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Vol. 138, No. 20 — October 6, 2004 Registration CANADA TRANSPORTATION ACT Regulations Amending the Railway Interswitching RegulationsThe Canadian Transportation Agency, pursuant to paragraph 128(1)(b) of the Canada Transportation Act (see footnote a), hereby makes the annexed Regulations Amending the Railway Interswitching Regulations. Gatineau, September 16, 2004 P.C. 2004-1025 23 September, 2004 Whereas, pursuant to subsection 128(1) of the Canada Transportation Act (see footnote b), the Canadian Transportation Agency may make regulations prescribing, inter alia, the rate per car to be charged for interswitching traffic, and establishing distance zones for that purpose; Whereas, pursuant to subsection 128(2) of that Act, in determining the interswitching rate the Agency has taken into consideration those reductions in costs that, in the opinion of the Agency, result from moving a greater number of cars or from transferring several cars at the same time; Whereas, pursuant to subsection 128(3) of that Act, the Agency has considered the average variable costs of all movements of traffic that are subject to interswitching rates and has determined that the rates set out in the annexed Regulations are not less than the variable costs of moving the traffic; Whereas, pursuant to section 112 of that Act, a rate established by the Agency under Division IV of Part III of that Act must be commercially fair and reasonable to all parties; And whereas, based on the evidence available to the Agency, the Agency has determined that the interswitching rates are to be revised at the levels set out in the annexed Regulations; Therefore, Her Excellency the Governor General in Council, on the recommendation of the Minister of Transport, pursuant to subsection 36(1) of the Canada Transportation Act (see footnote c), hereby approves the annexed Regulations Amending the Railway Interswitching Regulations, made by the Canadian Transportation Agency. REGULATIONS AMENDING THE AMENDMENT 1. The schedule to the Railway Interswitching Regulations (see footnote 1) is replaced by the following: SCHEDULE INTERSWITCHING RATES
COMING INTO FORCE 2. These Regulations come into force 30 days after the day on which they are registered. REGULATORY IMPACT (This statement is not part of the Regulations.) Description The Railway Interswitching Regulations (the Regulations) prescribe the terms and conditions under which railway freight cars are exchanged between the lines of different railway companies pursuant to the provisions of Division IV, Part III of the Canada Transportation Act (the CTA). The Regulations apply to traffic moving within a 30-kilometre radius, or a greater distance as prescribed by the Canadian Transportation Agency (the Agency), of an interchange connecting two railways under federal jurisdiction and the facilities of a shipper at either the origin or destination of a traffic movement. The Regulations establish four distance zones within the 30-kilometre radius and prescribe rates per car for interswitching traffic to or from each zone. The rates are based on the estimated costs of interswitching traffic borne by the Canadian National Railway Company (CN) and the Canadian Pacific Railway Company (CP). Lower per-car rates are prescribed for the interswitching of blocks of 60 or more cars as a unit. The rates set out in the Regulations are also used by the Agency as needed for the establishment of competitive line rates, pursuant to section 133 of the CTA. Pursuant to subsection 128(5) of the CTA, the Agency shall review the Regulations whenever the circumstances warrant and at least once in every five-year period after the Regulations are made. The Act also requires that the Agency examine railway costs in its determination of the rates and stipulates that the resulting rates shall not be less than the average variable cost of moving the traffic. The interswitching rates are also subject to section 112 of the CTA, which requires that rates established by the Agency be "commercially fair and reasonable to all parties". Historically, the Agency has reviewed the railway interswitching costs annually and revised the rates accordingly to reflect any changes in the costs. The Agency last amended the Regulations and the interswitching rate structure in 1997. At that time, the Agency indicated that it would continue to develop interswitching costs on an annual basis, but would only revise the corresponding rate structure contained in the Regulations when the circumstances warrant. The changes in the interswitching variable costs since 1997 were insignificant and did not warrant a change in the rates. Having not revised the Regulations since 1997, it was necessary for the Agency to initiate a statutory review of the Regulations in 2002. Accordingly, the Agency initiated a pre-consultation in August 2002 with approximately 240 industry participants regarding the level of the interswitching rates and the application of the Regulations, including proposals for substantive amendment. In addition to a proposal for revising the interswitching rates, the Agency also intended to assess whether the Regulations accurately reflect current commercial practices and standards of the industry within the framework prescribed by section 128 of the CTA. The Agency's examination of railway costs for 2002 indicates that the costs for each category of interswitching