# Chair and CEO Scott Streiner addresses the RBC Capital Markets Automotive, Industrials and Transportation Conference on May 16, 2018

Check against delivery

Departure time: Moving towards the implementation of changes to the Canada Transportation Act

As a few of you may know, in addition to being Chair and CEO of the Canadian Transportation Agency, the CTA, I'm an adjunct professor of Political Science.  So I'm one of those people – some might use the word "geek", but I trust no one in this room would do so! – who's fascinated by the process through which ideas and goals become policy, policy becomes a Bill, and a Bill becomes the law.

I wasn't invited to this conference to speak about the legislative process, but rather, about how the CTA will implement changes to the Canada Transportation Act contained in Bill C-49.  But the way consideration of that Bill has unfolded has, I think, served as a reminder to all of us that the legislative process is not always entirely predictable.  And for those who were hoping that the Bill would already have come into force, it may help to recall some sage advice from our first Prime Minister: "When fortune empties her chamber pot on your head, smile and say, ‘We are going to have a summer shower!’"

For people who haven't been following Bill C-49's progress here's a short summary.  The Bill was introduced in the House of Commons exactly one year ago, to the day; passed by the House with eight amendments on November 1, 2017; passed and returned to the House by the Senate with 19 amendments on March 29, 2018; returned from the House to the Senate with two of the Senate amendments accepted and another four accepted in a modified form on May 3, 2018; and returned by the Senate to the House last Thursday after re-adoption of two of the Senate amendments rejected by the House.  Last Friday, the Government moved a motion in the House asking the House to decline to accept those two Senate amendments and asking the Senate to pass the Bill in its current form.  That motion will be voted on when both Chambers of Parliament return from their current recess next Tuesday.

In short, when I started drafting this speech, it appeared that I might be talking about a Bill that had become law, but that hasn't happened yet.  While it seems likely that some version of the Bill will make that transition in the near term, a Bill should only be treated as final when it's adopted in the same form by both Chambers.  So out of respect for the Parliamentary process, I'm prefacing my remarks today by emphasizing that they are made, to use a colloquialism, "on spec".

With that caveat in place, I'll spend the next half hour providing an overview of how the CTA is preparing to implement key elements of Bill C-49 – because it's our responsibility to be ready – and giving an update on complementary efforts to modernize the regulatory framework.

## The Agency's Role

I'll begin with a bit of background on the CTA.

Established in 1904 as the Board of Railway Commissioners, the CTA is Canada's longest-standing independent, expert tribunal and regulator.  Let's unpack that expression.

"Independent" means that we discharge our responsibilities at a distance from the Government, based on impartial assessment of evidence before us, the wording and purpose of the legislation and regulations, and relevant jurisprudence.  We report to Parliament on our plans and results through the Minister of Transport; we do not report to the Minister of Transport.  From the outset, independence and impartiality anchored the CTA's work and were designed to protect its decision-making from political influence or other extraneous factors.

"Expert" means that our actions are based on deep knowledge of the sectors we oversee, the needs of their customers, and applicable legal provisions and principles.  That knowledge resides both with the Cabinet-appointed Members – the CTA's decision-makers on most matters – and the public servants who support Members.  And it's one reason why the Supreme Court has repeatedly stressed that our decisions and those of similar bodies must be given a high degree of deference by the courts.

"Tribunal" means that we conduct quasi-judicial adjudications to address transportation-related disputes that cannot be resolved through more informal mechanisms such as facilitation and mediation.  Those disputes run the gamut from claims from individual air passengers about issues like lost bags, to accessibility-related complaints from travellers with disabilities, to cases between shippers and railway companies with multi-million dollar financial impacts.  In delivering this adjudication service, we exercise all the powers of a superior court and render binding rulings.

"Regulator" means that, as a complement to our dispute resolution role, we make and enforce economic and accessibility-related ground rules for the national transportation system.  Those rules protect the system's users and provide a predictable, fair framework for healthy competition among transportation companies – a level playing field.  This pairing of adjudicative and regulatory functions in an arms-length body exists not only for the transportation industry, but also for other sectors falling in federal jurisdiction, such as telecommunications, pipelines, and nuclear power.

As an independent, expert tribunal and regulator, the CTA has the primary responsibility for administering the Canada Transportation Act.  Its experience doing so may allow it to offer observations to Ministers and Parliamentarians on possible legislative improvements – in fact, we're required by law to do so as part of our Annual Report.  But Transport Canada is the principal source of public service policy advice to the Minister of Transport, the Government decides what legislative amendments to propose, and Parliament determines what legislative amendments to make.

