Speech from Elizabeth C. Barker, Vice-Chair of the Canadian Transportation Agency, at the Van Horne Institute, October 12, 2018

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The Canadian Transportation Agency and the national transportation system

It's a real pleasure to be here with you today (despite the snow!) to discuss Canada's national transportation system and the Canadian Transportation Agency's role in helping to ensure that it runs efficiently in the interests of all who have a stake in it.  My presentation today will outline the role and mission of the CTA.  I'll describe who we are, what we do, and touch on two initiatives that impact the rail sector: 

• First, recent legislative amendments to the Canada Transportation Act that were introduced by the Transportation Modernization Act (formerly known as Bill C-49); and
• Second, work that is being done within the CTA to modernize our regulatory framework.

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

The CTA has been part of the Canadian transportation landscape since 1904.  It was first established as the Board of Railway Commissioners to ensure the orderly development of the country's railway system, and reliable, fairly priced service to that system's customers.  Over time, the CTA and its predecessors assumed many additional roles, including to protect the human right of persons with disabilities to an accessible federal transportation network and to provide consumer protection for air passengers.

Today, the CTA, through its Governor-in-Council appointed Members, makes decisions and determinations on a wide range of economic and socio-economic matters involving all federal modes of transportation – air and federal rail, marine and bus.  At this time, the CTA is Canada's longest-standing independent, expert tribunal and regulator. 

Now let's take a minute or two to unpack that expression.

"Independent" means that we discharge our responsibilities at a distance from the Government, based on the 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 Members – the CTA's decision-makers on most matters – and the public servants who support the 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 disputes 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 that are enforceable as if they were court decisions.

And, finally, "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 within federal jurisdiction, such as telecommunications, pipelines, and nuclear power.

Now I'll drill down a bit into what the CTA does, focusing on the rail sector.

The CTA has the primary responsibility for administering the Canada Transportation Act.  Canada’s National Transportation Policy, as declared in the Act, states that "a competitive, economic and efficient, national transportation system… is essential to serve the needs of its users, advance the well-being of Canadians and enable competitiveness and economic growth in both urban and rural areas throughout Canada."  It also indicates that these objectives are most likely to be achieved when competition and market forces are the prime agents in providing viable and effective transportation services, and when regulation and strategic public intervention are used to produce economic and social outcomes that cannot be met by competition and market forces alone.

The CTA also shares responsibility for the application of nine other pieces of legislation, including the Canada Marine Act, the Canadian Environmental Assessment Act, 2012, the Pilotage Act, the Coasting Trade Act and the Railway Relocation and Crossing Act.

Within this framework, we oversee the vast and complex national transportation system to ensure the economic and social well-being of Canadians who depend on it: those who work and invest in it; and the producers, shippers, travellers, businesses and communities who rely on it.

It is also within this framework that the CTA regulates railway companies under federal jurisdiction.  The CTA has seen its role and responsibilities in the area of rail progressively increase over the past decade, through legislative reforms in  2008, 2013, 2015 and, most recently, 2018.  In short, the CTA:

• licenses rail carriers;
• approves railway line construction;
• sets and enforces railway revenue caps for moving western grain;
• establishes financial and costing frameworks for certain railway companies;
• sets interswitching rates to increase competitive options available to shippers;
• establishes the net salvage value of railway lines to facilitate their orderly transfer;
• oversees the transfer and discontinuance of federal railway lines;
• administers final offer rate arbitration and level of service and other rail-related arbitration; and 
• resolves disputes related to level of service, cost apportionment for crossing works, and noise and vibration from railway operations or construction.

The CTA has three tools that enable it to carry out its duties: those are rule-making, dispute resolution and information provision.

In a nutshell, this means that we:

• develop and apply ground rules;
• resolve disputes using a range of tools from facilitation and mediation to arbitration and adjudication; and
• provide information on the national transportation system, the rights and responsibilities of transportation service providers and users, and the CTA's services.

Now, just a few words about mediation and arbitration services.

In order to be as effective as we can in our mediation capacity, we've worked in recent years to create a team with specialized knowledge of railway companies' and shippers' realities.  In April 2016, we established a separate unit to focus on these areas and, over the past few years, we've sent 21 CTA Members and staff on learning tours to western rail and shipper operations.

On the arbitration side, our capacity allows for efficient dispute resolution between shippers and railway companies, whether it be about rates of carriage or service levels.  Arbitrations, in contrast to adjudications, are prospective rather than retrospective, and they are not formal proceedings before the CTA.  They are, however, informed by a similar sense of urgency and, like adjudications, result in binding, typically time-limited decisions.

The arbitration of rates uses final offer selection, where the arbitrator picks either the shipper's or the railway company's rate proposal.  The arbitrator is agreed to by the parties – or chosen by the CTA if the parties can't agree.  The arbitrator can request administrative, technical, and legal assistance from the CTA.  Expedited arbitration processes on rates can be undertaken where the total value of freight charges to be paid under the arbitral award does not exceed 2 million dollars. 

For arbitration on level of service, it's important to note that the law does not require a final offer selection.  Rather, it allows the arbitrator to craft the terms of Service Level Agreements between parties, by mixing elements proposed by each party, or by choosing alternatives that are more appropriate, based on the record of the arbitration.  The CTA has issued Rules of Procedure for Rail Level of Service Arbitration, which help to ensure that the legislative intent to provide for a quick resolution to a commercial dispute is met, and that shippers and railway companies are clear as to how the arbitration is to proceed.

After having explained all of this, one challenge remains for the general public: people often mistake us for Transport Canada.

I'll attempt to quickly point out the main difference between our two organizations so as to show how we complement each other's mandates.