traffic have decreased significantly from earlier levels. Accordingly, the Agency has decided that new rates reflecting these current cost levels be implemented. This revision is consistent with the requirements set out under section 112 and subsection 128(5) of the CTA. The revised interswitching rates are based on an estimation by the Agency of CN's and CP's variable costs and a percentage of contribution towards fixed costs. Railway variable costs include operating expenses that vary with the amount of traffic. In making costing determinations for the interswitching traffic, other factors such as the cost of capital and depreciation are considered. The rules for determining railway variable costs are set out in the Railway Costing Regulations (SOR/80-310), which stipulate that variable costs shall include the increases and decreases in rail operating expenses resulting from changes in the volume of traffic. However, it is recognized that certain costs are incurred by the railway even with a very small volume of traffic. These costs are called fixed or constant. For example, the cost of maintaining a tunnel or removing snow must be incurred even if a minuscule amount of traffic is carried. While the Railway Costing Regulations set out various factors considered in making costing determinations, including the cost of capital and depreciation, the Uniform Classification of Accounts (UCA), which is prescribed by the Agency, is used by railways under federal jurisdiction to report their operating expenses, revenues and other statistics to the Agency, as well as to Transport Canada and Statistics Canada. This serves as a principal source of financial and operating data used in railway costing. Financial and accounting data on capital and operating expenditures come from over 40 property and 160 expense accounts identified in the UCA Manual. Furthermore, the Agency approves each year the cost of capital rates that are used in the determination of interswitching costs. The determination of the cost of capital rates consists of four distinct steps: (1) the determination of net rail investment; (2) the determination of capital structure; (3) the determination of the cost rates for each component of the capital structure which includes the cost of common equity rate; and (4) the calculation of the weighted average cost of capital rate, which includes an allowance for income tax. In determining the actual costs at all interchanges in Canada where interswitching occurs, the Agency used system variable costs and the amounts of specific work activities required to handle interswitching traffic. The work activities vary from one interchange to another, based mainly on the configuration of the railway yard and the location of customers. Agency staff update the amounts of work activities annually by visiting several interchanges on a rotating basis. The interchange-specific costs were then averaged for each distance zone and adjusted for inflation and estimated changes in railway productivity. Interswitching costs were then developed for trains of 1 to 59 cars and for block trains of 60 or more cars in each of the four interswitching zones. In addition, costs for interswitching single cars and block trains per each additional kilometre in excess of 40 kilometres from an interchange were computed for traffic moving to or from zone 4. A contribution toward fixed costs of 7.5 percent of variable costs was then added to the variable costs to establish the revised interswitching rates. The resulting rates were rounded to the nearest multiple of $5. The Agency has determined that the variable costs have declined in each category of the interswitching traffic, and has decided therefore to implement a general reduction in the interswitching rate structure. The revised rates for blocks of less than 60 cars are to decrease, on average, by 13.0 percent while the rates for blocks of 60 or more cars are to decline, on average, by 16.7 percent. The table below illustrates the rate changes for each interswitching distance zone.
The Regulations, which contained revised interswitching rates, have been pre-published in the Canada Gazette, Part I, on November 8, 2003, to allow further comment. Alternatives In response to the pre-consultation initiated in August 2002, the Agency received 22 submissions while 13 submissions were filed in response to the pre-publication in the Canada Gazette, Part I. Eight parties participated in both consultations. Interested parties were railway companies, shipper and shipper associations, provincial governments, a federal government agency as well as a port authority. While the consultation focussed on the appropriateness of the proposed reduction in the interswitching rate structure, a number of related issues were raised during the consultative process, including: the need for regulated interswitching rates; the appropriate rate levels and the inherent compensation toward railway fixed costs; the redefinition of the interswitching zones and car blocks; the monitoring of interchanges eligible for interswitching; the applicability of interswitching among railway companies, and the level of service provisions applicable to interswitching. These matters, as well as other proposals to further amend the Regulations are being addressed below. Deregulation of Interswitching Rates CP submitted that, as a matter of general principle, interswitching rates should be negotiated