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CANADIAN TRANSPORTATION AGENCY

Presentation to Fields on Wheels December 3, 2014

Winnipeg, Manitoba

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y CTA is a quasi-judicial tribunal, i.e. “court-like”

y Certain statutory functions given to it by Parliament

y CTA’s job is to administer laws of economic regulation:

i dispute resolution in certain areas i licensing role in certain federal modes of transport i administrative functions - Maximum Revenue

Entitlement (MRE)

y Tribunal’s mandate no further than the statute

Core Quasi-Judicial Function

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y Cornerstone of this decision-making is:

i Independence from outside influence

i Specialized knowledge of area

i Based upon fairness to affected persons

i Consistency

Cornerstones

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Bill C-30 "Fair Rail for Grain Farmers Act". asked the Agency to do three things:

Ø Define operational terms for Service Level Agreements (SLA's)

Ø Provide advice to the Minister on the minimum volumes of grain the railways should move

Ø Extend the interswitching zones in the three Prairie provincies

Bill C-30

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Operational Terms

•  1. In these Regulations, “Act” means the Canada Transportation Act

•  2. (1) For the purposes of paragraph 169.31(1)(a) of the Act, a term constitutes an operational term when it sets out an obligation of the railway company towards the shipper respecting the performance of an action related to the receiving, loading, carrying, unloading and delivering of traffic.

•  (2) A term that deals with any of the following matters is an operational term referred to in subsection (1): –  (a) the furnishing of cars to the shipper, including

•  (i) the quantity of cars to be furnished, •  (ii) the schedule for furnishing them, •  (iii) the place where they are to be furnished, •  (iv) their condition, •  (v) their type and specifications, and •  (vi) the procedures to be followed by the railway company for the processing of the shipper’s

order for those cars and for their delivery by the railway company; –  (b) the handling of cars that are furnished by the shipper to the railway company, including the

cycle time for handling them; –  (c) the furnishing of locomotives or other motive power sources, of other equipment or of train

crews; –  (d) the pick-up of cars by the railway company, including

•  (i) the schedule for picking them up, and •  (ii) the place where they are to be picked up;

–  (e) the number and scheduling of switches;

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Operational Terms

–  (f) the transit time for delivery of the shipped traffic ; –  (g) the route to be used for that delivery; –  (h) a performance standard — expressed as a quantity, frequency, percentage or other metric — for

measuring the railway company’s compliance with an operational term that deals with a matter referred to in any of paragraphs (a) to (g) or any other operational term referred to in subsection (1), including any term that establishes the railway company’s responsibility for collecting and sharing data and for reporting in respect of the performance standard;

–  (i) the circumstances that would make it impossible for the railway company to comply with an operational term that deals with a matter referred to in any of paragraphs (a) to (g) or any other operational term referred to in subsection (1), including

•  (i) a superior force, including a flood, fire or other natural disaster, •  (ii) a war or insurrection, •  (iii) a riot, strike or lock-out, •  (iv) a derailment, •  (v) a blockage of rail lines due to an accident, demonstration, natural cause or other cause, •  (vi) any condition related to the loading of cars, •  (vii) a failure of the shipper to comply with conditions that are associated with the performance

by the railway company of service obligations under section 113 of the Act, •  (viii) the inability of the railway company to access a terminal or a delay in accessing it, •  (ix) the inability of the railway company to transfer the shipped traffic to another railway company

or a delay in transferring it, and •  (x) a breakdown in a component of the railway.

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Operational Terms

•  3. (1) For the purposes of paragraph 169.31(1)(b) of the Act, a term constitutes an operational term when it sets out an obligation of recovery that the railway company must comply with if it fails to comply with an operational term that deals with a matter referred to in any of paragraphs 2(2)(a) to (g) or any other operational term referred to in subsection 2(1).

•  Obligations of recovery •  (2) An obligation of recovery must set out steps that the railway company must take to minimize the

consequences for the shipper of its non-compliance and to ensure that compliance, including –  (a) preparing a recovery plan for those purposes; –  (b) taking reasonable steps to secure whatever assistance may be required to carry out those

purposes; –  (c) limiting any prejudicial consequences related to the non-compliance; and –  (d) implementing the recovery plan.

•  Paragraph 169.31(1)(c) of the Act •  4. (1) For the purposes of paragraph 169.31(1)(c) of the Act, a term constitutes an operational term when it

sets out an obligation of the shipper towards the railway company respecting the performance of an action related to an operational term referred to in section 2, including a term that deals with any of the following matters:

–  (a) the furnishing of cars to the railway company; –  (b) the handling of cars that are furnished by the railway company to the shipper; –  (c) the loading and unloading of cars, including the scheduling of and the procedures for the release of

those cars; –  (d) the number and scheduling of switches; and –  (e) the provision of access to the shipper’s facilities.

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Operational Terms

•  Obligations of recovery •  (2) For the purposes of paragraph 169.31(1)(c) of the Act, a term constitutes an operational term when it

sets out an obligation that the shipper must comply with in relation to an obligation of recovery referred to in section 3.

