Discussion Paper on Regulatory Modernization for Rail Transportation

Background

On May 26, 2016, the Canadian Transportation Agency (CTA) launched an initiative to review and modernize the full suite of regulations it administers, along with related guidance documents and tools. Many regulations date back 25 years or more and need to be updated to reflect changes in business models, user expectations, and best practices in the regulatory field. The CTA’s Regulatory Modernization Initiative (RMI) is anchored in three goals:

• Ensuring that industry’s obligations are clear, predictable, and relevant to a range of existing and emerging business practices.
• Ensuring that the demands associated with compliance are only as high as necessary to achieve the regulations’ purposes.
• Facilitating the efficient and effective identification and correction of instances of non-compliance.

Current legislative and regulatory context

Canada’s National Transportation Policy, as declared in the Canada Transportation 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.

Within this framework, the CTA is responsible for the economic regulation of railway companies under federal jurisdiction and 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 2018.

Most recently, Bill C-49, the Transportation Modernization Act, which received Royal Assent on May 24, 2018, introduced significant amendments to the Act. Among other things, it has made changes related to shippers' access to remedies when they have concerns about rail service and rates; expanded informal dispute resolution at the CTA; introduced a new competitive access remedy, Long-Haul Interswitching; directed the CTA to update regular (30 km) interswitching rates more frequently; amended certain elements of the Maximum Revenue Entitlement for grain; and increased railway companies’ reporting requirements concerning their rates, service and performance.

Based on the suite of rail-related provisions in the Act that, in some cases, date back more than a century and, in others, have just come into force, the CTA administers and enforces a range of requirements and remedies. In particular, the CTA is responsible for:

• Providing certificates of fitness to operate a railway, issuing authorizations to build railway lines, and overseeing the rail line discontinuance process. This includes:

  • Approving the construction of railway lines (ranging from main lines, to branch lines, sidings and spurs);
  • Administering and enforcing insurance requirements for freight and passenger rail operations, and for rail line construction; and
  • Calculating the Net Salvage Value of railway lines to facilitate their orderly transfer.

• Resolving disputes between railway companies on the one hand, and shippers, residents, Municipalities, Provinces and other railway companies on the other. This includes:

  • Providing mediation and facilitation services to shippers and railway companies to support commercial bargaining and resolve disputes informally;
  • Adjudicating and administering various shipper remedies on railway service and rates—which are intended to ensure balanced commercial relationships between shippers and railway companies when negotiations fail—including Level of Service (LoS) complaints, Final Offer Arbitration (FOA) for rate disputes, Arbitration on Level of Services, and complaints about unreasonable or illegal rail tariff charges or terms;
  • Adjudicating Long-Haul Interswitching applications, which provide certain shippers with access to the services of a competing railway company at a rate set by the CTA; 
  • Providing mediation, facilitation and adjudication services to help manage the community impacts of railway operations, notably noise and vibration and grade crossings disputes;  and,
  • Providing recourse for public passenger service providers seeking access to freight railway facilities or infrastructure.

• Conducting costing exercises and setting interswitching rates. This includes:

  • Determining the Maximum Revenue Entitlement for the movement of Western grain;
  • Establishing financial and costing frameworks for railway companies, which are applied in various remedies;
  • Setting regular (30 km) interswitching rates; and,
  • Determining and awarding costs incurred by a public entity in responding to a railway fire.

• Providing information. This includes:

  • Providing guidance on remedies; and
  • Posting, for public viewing, railway-reported metrics on service and performance (this will take effect six months after the Royal Assent of the Transportation Modernization Act).

The CTA has developed a suite of guidance materials and tools (listed in Annex A) to support these mandates.

The CTA administers the following rail-related regulations:

1. Railway Third Party Liability Insurance Coverage Regulations
2. Railway Traffic Liability Regulations
3. Railway Traffic and Passenger Tariffs Regulations
4. Regulations on Operational Terms for Rail Level of Service Arbitration
5. Railway Costing Regulations
6. Railway Interswitching Regulations

Finally, the CTA administers the Canadian Transportation Agency Designated Provisions Regulations, which facilitate its enforcement of statutory requirements and orders through Administrative Monetary Penalties (AMPs).

Consultation Scope

This phase of the RMI is to update rail-related regulations, guidance materials and tools based on recent legislative changes, the CTA's experience in administering the current regulations, and input received during consultations with stakeholders, experts and members of the public.