between the railways on commercial terms and any regulatory intervention in the establishment of railway rates should be limited to defined circumstances. CP contended that this approach is consistent with the National Transportation Policy set out in section 5 of the CTA, which states, in part, that competition and market forces are, whenever possible, the prime agents in providing viable and effective transportation services. Conversely, 13 interested parties, mainly shippers, provincial governments and a federal government agency, noted the benefits of regulated interswitching in increasing intramodal competition and stressed the need for the continued regulation of the interswitching rates. They argued that the retention of regulated interswitching rates and services encourages constant competition between railways and promotes ongoing commercial negotiations between shippers and railways. The Canadian Fertilizer Institute (CFI) submitted that wherever possible, rail rates and services should be matters of commercial interest and negotiation between shippers and railways. However, where rail competition may be ineffective, the use of regulated interswitching rates and services is necessary and feasible. CFI stressed that under the regulated environment, the Agency interswitching regulations operate as a tool of last resort for captive shippers. The Canadian Industrial Transportation Association (CITA) submitted that regulated interswitching is a critical "competitive access tool" that creates the opportunity for competitive service in situations where natural monopolies occur. The interswitching rate structure encourages both shippers and the railways to operate in harmony with the marketplace. In places where competitive discipline is not present in the marketplace, regulated interswitching should continue to provide the shipper with competitive modal options. CITA submitted that in the absence of modal competition, there are no controls, other than regulated interswitching, to protect shippers from potential rate or service abuse. In examining the above-noted submissions, the Agency acknowledges that the CTA makes it clear that the regulation of interswitching rates is discretionary. Yet, an examination undertaken by the Agency of the rates charged by a local carrier for switching traffic in markets where competition does not exist indicates that, in most cases, the rates charged for switching traffic, whether for intra-plant, inter-plant, or inter-terminal switching, are substantially higher than the regulated interswitching rates for comparable movements. Accordingly, the Agency considers that the continued prescription of regulated interswitching rates is in conformity with the stated objectives of the National Transportation Policy, which stipulates, in part, that economic regulation should only occur in instances where regulation is necessary to serve the transportation needs of shippers. The alternative of not prescribing rates was therefore rejected because the Agency is not convinced that market forces could otherwise protect adequately shippers from the market dominance of one railway service provider, nor that market forces could ensure that the present level of competitive access to a second railway would be preserved without regulatory intervention. Different Rate Levels and Compensation toward Railway Fixed Costs The submissions received from shippers, shipper associations, provincial governments as well as a federal government agency, that expressed views during the consultative process on interswitching rates were all in favour of the proposed reduction in the rate levels. They also supported the continued use of a contribution level of 7.5 percent over railway variable costs in the development of the rates, concluding that there was no reason to vary the earlier Agency determination that a 7.5 percent factor constitutes a proper compensation toward rail fixed costs. They also emphasized that the resulting rates would be commercially fair and reasonable to all parties, and thus in accordance with section 112 of the CTA. CFI submitted that a commercially fair and reasonable interswitching rate is one that reimburses the service supplier for the actual work performed in carrying out the service plus a fair and reasonable contribution over and above the cost of providing the service. CFI advocated that any new rate structure continue to include the 7.5 percent contribution level as well as reflect lower railways costs. The provinces of Manitoba and Saskatchewan supported a reduction in the interswitching rates and the continuation of the present contribution toward fixed costs of 7.5 per cent of variable costs, to maintain the utility of interswitching in providing effective intramodal competition. They indicated that setting the contribution at this level would facilitate the establishment of an interswitching rate close to the fully allocated long run variable costs associated with providing interswitching services. CN, CP, Montreal, Maine & Atlantic Railway, Inc. (MMA), Montreal, Maine & Atlantic Canada Co. (MMAC), Southern Railway of British Columbia Limited (SRY), and The Quebec Central Railway Company (QCR) were opposed to the proposed interswitching rates. CN submitted that the current interswitching rates do not meet the legislative test of being commercially fair and reasonable to the switching railways, and that any reduction in rates would