Browse by Year
/ 2003
/ December
/ Friday, December 12, 2003
[Federal Register: December 12, 2003 (Volume 68, Number 239)]
[Rules and Regulations]
[Page 69563-69578]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr12de03-15]
[[Page 69563]]
-----------------------------------------------------------------------
Part III
Department of Homeland Security
-----------------------------------------------------------------------
Coast Guard
-----------------------------------------------------------------------
46 CFR Parts 401 and 404
Rates for Pilotage on the Great Lakes; Interim Rule
[[Page 69564]]
-----------------------------------------------------------------------
DEPARTMENT OF HOMELAND SECURITY
Coast Guard
46 CFR Parts 401 and 404
[USCG-2002-11288]
RIN 1625-AA38 (Formerly RIN 2115-AG30)
Rates for Pilotage on the Great Lakes
AGENCY: Coast Guard, DHS.
ACTION: Interim rule with request for comments.
-----------------------------------------------------------------------
SUMMARY: This interim rule provides a partial rate adjustment for
pilotage on the Great Lakes. We last adjusted the rates for pilotage on
the Great Lakes in July 2001. The partial rate adjustment is being
implemented while the Coast Guard completes its evaluation of issues
raised in response to the NPRM and calculates a full rate adjustment.
DATES: This interim rule is effective January 12, 2004. Comments and
related material must reach the Docket Management Facility on or before
February 10, 2004.
ADDRESSES: You may submit comments identified by Coast Guard docket
number USCG-2002-11288 to the Docket Management Facility at the U.S.
Department of Transportation. To avoid duplication, please use only one
of the following methods:
(1) Web site: http://dms.dot.gov.
(2) Mail: Docket Management Facility, U.S. Department of
Transportation, 400 Seventh Street, SW., Washington, DC 20590-0001.
(3) Fax: 202-493-2251.
(4) Delivery: Room PL-401 on the Plaza level of the Nassif
Building, 400 Seventh Street, SW., Washington, DC, between 9 a.m. and 5
p.m., Monday through Friday, except Federal holidays. The telephone
number is 202-366-9329.
(5) Federal eRulemaking Portal: http://www.regulations.gov.
FOR FURTHER INFORMATION CONTACT: If you have questions on this rule,
call Paul Wasserman, Director, Office of Great Lakes Pilotage, (G-MW-
1), Coast Guard, telephone 202-267-2856 or e-mail him at Pwasserman@comdt.uscg.mil. If you have questions on viewing or
submitting material to the docket, call Andrea M. Jenkins, Program
Manager, Docket Operations, telephone 202-366-0271.
SUPPLEMENTARY INFORMATION:
Public Participation and Request for Comments
We encourage you to participate in this rulemaking by submitting
comments and related materials. All comments received will be posted,
without change, to http://dms.dot.gov and will include any personal
information you have provided. We have an agreement with the Department
of Transportation (DOT) to use the Docket Management Facility. Please
see DOT's ``Privacy Act'' paragraph below.
Submitting comments: If you submit a comment, please include your
name and address, identify the docket number for this rulemaking (USCG-
2002-11288), indicate the specific section of this document to which
each comment applies, and give the reason for each comment. You may
submit your comments and material by electronic means, mail, fax, or
delivery to the Docket Management Facility at the address under
ADDRESSES; but please submit your comments and material by only one
means. If you submit them by mail or delivery, submit them in an
unbound format, no larger than 8\1/2\ by 11 inches, suitable for
copying and electronic filing. If you submit them by mail and would
like to know that they reached the Facility, please enclose a stamped,
self-addressed postcard or envelope. We will consider all comments and
material received during the comment period. We may change this rule in
view of them.
Viewing comments and documents: To view comments, as well as
documents mentioned in this preamble as being available in the docket,
go to http://dms.dot.gov at any time and conduct a simple search using
the docket number. You may also visit the Docket Management Facility in
room PL-401 on the Plaza level of the Nassif Building, 400 Seventh
Street SW., Washington, DC, between 9 a.m. and 5 p.m., Monday through
Friday, except Federal holidays.
