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Nitty-gritty details in Bill C-49

The revenue cap stays, but railways can include the cost of new hoppers

It took a few days of intense review for the Western Grain Elevators Association (WGEA) before giving its blessing to the Transportation Modernization Act.

Others were equally meticulous.

“Every word does matter, and the order of the words matters,” Greg Cherewyk, Pulse Canada’s chief operating officer, said in an interview.

And while Pulse Canada also supports C-49, it expects to get a deeper understanding of the legislation as it moves through Parliament.

“The devil is always in the details,” Cherewyk said.

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MRE stays, but…

Retaining the maximum revenue entitlement (MRE) or ‘revenue cap’ is a big win for farmers. The railways don’t like it and there were fears it might get traded off.

The MRE, introduced in 2000, was proposed by CP Rail as an alternative to open running rights — a tool to stimulate rail competition.

The MRE lets the railways set freight rates for Prairie grain, but limits their total revenue. However, it will be modified so capital spending by each railway on things such as hopper cars is included in the MRE calculation. If one railway buys 100 cars it’s allowed to collect more revenue to cover the cost. Oddly, under the current formula if one railway buys cars it only gets half the credit and the rest goes to the other railway.

Doesn’t include containers

C-49 excludes all grain shipped in containers to export from the MRE, including pulse and special crops. While most Prairie grain is shipped in hopper cars about 1.6 million tonnes, or 44 per cent of western pulse crops, are shipped to Vancouver for export in containers, Cherewyk said.

Pulse Canada is counting on the change to improve container service, capacity and costs, he added.

“You’ll hear from us if it doesn’t,” Cherewyk said.

Interswitching

C-49 doesn’t include extended interswitching, which allows shippers to get a competing railway to haul their haul if it’s within 160 km of an interchange. That was introduced in response to grain backlogs in 2013.

Instead, shippers will have access to a new provision called long-haul interswitching for distances up to 1,200 km, or 50 per cent of the total haul in Canada, whichever is greater. (This option excludes the Quebec City-Windsor and Vancouver-Kamloops corridors.)

There’s uncertainty about how well it will work.

If it’s not as least as good as extended interswitching, why change, Cherewyk said. Even the threat of using another railway is beneficial, he said.

To use long-haul interswitching, shippers will have to apply to the CTA and demonstrate they tried to make arrangements with their originating railway. Western Grain Elevator Association executive director Wade Sobkowich doesn’t think the threshold will be onerous, but doubts the new option will stimulate as much competition.

“It’s not so much a competitive provision as it is a backstop against the use of monopoly power,” he said.

The railways see problems too.

“Our initial view is that long-haul interswitching may have unintended consequences with respect to investment and will give U.S. railways access to the Canadian market at regulated rates — without reciprocity (because the U.S. doesn’t have long-haul interswitching),” CN Rail president and CEO Luc Jobin, said in an email.

CP Rail raised the same concern.

Reciprocal penalties

C-49 will allow shippers and railways to include penalties in their service level agreements. A CTA arbitrator will be able to include a dispute resolution process in agreements, Sobkowich said, which should encourage better rail service.

The CTA will make decisions on service complaints faster. Shippers will be allowed to extend arbitrators’ decision to two years from one.

The threshold for a summary Final Offer Arbitration will be $2 million, allowing access to small- and medium-size businesses.

The definition of adequate and suitable rail service has been clarified. It’s not as strong as the WGEA wanted, but is an improvement, Sobkowich said.

“It requires the railways to provide the highest level of service regarding their obligation that they can reasonably be expected to provide in the circumstances,” he said. “And the agency will rule on that. We think it provides clarity and that’s good.”

The CTA will have the power to “inquire into” emerging grain transportation problems instead of having to wait for a shipper to launch an official complaint — something shippers also wanted, Sobkowich said.

More data will be collected on system performance.

“If you don’t know where you are, you don’t know where you are going,” he said. “You will improve and work on what you measure.”

About the author

Reporter

Allan Dawson

Allan Dawson is a reporter with the Manitoba Co-operator based near Miami, Man. Covering agriculture since 1980, Dawson has spent most of his career with the Co-operator except for several years with Farmers’ Independent Weekly and before that a Morden-Winkler area radio station.

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