make the situation even worse. CN contended that while the expression "fair and reasonable to all parties" may invite a conservative level of compensation, the word "commercially" infers that commercial viability is the norm and, therefore, all variable and fixed costs including the cost of capital, must be properly compensated. CN stated that the current contribution to fixed costs is inadequate to allow railways to earn their cost of capital. Rather, a contribution level of 50 percent would be commercially justified so that railways could recover their variable and fixed costs as well as earn their cost of capital. CN contended that a result of not adequately compensating the railways for their interswitching activities is that railways must cross-subsidize this activity with their line-haul traffic so that it becomes a form of hidden subsidy to competing railways that capture traffic within the interswitching limits. In the alternative, CN indicated that the current rate levels should be maintained in order to avoid further cross-subsidization and resulting market distortion. CP submitted that in providing interswitching services to another railway, the switching railway should receive compensation that provides for full cost recovery. Since the interswitching rates are the same regardless of the commodity switched, the contribution level incorporated in the interswitching rates should therefore reflect at a minimum the average contribution required across all services for the railway to recover its constant costs. CP stated that this required average contribution level is in the order of 25 percent. SRY submitted that while the rate reductions will not have a direct bearing on provincial railways, they will nevertheless have a serious negative effect on SRY and other shortlines because the regulated interswitching rates often form the basis to establish the switching rate between federally regulated railways and provincial railways. SRY indicated that, while it is not bound to make rate adjustments based on changes in the prescribed rates, there would be definite pressure placed on provincial railways like SRY to reduce their switching rates to reflect the proposed reduced interswitching rate levels. SRY contended that the proposed rates are artificially low as they do not accurately reflect the true costs of providing the service. SRY insisted that shortline railway companies do not necessarily switch similar amounts of traffic with competitors and consequently, they need to make a profit on switch-related traffic and any downward pressure on rates could effect their viability. SRY concluded that the rates should be raised to allow the company to make a profit and to cover its capital investment needs as well as to recognize the existence and profit of higher costs in certain areas of the country. MMA and MMAC submitted that because they interswitch a very disproportionate number of cars with CN, the proposed reduction in the rates will have a substantial negative impact on them while it will result in a corresponding enrichment of CN. Similarly, QCR insisted that it is a relatively new railway, being in operation for only three years, and submitted that the implementation of the proposed reduction in the rates would put the carrier in a very uncomfortable financial position. The Western Grain Elevator Association (WGEA) questioned the present methodology which averages all interswitching costs in order to generate one uniform rate for all railway yards. WGEA proposed that yard-specific costs be generated with resulting rates per interchange. Conversely, CFI and CITA expressed their support for the present methodology for determining the interswitching rate structure and recognized that while a methodology based on the system average costs for all traffic moved under the regulated rates may not reflect the actual costs at any given rail yard or interchange, it creates a balance for shippers across the system. This approach also minimizes the time and resources required by the Agency to establish the regulation as well as the administration of the interswitching tariffs by the railways. CFI and the Competition Bureau submitted that the competition could be enhanced if the CTA was changed so that the prescribed interswitching rates be considered as maximum rates. In particular, CFI recommended that the rates set out in the revised Regulations be specifically identified as "maximum" rates, leaving it open for shippers and railways to enter into commercial arrangements for lower interswitching rates, where commercial considerations permit. The Agency has considered the following alternatives for determining the revised rates: (1) update the existing rates using a rail index; (2) maintain rates at existing levels; or (3) recost the interswitching operations and amend the rates using the most current data available. In conjunction with these alternatives, the Agency also considered whether it would be appropriate to modify the level of contribution toward railway fixed costs included in the interswitching rates, which had been established in 1997 at 7.5 percent of variable costs. The first alternative was rejected on the grounds that, although an index would provide a measure of railway cost changes, it would not adequately reflect the cost changes resulting from variations in the distribution of the interswitching traffic among terminals across Canada and between the