Privacy Act: Anyone can search the electronic form of all comments
received into any of our dockets by the name of the individual
submitting the comment (or signing the comment, if submitted on behalf
of an association, business, labor union, etc.). You may review the
Department of Transportation's Privacy Act Statement in the Federal
Register published on April 11, 2000 (65 FR 19477), or you may visit
http://dms.dot.gov.
Public Meeting
We do not now plan to hold a public meeting. But you may submit a
request for one to the Docket Management Facility at the address under
ADDRESSES explaining why one would be beneficial. If we determine that
one would aid this rulemaking, we will hold one at a time and place
announced by a later notice in the Federal Register.
Regulatory History
On January 23, 2003, the Coast Guard published an NPRM in the
Federal Register [68 FR 3202] proposing to set new rates for pilotage
on the Great Lakes. A public meeting was held January 31, 2003, in
Cleveland, OH.
On April 1, 2003, the Coast Guard published in the Federal Register
[68 FR 15697] a correction to the NPRM and extended the NPRM comment
period through May 1, 2003. This notice also announced another public
meeting that was held April 14, 2003, in Washington, DC.
On May 14, 2003, the Coast Guard published in the Federal Register
[68 FR 25899] a notice of availability and a request for public comment
on a Review of Bridge-Hour Standards for American Pilots on the Great
Lakes, dated March 4, 2003.
Program History
In 1996, we established the current methodology for setting rates
for pilotage on the Great Lakes.
In July 2001, we last adjusted the rates for pilotage on the Great
Lakes. A year later, as a result of litigation, we temporarily revised
the rates in District Two, Area 5, until the current rulemaking is
completed. That temporary rule expires on December 24, 2003, and this
interim rule contains new rates for Area 5.
Discussion of Comments
General
During the comment periods, the Coast Guard received 149 comments
mostly expressing concerns about the implementation of the proposed
rates and the process used in determining the proposed rates. There
were also a number of requests to extend the comment period. Comments
were received from pilots, pilot associations, cruise ship and ferry
operators, small businesses on the Great Lakes, port authorities from
the U.S. and Canada, and domestic and foreign shipping corporations.
Some of these comments stated that a rate adjustment is long
overdue. Some of these comments also asked that future rate reviews
take place in a timely manner. Another comment stated that the Coast
Guard has a legal and moral responsibility to move forward immediately
on the 2003 rate adjustment.
One comment wanted more time to complete the Great Lakes Pilotage
Advisory Committee's membership so
[[Page 69565]]
that the committee could comment on the NPRM.
Schedule for Interim Rule Publication
Numerous comments stated that the Coast Guard should implement the
proposed new rate immediately or at least by the start of the 2003
shipping season. Other comments stated if that was not possible, that
the proposed rate should be implemented until corrections can be made.
Many other comments, however, expressed concern that our proposed
interim rule publication date of February 14, 2003, was before the end
of the comment period deadline. One stated because of the proximity of
the NPRM's comment period deadline (March 10, 2003) to the planned IR
publication date (February 14, 2003) that comments would not have been
given full consideration. Several port authorities stated that
implementing an interim rule would violate companies' ``right to have
their views fairly considered.''
One comment stated that a ``hasty implementation'' of the proposed
rate increases would violate the rulemaking provisions of the
Administrative Procedures Act (APA; 5 U.S.C. 553) as well as the
requirement that the Coast Guard consider the public's interest (46
U.S.C. 9303(f)).
One comment stated that the rush to institute an interim rule would
result in significant defects in the ratemaking process.
Requests for Extension and Public Meetings. Some comments asked
that the comment period be extended. One said the additional extension
would provide time for ample scrutiny and the ability to make necessary
adjustments before a final rate is established. Another comment stated
that if the comment period is extended an interim rate is needed until
the final rule is completed.
