Decision No. LET-R-218-2007 - Review of the Railway Interswitching Regulations

LET-R-218-2007

December 20, 2007

File No. 7360-6

Dear Madam/Sir:

Re: Review of the Railway Interswitching Regulations

The Canadian Transportation Agency (the Agency) hereby solicits your comments as part of its review of the Railway Interswitching Regulations (the Regulations). Subsection 128(5) of the Canada Transportation Act (the CTA) requires the Agency to review the Regulations whenever the circumstances warrant and at least once in every five-year period after the Regulations were made. The CTA also provides, in part, for adjusting the interswitching rates to reflect changes in railway costs. The Agency intends to review the provisions of the Regulations and determine whether they are accurate and effective in reflecting the commercial reality of the industry within the statutory framework prescribed by section 128 of the CTA. In particular, this review will include an examination of the current interswitching rates to ensure that they are established at an appropriate level.

Historically, Agency railway cost development has been done on an annual basis and therefore the Agency has traditionally revised the interswitching rates annually to reflect any changes in the underlying costs. Under the National Transportation Act, 1987, rates for interswitching traffic were developed in compliance with the compensatory requirement of that legislation and reflected the average variable costs of all movements of traffic subject to the rates, and also anticipated inflationary changes and productivity savings.

With the enactment of the CTA on July 1, 1996, the determination of the interswitching rates became subject to a new rate prescription directing that rates established by the Agency must be "commercially fair and reasonable" to all parties. Following extensive consultations in 1997 regarding the interpretation of this statutory requirement and its possible impact on the level of regulated interswitching rates, the Regulations and rates were amended in 1997. With respect to the rate levels, the Agency determined that a contribution of 7.5 percent over variable costs represented, at that time, an appropriate compensation for the rail fixed costs and that the resulting rates would ensure the maintenance of effective competitive access through interswitching for shippers while providing rail carriers an appropriate compensation for the costs incurred in providing the service as an imposed public duty.

The Agency also indicated, at that time, that it would no longer revise the regulated rates on an annual basis, but rather would monitor the evolution of the underlying interswitching costs annually and would revise the rates as required, based on changes in railway costs or circumstances.

In 2002, the Agency initiated a consultative process which incorporated a review of the interswitching rates in light of changes in railway costs. As the estimated costs had declined in each category of the interswitching traffic, this review resulted in a general reduction of the interswitching rate structure which became effective in the fall of 2004.

Changes in the interswitching variable costs since 2002 have been insignificant and accordingly have not warranted a change in the rates. Although the interswitching costs have been relatively stable since the last review, the Agency has decided to take the opportunity of this statutory review to re-evaluate the interswitching rates to ensure that they continue to reflect current interswitching costs.

The Agency has recently completed its development of the interswitching costs for the year 2007. The average variable costs used for the determination of the proposed interswitching rates are based on the estimated actual costs at all interchanges where interswitching occurs. For each such interchange, the specific work activities required to handle the number of cars switched in 2005, for each of the distance zones, were costed. The interchange-specific interswitching costs were then averaged for each zone and adjusted for inflation and estimated changes in railway productivity between 2005 and 2007.

Consistent with the current interswitching rate structure, the interswitching costs were developed for trains of 1 to 59 cars and for block trains of more than 60 cars in each of the four interswitching zones. In addition, costs for switching single cars and block trains per each additional kilometre beyond zone four were also computed. A contribution toward fixed costs of 7.5 percent of variable costs was then added to the variable costs to establish the proposed interswitching rates. The resulting rates were rounded to the nearest multiple of $5. The table below illustrates the proposed rate changes for each interswitching zone.

The Agency hereby requests your comments regarding the application of the Railway Interswitching Regulations including any proposals for the amendment of the Regulations and, in particular, your views on the proposed interswitching rate changes. The Agency intends to review all submissions received in the course of this review and will take into consideration the points of view expressed in the development of a regulatory proposal that will be pre-published in Part I of the Canada Gazette.

Your submission should be forwarded, no later than February 8, 2008, to:

or by electronic mail to: consultations@otc-cta.gc.ca

These Regulations are available on the Internet at http://laws.justice.gc.ca/en/SOR-88-41. Submissions received during the course of this review will be available for consultation on the Agency's Web site at http://www.otc-cta.gc.ca.

Additional information can be obtained by contacting Michel Maisonneuve at (819) 953-2235, (888) 222-2592 (toll free) or TTY 1-800-669-5575.

Sincerely,

Cathy Murphy
Secretary

BY THE AGENCY:

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  Member
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  Member