadian National, I had to have an agreement from CP in my pocket to move my goods from Saint John to Montreal. If CN refused to give me a CLR or if it gave me a rate I didn't like, I could go to the National Transportation Agency and it could impose a rate based on a formula. That was the situation until the end of 1994.
Effective January 1, 1995, CP, pursuant to an order of the National Transportation Agency, abandoned the route between Montreal and Saint John, but four days later the new companies purchased the lines as you see them there. Suddenly, because of the way the present 1987 bill is written, I, the Bathurst shipper, had no more CLR rights. I was no longer allowed to require CN to quote me a CLR to Saint John because the carrier between Montreal and Saint John was no longer under the existing legislation - because under the proposed legislation a ``connecting carrier'' is defined as federal and the interchange at Saint John is not a federally regulated interchange.
The only point we are making here - and it's the major point I believe the Irvings were making earlier today - is let's put back into the bill what was there until December 31, 1994. Why should we do that? Because we want to preserve the rights of shippers in Atlantic Canada to have the alternative to go the CN route through Grand Falls, St. Leonard and Saint-André junction down through Quebec to Montreal on the one hand, and on the other hand to have the right to go from Saint John to Montreal as an alternative route.
It is the policy of the government, as I understand it, in bringing in Bill C-101 to preserve shippers' rights. It might be argued to you that you are doing that, but the facts have changed. The fact that these lines have now become short lines or U.S. lines or something else has gone against this. But you now have the opportunity, because you have this bill before you, to ensure that shippers in Atlantic Canada, who are in a unique position in this country - and I'll come to that in a minute - have the CLR rights preserved for them that all other shippers in the country have.
Why is Atlantic Canada in a unique position? There are two reasons. The state of Maine sticks up like an appendix, you might say, between Atlantic Canada on the one hand and Montreal and points west on the other, which means traffic has to be driven up the long route. That's point number one.
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Point number two is that Atlantic Canada, unlike any other region in the country, is served by only one railway and that's CN. It isn't served by both CN and CP.
Those are the two reasons why Atlantic Canada is unique. Those are the reasons why, in 1987 when the competitive line rate regime was instituted in our national transportation policy for the first time, the route between Montreal and Saint John was carved out and deemed to be a route wholly within Canada for purposes of CLRs. We're only asking at this time for the route between Montreal and Saint John to be designated as wholly within Canada for purposes of CLRs, and the necessary amendments to the definitions in the bill be made to allow this to happen.
I think there may be some confusion, based on the earlier questions of Mr. Youden and Mr. Day, about how these CLRs work. Let's remember that the CLR is a rate imposed on the federal carrier only, that is, the carrier from Bathurst to Saint John, which is CN. There is no question about Parliament imposing its will on some railway that is not under Parliament's control. There's no question about intruding on provincial or U.S. authority here; that has nothing to do with it.
Remember that I, as a shipper in Bathurst, can only go to the CN in the first place if I have already obtained voluntary agreement on the part of these four lines from Saint John to Montreal to carry my goods at a certain price. That's the precondition to my asking for a CLR. If the CLR is imposed, it is imposed only on the local federal carrier, CN, to carry those goods from Bathurst to Saint John.
I don't want to get into too many details here, but I will if you wish. The problem is that the definition of ``connecting carrier'' under the present bill, and the definition of ``interchange'' under the present bill refer only to federally regulated carriers and interchanges. All we're saying is that for purposes of CLR rates only, the line from Saint John to Montreal should be designated as being wholly within Canada, just as it is in the present legislation - no change - and carriers and the interchange along that line are either deemed to be federal for CLR purposes only, or you can just ignore that and say, notwithstanding they are not federal, CN must in fact quote a CLR rate from Bathurst to Saint John. It is really that simple.
We're simply asking that the CLR regime that existed up to the stroke of midnight on December 31, 1994 continue. That's it. That's the whole point. There isn't any other point, except that I would like to finish by saying I believe you need to recognize that for geographic reasons and because of the operations of the main-line rail lines in this company that stop in Quebec, in the case of CP, Atlantic Canada is in a unique position with respect to CLRs. It's a position that was recognized in 1987 legislation that we say should continue.
I mentioned CP. You might say you can get a CLR from Canadian National in Quebec City. But if you look at this map and imagine you're in Halifax, Nova Scotia, the local CLR carrier has to go 1,021 kilometres to get from Halifax to Quebec, and then there's only a short haul over the other carrier to get into Montreal. So it really doesn't make sense to ask for a CLR over three-quarters of the distance you want to travel. This, of course, was recognized in the 1987 legislation, when the route from Montreal to Saint John was designated in the way it was.
Apart from that, who's to say whether CP is going to be around Quebec City very much longer? It has made no announcements, but I do know the line from Quebec City to Murray Bay up the river was sold a year or two ago. Who knows? It might short-line that railroad, and it might be the right thing to do. I'm not being critical of it at all, but I'm just saying it even takes away the argument that you can get a CLR over Quebec City.
Let me explain one good thing this new legislation does in the way of CLRs. If I put my finger on New Glasgow there, which is towards the eastern end of Nova Scotia, on the mainland, that shipper, under the existing 1987 legislation, is cut out of CLR rights. Why? Because in September 1993 the line from Truro to Sydney was sold off as a short line, a provincially regulated railway.