Another comment stated that placing the independent accountants'
reports for Districts One, Two, and Three in the docket five days after
the publication of the NPRM did not allow for an extensive review of
those documents. Other comments stated that additional public meetings
are needed to provide stakeholders sufficient time to analyze the
rulemaking and to prepare and submit comments.
We understand the early concerns about not having enough time to
respond to the NPRM. However, because two public meetings were held
(January 31, 2003, and April 14, 2003), and the comment period was
extended through May 1, 2003, the Coast Guard has provided an adequate
opportunity for those wishing to respond to the NPRM and for those
needing to review the independent accountant's reports. We do not plan
on holding a public meeting on this interim rule.
Boundary Act Treaty
Several comments stated that the proposed rates violate the
Boundary Act Treaty of 1910 that stipulates Canadian boundary waters
are to be treated with fairness and equity. Comments from the Shipping
Federation of Canada and the Thunder Bay Port Authority stated that the
proposed rate violates the spirit of the Boundary Act Treaty of 1910.
The Coast Guard disagrees. The treaty between Great Britain and the
United States established boundaries and mandated free and open
navigation for the vessels of both Canada and the U.S. The treaty
further called upon national regulations to apply equally to the
citizens and vessels of the other party. While the treaty was silent
with respect to Great Lakes pilotage rates, the proposed rates,
nonetheless, do not discriminate against Canadian vessels since they
will apply equally across the board to all prospective carriers.
Beyond the Scope of the Rulemaking
Two comments asked that a surcharge be added as part of the final
rule to allow pilots to recoup the portion of the rate that has been
lost since the start of the 2003 shipping season.
One comment stated that pilotage should be returned to the auspices
of the St. Lawrence Seaway Development Corporation (SLSDC).
One comment from a pilots' association stated that shipping
companies should be required to open their books to give full and
complete disclosure.
Two comments stated the delay in enacting the new rate before the
start of the 2003 shipping season continues the ``essential
punishment'' of Great Lakes pilots by denying them the compensation
they are ``justly'' due.
All of these comments raise issues and concerns, resolution of
which is beyond the scope of this rulemaking.
Classification of Rulemaking
Some comments questioned the appropriateness of the Coast Guard's
characterizing this rulemaking as non-significant because the NPRM
proposed to increase Great Lakes pilotage rates an average of 26
percent. Some comments claimed that the cost of pilotage could
constitute over 30 percent of the total cost of a typical vessel
transit into and out of the Great Lakes and thus, the Coast Guard's
proposed rate increase was both significant and substantial. Other
comments stated that the cost of pilotage is only 2 percent or less of
the total cost of Great Lakes transits, and that pilotage fees are an
insignificant portion of total vessel costs for operating in the Great
Lakes. The Canadian Marine Pilots' Association commented that the cost
of pilotage as a percentage cost of shipping in the Great Lakes is 2
percent or less.
One comment stated that the rulemaking should be a ``significant
action'' under the regulatory procedures of DOT (now DHS) & OMB because
it involves Canadian businesses and the Canadian government.
We disagree. This rulemaking is not ``OMB'' significant under
Executive Order 12866 and is categorized as ``non-significant/
substantive''. OMB and DHS have reviewed and agreed with the Coast
Guard's determination that the rulemaking is substantive, but not
significant.
Methodology Used in NPRM
Some comments suggested that the ``significant increase'' in the
proposed rates was due to a change in the Coast Guard's interpretation
of the ratemaking methodology. The Coast Guard's approach to conducting
the rate review was consistent with that used in prior years and the
proposed rate increase in the NPRM was not attributable to a change in
application of the ratemaking methodology.
Difference in U.S. and Canadian Rates
Several comments suggested that the proposed 26 percent rate
increase would further increase the difference between U.S. and
Canadian pilotage rates and that the Memorandum of Arrangement (MOA)
between the United States and Canada calls for identical rates.
The two countries are aware of the differences in pilotage rates
and are working together to minimize and resolve these differences.