•  Communication protocols •  5. For the purposes of paragraphs 169.31(1)(a) to (c) of the Act, a term constitutes an operational term

when it sets out a communication protocol for the railway company and shipper to use to communicate information in respect of their compliance with an operational term, including a protocol for communicating information about

•  (a) the shipped traffic, including its position, state and expected time of delivery at any particular time; •  (b) any circumstance referred to in paragraph 2(2)(i); •  (c) an obligation of recovery or any obligation of the shipper related to an obligation of recovery, including

reporting on the implementation of any recovery plan; •  (d) any failure of the railway company or the shipper to comply with an operational term; •  (e) the billing for services in relation to an operational term referred to in paragraph 169.31(1)(a) of the Act;

and •  (f) the authorization of a terminal. •  6. Repeal •  7. Coming into Force

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Service Level Arbitration PROCESS

D -15 Notice of intent D 0 Earliest date for submission D zero Submission for arbitration D10 Latest to file proposals; possible objection filed D11 Exchange of proposals D14 Appointment of Arbitrator D15 1st Pre-arbitration meeting held D16 Summary of pre-arbitration meeting provided to parties D25 Exchange of briefs between parties D32 Exchange of questions to the other party D39 Answers to questions due D43 2nd Pre-arbitration meeting D44 Summary of 2nd pre-arbitration meeting D45 Latest date for ruling on objection D46 Final day to submit documents and will say statements D51 Hearing begins D53 Hearing ends D65 Latest arbitration decision can be issued

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Minimum Volumes Advice

Bill Received Royal Assent May, 29 , 2014 •  Section 116.2 CTA requires the Agency to provide advice to the

Minister by July 1, 2014 on the minimum amount of grain* that CN and CP should move during each month of the 2014-2015 crop year.

•  The Agency must consult with CN and CP, the owners or operators of grain handling undertakings as well as any other persons it considers appropriate.

•  On request of the Minister and after having consulted with the parties mentioned above, the Agency must update its advice.

* As defined by Schedule II of the CTA

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Minimum Volumes Advice

•  Bill passed May 28, 2014. •  On June 6, fact-finding questions sent to more than

60 stakeholder organizations. Deadline for submissions was June 20 COB.

•  June 9-18 Staff met in person with 28 organizations. •  Received 27 submissions from a broad spectrum of

stakeholders •  Analyzed crop production, rail traffic, weather and

other factors that may have an impact. •  Developed a forecasting model to be used as a

check.

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Minimum Volumes Advice

•  Advice  provided  to  the  Minister  prior  to    July  1,  

2014    

•  OIC  issued  on  August  1,  2014  for  weekly  minimum  volumes  for  the  period  August  3  to  November  29,  2014.    

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Minimum Volumes Advice

•  September  2014,  Agency  asked  to  update  its  

advice.  

•  Staff  essenIally  repeated  June  process,  met  with  more  organizaIons  through  group  meeIngs.    

•  Update  on  advice  provided  to  Minister  prior  to  the  end  of  October.    

•  New  OIC  issued  November  29,  2014,  in  effect  unIl  March  28,  2015.  

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Interswitching

•  Interswitching is one of the competitive access provisions of the

Canada Transportation Act for the benefit of shippers that allows a shipper located on one railway's line to access the line of a different railway.

•  The shipper must be located within a specified distance of an interchange between the two railways.

•  There are three situations where interswitching is used: •  at origin •  at destination •  at both origin and destination

   

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Interswitching: Role of the Agency

•  Prescribing, for the purposes of a designated radial distance limit, a greater

distance than 30 kilometres from an interchange (CTA s.128.(1)(c)).

•  Reviewing and updating the Interswitching Regulations when the circumstances warrant, or at least once in every five years (CTA s.128.(5))

•  Prescribing the terms and conditions governing the interswitching of traffic, other than terms and conditions relating to safety (CTA s.128.(1) (a)).

•  Section 7 of the Fair Rail for Grain Farmers Act allows the Agency to prescribe interswitching rates for customers at distances, and for commodities, and regions as the Agency sees appropriate.

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Interswitching: Setting of rates under the CTA

Section 128 of the CTA requires that:

•  The Agency must consider the cost reductions arising from

transferring several cars at the same time (CTA s.28.(2)). •  The Agency must consider the average variable costs of all

movements of traffic that are subject to the rate (CTA s. 28.(3)). •  The rate must not be less than the variable costs of moving the

traffic, as determined by the Agency (CTA s.128.(3)).

Section 112 of the CTA contains the general provision that: •  A rate or condition established by the Agency must be

commercially fair and reasonable to all parties (CTA s.112).

