CTA Home : Media : News Releases and Media Advisories : 2002

News Release

Canadian Transportation Agency Denies Ferroequus's Application to Use Facilities Owned by CN

WINNIPEG - September 10, 2002 - The Canadian Transportation Agency today issued a decision denying an application by the Ferroequus Railway Company which was seeking the right to run and operate trains, in order to haul grain, over specified lines of the Canadian National Railway Company (CN) between the Camrose, Alberta interchange and the Port of Prince Rupert, British Columbia. This decision follows a public hearing that was held by the Agency from April 29 to May 8, 2002, in Winnipeg, Manitoba.

The Agency, in its majority Decision No. 505-R-2002, concluded that a statutory running right is an "exceptional remedy" that requires actual evidence of market abuse or failure before an application under section 138 of the Canada Transportation Act may be granted.

In its decision, the Agency stated: "In the case at hand, Ferroequus has not established the existence of a rate or service problem in the relevant markets nor has it established that the granting of running rights would eliminate or alleviate any lack of adequate and effective competition."

The Agency, in assessing the other elements relevant to the public interest, also determined that: 1) the granting of Ferroequus's application would have a negative impact on many of the participants in the grain handling and transportation system; 2) Ferroequus's Business Plan is overly optimistic; 3) the proposed interchange of traffic at Camrose, Alberta is physically possible but cannot be performed without creating inefficiencies in the current grain handling system and to the pipe-manufacturing companies in that area; and 4) the inefficiencies that would be imposed on the grain handling and transportation system participants other than Ferroequus would not be offset by Ferroequus's operating efficiency.

The Agency carefully considered the impact of its decision on grain producers. It stated: "The issue of the efficiency of the grain handling and transportation system is important because it affects the competitiveness of the Canadian grain industry in world markets and ultimately affects grain producers and other system participants, who pay for inefficiencies in the system through lower net returns, lost sales, or both."

Four of the five members on the Agency panel considering the application concluded that running rights are "an intrusive regulatory intervention (that) is not warranted in this case".

"There has to be more than simply the enhancement of competition in a market for the section to apply. Section 138 of the Canada Transportation Act does not promote competition for competition's sake," the Agency said in its decision, although, in general, "the greater the problem, the more favourably inclined the Agency will be in its consideration of a particular running right proposal."

A panel member supporting the majority decision went further in his reasons, describing running rights as "an extreme remedy for an extreme situation" requiring "convincing evidence to prove that a carrier was, in a blatant and outrageous manner, abusing its market power".

Another panel member dissented. In her view, " ...the essence or purpose of section 138 of the Canada Transportation Act is the enhancement of competition. (...) the financial benefits to the Canadian Wheat Board and its producers brought about by the enhancement of competition to Prince Rupert far outweigh any inconveniences that the non-Canadian Wheat Board producers may suffer as a result of Ferroequus's application being granted."

Running rights allow one railway to operate using the tracks and facilities of another railway. They may be voluntary commercial agreements between two railway companies to allow more efficient operations (e.g. to avoid constructing a bridge), or they may be involuntary and imposed by the Canadian Transportation Agency, which takes into consideration the public interest.

The Canadian Transportation Agency is an independent federal quasi-judicial tribunal whose procedures are governed by the rules of natural justice. The application of these rules will ensure that all parties receive fair and equitable treatment.

-30-

For further information, please contact:

Jadrino Huot
Communications Adviser
(819) 953-9957

To keep up-to-date with our latest news releases and other information, subscribe to our electronic mail service.

What are railway running rights?

A running right allows a railway to operate over a railway line it does not own. Running rights can be voluntary or, if both railways fall under federal jurisdiction, they can be imposed on the railway owning the line by an order of the Canadian Transportation Agency, taking into consideration the public interest.

Voluntary running rights are, as the name implies, voluntary commercial agreements between two railway companies. The agreements are made for a wide variety of reasons, such as allowing a railway to avoid constructing costly infrastructure when unutilized capacity is available on another railway's lines or to allow more efficient railway operations.

Because the agreements are made for a wide variety of reasons, the terms and conditions of the agreements vary widely. For example, if an agreement is made to avoid constructing a bridge, then the agreement may require the host railway to simply allow transit by the other railway's trains. If the agreement is made to facilitate joint operation of a line, however, the host railway might allow the other railway to solicit traffic on the line. In any event, because the agreements are voluntary, they can be considered mutually beneficial to the railways making the agreements.

Imposed running rights, under section 138 of the 1996 Canada Transportation Act (CTA), provide a federal railway with running rights over another federal railway without that railway's consent. The section carries forward a provision in the National Transportation Act, 1987 (NTA, 1987).

Subsection 138(1) of the CTA allows a railway company to apply to the Agency for the right to:

• take possession of, use or occupy any land belonging to any other railway company;

• use the whole or any portion of the right-of-way, tracks, terminals, stations or station grounds of any other railway company; and

• run and operate its trains over and on any portion of the railway of any other railway company.