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Now, what does the new bill do? The new bill quite properly brings that New Glasgow shipper back into the CLR regime. There's a specific provision in your bill that allows for that.
So it seems obvious, when we look at that provision, that it is the objective and the intention of the government to preserve CLRs and not let them fall away just because something has been short-lined or for some other reason. Yet the other provision of the bill, as I mentioned to you, does in fact cut out CLRs over Saint John to Montreal, which does not seem to be in accord with the overall principle of the bill.
That's the point. That's the only point. I would be pleased to answer questions if there are any.
The Chairman: Thank you very much, Mr. Cooper. We appreciate your submission.
Mr. Chatters.
Mr. Chatters: I'm curious. Do you suppose the drafters of this bill were unaware of the impact this change will have with the abandonment and the short-lining of the rail from Montreal to Saint John; and if they were aware of it, what was the rationale for not addressing it in this?
Mr. Cooper: I think the drafters of the bill took this approach. They said, under the new bill we are not going to expand nor are we going to contract the existing legal regime for competitive line rates. Under the existing regime, just by change of facts, not by change of law, the line from Montreal to Saint John, New Brunswick fell out of the CLR regime effective January 1, 1994.
Mr. Chatters: It changed it substantially.
Mr. Cooper: It changed it substantially by reason of the sale of the line, not because the law changed but because the line changed.
Mr. Chatters: But the drafters of the bill must have been aware of that.
Mr. Cooper: That's right; and that's why we're here. We're here in order to suggest to you that...and you may ask, well, why wouldn't the drafters of the bill change the definition of ``connecting carrier'' and change the definition of ``interchange''? I think what's happening here is they fear if they change the definition of ``connecting carrier'' and the definition of ``interchange'' for the sake of preserving competitive line rates in Atlantic Canada, they'll open up the floodgates to all the people who have come before you and who will say they want a change in the definition of ``interchange'' for some other purpose.
Our point is that we're not so much seeking to change definitions as to preserve the rights of shippers in Atlantic Canada, which the existing bill gives and which as a matter of policy the government has said it wants to maintain. You could do it by just three or four words in a one-shot clause that deals solely with competitive line rates, solely in Atlantic Canada, just as the present bill does, without opening the floodgates to all kinds of other problems across the country that have nothing to do with competitive line rates and have nothing to do with the unique position of Atlantic Canada. I think it's that simple.
Mr. Chatters: Forgive me for my cynicism, but I think the pending sale of CN may have more to do with what happened than anything else.
Mr. Cooper: I wouldn't want to speculate on that. I would say this. Some people have suggested to me that perhaps it's because the line is now partly in U.S. hands. In three or four weeks CN may be in U.S. hands. We don't know about that yet, do we? There is also the possibility that CN might very well itself want to short-line its lines in Nova Scotia, either by an internal short line or by a sale to another short line or regional railway.
We can't tell, any of us, what the future might be with the CN lines. All we're saying is let's preserve the CLR regime as we have it now and as the shippers in Atlantic Canada deserve to have it, just as they do elsewhere in the country, where there are two railways.
The Chairman: Just as a point of clarification, Mr. Cooper, you spoke of the Bathurst-to-Saint John section and the Saint John-through-to-Montreal section. So you have these two pieces here. If you can go to CN with an agreement in your pocket that says here's a rate we're getting from Montreal to Saint John, under the new competitive regime surely CN isn't going to just turn its back on the shipper for a reasonable rate between Bathurst and Saint John.
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And if the shipper deems that rate unacceptable or out of line with what he's getting between Saint John and Montreal, then you go to final-offer arbitration -
Mr. Cooper: Oh, sure.
The Chairman: - which might even get you a better deal than the CLR.
Mr. Cooper: You're saying that final-offer arbitration is the answer to this. If final-offer arbitration is the answer -
The Chairman: In part. I'm also saying it's competition and CN's desire to move the shippers' product between Bathurst and Saint John because there is a good rate between Saint John and Montreal. It would make sense for them to say, ``I'm in business. I want your business, Mr. Cooper, therefore I'm going to give you a good rate.''
Mr. Cooper: Mr. Chair, on that argument we do away with CLRs altogether. There's no need for them because everywhere in this country we have final-offer arbitration and everywhere in this country we have competition of a kind, whether it's truck or rail. We might just as well do away with CLRs altogether.
The Chairman: Well, that's where I'm coming in the back door on the proposal I made a little earlier, that all this regulation is mind-boggling to me. I'm still sitting here still trying to justify the need for it all. I'm having difficulty in finding any justification for the need, and I'm probably going to make a formal request when we get a little farther down the road after I've heard from everyone concerned. Why the hell do we have any of this other stuff? And why aren't we just forming the new balance based on competition, save and except the necessities of -
Mr. Cooper: Railways are opposed to CLRs. They don't like them because it's an interference in their business.
I'm a railway. Why am I here saying we want CLRs?
The Chairman: Yes, exactly. I'm partially puzzled by that.
Mr. Cooper: And what we're saying, because we think we're competitive between Saint John and Montreal, is that we think we ought to have the same right CP had and apparently didn't exercise to ``rates between Saint John and Montreal'' to attract the business of shippers in Atlantic Canada.