Economic Impact Analysis (EIA) of Great Lakes Pilotage
Some comments stated that the proposed increase in pilotage fees
would ``chase'' vessels out of the Lakes. Another comment stated that
the Coast Guard failed to examine how rate increases would affect users
and the economy of the Great Lakes region. Several comments stated that
a full regulatory evaluation should be done before issuing a rule.
The Coast Guard has contracted with Martin Associates to perform a
full economic review of the Great Lakes basin. The report should be
completed by February, 2004, and the results will be considered before
we calculate the
[[Page 69566]]
full rate adjustment. When completed, a copy of this EIA will be made
part of the public docket.
The EIA will provide an economic overview of the Great Lakes. It
will explore the value of maritime commerce, generally, and, more
specifically, look at the foreign trade shipping industry on both sides
of the Great Lakes. It will develop a demand elasticity curve for
pilotage services on board foreign-trade vessels on the Great Lakes. It
will explore how, and at what point, an increase in pilotage rates
might have a negative impact on shippers' decisions to send vessels
into the Great Lakes system. This EIA will also address pilotage fees
as a percentage of the total costs incurred by vessels operating in the
Great Lakes.
Expenses Allowed
Legal fees. Numerous comments raised concerns about the amount of
legal fees approved by the Coast Guard as part of the pilots' expense
base. Some stated that the expenses incurred by the pilots pursuing
judicial review of the Coast Guard's 2001 rates were neither reasonable
nor necessary and were not directly related to pilotage.
Some comments questioned whether the Coast Guard had properly
assessed the reasonableness of pilots' legal expenses. Some comments
stated that a formula used in the 1999 rate review to judge the
reasonableness of the legal expenses should have been used in the NPRM.
The Coast Guard did not use an industry standard index to determine the
reasonableness of the legal fees. The only time a standard was used was
in the 1999 rate review. That standard is not sufficiently related to
the pilotage industry or a similar regulated industry and was not used
in calculating the proposed rates in the NPRM or the rates contained in
this interim rule.
One comment stated that it was inappropriate for the Coast Guard to
have approved for inclusion in the expense base legal fees paid by
District Three in connection with a labor dispute. This comment stated
that by allowing this expense the Office of Great Lakes Pilotage is
publicly supporting a party in a labor dispute. The comment also
disagrees with the decision to approve a percentage of the legal fees
paid by District Three to Preston and Gates, because that percentage
represented lobbying fees. The Coast Guard disagrees that allowing
legal fees paid by a pilotage association to a law firm in connection
with a litigation which involves a labor issue, represents support for
a party in a labor dispute. The existing ratemaking methodology
recognizes all reasonable and necessary legal fees with the exception
of lobbying fees.
If the expense is necessary to conduct pilotage business and is
reasonable in amount, the regulations allow its inclusion. The
regulation does not distinguish between litigated matters involving a
labor issue or union and other matter related to pilotage. With respect
to the issue of whether all lobbyist fees were removed from the expense
base, the Coast Guard will re-examine all of the legal fees in
accordance with the regulatory requirements to ensure that only
appropriate fees were allowed.
One comment suggested that all legal fees be removed from the rate
calculation. To do that, the Coast Guard first would need to change the
ratemaking regulations. The Coast Guard disagrees with the suggestion
and, in any event, such a change is not within the scope of this
rulemaking.
The Coast Guard reviewed all legal fees using the guidelines of
necessity and reasonableness contained in 46 CFR 404.5. Only reasonable
and necessary legal fees were approved as part of the expense base. No
legal fees were allowed in connection with lobbying. Legal fees for
litigation against the Government were allowed as long as there was no
court proceeding in which there had been a finding of bad faith on the
part of the pilot organizations.
Recovery of Legal Fees Under Equal Access to Justice Act (EAJA).
Some comments stated that the pilots recovered a portion of their legal
fees under the Equal Access to Justice Act (EAJA) and that recovery was
not taken into consideration by the Coast Guard.