As part of this initiative, the CTA seeks views on whether all of its rail-related regulations should be consolidated into a single regulation, for ease of reference. The CTA has also identified specific areas where updates to regulatory provisions may be needed and where related guidance to stakeholders may be beneficial:

1. Amendments to the Railway Interswitching Regulations, in order to smoothly implement provisions of the Transportation Modernization Act, including the new Long-Haul Interswitching remedy; 
2. Designating rail-related provisions and CTA Orders, as subject to AMPs, including new and enhanced shipper remedies under the Transportation Modernization Act;
3. Insurance filing for freight rail operations; and
4. Insurance coverage requirements for passenger rail operations.  

The CTA has also identified the following areas for potential update to its guidance materials:

1. Shipper remedies, including LoS complaints, FOA, and Arbitration on Level of Services; and
2. Recovery of costs related to a railway fire.

You are also welcome to comment on any area relating to the CTA’s mandate pertaining to the economic regulation of railway companies.

Item 1: Amendments to the Railway Interswitching Regulations

The CTA has identified the need to amend the Railway Interswitching Regulations following changes to the Act made by the Transportation Modernization Act.

First, some amendments to the Act have been made in respect of regulated (30 km) interswitching rates. By way of background, regulated (30 km) interswitching provides for the interchange of traffic from one railway company to another, at a rate set by the CTA. As a result of the amendments, the CTA will update interswitching rates annually and has a new authority to do so by decision rather than through a regulatory process. The CTA will set the interswitching rate by December 1, and publish it in the Canada Gazette, along with the method by which it was determined, by December 31.  As well, amendments specify that the CTA should have regard to the long-term investment needs of the railway in setting the rates.

Also, a new competitive access remedy, Long-Haul Interswitching, has been introduced for shippers. This remedy provides certain shippers with access to the services of a competing railway company, known as the connecting carrier. The CTA is responsible for establishing the rate that applies to the local railway carrier to move the traffic to an interchange with the connecting carrier. This rate is a blended rate: for the first 30 km of the of the long-haul interswitching movement, the rate is to be the regulated (30 km) interswitching rate. For the remainder of the distance, the CTA determines the rate having regard to specified criteria.

As part of the amendments, a competitive access remedy known as Competitive Line Rates has been  repealed.

In the context of these legislative changes, amendments to the Railway Interswitching Regulations may be beneficial to provide greater clarity on how the CTA calculates interswitching rates, including the first 30 km of a Long-Haul Interswitching movement.

Related to this issue, railway costing methodology at the CTA should be as clear as possible, given that railway costs are used by the CTA in the development of interswitching rates (among other purposes). The Railway Costing Regulations were adopted in 1980 and certain provisions are no longer applicable. Accordingly, the CTA is seeking input on the relevance of these regulations and on what information would be beneficial to stakeholders in elaborating how the CTA establishes railway costs.

Questions

1. What amendments, if any, to the Railway Interswitching Regulations would help ensure clarity on how the CTA calculates regulated interswitching rates?
2. What guidance material would be useful in understanding the CTA's development of regulated interswitching rates?
3. Taking into account that Long Haul Interswitching rates are to be set on a case-by-case basis, what type of guidance material would be useful in understanding how the remedy works and how the CTA will make rate determinations?
4. Are any provisions of the Railway Costing Regulations of current relevance? What information would be useful regarding how costing is set by the CTA?

Item 2: Administrative Monetary Penalties

The Canadian Transportation Agency Designated Provisions Regulations currently specify those provisions that, if violated, may result in the imposition of AMPs by CTA enforcement officers.

AMPs are a simpler, less costly and timelier means of ensuring compliance with statutory requirements than the alternative of prosecution. They also provide a nimble enforcement tool to ensure compliance with CTA orders, relative to enforcement through the Federal Court process.

Under the legislation, AMPs are capped at a value of $5,000 for individuals and $25,000 for corporations per violation. A person wishing to dispute an AMP may seek a review by the Transportation Appeal Tribunal of Canada.

It is important that the CTA can continue to effectively enforce statutory requirements and orders in the area of rail – including new or enhanced remedies introduced under the Transportation Modernization Act.  For example, the ability to issue an AMP would help ensure compliance with Long-Haul Interswitching orders.

Examples of rail-related provisions that could be added to the list of those provisions subject to AMPs include:

• Long-Haul Interswitching Orders (subsection 134(1)))
• Regulated Interswtiching rates (subsection 127(3)))
• Certificates of fitness to construct or operate a railway (section 90);
• CTA approval of railway construction (section 98);
• Compliance with CTA orders that ensure a reasonable level of railway noise and vibration (subsection 95.3[1]);
• Compliance with CTA orders related to railway service obligations (subsection 116[4]);
• Freight tariff requested by shipper (section 118);
• Compliance with CTA orders for railway companies to provide reasonable facilities for interswitching traffic (subsection 127[2]);
• Power to require information (section 128.1);
• Maintaining railway accounts in accordance with the prescribed classification and system of accounts (subsection 156[5]);
• Providing costing information by August 31 each year (subsection 157(5))
• Making a false or misleading statement to the CTA (subsection 173[1]); and,
• Obstructing a designated enforcement officer carrying out functions under the Act (subsection 173[2]).