## Long-haul interswitching

Bill C-49 is the most significant overhaul of the Canada Transportation Act in over two decades.  One of its key innovations is the introduction of a new competitive access mechanism called long-haul interswitching, or LHI, which replaces the essentially moribund competitive line rate provisions.

Interswitching is one of the options Parliament has long included in the Act to try to increase choice for shippers, who are sometimes served by just one freight railway company.  Interswitching lets a shipper move its cargo with that company from the shipper's loading facility  to an interchange, where the cargo can be handed off to a different railway company with which the shipper has contracted for onward transportation.  A standard rate for the initial move by the local railway company is established by the CTA, based on a cost-plus calculation.  Under Bill C-49, that rate will now be set and published annually.

There's a 30 km limit for regular interswitching.  So if a shipper is served by only one railway company and there's no interchange within 30 km, the regular interswitching provisions are of little use to it.

LHI lets such "captive" shippers apply for interswitching for distances of up to 1200 km or half the total haul distance in Canada, whichever is greater, provided they meet certain conditions.  If the CTA finds that such service should be provided, the rate for the haul by the local company to the interchange will be a combination of the standard, cost-plus rate for the first 30 km and a rate to be set by the CTA for the rest of the haul, taking into account rates for the movement of comparable traffic.

To ensure that we have the information we need to identify comparables and establish rates, railway companies will be required to submit significant quantities of confidential data, starting on the last day of the first full month after the Bill becomes law.

The assessments the CTA will have to conduct to make LHI decisions will typically be technical and complex – and we'll be required to get them done within 30 business days.  We've developed a carefully structured process to ensure that we can meet this tight timeline, which will be described on our website and eventually, reflected in formal Rules of Procedure.  We'll be making it clear to all parties to LHI cases that it won't be acceptable to miss deadlines and requests for extensions will face intense scrutiny.

We know that because LHI is a new mechanism – and because the transportation arrangements between railway companies and shippers can have major financial implications – our LHI decisions will be watched closely, particularly in the early days.  Each case, of course, will be determined on its merits.  But our commitment is to make sure that the process for arriving at those decisions is rigorous and balanced.

## Freight rail adjudications and arbitrations

The Act also allows shippers to apply for adjudication if they think a freight rail company hasn't respected its statutory obligation to provide adequate and suitable service – terminology that's been around, and much-debated, for well over a century.  Shippers can also apply for the arbitration of rates or service levels if they can't reach agreement with freight rail companies.

Bill C-49 sets out factors for the CTA to consider when adjudicating a claim that the service provided by a railway company wasn't adequate and suitable, reinstates the CTA's authority to order compensation for expenses incurred as a result of the service failure, and shortens the timeline for adjudicating such cases from 120 to 90 days.  We understand the message Parliament is sending with the last change and with the tight LHI timeline: it's important to render these commercially significant decisions as swiftly as possible.  But as a quasi-judicial tribunal, we also have to follow the rules of natural justice and procedural fairness.  To improve efficiency while respecting those principles, we'll be establishing firmer deadlines both for ourselves and parties to a case, carefully tracking the progress of every file, and using oral hearings – including through videoconferences – in lieu of, or as a supplement to, written pleadings when that helps us to more quickly deal with procedural issues or grapple with particularly complex matters.

Arbitrations, in contrast to adjudications, are prospective rather than retrospective, and  are not formal proceedings before the CTA.  They are, however, informed by a similar sense of urgency and, like adjudications, result in binding decisions.

The arbitration of rates uses final offer selection, where the arbitrator picks either the shipper's or railway company's rate proposal.  The arbitrator is agreed to by the parties – or chosen by the CTA if the parties can't agree – and can request administrative, technical, and legal assistance from the CTA.  Expedited rate arbitration processes can be undertaken where the total value of freight charges to be paid under the arbitral award doesn't exceed a certain threshold.

The framework for arbitrating the terms and conditions of rail service allows the arbitrator appointed by the CTA to combine elements of each party's proposal – and any other provisions they deem appropriate – when establishing terms in areas such as the number and timing of rail car loading and delivery.  Here, too, the arbitrator can receive administrative, technical, and legal assistance from the CTA.

Bill C-49 makes two changes with respect to rate arbitrations: it provides for the rate to apply for a two-year rather than one-year period if that's the shipper's preference, and it raises the threshold for a expedited process $750,000 to$2 million.  With respect to service level arbitrations, the Bill confirms the CTA's previously temporary authority to make regulations on the operational terms to be considered, and explicitly allows for reciprocal penalties to be included in the terms set by the arbitrator.