With respect to the comments regarding recovery of legal fees under
the EAJA, only the pilots in District 1 have recovered fees under the
EAJA. They recovered approximately $14,000 and the Coast Guard did not
allow that amount to be included in their expense base.
Other Expenses
One comment stated that the non-recurring costs of leasing
equipment paid by District Two to Erie Leasing, Inc., should be
disallowed because the District Two Association terminated many of
these leases at the end of the season. During 2001, District Two paid
Erie Leasing $62,950 in lease costs for the rental of two pilot boats.
Under 46 CFR 404.5(a)(3), lease costs for both operating and capital
leases are recognized for ratemaking purposes to the extent that they
conform to market rates. In the absence of a comparable market, lease
costs are recognized for ratemaking purposes to the extent that they
conform to depreciation plus an allowance for return on investment
(computed as if the asset had been purchased with equity capital). The
portion of lease costs that exceed these standards is not recognized
for ratemaking purposes. In this case, with the cost of the pilot boats
being $315,000, a market return of 7.04 percent, and a depreciation
amount of $9,450, the result is an allowable lease expense of $31,626
($315,000 x 7.04% = $22,176 + $9,450 = $31,626). District Two's expense
base was thus reduced by the excessive lease fee amount of $28,124
($59,750 rental fee -$31,626 allowable fee = $28,124). The Coast Guard
will review the issue of recurring and non-recurring costs before
calculating a full rate adjustment.
One comment stated that the $14,289 for health insurance for
retired pilots included in the District Two expense base should be
disallowed. The Coast Guard is reviewing this issue and will make a
determination before calculating the full rate adjustment. Because of
its de minimus impact on the rate it was left in the expense base for
calculating the partial rate adjustment.
This same comment stated that the augmentation of the District Two
and District Three expense bases to allow for employer contributions to
employee 401(k) plans was not calculated correctly. This comment stated
that the employer should have to contribute based upon daily
compensation only that would include no contribution for overtime or
extra work days. Under the 2001 American Maritime Officers Union (AMOU)
contract, employers are required to make matching contributions to
employee 401(k) plans in an amount equal to 50 percent of the
employee's contribution, to a maximum of 5 percent of a participating
employee's compensation. The Coast Guard will review this issue before
calculating the full rate adjustment, but the District Two and Three
expense bases have not been changed for calculation of the partial rate
adjustment.
Another comment stated that the independent accountant made two
mistakes in identifying and classifying expenses--misstating by $23,000
the total reimbursement for meal expenses allowed pilots in District
Three, and subtracting the cost of the employer's portion of taxes from
pilot compensation and adding them to operating expenses. The comment
stated the actual amount adjusted in each case does not correlate with
the current rates and limitations for the calculations of FICA and
Medicare. The Coast Guard is reviewing these issues, and adjustments,
[[Page 69567]]
if appropriate, will be made in calculating the full rate adjustment.
However, we have not made any changes in calculating the partial rate
adjustment.
Another comment stated that the Coast Guard should have disallowed
any payments by District Two to Erie Leasing, Inc., because that
company refused to open up its books for the Coast Guard. The Coast
Guard disagrees. There is no basis to deny expenses based upon another
company's refusal to open its books, even when the service entity (Erie
Leasing) is directly or indirectly related by beneficial ownership to
the pilot association.
Some comments expressed the opinion that there is an insufficiency
of accountability for continuing education training funds in the three
districts. They recommended that training programs submitted by a pilot
association and approved by the Coast Guard should be published as a
part of this docket so that industry can assure itself that this money
is spent appropriately and that the training plan meets ``certain
criteria.'' They also suggested that a third party should hold the
training funds instead of the pilot associations. The Coast Guard
disagrees. The public docket used for this rulemaking is not an
appropriate place for pilot associations to file their training plans.
The Coast Guard does not see any benefit to placing the training funds
in the hands of third parties, nor could such an action be properly
included within the scope of this rulemaking.