Transport Canada is the principal source of public service policy advice to the Minister of Transport, and is responsible for transportation policies and programs.  While Transport Canada's responsibilities relate to safe, secure, efficient and environmentally responsible transportation, the CTA's mandate is focussed on commercial aspects of the national transportation system, and the accessibility of that system to persons with disabilities.

Let's shift now from the CTA's role to changes that are happening on our legislative and regulatory front.  I'll start with our recent legislative amendments. 

C-49

These amendments were introduced by Bill C‑49, becoming the Transportation Modernization Act when enacted last May.  It is worth mentioning that this legislation 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.  LHI replaced the competitive line rate provisions,  reflecting the facts that shippers want more choice while railway companies expect to be fairly compensated for their services.

Interswitching is a mechanism that has long been embedded in the Act to try to increase choice for shippers who are 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 then be handed off to a different railway company with which the shipper has contracted for onward transportation.  A standard regulated rate for the initial move by the local railway company is established by the CTA, based on a cost-plus calculation.  Following the recent amendments made to the Act, that rate will now be set and published annually.

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

LHI lets these "captive" shippers apply for interswitching for distances of up to 1200 km or half the total haul distance in Canada, whichever is greater, provided that 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, regulated 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 are now required to submit significant quantities of confidential data.

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 and we'll be making it clear to all parties in these cases that missing deadlines won't be acceptable 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 first LHI decisions will be watched closely.  Each case, of course, will be determined on its own merits.  But our commitment is to make sure that the process for arriving at those decisions is rigorous and balanced.

The amended legislation also shortens the timeline for resolving level of service disputes from 120 days to 90 days. 

With respect to final offer arbitrations regarding rail rates, Bill C-49 makes two substantial changes: first, it provides for the arbitrated rate to apply for a two-year, rather than a one-year, period, at the shipper's option; and second, it raises the threshold for an expedited process, from $750,000 to $2 million.  These two changes may result in increased submissions for final offer arbitrations, but rest assured, we'll be ready to handle any rise in numbers.  To facilitate timely and effective arbitrations, we will issue letters of appointment to arbitrators reminding them of the availability of logistical and technical support from the CTA.

As for service level arbitrations, the new amendments confirm the CTA's previous 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.

The amended legislation also allows us to undertake dispute resolution efforts in more informal ways. For example, it enables us to call a railway company on issues raised by a shipper, without revealing that shipper's identity. It also strengthens the CTA's role in ironing out issues between railway companies and shippers by providing a statutory basis for providing information and guidance on the Act's freight rail provisions.

The CTA also recently launched what we call the "Railway, Rail shipper and Community Help Line", a toll free line (1-877-850-7148) where our staff provide information, guidance and dispute resolution services.

Finally, Bill C-49 gave to the CTA an authority to initiate inquiries on its own motion for matters related to freight rail service.  This is a tool that the CTA has long used in the area of international air services, and we think that this tool will be helpful on the rail side.  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.

Now we'll turn to the CTA's Regulatory Modernization Initiative (or RMI).  This full review of all of the regulations and guidelines administered by the CTA was launched in May 2016 and work continues on many fronts.

As some of the regulatory instruments in the CTA's portfolio date back several years (and even decades in some cases), this initiative was undertaken to keep pace with evolving business models, user expectations, and best practices in the regulatory field at a time when the transportation system is faster, more automated, more complex, and more cost-sensitive than ever before.  We aim to ensure that industry's obligations are clear, predictable, and relevant.

The RMI is also intended to streamline demands associated with industry compliance.  In effect, this means keeping regulatory requirements only to the level needed to achieve the regulations' purposes, and facilitating the efficient and effective identification and correction of instances of non-compliance.

Phase one of RMI began with a review of our accessible transportation regulations and guidelines.  Phase two dealt with technical air transportation issues, including licensing of air carriers and approvals for air charters.  Phase three is dedicated to consumer protection for air passengers.  And, last but not least, phase four relates to rail regulations. 

During this last phase, the CTA's goal is to combine and update the existing six rail-related regulations into a single modernized Rail Transportation Regulation.  The rail consultations, which concluded on September 30^th, asked for input on a number of issues, including:

• whether the regulations should set out clear requirements with respect to the provision of insurance-related information to the CTA;
• what factors the CTA should consider when making a determination on whether a fire is the result of railway operations when municipalities seek reimbursement for fire-fighting costs;
• what rail-related provisions and orders should be subject to administrative monetary penalties; and
• what sort of guidance material would be helpful to stakeholders in the context of Bill C-49's new provisions.

The CTA will release a "What we heard" report on the stakeholder consultations in the coming weeks.

As you can see from my remarks, we're in the midst of a lot of activity related to rail-shipper dynamics – from legislative amendments to regulatory modernization, from improvements in how we administer recourse processes to efforts to ensure that stakeholders know we're here to help.

All of this activity is, in the end, grounded in the objectives that I described earlier: helping to ensure a smooth-running national transportation system by providing timely and effective regulatory services and providing fair and timely dispute resolution services and remedies if parties are unable to reach an agreement.

These outcomes are, of course, in the interests of shippers and railway companies.  But they're also in the interests of Canadians more generally because a smoothly running national transportation system is a foundation of Canada's prosperity.

As the CTA delivers its current responsibilities and takes on new ones, it will always keep these goals in mind.  We draw on the deep expertise, commitment, and impartiality that come with 114 years of experience as an independent tribunal and regulator.  At the same time, our attention is focused on the shifting realities of the sectors whose prospects we affect – including yours – and how we can respond effectively to those realities.

I thank you for the invitation to come to speak to you today, and I hope that the presentation provided information relevant to your respective activities.  I would also like to take this opportunity to invite you to follow our activities by visiting our website and Twitter platform, as we will be updating our information as we move forward with the implementation of our new regulations.

I thank you once again, and look forward to answering your questions.