If there's going to be a CLR regime in this country, let it work for shippers in all regions.
The Chairman: Thank you, Mr. Cooper.
Mrs. Sheridan, please.
Mrs. Sheridan: I have a question, a point of clarification, on your New Glasgow example. What section of Bill C-101 are you relying on? Maybe it's in your brief.
Mr. Cooper: Yes it's in the brief. I think it's subclause 130(2):
- The transfer of a railway line, or an operating interest in it, under Division V or section 158 of
the National Transportation Act, 1987, does not affect the right of a shipper using the line to
obtain a competitive line rate....
Mr. Cooper: Yes. Absolutely. Until September 1993, the shipper in New Glasgow didn't have a problem getting a CLR because he was on the CN. But then when the Truro to Sydney line was short-lined, it suddenly wasn't a federal railway any more so you couldn't get a CLR any more. But now this bill recognizes that defect and puts it right in there, subclause 130(2). It's a good idea.
All we're saying is that it recognizes that shortfall based on the facts of the situation in the CLR regime, so let's do it for the shippers generally in Atlantic Canada. That's all we're saying.
There's another little point here. Subclause 130(2) doesn't go far enough because it only covers shippers on lines that have been sold. It doesn't cover shippers on lines that have been abandoned and then reactivated. And you may ask, if the line is abandoned, what's the difference? Well, I'll tell you.
The line between Brownville Junction and Lennoxville was abandoned. It was revived three or four days later and now operates. But we need to change subclause 130(2) - as I say in my brief - to ensure that shippers between Brownville Junction and Lennoxville are treated the same as shippers are in New Glasgow. In other words, they're brought into the CLR regime. That was our plan in the beginning.
Mrs. Sheridan: Thanks.
The Chairman: Thank you, Mrs. Sheridan.
Ms Wayne, please.
Mrs. Wayne: Thank you very much.
I know that the companies who purchased the line from CP were in negotiations for quite some time. Mr. Cooper, like our Irving people, was it your understanding, and the understanding of all of those partners, that because CP was able to operate the line and it was, in the previous legislation, wholly within Canada, when you purchased the line that was still there for you and for all of the other short-line operators from Saint John to Sherbrooke, Quebec?
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Mr. Cooper: I can't really say that, because in truth the designation is specific to CP. You could make a legalistic argument that the designation had more to do with the name of the line than with the ownership of the line, but probably that wouldn't be a winning argument. So I guess you'd say we bought it knowing that the CLRs wouldn't be there.
The railways aren't fighting for themselves here as much as they are fighting for shippers now. If shippers win, then I guess the railways win too, because then they might choose to come over our line more than before.
Mrs. Wayne: I feel that the quality of life of our people in that region depends on the fact that we shall make that amendment, because according to what I've been led to believe by the shippers in the area, we must have the competitive line rate section in here for that line in order for them to survive. They want to survive, they want to make sure, they want to be independent.
The Chairman: I don't think there's any question of that, Mrs. Wayne, if you are addressing that question to me.
I also would dovetail your submission to Mr. Cooper by saying that if it was so necessary, then why isn't Mr. Cooper taking this rationale to the Province of New Brunswick, under whose jurisdiction it is, and arguing that what the provincial government there should do is mirror Bill C-101 in order to accommodate the concern and let the province make its decision?
Mr. Cooper: No matter what the province did, if the province passed a perfect statute tomorrow, it still wouldn't fix this problem. It's really important to understand that.
The Chairman: You'd mirror this federal legislation, and that would provide for you to do what you have to do through provincial jurisdiction, where the jurisdiction lies in the first place.
Mr. Cooper: That's incorrect, because if I'm a shipper in Bathurst - and it's really important to understand how this thing works - then, under Bill C-101 as it now exists, I go to CN and say to it, ``Quote me a CLR to Saint John''. Do you know what CN says? It is, ``I'm not allowed to quote you a CLR to Saint John. Why? It is because under Bill C-101 the definition of ``connecting carrier'' is federal connecting carriers only and the definition of ``interchange'' is federal interchanges only. Those conditions do not exist at Saint John. I am forbidden to issue a CLR, and you can't take me to the NTA and make me issue one.''
That's the problem.
Mrs. Wayne: That is the problem, Mr. Chairman, that I feel we, as a committee, have to address. It's a major problem.
The Chairman: That's why we're meeting here and hearing all the witnesses.
Mr. Nault: I'm trying to get this sorted out in my mind, Mr. Cooper, because, quite frankly, if it's happening in Atlantic Canada and if we are getting more short lines, then it's liable to happen somewhere else.
The first thing we have to figure out is not necessarily to give Atlantic Canada a specific amendment to the legislation, but a change in the legislation to allow short lines to compete. That's the issue.
Are you telling me that New Glasgow to Truro, or wherever, is allowed because of the interchange definition?
Mr. Cooper: No -
Mr. Nault: I'm really having a rough time in figuring out how New Glasgow can get a CLR on that line where it's a provincial railway, in the sense that it's now a short line, but on the other hand you're telling me that if you want to go the Saint John route, they can't.
Mr. Cooper: Let me go back -
Mr. Nault: Can you try to explain it to me? Is it a matter of saying that the definition of the interchange should be broadened to include provincially regulated railroads? Is that the question?