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Interswitching: Determining the rates

The Interswitching rates determined by the Agency: •  Cover all operating, maintenance, and administration costs incurred

in providing the interswitching service; •  Cover the cost of investment in the infrastructure used in providing

the service; •  Cover the cost of the infrastructure consumed in providing the service

(depreciation); •  Cover the appropriate portions of the costs of interest, and federal,

provincial, and municipal taxes; •  Provide an appropriate contribution to the railway company's fixed

costs; and •  Provide an adequate return to the railway company's investors.

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Interswitching: Determining the rates

The Standard Agency Approach In most cases, the Agency's approach to costing is based on assessing the most recently available operations and costs and indexing them to the current period, based on Agency approved metrics (e.g. the VRCPI) The Agency determines the rates for interswitching based on:

Ø Actual historical unit costs (annually determined), Ø Actual historical carloads interswitched (annually submitted),

and, Ø Actual railway operations in performing the interswitching

service (sampled over a 3-5 year period).

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Interswitching:Determining rates for a

160KM Zone

This determination was different as no historical data for assessing who will use the service or the rail operations involved was available.

It was hard to predict the behaviour of railways and shippers in reacting to this new reality.

We did not have: Ø actual historical traffic patterns, or Ø actual historical operational activities

The data wouldn't be observable until the regulations were amended, the rate set, and shippers started using the new extended interswitching service.  

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Interswitching:Determining rates for a 160KM

Zone(con't) Two issues needed to be determined:

•  What was the most appropriate approach to determining the

costs of these new , and unobserved extended interswitching movements?

•  Once the costs are known based on a given approach, how best can those costs be translated into a flexible but relatively simple rate structure?

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Interswitching: Options for 160km Zone

Agency staff looked at two possible options for determining rates for the extended interswitching: Option A: Extrapolate Current Zone 4 Rates Ø  Existing regulations included a rate for shippers located within a 30km

radius, at track distances over 40 kilometres from an interchange.

Ø  The rate for those shippers, used the Zone 4 rate per car for the first 40km, and then add a per kilometre rate for each kilometre in addition to the 40km covered in the base rate.

Ø  In keeping with that approach, the Agency could have extrapolated the current Zone 4 rates in the Regulations through the extended distance.

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Interswitching: Options for 160km Zone

Option B: Model the Extended Distance Service Ø  Staff modelled the provision of interswitching service for both block and

single car interswitching.

Ø  Staff then estimated the cost per car to provide interswitching service to each shipper, based on assumptions about expected railway activities to be performed for the service.

Ø  Data used include the locations, historical annual volumes moved, and available car spots for grain elevators in the three Prairie Provinces (served by both CN and CP)

Ø  Data also included the locations and historical annual volumes moved for CP served shippers* of all other commodities.

*CN did not provide equivalent data to the Agency

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Interswitching: 160 km Rate Modelling

Estimation vs. Extrapolation using current rates in the regulations

-  Both were potentially viable options, both generated a cost based on differing assumptions.

-  Extrapolation (Option A) would imply that Agency staff expects the average operations it has observed inside of the 30km radius to be representative of operations outside that range.

-  The estimation (Option B) is based on a number of assumptions which have been made informed by Agency staff's understanding of operations in the extended range (i.e. outside the 30km radius, and up to a 160km radial distance).

-  Agency staff's models suggest that the cost of serving shippers inside the 30km radius is not reflective of the cost to service shippers outside that distance band.

-  Both the single car and block train models showed a meaningfully different outcome than the extrapolation of the current regulations.

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Interswitching:160 km Rate Structure

Agency staff analyzed the option of establishing zones, but found that creating

multiple new zones was not warranted at this time* since:

1)  No estimated customers carloads are certain to be in the sample, thus any zone rate based on fewer points increases the likelihood of the rate being skewed by shippers who do not use interswitching service.

2)  At all distances there is a reasonably similar range of variation in our estimates. That is, rather the rate is based on zonal averages, or a single zone based rate per kilometre, the model performs more or less the same.

3)  The linear per kilometre model performs very well for blocks trains, and single car interswitching.

4)  The per kilometre approach avoids the choice of arbitrary distance zones, in a circumstance where no data exists to allow the Agency to correctly determine them.

* This analysis does not imply that future reviews of actual data points would choose not to create more zones. Such a decision would be considered in the context of that data.

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Interswitching:The Consultation Process

Agency staff prepared two documents for stakeholders outlining the

options and staff's findings.

Ø  Staff consulted with CN and CP, as well as distributing the consultation documents broadly to a range of stakeholders.

Ø  Stakeholders were invited to comment of staff's findings.

Ø  Consultations were held in:

•  Calgary (CP)

•  Saskatoon (Shortline and RAC members)

•  Winnipeg (Shippers and other stakeholders)

•  Ottawa (CN)

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Interswitching: The New Regulations

§  The new regulations established:

•  A new distance zone (Zone 5),

•  Block Train rates for Zone 5

•  Single Car rates for Zone 5

•  Additional km rates, for distances over 40km in Zone 5.

§  The regulations came into force on August 1, 2014    

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Agency Website:

www.cta-otc.gc.ca