Question

1. What (if any) provisions of the Act and/or CTA orders should be designated as eligible for enforcement through AMPs?

Item 3: Insurance Filing for Freight Rail Operations

The Lac-Mégantic tragedy of 2013 highlighted the need for robust insurance coverage for freight railway operations. The Safe and Accountable Rail Act, which came into effect in June 2016, established new minimum third-party liability insurance requirements for federally-regulated freight railway companies, ranging from $25 million to $1 billion. The CTA is responsible for administering and enforcing these requirements.

All federally-regulated railway companies seeking to obtain (or maintain) a certificate of fitness for freight operations must hold minimum insurance coverage that is based on the type and volume of dangerous goods carried each year, as set out in Schedule IV of the Act. The CTA must determine the minimum insurance coverage required for a proposed freight rail operation, and confirm that a railway company holds the required insurance coverage (which includes self-insurance), before issuing a certificate of fitness. Further, the CTA must suspend or cancel a railway’s certificate of fitness if it determines that the railway company does not hold the required insurance coverage. Railway companies under federal jurisdiction cannot operate in Canada without a valid certificate of fitness.

It is important that CTA processes related to insurance be both rigorous and predictable. The following application form is being proposed:

1. Application to get or vary a certificate of fitness for railway operations in Canada

The CTA also requires certain information, acknowledgements and certifications. This information is used to determine if railway companies meet the applicable minimum insurance requirements. These requirements are detailed in the forms below:

2. Certificate of Insurance; and,
3. Detailed Volume Report (i.e., volume of dangerous goods carried, by UN code).   

The Agency is inviting comment on these forms.

Similar information is also required from certificate of fitness holders on an annual basis, to confirm that, as required by the Act, they continue to maintain "at all times" liability insurance that meets the minimum requirements.

The CTA is seeking input on whether any additional information, acknowledgments and/or certifications should be required of railway companies, and whether these requirements should be formalized in regulation. 

Questions

1. Is the information and documentation currently required by the CTA appropriate for: (1) determining a railway company’s minimum insurance requirements; and (2) confirming whether they hold the required insurance amount? Is any other information and/or documentation needed? Please explain.
2. Should these requirements be prescribed in regulation? Why or why not?

Item 4: Insurance Requirements for Passenger Rail Operations and Construction of a Railway

The CTA is also responsible for determining the adequacy of the third party liability insurance coverage held by federal railway companies that relate to (i) a passenger rail service and (ii) the construction of a railway.  In this context, the Agency has the mandate to protect the public interest by determining, in an objective and consistent manner, whether federal railway companies hold adequate liability insurance coverage.

The Railway Third Party Liability Insurance Regulations, as they currently apply to passenger rail operations and railway construction, require liability coverage for (i) third-party bodily injury or death, including injury or death to passengers; (ii) third-party property damage, excluding damage to goods carried on a shipper's behalf and (iii) named perils pollution.

They specify that the following risk factors shall be considered by the CTA in determining the adequacy of third party liability insurance proposed for a passenger rail operation and the construction of a railway:

• Passenger ridership;
• Passenger  train miles;
• Volume of railway traffic;
• Types of population areas served;
• Number of level crossings;
• Speed of trains;
• Train crew training;
• Method of train control; and,
• Overall safety record of the applicant.

In the context of RMI, it is timely to consider whether any changes to this system are needed. It should be noted that the CTA also administers the Air Transportation Regulations (ATR), which specify the minimum passenger and third party liability insurance coverage that all Canadian and foreign air carriers, operating pursuant to licences issued by the Agency, are required to hold. The ATR establishes the minimum passenger liability insurance coverage per passenger seat and the minimum third party liability insurance based on a formula that takes into account the weight of the aircraft. An option for consideration is whether certain components of the air passenger liability insurance regime should be applicable to passenger rail as well.

Questions

Passenger rail operations

1. What are the appropriate factors for assessing whether third party liability insurance coverage is adequate for a passenger rail operation? Please substantiate.
2. Would a minimum “per passenger” insurance level be appropriate and if so, what level? Please substantiate.
3. Should the insurance coverage dealing with environmental risks for passenger rail operations cover the same risks as those prescribed for freight rail? With regards to environmental risks, insurance coverage for freight rail operations must now cover “risks that are associated with a leak, pollution or contamination.” Insurance coverage for passenger rail and for construction, in contrast, must include a “named perils pollution" clause. Please substantiate.