Mr. Cooper: No, that's not the question. Can I go back to the shipper in Bathurst for a moment?
Mr. Nault: Okay.
Mr. Cooper: It's December 31, 1994. CP still owns the line from Saint John to Montreal. I'm the shipper in Bathurst. I am a captive shipper because I'm on the CN line that goes from Bathurst through Campbellton, Saint-André junction, down to Montreal. I want to ship my goods to Montreal. So I say to CNR, listen, I'm a captive shipper; I want to have you quote me a competitive line rate on your line - CN's the local carrier - to the nearest interchange with a federal railway. That's Saint John. So CN says, sure, I'll quote you $300 a box, or a car.
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As a precondition to my going to CN, I have to have in my pocket a deal with CP. I don't like $300 a box. It's too high. So I could go to the NTA, and the NTA, on a formula that's set out in the bill, can force CN to quote $275 a box instead of $300 a box from Bathurst to Saint John.
Now it's still December 31, 1994, but I'm in New Glasgow. I used to be able to do that until September 1993, the same as the guy in Bathurst. But I can't do it any more, because I was short-lined in September 1993.
Now it's January 1995. Nobody in Atlantic Canada has CLRs. Nobody has CLRs; or at least nobody has CLRs over Saint John to Montreal, because the facts have changed and CP is no longer the owner of the line -
Mr. Nault: There's only one federally regulated railway.
Mr. Cooper: Not only that, but the designation of the CP line from Saint John to Montreal as being wholly within Canada for the purposes of the CLRs is gone, because CP doesn't own the line any more.
So now along comes Bill C-101. Bill C-101 says to the shipper in New Glasgow, hey, we think what we did to you before was wrong; we think you should be brought into the CLR regime notwithstanding that you were sold to a provincial railway under section 158. So we're going put into place subclause 130(2), which says just because you've been short-lined you don't lose your CLR rights. Suddenly the New Glasgow shipper says, hey, this is great.
But guess what? It doesn't bring back into the statute the old regime to reinstate Montreal to Saint John as being an alternative route. So now not only is the New Glasgow person out of luck; everybody in Atlantic Canada is out of luck.
That's the problem.
Mr. Nault: I understand that. But I'm trying to find out whether.... You're asking, and rightfully so, of course, for a very specific amendment that relates to making this wholly within Canada. That would solve your problem. My question to you is in a broader context. Once we get more short lines, and all of a sudden this changes the mechanism for a lot of them as well, are we going to end up with the same kind of problem with short lines in Ontario, short lines out west - the same kind of difficulty - whereas we need to change the definition of interswitching or something of that magnitude?
Mr. Cooper: I don't think so, because remember, in the rest of Canada, at least for the foreseeable future, we have two main-line class 1 railways operating...I was going to say coast to coast, but it's from Montreal to Vancouver. It doesn't matter whether little bits and pieces of line get short-lined. The point of origin for these CLRs is where that short line meets up with the federally regulated carrier.
Let's take Tom Payne. His line is a short line. Somebody on his line can still ask for a CLR over...whether it's CN or CP, I'm not sure, to the nearest interchange point with the other federally regulated railway. He can still do it. The problem is in Atlantic Canada there's only one federally regulated railway, and that's CN. That's the problem; that plus the fact that Maine goes up like that. It's a geographical and a railway operating problem.
The Chairman: As a point of clarification, Mr. Payne is shaking his head in the negative. I think he's not in the jurisdiction you're speaking of. He's provincial.
Mr. Cooper: That's right. All I'm trying to say is that the CLR regime -
The Chairman: No, he has no CLRs. He's provincial.
Mr. Cooper: Was he sold under section 158 of the NTA?
The Chairman: Yes.
Mr. Cooper: Then he's brought into the regime by virtue of subclause 130(2).
The Chairman: We don't think so.
Mr. Cooper: Well, let me read you subclause 130(2).
Mrs. Wayne: We have a problem, and somehow we have to resolve it.
The Chairman: We're trying to iron it out, Elsie. We've already identified that -
Mrs. Wayne: Yes, we really have to work at it to clarify it.
Mr. Nault: We don't have the time now. If you can think about it and get back to us,Mr. Cooper...because we are obviously going to ask the officials about this. If we get more and more short lines, I suspect.... You're telling me a short line like Mr. Payne's has CLR rights. My understanding is just the reverse; he has none.
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Mr. Cooper: He has none until you pass this bill, and then under subclause 130(2), it states: ``The transfer of a railway line, or an operating interest in it, under Division V'' of this bill ``or section 158 of the National Transportation Act, 1987'', which gets replaced by this bill, ``does not affect the right of a shipper using the line to obtain a competitive line rate under sections 131 to 137''.
Of course, that person has to be able to get his goods to the point of origin at the federal line. I think Mr. Payne would agree with this. I'm not suggesting the NTA can force Mr. Payne to give him a rate from somewhere on his line to the CN, nor can the New Glasgow shipper force the Cape Breton and Central Nova Scotia Railway to take his goods from New Glasgow to Truro. I agree with that. The point of the matter is, once he gets it to Truro, he is entitled to a CLR rate by virtue of this legislation.