These changes may have the effect of increasing the number of such arbitrations, given that some shippers have raised questions in the past about whether the benefits of rate and service arbitrations justify the time and cost involved in pursuing them.

We'll be ready to handle any rise in numbers and – to facilitate timely and effective arbitrations – will issue letters of appointment to arbitrators reminding them of the availability of logistical and technical support from the CTA.

## Information, guidance, and informal dispute resolution

Adjudications and arbitrations are not the only ways to resolve disputes.  Indeed, in most cases, everyone benefits if understandings can be reached through less formal, less adversarial, and less time-consuming methods.

The CTA already resolves most of the complaints it receives through facilitation – which involves a series of calls between staff and each of the parties – and mediation – which is a little more structured than facilitation and may entail face-to-face discussions, but is still non-litigious, confidential, and time-limited.

Bill C-49 strengthens the CTA's role in ironing out issues between railway companies and shippers by providing an explicit statutory basis for providing information and guidance on the Act's freight rail provisions, and for undertaking dispute resolution efforts that lie at the most informal end of the spectrum – including by making calls to a railway company on issues raised by a shipper without revealing that shipper's identity.

As part of our efforts to implement these provisions, we'll be establishing a 1-800 number through which expert staff can be reached for confidential discussions, and continuing the practice started a few years ago of sending Members and employees on learning tours through rail and shipper facilities, to help ensure that they have a good grasp of the operations and companies affected by our work.  This reflects our conviction that that being well-engaged and understanding all parties' on-the-ground realities – not sitting in an ivory tower – helps us effectively discharge our responsibilities as a tribunal and regulator.

## Air passenger protection regulations

The same is true with respect to another area where Bill C-49 gives us new responsibilities: the making of air passenger protection regulations.  That's why we've committed to launching a Canada-wide consultation on these regulations within a few days of Royal Assent to Bill C-49.

The Bill states that the regulations should set out airlines' obligations towards passengers with respect to communication, flight delays and cancellations, denied boarding, lost or damaged bags, tarmac delays, and the seating of children.  It also says the regulations should require airlines to have terms and conditions for the transportation of musical instruments.  For several matters – flight delays and cancellations within an airline's control, denied boarding for reasons in an airline's control, and lost or damaged luggage – the regulations will not only lay out minimum standards of treatment, but also minimum compensation levels.

Travellers, airlines, consumer groups, and other interested parties will be able to give us their input through a variety of channels.  A dedicated website will be established with a discussion paper, an online questionnaire, and a link for sending written submissions.  In-person consultation sessions will be held in Toronto, Vancouver, Calgary, Yellowknife, Winnipeg, Montreal, Halifax, and Ottawa.  A call-in session will be organized for those who prefer to offer views verbally but can't attend to one of the eight in-person sessions.  And passenger surveys will be conducted in 11 airports.

These consultations will be Canadians' opportunity to shape the air passenger protection regulations.  They'll be held over a three-month period – a timeframe that strikes a balance between individuals' and industry's desire to provide feedback on issues that are of significant interest, and their equally strong wish to see the regulations completed and brought into forcewithout unnecessary delay.  We'll be listening closely, and once consultations conclude, will work to ensure the timely drafting and approval of regulations that establish a clear, transparent, fair, and consistent set of airline obligations towards passengers.

## Air carrier control-in-fact determinations

Passenger protection isn't the only area where Bill C-49 makes changes that could affect the aviation industry.  The Bill also increases the proportion of voting shares that non-Canadians can hold in Canadian airlines from 25 to 49 per cent and creates a process for approving joint ventures in the airline sector.

The CTA will continue to be responsible for ensuring that Canadian airlines participating in such arrangements remain controlled in fact by Canadians. Control-in-fact determinations can take time, in part because the governance structures and understandings between Canadian airlines and foreign partners or investors can be complicated and none is exactly the same as another.  To do the job Parliament has given us, we often need to probe – to identify where direct and indirect influence lie, and to make sure that Canadians retain ultimate decision-making authority.  This can entail an iterative series of exchanges on the meaning of specific contractual language and potential adjustments to it.