Construction

4. What are the appropriate factors for assessing whether third party liability insurance coverage is adequate for the construction of a railway? Please substantiate.
5. Would a minimum third party liability insurance level (e.g., per incident coverage) be appropriate and if so, what level? Please substantiate.
6. Should the insurance coverage dealing with environmental risks for railway construction  cover the same risks as those prescribed for freight rail? Please substantiate.

General

7. In regards to any of the items covered above are there any difficulties and challenges that applicants may face in adopting these approaches? How could these be mitigated?
8. Are there any other third party insurance-related issues you would like to raise?

Item 5: Shipper Remedies

Bill C-49, the Transportation Modernization Act, made changes to the Act related to shippers' access to remedies when they have concerns about rail service and rates. These include:

• A new definition of “adequate and suitable” rail service;
• A shorter general timeframe for the CTA to issue a level of service decision, from 120 to 90 days;
• The ability for shippers to seek reciprocal financial penalties in the Arbitration on Level of Services;
• A permanent authority for the CTA to prescribe the operational terms of service that can be submitted to Arbitration on Level of Service;
• The ability for shippers to extend, at the outset of the FOA process for rate disputes, the application of an arbitrated rate from one year to two years;
• A higher cap to use the streamlined FOA process (raised from $750,000 to $2 million);
• A new recourse mechanism for shippers to challenge rail tariffs that allocate liability contrary to the Act;
• Expanded informal dispute resolution services, including facilitation on an anonymous basis; and,
• Clear authority to resolve concerns about a railway company’s compliance with the discontinuance process in the Act.

Question

1. What tools or information would be useful in accessing and understanding the shipper remedies that are available, and understanding how they will be applied?

Item 6: Fire Provisions

In June 2015, the Safe and Accountable Rail Act amended the Railway Safety Act (RSA) to allow a provincial or municipal government to apply to the CTA, under section 23 of the RSA, to recover costs it reasonably incurred in responding to a fire that resulted from railway operations.

If the CTA determines that the fire was the result of railway operations, it will then decide the costs that were reasonably incurred by the provincial or municipal government in responding to the fire. Responding to the fire may include fighting, containing and/or suppressing the fire. It could also include broader activities like preventative measures and environmental remediation.

The CTA is seeking input on the approach for determining whether a fire was the result of railway operations and what costs should be eligible for reimbursement. This input will help shape related guidance material.

Questions

1. What factors should the CTA consider when making a determination on whether a fire is the result of railway operations?  
2. What evidence should be filed by a provincial or municipal government to support its position that the fire was the result of railway operations?
3. What activities and costs should be considered as part of the provincial or municipal government's response to the fire? Should an overhead rate (which consists of administrative costs associated with a response to a fire) be applied to these costs? If so, what rate should be applied?

Your Input

Please submit your feedback at ferroviaire-rail@otc-cta.gc.ca. 

If you wish to submit a video due to accessibility issues, please send an email to ferroviaire-rail@otc-cta.gc.ca with the subject line "Video". We will contact you to coordinate your submission.

All submissions will be considered public documents and will be posted on the CTA's website in the official language in which it was submitted, along with your name or that of the organization represented. We encourage you to review the information and to submit responses to the key questions highlighted in this document. Based on the input received, the CTA may then propose revisions to the regulatory framework and consult again with stakeholders on any proposed regulatory changes.  

What we hear will help the CTA draft updated regulations, with the goal of obtaining all necessary approvals and beginning their implementation in late 2018 or early 2019. Your input will also help inform the development of new guidance material and tools.

ANNEX A:  GUIDES AND TOOLS 

The CTA provides a range of tools and guidance documents, namely:

• Guidelines for the Resolution of Complaints Over Railway Noise and Vibration
• Railway Noise Measurement and Reporting Methodology
• Rail Noise and Vibration Complaints Brochure
• Railway Crossings of Other Railways: A Resource Tool
• Routing of Grain and the Maximum Revenue Entitlement: Interpretation Note
• Guidelines Respecting Net Salvage Value Determination Applications
• Crossings: A Resource Tool
• Apportionment of Costs of Grade Separations: A Resource Tool
• Guide to Certificates of Fitness
• Relocation of Railway Lines in Urban Areas: A Resource Tool
• Railway Operation Compensation: A Resource Tool
• Selecting an Arbitrator: A Resource Tool
• How to Apply for Approval to Construct a Railway Line: A Guide For Federally Regulated Railway Companies
• Final Offer Arbitration: A Resource Tool
• Transfer and Discontinuance of Railway Line Operations and Railway Track Determinations: A Resource Tool
• Rail Complaints: What you need to know
• Insurance Requirements for Federally Regulated Freight Railway Companies – Implementation Guide