I've heard it argued that was always the law anyway, and subclause 130(2) is merely intended to be clarifying. I've heard it said it's merely a clarifying provision, and maybe so, but there it is. It says you do not lose your CLR rights just because you've been short-lined. You still have to get your goods to the federal railway.
Mrs. Sheridan: You may not be correct in your interpretation of that.
I'm just talking off the top of my head. I haven't stayed awake at night looking at subclause 130(2) as much as I should have.
When it says ``does not affect the right of a shipper'', I would think that means ``nor would it create any rights that did not exist prior to''. So if the shipper did not have the right to a CLR under the former legislation, there's nothing in subclause 130(2) that would create any rights either. It simply wouldn't impede any that did exist. In Mr. Payne's case, if he didn't have the right before, he would not have it now, as I interpret it.
Mr. Cooper: You can argue exactly as you have, that subclause 130(2) merely clarifies the existing law. But the point I'm making is if, in legislation, the government seeks to clarify that point in the interests of shippers on short lines to make it clear that CLRs are available to them, it seems to me to be in the spirit of the act that they're not going to take away CLR rights.
Mrs. Sheridan: If I could, I'll just add on to what Mr. Nault asked you in clarifying this.
You've raised a good point, but in this somewhat anomalous situation that exists in Atlantic Canada because of the existence of only one federal railway, we as a committee still have the responsibility to come up with legislation that is applicable nationwide.
One option is to simply do a deemed provision, as was in the other act. We'll just deem this line to be something it's not in reality. But that creates problems in other regions of the country in the long term possibly, because we never know.
I thought your original argument was that you would like to see us redefine ``connecting carrier'' and ``interchange'', which, I agree with you, do not extend beyond federal. You don't see that as perhaps a solution to this?
I'd like you to put your mind to some other way of doing it, other than just a deeming provision, when you go back and think this through.
Mr. Cooper: Here's the problem.
The point Mr. Nault makes is of course correct in that if you get a whole bunch of short lines going across the country, shippers on those lines are no longer located on federal lines, so they cannot, by federal legislation, require the NTA to compel that provincially regulated shipper to grant a CLR to the nearest federally regulated main line. That is correct. That is happening because we think, as a matter of policy, that we should support short lines.
Mr. Nault: The shipper in Fredericton is a good example. He has no CLR rights.
Mr. Cooper: Yes, that's right.
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Mr. Nault: So why should I be helping the shipper in Bathurst if I can't help the shipper in Fredericton?
Mr. Cooper: Well, actually, his CLR rights are not taken away. All he has to be able to do is somehow wrestle his goods to Saint John, the way any shipper would.
Mr. Nault: But that's my point. If I'm a shipper at Fredericton and I don't like the short line there so I want to get a CLR to get onto CN, I can't do it.
Mr. Cooper: I agree with you. I think there should be provincial mirroring legislation.
Mr. Nault: Yes, so shippers won't leave. I'm trying to find out if there's a mechanism to deal with this, as Mrs. Sheridan has asked.
The Chairman: Yes, there is. We do away with CLRs and have FOA.
Mr. Cooper: Yes, you could do that. If you did away with CLRs altogether -
The Chairman: Would you like that idea?
Mr. Cooper: No, I wouldn't.
The Chairman: I didn't think so.
Mr. Cooper: Besides, it's stated to be government policy that you want to maintain them.
The Chairman: Mr. Cooper, your concerns are on the record. I think we've had a pretty thorough discussion on this issue, and we will continue to take a look at it.
Colleagues, just for your benefit, we have a list going on some of the finer points that we want to address with departmental officials, who we will have back with us a little later on in the process.
Mr. Cooper: Mr. Chair, I wasn't quite clear on Mr. Nault's point. Did he want me to get back to him on a specific point?
Mr. Nault: Yes, absolutely. Come up with some solutions.
The Chairman: Mr. Cooper, if you could send it to the clerk, then the clerk will distribute it in both official languages to all members of the committee.
Mr. Cooper: Yes, all right. Thank you very much.
The Chairman: Thank you, Mr. Cooper. Thank you for your submission.
Could we have the representatives from the Ontario Northland Transportation Commission come to the table, please?
Colleagues, from the Ontario Northland Transportation Commission we have the chairman, Matt Rukavina, and Mr. Payne, who is the director of corporate affairs and planning.
Gentlemen, welcome. We look forward to having your submission in 15 minutes or less - stress the less - so that we can have time to ask questions of you and your organization. Thank you very much. Please begin when you're comfortable.
Mr. G.A. Payne (Director, Corporate Affairs and Planning, Ontario Northland Transportation Commission): Good afternoon.
My background is in railroad engineering and maintenance and operations for the past 39 years. Mr. Rukavina's background is essentially a public administration or municipal administration, but he has had considerable experience being involved in the passenger rail operation in northeastern Ontario. In the past four years he's been with the Ontario Northland Transportation Commission.
We appreciate this opportunity to appear before the committee in support of our August 31 submission, which I understand you have with you.
The clerk will also be giving you a package in this blue folder, which is an information package. There are a number of brochures and advertisements, but on the left-hand side of the folder there are some sheets with yellow heading on them. The three sheets headline who we are. ``Rail Services'' and ``Passenger Train Services'' will give you some good background on Ontario Northland so far as this committee is particularly concerned.