four distance zones. The year-to-year variations in the distribution of the interswitching traffic are responsible for significant fluctuations in the assessment of the interswitching costs. The second alternative, which is the status quo, fails to take into account the significant changes in underlying railway costs which have taken place since the rates were last amended in 1997. Since the interswitching rates should reflect, to the best extent possible, actual railway costs, this option was rejected because it fails to recognize the operational developments and improvements that have arisen in the railway industry over the last few years. The third alternative takes into account the year-to-year changes in costs for each of the interswitching distance zones and the variations in the distribution of the interswitching traffic among terminals across Canada and between distance zones. It also reflects any productivity savings that are expected to result from the anticipated changes in railway operations in the subsequent year. As such, and among the available options, the Agency concluded that it best reflects the tenets of the National Transportation Policy. In applying the methodology outlined in the third option, the Agency has decided to continue to determine a national interswitching rate structure based on the average estimated variable costs for each geographical zone at all interchanges where interswitching occurs. One variation could have been to develop a terminal-specific interswitching rate structure that would take into account the specific variable costs of the operations at each interchange. However, the Agency notes that establishing different rates based on the particular operating conditions prevailing at each terminal would create wide disparities in the interswitching rate structure and would significantly increase the burden associated with the administration of the interswitching tariffs by the railways. In the past, there has been concern that this methodology may not be "commercially fair and reasonable to all parties" since it would generate different levels of access to a competitive alternative across Canada. Furthermore, there has been a general agreement in the past that the uniformity in the interswitching rates across Canada makes interswitching inexpensive to administer and ensures that rates will remain relatively stable and predictable, which makes interswitching simpler to integrate in the negotiation process of long-term agreements. In respect of the issue of the level of contribution toward railway fixed costs, the Agency must be guided by the National Transportation Policy. This Policy advocates modal viability and that each carrier, as far as practicable, receives fair and reasonable compensation for the resources, facilities and services that it is required to provide as an imposed public duty. At the same time, the Policy advocates competition and, where necessary, the economic regulation of carriers with the maintenance of regulated competitive access mechanisms like interswitching where location or market forces may not otherwise produce competitive alternatives. Therefore, the issue facing the Agency is to determine "commercially fair and reasonable" rate levels for all parties that would provide to shippers a continued access to competitive alternatives and to the railways, the appropriate compensation for the resources consumed in providing such an imposed public duty. The law also distinguishes interswitching rates from the other rate provisions under the CTA in the sense that subsection 128(3) of the CTA specifies that interswitching rates must not be less than the variable costs of moving the traffic. In 1997, the Agency consulted extensively on the effect that this provision as well as the "commercially fair and reasonable" rate requirement in section 112 of the CTA may have on regulated interswitching rates. At that time, the Agency concluded that a contribution of 7.5 percent over variable costs represented an appropriate compensation for the railway fixed costs. The Agency found that the resulting rate levels reflected an appropriate balance of providing an effective access to competitive alternatives through interswitching on the one hand, and providing rail carriers with fair and reasonable compensation for the costs incurred in providing the services as an imposed public duty on the other hand. In consideration of all the information currently available to the Agency, it was determined that no evidence had been presented to demonstrate the existence of changes in circumstances that would warrant the change in the level of contribution of 7.5 percent since the last review. Notwithstanding, the Agency had decided to initiate a further consultative process with industry participants on this issue. In respect of the proposal that prescribed interswitching rates be considered as maximum rates, the Agency notes that section 128 of the CTA allows the Agency to determine the rates applicable to interswitching traffic but not rates that are to be considered as maximum. Any change in that respect would require a legislative amendment. Interswitching Zones and Car Blocks The Canadian Wheat Board (CWB) urged that the interswitching limits be extended from the current 30 kilometres to 150 kilometres in order to restore the value of this competitive access provision to grain shippers. CWB contended that the significant reduction