Target Pilot Compensation Issues
With respect to determining target pilot compensation, several
comments, including St. Lawrence Seaway Development Corporation, stated
that the monthly multiplier should be reduced from its current level of
54 days to either 44 or 45 days to take into consideration vacation
time actually taken by the pilots. They stated that pilots actually
take vacation days and paying them for not doing so is a form of double
dipping that makes a 44 or 45-day number more appropriate. For purposes
of this interim rule, the Coast Guard has used a multiplier of 44 days.
The Coast Guard is still reviewing this issue and a final determination
on the appropriate multiplier will be made before we calculate the full
rate adjustment. A proposed full rate adjustment will be subject to
notice and comment in an SNPRM before implementation.
Numerous comments stated that the Coast Guard in the NPRM
inappropriately increased the number of pilots needed. Some comments
focused on the two pilots authorized for District One and the one pilot
authorized for District Two. Another comment stated that the Coast
Guard had made a mistake by rounding down the number of pilots in
District Three, Area 7, to four pilots, and rounding down the total
number of pilots required in the undesignated waters of Areas 6 and 8
to 17. The Coast Guard disagrees. The Coast Guard may increase or
decrease the number of pilots authorized in the Districts as
circumstances warrant. The number of pilots needed by each District is
calculated each time the Coast Guard adjusts pilotage rates. The
calculation shows the number of pilots needed in each Area to
accommodate the projected vessel traffic. In the NPRM, where the
calculated number was fractional, the Coast Guard rounded up or down to
reflect ``a whole person.'' For purposes of this interim rule, the
Coast Guard has not rounded up or down, but has used the actual
calculated number, even if that number is fractional. For purposes of
the interim rule, and for the sake of precision and accuracy in the
computation, the Coast Guard has not rounded the fractionalized number
of pilots required. It is up to each Association to determine how many
pilots to employ to meet the actual shipping demand.
The Coast Guard will continue to review this step in the
calculation and when the Coast Guard's review of the Bridge Hour Study
is completed, we should have clearer guidance on this calculation.
Revenue Issues
Accounts receivable. One comment stated that the calculation of
revenue was incorrect because it did not include accounts receivable.
Before calculating a full rate adjustment, the Coast Guard will address
inclusion of accounts receivable as part of revenues.
Target Pilot Compensation
Several comments stated that the Coast Guard had miscalculated the
target pilot compensation. These comments stated that the target pilot
compensation should be calculated by first adding all pilot wages and
benefits together and then multiplying by 1.5, which is the multiplier
for pilots working in designated waters. The Coast Guard disagrees. The
Coast Guard has always calculated target pilot compensation in the same
manner. During the first ratemaking under this methodology, in response
to comments which provided detailed and persuasive information,
including W-2 tax information, showing that the most accurate way to
approximate the total compensation package of a master on the Great
Lakes, under the union contract, is to take wages and multiply by 1.5
and then add benefits. See Seaway Regulations and Rules: Great Lakes
Pilotage Rates, 62 FR 5917, 5920 (February 10, 1997). This
interpretation was recently upheld. See Lake Pilots Assoc., Inc. v.
United States Coast Guard, Civil Action No. 01-1721 (RBW) (D.D.C. April
4, 2003).
Other comments stated that the Coast Guard does not take into
consideration all of the benefits received when calculating the total
compensation package. One area of particular concern is credit for
vacation pay because it is paid on a 1 for 2 basis. The Coast Guard
will address this issue when proposing its full rate adjustment, but
has not changed the calculation for the partial rate adjustment.
A number of comments from District Two discussed the independent
accountant's treatment of reimbursed expenses (workers' compensation
dividends), unrecognized expenses (a portion of the pilot boat leases),
donations, business promotion, misclassified expenses, undocumented
expenses, target pilot compensation, benefits, determination of the
number of pilots, and calculation of the investment base. The Coast
Guard will review these issues before calculating the full rate
adjustment, but has not changed the District Two figures for the
calculation of the partial rate adjustment.