With your permission, we would like to proceed with our presentation in three parts. I will present a brief overview of ONR's concerns and our interest in the Canada Transportation Act.Mr. Rukavina will then address the issue of primary concern, which is the future of passenger train subsidies. Finally, I'll speak on the portion of the submission headed ``Other Railway Concerns'' and also make some reference to the RAC submission. We don't propose to read the submission - that would take more than your 15 minutes, Mr. Chairman - but only to highlight or perhaps expand certain areas.
Ontario Northland is a crown agency of the province of Ontario and is not directly affected by the current federal legislation except on the 60-mile Nipissing Central Railway, which is a wholly owned subsidiary. We are indirectly affected, though, through contractual arrangements with the other main-line railways and our policy of voluntary compliance with most federal regulations.
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Also, the Ontario government, as I'm sure you are aware, has recently introduced new legislation, Bill 5, An Act respecting short line railways, which by reference may apply certain clauses of the Canada Transportation Act to provincially regulated railways, which could also result in a more direct impact on the ONTC.
As noted in our submission, our comments are confined to railway transport, although you'll notice we do get involved in marine, air, and bus transport.
Since our submission was presented to you, Transport Minister Doug Young has announced an intention to negotiate agreements with ONTC and the two other railways affected, the ACR and the Quebec North Shore and Labrador. You heard this morning from the QNS&L people.
Mr. Young's quotation was to enter into agreements to ensure passenger services will be maintained. However, this was qualified by a follow-up statement that changes to this policy will occur after a full review of all rail passenger subsidies, including VIA, and will be subject to future budget restrictions.
The minister has already announced the commencement of the review referred to, which may be completed in the next year.
So the statement of his intentions to negotiate, especially with these limitations, doesn't give us a lot of assurance that this will continue beyond another 12 months or so.
We need some confidence of continued funding to allow us to plan for an efficient, reliable, and dependable passenger transportation system, particularly serving the people in northeastern Ontario.
We've had preliminary contact with Transport Canada officials, but so far we have been able to get no perspective on the nature or the content of the agreement. Therefore we can provide no opinion as to whether its value as a replacement for the legislation will be sufficient to allow us to continue to provide those services.
Of the four options presented to the committee under the passenger subsidy, at the moment the agreement under clause 49 seems to be the least preferable to ONTC.
Other aspects of the bill, to which I will speak later, focus on some areas that we feel would improve the effectiveness of the legislation.
I'll now turn it over to Mr. Rukavina, who will address the passenger trains issue.
Mr. Matt Rukavina (Chairman, Ontario Northland Transportation Commission): Let me give you some background and orient you geographically on what we're all about.
If you will look into that information package that was distributed to you, on the back of the third sheet, entitled ``Rail Services'', is a map that might assist you somewhat.
Looking at the south end of the map, from Toronto to North Bay is the portion of the CN line over which we operate the Northlander rail passenger service, for which there is a subsidy, over that 215 miles. North of that, from North Bay going northerly to Cochrane, we operate the Ontario Northland Railway.
That's the origin of our rail passenger service, the Northlander from Cochrane going down to Toronto, and about two-thirds of the people end up in Toronto.
North of Cochrane, from there to Moosonee, we have 186 miles where we operate our own rail line with a mixed train that's providing both freight and passenger services. There is no road connection to Moosonee. So that's the third link of our rail passenger service. Over that same section of rail line between Cochrane and Moosonee, in the summertime we run a tourist excursion for a 10-week period.
Feeding into that line, in an east-west direction, we have bus connections. So from Calstock across to Cochrane there is a bus service that feeds into that Northlander train, as well as from Timmins.
We started in 1902 as the Ontario Northland Transportation Commission to supply the development of forestry and mining as it took place in northeastern Ontario. We went up then hauling goods and people, as well as providing a telegraph service for remote communication. Since that time we have also got into the telecommunications business, the bus business, air, and ferry services.
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As a crown corporation, we're not entirely funded by the Province of Ontario. We operate some commercial services. Our telecommunications operation, our rail freight operation, and our bus business have to stand alone - be viable, meet a bottom line, be able to reinvest in those businesses and to stay competitive.
On the non-commercial side, we're into passenger services, rail passenger service being one of those where we have been receiving assistance federally, and we receive some assistance provincially. We as a corporation also subsidize that rail passenger service. So it's a three-party combination to keep that rail transportation system going.
In a nutshell, our presentation is that we had an order, following an NTA hearing in 1993, that was going to be in for a five-year period. We're looking for that type of assurance, which isn't in C-101. It's at the discretion of the minister. If some longer assurance could be built in....
We are negotiating - and we appreciate that - some longer assurance so we can do some longer-range planning even beyond that five-year period under the NTA, because two years are gone already. We would prefer, if something is going to be built in somehow, that it be patterned after the federal airport policy across Canada, where the federal people got out of the subsidy to those airports on a five-year basis. So perhaps it could be a five-year period from from the time when C-101 becomes law there. But again, give us some longer-range period to do some more effective negotiating with the transport people to preserve rail passenger service for the 200,000 people we serve up along that whole corridor to James Bay, and even beyond James Bay. People fly from around Hudson Bay and James Bay into Moosonee and take our Little Bear train down to Cochrane, then the Northlander train from Cochrane southerly to Toronto.
