Canada considers new accident liability regulations; STB calculates 2013 cost of capital

Canadian Transport Minister Lisa Raitt on Friday launched a second stage of consultations aimed at strengthening liability and compensation regulations that are under development to better hold railroads and shippers accountable if an accident occurs.

The Canadian government is enhancing insurance requirements for 20 federally regulated railroads — CN, Canadian Pacific and 18 short lines — and establishing supplementary compensation for incidents involving hazardous materials. Consultations began in early 2014 and this second stage will involve discussions with key stakeholders to help define specifics of the new regulations, said Raitt in a press release.

Under current laws, a railroad is required to carry adequate third-party liability insurance as a condition for receiving an operating certificate in Canada. Insurance adequacy is determined on a case-by-case basis.

Once finalized, the new regulations will ensure sufficient funds are available to compensate potential victims and pay for clean-up costs in the event of a catastrophic incident, Raitt said. The tragic accident in Lac-Mégantic, Quebec, in July 2013 and the insurance coverage carried by the Montreal, Maine and Atlantic Railway at the time highlighted the importance of strengthening regulations, she said.

The new regulations would ensure "that polluters pay, that those who suffer damages are compensated and that taxpayers do not bear the burden of cost if a serious rail incident should happen," said Raitt.

Meanwhile, the Surface Transportation Board (STB) late last week issued a decision regarding the railroad industry's calculated cost of capital for 2013. The board found that the industry's after-tax cost of capital was 11.32 percent compared with 11.12 percent in 2012.

The cost-of-capital figure represents the STB's estimate of the average rate of return needed to persuade investors to provide capital to the freight-rail industry. Calculated annually, the cost-of-capital figure is an essential component of many of the agency's core regulatory responsibilities, STB members said in a press release.

The board uses the figure to evaluate the adequacy of an individual railroad's revenue each year, determine the reasonableness of a challenged rail rate, consider a proposal to abandon a rail line or value a particular railroad operation.