in primary grain elevators located across western Canada has limited the volume of grain traffic that qualifies for regulated interswitching based on the present interswitching limits. As a result of this rationalization, the CWB stated that the value of regulated interswitching to grain shippers has been substantially diminished. CWB emphasized that an increase of the interswitching limits to 150 kilometres would allow approximately 80 percent of the elevator capacity in western Canada to qualify for regulated interswitching. Keystone Agricultural Producers also recommended that the interswitching limits be extended. Ten parties, composed of shippers, shipper associations, provincial governments and a federal government agency, recommended that the structure of the interswitching rates be amended in order to provide for rate reductions on multiple car shipments of less than 60 cars. Several recommended that the Agency examine the feasibility of amending the Regulations by establishing three rate categories for multiple car block sizes of 25 to 49, 50 to 99, and 100 or more cars in order to encourage efficiencies in developing unit trains and to reflect current industry practices. The Farmer Rail Car Coalition (FRCC) submitted that among the significant changes having occurred within the western Canadian grain handling system is the move toward the use of car blocks of 25, 50, and 100 cars. However, the existing rail infrastructure in western Canada has few sidings that can accommodate 60 rail cars or more. Rather, car sidings that can accommodate 25 or 50 rail cars are more common. Consequently, FRCC implied that such regulatory changes are academic, as most grain shippers are unable to benefit from any reduced interswitching block rate that comes from car block efficiency because of a lack of infrastructure. The provinces of Manitoba and Saskatchewan indicated that the railways provide incentive rates to the grain companies to encourage loading of multiple car blocks at, for example, high throughput elevators. The railways also allow for smaller multiple car movements in their incentive rate schedules. In practice, most grain handling facilities can accommodate multi car blocks in increments of 25 cars, which are loaded on rail sidings with a capacity of 25 to 50 cars. The provinces of Manitoba and Saskatchewan accordingly recommended that the rate categories in the interswitching regulations reflect the efficiencies from these car block sizes, in order to enable more shippers to benefit from lower interswitching costs for multiple car blocks, and provide a more equitable rate structure. They also contended that since the railways provide incentive rates to the grain companies for smaller multiple car movements and since the grain industry utilizes multiple blocks of 25, 50, and 100 cars to assemble unit trains for export shipments, the interswitching rate categories should reflect cost savings associated with this practice. CP was opposed to any amendment of the current rate structure, such as establishing separate interswitching rates based on geographic location or commodity, modifying the distance zones, adding new rates for different car block sizes or changing the current threshold of 60 cars to qualify for the multi car block rate. CP submitted that the straightforward structure of the current interswitching rates contains numerous benefits including ease of understanding by all parties concerned and minimization of the administration costs incurred by the railways. Furthermore, CP conceded that the current rate structure has worked to the general benefit of all parties concerned, and that changes are neither necessary nor desirable. The Agency determined that it is a complex matter to revise the interswitching rate structure to include additional rate categories for varying car block sizes. This alternative would require more study and necessitates the collection and examination of additional operating and financial statistics. To this end, the Agency has decided to initiate a further consultative process with industry participants to examine the appropriateness of creating new rate categories for smaller car block sizes. In respect of the proposals for extending the interswitching distance limits, the Agency notes that the maximum distance for interswitching is set out in the legislation, specifically in subsections 127(3) and (4). Pursuant to these provisions, the Agency may, on application, deem a specific point of origin or destination located beyond the radial distance of 30 kilometres from an interchange to be within the interswitching limits, if there exist specific circumstances, and paragraph 128(1)(c) of the CTA allows the Agency to prescribe, for the purposes of subsections 127(3) and (4), a greater distance than 30 km from an interchange. The Agency considers that extending the interswitching distance limits from 30 to 150 kilometres would constitute a policy amendment that would have substantial repercussions in the rail transportation industry and the magnitude of these repercussions would be so significant that such an amendment cannot be contemplated by way of a regulatory change. Other Issues CWB contended that the competitive value of interswitching is affected by the decreasing number of operational interchange points available to shippers to interswitch traffic between Canada's major railways. Thus, CWB and Agricore United, suggested