The Agency may, by order, grant the requested running rights and may impose conditions respecting the exercise or restriction of the rights as appear just or desirable, taking into consideration the public interest.

If the Agency does grant an application for running rights, the two railways have the opportunity to negotiate compensation for the running rights. If the negotiations fail, the Agency may determine the compensation to be paid.

The Agency, its predecessors and running rights

The Agency's powers to approve such applications and, in effect, impose running rights on a railway, have not been frequently tested, with most running rights being commercially negotiated.

In 1905, the Board of Railway Commissioners, a predecessor of the Agency, ruled that although it could grant running rights, even to the detriment of the railway owning the line, care should be taken to avoid commercial injury, unless the public interest imperatively demands it.

In the late 1980s, the National Transportation Agency, the Agency's predecessor, received three applications for imposed running rights. Two applications were from provincially-regulated railways and the Agency's predecessor ruled that the running rights provisions of the NTA, 1987 apply only in situations where both railways are under federal jurisdiction. The third application was from a federally incorporated railway. That application was withdrawn by the applicant before the National Transportation Agency ruled on the matter.

On August 1, 2000, the government passed Bill C-34, which amended the CTA, following the reviews of Canada's grain transportation and handling system undertaken by the late Judge Willard Estey and Mr. Arthur Kroeger. This amendment gave the Agency the power to grant running rights to another railway company in relation to a level-of-service complaint, if the Agency believes that a carrier has breached its level-of-service obligations. However, this provision extends only to service on a grain-dependent branch line.

Recent developments

Regulated access to the line of one railway by another through granting of running rights has lately become the focus of much attention from shippers who, in many cases, see it as a means of increasing competition.

In February 2001, the Agency received two running rights applications. The first, from the Ferroequus Railway Company Limited, sought running rights on approximately 2,000 kilometres of Canadian National (CN) lines from North Battleford, Saskatchewan to Prince Rupert, British Columbia. The second, from the Hudson Bay Railway Company, a subsidiary of OmniTRAX Canada, sought running rights on a network of approximately 3,500 kilometres of CN branch lines and mainlines in Saskatchewan and Manitoba. Both applicants had certificates of fitness as federally regulated railways and both sought the right to solicit traffic on the CN lines over which they proposed to operate.

A crucial part of the applications made in February of 2001 was the unprecedented request by the applicants for the right to solicit traffic as well as to run trains on CN's railway lines. As part of its deliberations on these applications, the Agency invited written submissions on the scope of section 138 of the CTA, as it pertained to these applications. Response was received from many industry participants, provincial governments and interested individuals and groups.

After a thorough consideration of the submissions and an extensive examination of the CTA, the Agency determined that, while the National Transportation Policy contained in Section 5 of the CTA sets intramodal competition as an objective, it is not the only objective and an assessment of other considerations was required. As part of those considerations, the Agency examined the wording contained in section 138, the statutory context, the history of the provision, the intent of Parliament and the impact of broad access on the host railway company and others.

The Agency concluded, after these considerations had been assessed, that the applications for running rights which included traffic solicitation - in effect making them applications for open access - were legally beyond the relief that could be granted by the Agency under section 138 of the CTA. As a result, in May 2001, the Agency dismissed both applications.

In October 2001, Ferroequus made a second running rights application. The application sought running rights over CN lines from interchanges with the Canadian Pacific Railway at Camrose, Alberta and Lloydminster, Saskatchewan to Prince Rupert.

September 2002

-30-

About the Canadian Transportation Agency

The Canadian Transportation Agency is an independent federal quasi-judicial tribunal. Its mission is to administer transportation legislation and Government of Canada policies to help achieve an efficient and accessible transportation system by adjudicating disputes as well as by mediation, education and consultation.

The Agency's role in rail transportation in Canada

The Agency:

• adjudicates service complaints arising in the rail industry, including disputes relative to railway infrastructure matters;

• grants authority for the proposed construction and operation of railways, and approves railway line construction;

• determines requests for running rights, where one railway seeks to operate on the lines of another;

• sets regulated railway interswitching rates and the railway revenue caps for the movement of Western grain;

• develops costing standards and regulations related to rate and service complaints; and

• audits railway companies' accounting and statistics-generating systems, as required.

Rail complaints

In most commercial situations, shippers and carriers negotiate freight rates and levels of service themselves. When negotiations break down, a number of alternatives are available, including final offer arbitration, which the Canada Transportation Act allows shippers and carriers to use to resolve private commercial disputes.

Part of the Agency's mandate is to investigate complaints relating to levels of service, interswitching, competitive line rates and joint rates. The Agency can also investigate complaints arising between federally regulated railways for matters relating to joint track usage and running rights. In circumstances where no negotiated agreements exist between railway companies for the joint use of tracks, a railway company can apply to the Agency for the right to run its trains over the tracks of any other federally regulated railway company.

September 2002

- 30 -