One comment from a labor union objected to the Coast Guard
requesting information concerning rates charged by longshoremen. The
comment stated that the Coast Guard intended to use this, and similar
other information, in an attempt to charge shippers as much as the
market would bear for pilotage services. The Coast Guard did request
public comment on a number of costs included in the total cost of
shipping, to use as a comparison with the costs of pilotage services.
In addition, the Coast Guard has contracted for an economic impact
analysis of pilotage rates on shipping and on the regional economy of
the Great Lakes basin.
Delay and Detention
Some comments stated that delay and detention should be included as
bridge hours when calculating the number of pilots needed. As discussed
elsewhere in this preamble, the Coast Guard's Bridge Hour Study is
currently under review. This study specifically examines the issue of
whether delay and detention should be included as bridge hours.
[[Page 69568]]
One comment stated that just as Districts Two and Three are being
allowed added expenses for contributions to employees' 401(k) plans, so
should District One. In the NPRM, because District One does not
administer a 401(k) or other retirement program as do Districts Two and
Three, no allowance was permitted. The Coast Guard is reviewing this
issue, but for this partial rate calculation, we used the same figures
as in the NPRM.
This comment also stated that the adjustment for inflation should
be approximately 5 to 6 percent instead of the 2 percent determined by
the Coast Guard. The comment stated that because it will be almost two
years from the measurement year (2001) before the rate goes into
effect, the pilots should receive twice the inflation. The Coast Guard
will calculate a new adjustment for inflation when it calculates the
full rate adjustment.
The comment also stated that travel expenses for District One were
incorrectly calculated. According to the comment, travel expenses were
overstated by $25,380 for Area 1 and understated by $37,075 for Area 2.
The Coast Guard will review the allocation of travel expenses before
calculating the full rate adjustment.
The comment also stated that the Coast Guard's projection of bridge
hours for 2003, which is similar to those of 2001, is too low. The
Coast Guard disagrees. The economy has actually performed consistently
with the projections in the NPRM.
Other Changes
This rule also corrects the equation used in step 6 of the
methodology to compute Return on Investment. Currently in the CFR, the
equation illustrating how to arrive at Return on Investment contains an
error. The last step of the calculation ``adds'' the Investment Base to
the Return Element to arrive at the Return on Investment. Adding would
not produce the Return on Investment. To obtain the Return on
Investment, it is necessary to divide the Return Element into the
Investment Base. We have made the appropriate correction to the
equation in this interim rule by removing the ``+'' and adding, in its
place, the ``/''.
Discussion of Interim Rule
This interim rule provides a partial rate adjustment using the
methodology in 46 CFR part 404, the 2001 expenses and revenues, and the
2002 American Maritime Officers Union contract.
The Next Steps
Following the partial rate adjustment in this interim rule, the
Coast Guard will resolve the remaining rate calculation issues raised
by the January, 2003, NPRM. We will calculate a full rate adjustment
using the methodology in 46 CFR Part 404.
We plan to publish a supplemental notice of proposed rulemaking
(SNPRM) in February, 2004, with an opportunity to comment before
effecting a proposed full permanent rate adjustment during the Spring,
2004.
In the full rate adjustment calculation, the Coast Guard is
considering using the figures from the 2003 AMOU contract, to replace
the 2002 AMOU contract figures that were used to determine the proposed
rate in the NPRM. The calculations would also include the rate and
revenue figures from each of the three districts for 2002. The Coast
Guard specifically requests comments on whether we should use the newer
figures to calculate the full rate adjustment.
Regulatory Evaluation
This rule is not a ``significant regulatory action'' under section
3(f) of Executive Order 12866, Regulatory Planning and Review, and does
not require an assessment of potential costs and benefits under section
6(a)(3) of that Order. It has not been reviewed by the Office of
Management and Budget under that Order. It is not ``significant'' under
the regulatory policies and procedures of the Department of Homeland
Security (DHS).