that the Agency regulate the protection and proper maintenance of such facilities to a reasonable operating standard. CWB also argued that the value of regulated interswitching could be enhanced if shippers had access to the number and location of eligible interchange points and recommended that the Agency publish the location of interchange points in a schedule attached to the Regulations. A shipper, Smurfit-Stone Container Corporation, suggested that the Regulations prescribe the minimum number of weekly interswitching manoeuvres to be provided at each interchange. In respect of the request for protecting and maintaining the interchanges, the CTA does not empower the Agency to require railways to preserve interchanges. Concerning the request for a prescribed minimum level of service at each interchange, the Regulations presently require terminal carriers to provide to interswitching traffic a level of service that is equal to the level of service accorded to their own line haul traffic. The Agency considers that this provision, in conjunction with the level of service provisions found in section 113 of the CTA, provides adequate recourse for any service issues. In respect of the publishing of a list of all operational interchange points, the Agency notes that CN and CP presently maintain and publish a list of interchange points in Canada in their tariffs, which are publicly available, and can be examined by accessing their respective web sites. Benefits and Costs Interswitching represents an important part of the competitive access provisions that are available under the CTA. Regulated interswitching rates benefit shippers by extending their access to the lines of competing railways at rates that are close to the cost of moving the traffic to or from the interchange point. Regulated rates thus ensure that rail shippers derive, where available, the benefits of price competition, improved service levels and varying routing options and that railways receive, in turn, compensation for the costs incurred in providing interswitching services. While the Agency recognizes that the changes in the rate structure may result in a decrease in the total revenues derived by the railways from the interswitching services, notably CN and CP, the Agency does not anticipate any major impact on the rail transportation industry and the rail users in Canada. Rail shippers will continue to derive the benefits of competitive access and railways will receive an appropriate compensation for their costs in providing interswitching services. After the publication of the new interswitching rates in the Canada Gazette, Part II, the Agency will continue to monitor any changes in railway interswitching costs on an annual basis and will revise the rate structure when the circumstances warrant it. The Agency has decided to undertake a further consultation process with industry participants regarding, among any other matters, the potential for establishing new rate categories for different car block sizes to provide for rate reductions on multiple car shipments of less than 60 cars and the contribution toward railway fixed costs. Any requirement for new rates will also be examined at that time. The environmental implications of this regulatory initiative have been considered and determined to be nil. Consultation Consultations in respect of the current Regulations took place when they were developed in 1987, and in each subsequent year up to 1997 when the Regulations were amended to establish revised rates. For 1991 and for each subsequent year, recosting the interswitching operations, based on the railways' actual cost and traffic data, has also been undertaken by the Agency. In August 2002, the Agency initiated a pre-consultation on the statutory review of the Regulations and the proposed rate amendments, soliciting comments from approximately 240 parties representing the interests of shippers, shipper associations, railway companies and provincial governments. Twenty-two submissions were received and several parties requested that the Agency consider the establishment of additional rate categories for different car block sizes and a review of the level of contribution toward railway fixed costs. The Agency recognized the importance of these questions and advised that it would pursue more in-depth consultations with interested parties before making a determination on these matters. Furthermore, the Regulations, which contained revised interswitching rates, have been pre-published in the Canada Gazette, Part I, on November 8, 2003, to allow further comment. A total of 13 submissions were filed in response to the pre-publication in the Canada Gazette, Part I and eight parties participated to both consultations. The Agency has considered all proposals and objections filed and determined that no further modification to the proposed Regulations is necessary at this time. Furthermore, the Agency concluded that the revised interswitching rates are commercially fair and reasonable to all parties. These Regulations are also available on the Internet at http://www.cta-otc.gc.ca. Compliance and Enforcement The compliance mechanisms are contained in the CTA and may include administrative or criminal sanctions. Various appeal provisions are available to affected parties. Contact Michel Maisonneuve S.C. 1996, c. 10 S.C. 1996, c. 10 S.C. 1996, c. 10 SOR/88-41 |
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