Some in industry have sought a more open and predictable process.  There are limits to how much we can do, since openness runs up against the highly sensitive nature of much of the commercial information reviewed during a control-in-fact assessment, and predictability runs up against the often unique and innovative terms and conditions proposed for different investments and partnerships.  That said, we've held consultations on this topic and believe that we can go some way towards establishing a clearer set of steps and timelines for control-in-fact assessments, together with a checklist of factors airlines should consider, and documentation they should provide, when seeking control-in-fact determinations.  We'll have more to say on these improvements in the months to come.

## Own motion inquiries

A final notable change included in Bill C-49 is the granting to the CTA of an authority to initiate inquiries on its own motion for matters related to freight rail service.  This change was included in the Senate's 19 amendments and accepted by the House with the addition of a requirement to obtain the Minister of Transport's authorization to proceed with such an inquiry.

In its Annual Reports, the CTA has proposed that the ability to initiate inquiries and make orders based on their findings apply beyond international air services, an area in which it has long had that authority.  Other arms-length regulators have more general own motion powers, and it seems to us that in certain circumstances, such a tool can be helpful.

Own motion inquiries won't be used every day.  But where we have reason to believe an issue may exist – and where that issue may be urgent, or broad-based in nature, or the subject of a large number of complaints that can most efficiently be handled through a single process – an own motion inquiry could be the most appropriate course of action.  Over the last three years, we've launched such inquiries three times: in 2015, when SkyGreece passengers found themselves stranded as that airline slipped towards bankruptcy; in 2017, after the Air Transat tarmac delays in Ottawa; and last month, after Sunwing flight disruptions in Toronto and Montreal.

I would add that where Ministerial authorization is required to proceed with an own motion inquiry, we will, of course, seek it in the full light of day.  Transparency, fairness, and protecting the independence and credibility of the CTA's processes demand no less.

## Regulatory modernization

Before concluding, I'd like to provide a short progress report on the CTA's Regulatory Modernization Initiative, or RMI, which was launched in May 2016.  The RMI is the most sweeping review in the CTA's history of the regulations it administers, and aims to ensure that those regulations reflect current and emerging business models, user expectations, and best practices in the regulatory field.  The goal is for the resulting regulatory requirements to be clear and predictable, only as heavy as necessary to achieve the regulation's purposes, and articulated in a way that facilitates the identification and correction of non-compliance.

In addition to consumer protection for air travellers – which will be addressed through the air passenger protection regulations I described earlier – the RMI has tranches dealing with accessible transportation, air transportation, and rail transportation.  Consultations in the first two of these areas have been completed, while consultations on rail regulations were postponed following introduction of Bill C-49 – because implementation of some elements of the Bill will require regulatory changes – and will be initiated about a week after Royal Assent.

In terms of outcomes, it's anticipated that new accessible transportation regulations will integrate two existing accessibility-related regulations and six voluntary codes of practice into a single, comprehensive instrument, set clear standards while leaving room for creative solutions, reinforce service providers' obligation to properly train staff in the delivery of services to people with accessibility-related needs, and require the preparation by service providers of multi-year accessibility plans.  Updated air transportation regulations are expected to reduce the administrative burdens associated with obtaining air licences, code share authorizations, and charter permits, while updating insurance requirements in line with inflation.

Our goal is to finish drafting all new and revised regulations and to have them approved by the CTA before the end of this year.  A second approval from the Governor in Council will then be needed for the regulations to take effect.

## Conclusion

As I prepare to wrap up this fairly extensive overview, let me express appreciation for the fact that you're all still in the room!  I recognize that legislative and regulatory reform may not always be the main topics of conversation around your dinner tables – but they probably are, at least sometimes, around your boardroom tables.  Evolving legal requirements and the manner in which they're implemented have material impacts on industry, its clients, investors, and Canadians in general.

At the CTA, we've very conscious of our responsibility to deliver our mandates in a fair and timely manner.  By definition, certain decisions will please some parties more than others.  Our job isn't to make everyone happy all the time.  But our commitment is to make all our decisions impartially, based on careful consideration of the evidence and the law.

We are committed to regulatory and service excellence, to openness and responsiveness, and to ongoing dialogue and reflection on how we can do our job most effectively.  We are at once a modern, agile tribunal and regulator, and an institution proudly grounded in 114 years of experience and expertise.

After the last spike was driven into the ground at Craigellachie, B.C.,Sir John A. Macdonald called the country's railways "that iron link (that) has bound us together."  A hundred and thirty-three years later, the national transportation system continues to make vital contributions to the economic and social well-being of Canadians.  As we enter a critical period, the CTA is ready to do its part to help ensure that system's efficiency and accessibility.