Manitoba - Transportation Policy & Service Development

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February 6, 2008

Ms. Cathy Murphy
Secretary
Canadian Transportation Agency
Ottawa ON K1 A ON9

Attention: Michel Maisonneuve:

RE; Review of the Railway Interswitching Regulations

Dear Ms. Murphy:

I am replying to the Canadian Transportation Agency's letter of December 20, 2007 requesting the views of stakeholders on the application of the Railway Interswitching Regulations and on proposed interswitching rate changes identified in the letter.

Manitoba continues to affirm its support for the interswitching provisions in the Canada Transportation Act (CTA) and their related regulations. They are necessary tools to encourage all-rail competition in metropolitan centres such as Winnipeg, while less applicable outside major metropolitan centres. Manitoba continues to regard the regulation of interswitching rates as necessary to provide shippers within the prescribed distances from an interchange the opportunity to seek competitive service. Manitoba believes that a local railway and shipper could not successfully negotiate a fair and reasonable interswitching rate if that would result in the local carrier losing traffic to the connecting carrier.

Our national transportation policy deems a competitive, economic, and efficient national transportation system making the best use of all modes of transportation at the lowest total cost to be essential to serve the needs of users and advance the well-being of Canadians. Manitoba favours a legislative environment for all transport industries, especially railways, needs to be created where shippers and travellers are able to seek service from at least two actively competing carriers.

Section 112 of the CTA requires that a rate or condition of service established by the Agency must be "commercially fair and reasonable to all parties". This term applies to interswitching rates. Sections 128(3) of the CTA establishes a floor for interswitching rates. They cannot be below the variable costs determined by the Agency for the movement of the traffic. To arrive at a rate after determining variable costs, the Agency must then determine the appropriate contribution to unallocated expenses or fixed costs.

In its April 1997 Decision on interswitching rates, the Agency established the contribution for interswitching rates to be 7.5%. The Agency correctly rejected the railway argument for a percentage that fully covered fixed costs on the grounds that the resulting interswitching rates would impair the use of interswitching for competitive access. Manitoba concurs with the Agency's reasoning.

In that Decision, the Agency stated the Section 128(3) guided its interpretation of the phrase "commercially fair and reasonable". It requires that the Agency consider the average variable cost for all traffic that would use the interswitching rates. It would follow that the appropriate contribution would be one that reflects what that particular traffic now pays for service. Since the interswitching provisions are primarily applicable to shippers located in metropolitan centres, the average variable cost of that traffic should be the basis of the interswitching rate, and the contribution to constant costs paid by that traffic should be the basis of the contribution included in the interswitching rate.

Manitoba notes that the Section 127 (3) of the CTA extends interswitching privileges to origins and destinations within a radius of 30 kilometers of an interchange or at a prescribed greater distance. Manitoba believes that shippers will benefit from having the interswitching regulations indicate what greater distances the Agency would consider prescribing for the application of the interswitching rates. Manitoba would propose that the interswitching regulations should be amended to indicate that the Agency would consider applications from shippers to have interswitching rates prescribed for origins or destinations within a radius of between 30 and 50 kilometers of an interchange.

Manitoba is also concerned about the interswitching rate structure's division into two sets, one for car blocks under 60 cars, one for car blocks of 60 or more cars. The difference in the rates between the two sets is quite dramatic. The rate for smaller blocks of cars in Zone 1, for example, will be $205 per car, while the rate for the larger blocks will be $50 per car. We are concerned that this might discourage interswitching service for the shippers of smaller blocks. Manitoba notes that the Agency develops the costs to be consistent with the current rate structure: it separates its data into two groups, car blocks with less than 60 cars and car blocks with 60 or more cars. We believe that the Agency should examine the entire data set to see if the data groups itself into different car-block sizes and use those as the basis of the interswitching rate structure.

Thank you for the opportunity to comment on the interswitching regulations.

 Sincerely,

Jack W. Craven
Senior Policy Consultant

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