That's what we're about, sir.
Mr. G.A. Payne: As for the other concerns we have, clause 89 - this is fairly well explained in our brief - requires clarification of an issue that is probably unique to the ONTC. We've suggested some revised wording that could possibly avoid future misunderstandings.
If you read the new language in Bill C-101, it could possibly be interpreted to affect future purchases by Ontario Northland of a piece of CN, or, say, the Newmarket sub, or a piece of the CPR.
The clause 104 concern we have about crossings is a concern I would think is common to all railways. We have suggested some wording that should ensure safety remains a dominant factor in such decisions. Clause 104 had referred to the owner's enjoyment being the only criterion. We suggest safety should be stronger than that.
Clauses 138 and 139 have to do with running rights and joint track usage. Actually, we see no need for legislating running rights. It's unnecessary, and technically in our view it's unworkable. We feel it's an issue that should be left to voluntary cooperation between parties. We don't feel strongly about this particular item, because as I said in the preamble to our submission, we have addressed those things we felt would affect Ontario Northland. We don't see where this could affect Ontario Northland one way or the other. But we have suggested, for clarification, that the reference to public interest as some sort of criterion for granting such rights be removed, since there would be no hearings.
As to clause 160, our comments on final-offer arbitration deal mainly with the apparent conflict with subclause 27(2). Again I realize full well final-offer arbitration is a contentious issue, but we've been unable to find where it would adversely affect the Ontario Northland, so we don't have any strong feelings to offer you in that regard.
Finally, as a member of the Railway Association of Canada, we would like to inform the committee formally that in general we support the submission that was already presented to this committee by the president of the RAC. In particular, we endorse the principles and policies that form the basis of their review along with their comments on competition, taxation and funding of infrastructure.
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You've heard from Tom Payne about successor rights. In our view the successor rights legislation in Ontario has been - and I had some discussions a couple of years ago with Tom Payne, and I believe he would agree with me here - a serious impediment to the development of short lines in this province, and we endorse the comments the RAC made.
The committee is probably aware that the new Government of Ontario is taking steps to remove that barrier through the repeal of Bill 40.
Finally - I said finally once before, didn't I? - we've received a number of endorsements from various interested parties who we have sent submissions to: the Northeastern Ontario Municipalities Action Group; Transport 2000 Ontario; the Northern Ontario Transportation Coalition; the Federation of Northern Ontario Municipalities; Gilles Bison, who is the MPP for Cochrane South; Bob Wood, who is the MP in my own riding; and Reg Bélair, the MP for Cochrane - Superior.
Members of the committee, ladies and gentlemen, that concludes our presentation.Mr. Rukavina and I would be pleased to answer any question if we can.
The Chairman: Gentlemen, we thank you for your submission and for the very impressive information portfolio you presented to each of us. It's valuable stuff. I've always thought about getting on that Polar Bear Express, give it a shot....
Thanks, gentlemen. We'd like to have questions now.
Do you have any questions, Mr. Johnston?
Mr. Johnston (Wetaskiwin): I don't think so, Mr. Chairman. Thank you.
The Chairman: All right. It's not Marlene Cowling; it's Reg Bélair sitting there. Reg.
Mr. Bélair (Cochrane - Superior): Thank you, Mr. Chairman, for your indulgence once more, as I am not a standing member of this committee.
I would like to ask Mr. Rukavina to expand on the reasons why especially the Northlander should be kept. I noticed in your presentation you did not allude to the reasons.
Mr. Rukavina: The Northlander handles 37,000 passengers a year. The bulk of those passengers are either people who are going to southern Ontario for medical purposes or seniors who have no other means of comfortable travel. So if it were not for some assistance we're afraid the Northlander wouldn't be able to operate.
Let me give you some idea of numbers. In looking at last year's costs for the Northlander, the total cost was $13 million. That was our total cost from Cochrane to Toronto, including the bus service. We get $2.5 million from fares. That's about 20%. Last year's assistance from the province was $5 million. Federal subsidy was in effect $2.5 million. We got $3 million and part of it was retroactive. It always took the NTA two or three years to get everything wrapped up. So in effect for last year there was a $2.5 million subsidy.
From our commercial operation we subsidized that service by $3 million to make the thing come out. So there are partners from federal and provincial levels and from our own agency keeping that passenger service in operation. If any one of those partners weren't able to help, I am afraid the service would go down.
It would also have one other effect. Part of our fixed costs are distributed between our passenger service and our rail freight operation. If the rail passenger service didn't operate there would be that much more of a burden on the rail freight operation, which would make it a problem to keep our freight rates reasonable for those resource industries we handle.
We have seven customers who realize 90% of our total freight tonnage. If something happens to one of those customers, our freight operation has a real problem. That's basically why we're looking to have a continuation of the assistance.
The Chairman: Is that okay, Reg?
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Mr. Bélair: I would just like to touch a little bit on clause 49 and the powers it gives to Transport officials and the minister to say yes or no to a further subsidy.
I notice that in your presentation you've asked for a five-year assurance that a subsidy will exist after the bill receives royal assent. I'm looking beyond that. Do you think it's possible for the Ontario Northland Transportation Commission to generate enough revenue - because you just said your own organization subsidizes the Northlander - let's say, six years from now?
Mr. Rukavina: It will never be totally self-supporting. If you were to put aside all of the assistance from government and from us, you'd have to have five times the number of passengers or else you'd have to increase the rates by five times to make it self-sufficient, so that will never happen.
What we're looking at in the longer-term negotiation period is to see if we can't refine some of it somehow. But even at the end of the five-year period, someone is going to have to come up with some dollars to keep that rail passenger system going, in my view. Perhaps it will take less assistance if we can become - and we'll have to be driven to be - somewhat more efficient, if that's possible.
Our problem is geography - the length of the line and the sparse population. That's really the nub of the problem.
Mr. Bélair: Thank you.
The Chairman: Mr. Rukavina, how many people do you move?
Mr. Rukavina: We moved 37,000 last year.
The Chairman: Have you ever done a subsidy cost per person? What is that subsidized cost-per-passenger figure?
Mr. Rukavina: I'm going by memory now, so don't hold me to it. It's something in the order of $250, and we charge $100. That's the fare from Cochrane to Toronto now for a passenger - $100. It's $95 by bus. We try to keep it at about 5% above the bus.
The Chairman: Taking away the tourist aspect of this -
Mr. Rukavina: It's relatively small.
The Chairman: Yes, okay. I was going to ask how many people depend on the railway to move from community to community where there is no alternate form of transportation. How many people are we talking about?
Mr. Rukavina: Again, I can give you some numbers. We transport 19,000 people on the Little Bear, where there is no road, from Moosonee to Cochrane. They mightn't all go all the way to Toronto, but that gives you some sort of perspective. A large number of people depend upon it. Either they're flying to Moosonee and then from Moosonee taking the Little Bear to Cochrane and then the Northlander down from there -
The Chairman: Which is probably a little costlier than jumping on a train.
Mr. Rukavina: It is for sure.
The Chairman: I just want to put it on the record, because I think we have to ensure that, where there is no alternate form of transportation and where we have Canadian communities that have put themselves where they are today because of the railways, we can't just arbitrarily decide to crash down a railway because there's a decision that we're no longer going to subsidize that railway for whatever reason. And it had better be a damn good reason to isolate them.
Mr. Rukavina: We're going to isolate all of those people north of Cochrane.
The Chairman: No, we're not. I don't believe you'll find to many of us who would leave Canadians stranded in their communities.
Mr. Nault: I'd like an explanation of why the Ontario Northland Transportation Commission deems it appropriate to have the provision of clause 160, extending the final-offer arbitration process to rail passenger service. What is your rationale and interest in having that service in the final-offer arbitration?
Mr. Rukavina: I think it's fair to say we don't have a position on it, really.
Mr. G.A. Payne: In our brief we said we generally support it. We don't have a strong view either way.
We don't think final-offer arbitration will affect it. However, it could possibly affect us in our negotiations with Canadian National. As you're probably aware, we contract with Canadian National to operate the Northlander train from North Bay to Toronto. Without an in-depth look at it, we felt there was a remote possibility that it might at some point in the future work on our side as a shipper.
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We tried not to be too strong about it, because we don't have a really strong case either way.
Mr. Nault: Well, my concern is in the reverse for you. If in fact it's in the form of the abilities to go to final-offer arbitration, then CN could try to get a ruling that they don't have to run that service for you any more because it is uneconomic and it is an impediment to their other service and as a business. If the ruling went against you, then you'd be left in a quite difficult position.
I can see other organizations and companies doing the same thing, trying to get out of running a passenger service on their line.
I was just curious as to why you would even consider supporting that, because if it went the other way on you, you'd be out of the passenger business.
Mr. Rukavina: But taking a longer-range look at it, we would consider that CN line from North Bay to Toronto as perhaps a short line that CN might want to get out of that we would acquire, to give us the long-range passenger rights over it, as well as the freight handling on a complete north-south provincial railway.
Mr. Nault: Yes, but I'm basically saying that you don't need final-offer arbitration to do that.
Mr. Rukavina: No. I realize that.
Mr. Nault: On the reverse, you could lose a lot, and I was questioning why you would want to support that.
Mr. Rukavina: You make a good point.
Mr. G.A. Payne: If we'd been talking to you before we made our submission, we might have made some different points.
Mr. Bélair: I'll make one short intervention to emphasize further Mr. Rukavina's point on the health issue.
It should be said that many people use the Northlander because it is affordable. He said it costs about $100 to go to Toronto, and return airfare to Toronto from, let's say, Kapuskasing is $500. The northern travel grant pays a maximum of $250. Some people can afford the difference, but many others cannot.
To put it in the right perspective, there is the air ambulance for emergency cases, which is 100% subsidized by the provincial government.
I'm saying that this Northlander train is the logical alternative to airplanes and buses. Sure, it's a bit cheaper to go to Toronto by bus, but there is also the matter of comfort. Also, if someone goes to Toronto to see a specialist, usually they are not in very good physical condition.
It's extremely important for the committee to know this.
The Chairman: A good intervention. Thanks, Reg.
Gentlemen, thank you very much for your submission and for answering our questions. We appreciate the time you have taken to come down to see us.
Colleagues, we'll see you on Tuesday afternoon.
This meeting stands adjourned.