We expect the economic impact of this rule to be so minimal that a
full Regulatory Evaluation under the regulatory policies and procedures
of DHS is unnecessary.
Ratemaking Process and Methodology
This section is a description of the analyses performed, and the
seven-step methodology followed, in the development of the interim
partial rate adjustment. The first part summarizes the partial rate
changes in this interim rule; the second part describes the ratemaking
process, explaining the formulas that make up the methodology and the
use of the numbers obtained from the report of the independent
accountant for the year 2001 in the formulas to show how the partial
rate adjustment was actually calculated; and the third part describes
how the rate in this interim rule differs from the one proposed in the
NPRM published in January, 2003.
Part I: Pilotage Rate Charges--Summarized
The pilotage rates for federal pilots on the Great Lakes contained
in 46 CFR 401.405, 401.407, and 401.410 have been adjusted in
accordance with the methodology appearing at 46 CFR part 404. The
partial rate adjustment results in an average increase across all
districts of 5 percent as set out in Figure 1:
Figure 1
[Rate in percent]
------------------------------------------------------------------------
If you require pilotage service in: The rate will:
------------------------------------------------------------------------
Area 1 (Designated waters)............. Increase by 4
Area 2................................. Decrease by 5
Area 4................................. Increase by 21
Area 5 (Designated waters)............. Decrease by 5
Area 6................................. Increase by 20
Area 7 (Designated waters)............. Decrease by 17
Area 8................................. Increase by 19
------------------------------------------------------------------------
Pilotage rates for ``Cancellation, delay or interruption in
rendering services'' and ``Basic rates and charges for carrying a U.S.
pilot beyond [the] normal change point or for boarding at other than
the normal boarding point,'' in 46 CFR 401.420 and 401.428,
respectively, are increased by an average of 5 percent.
The seven-step calculation of the methodology is summarized in the
table for each District. The actual calculations are then explained in
more detail for each entry in the tables.
Table A.--District One
----------------------------------------------------------------------------------------------------------------
Area 1 St.
Lawrence Area 2 Lake Total
River Ontario District One
----------------------------------------------------------------------------------------------------------------
Step 1, Projection of operating expenses........................ $359,704 $239,802 $599,506
Step 2, Projection of target pilot compensation................. 785,279 352,726 1,138,005
Step 3, Projection of revenue................................... 1,105,233 629,149 1,734,382
Step 4, Calculation of investment base.......................... 50,000 50,000 100,000
[[Page 69569]]
Step 5, Determination of target return on investment............ 7.04% 7.04% 7.04%
3,520 3,520 7,040
Step 6, Adjustment determination................................ 1,148,503 596,048 1,744,551
Step 7, Adjustment of pilotage rates (Rate Multiplier).......... 1.04 (+4%) .95 (-5%) 1.01 (+1%)
----------------------------------------------------------------------------------------------------------------
Table B.--District Two
----------------------------------------------------------------------------------------------------------------
Area 5
Area 4 Lake Southeast Total
Erie Shoal to Port District Two
Huron, MI
----------------------------------------------------------------------------------------------------------------
Step 1, Projection of operating expenses........................ $365,292 $446,468 $811,760
Step 2, Projection of target pilot compensation................. 477,218 930,701 1,407,919
Step 3, Projection of revenue................................... 705,015 1,461,069 2,166,084
Step 4, Calculation of investment base.......................... 89,734 140,353 230,087
Step 5, Determination of target return on investment............ 7.04% 7.04% 7.04%
6,317 9,881 16,198
Step 6, Adjustment determination................................ 854,237 1,392,460 2,246,697
Step 7, Adjustment of pilotage rates............................ 1.21 (+21) .95 (-5%) 1.04 (+4%)
----------------------------------------------------------------------------------------------------------------
Table C.--District Three
----------------------------------------------------------------------------------------------------------------
Area 6 Lakes Total
Huron and Area 7 St. Area 8 Lake District
Michigan Mary's River Superior Three
----------------------------------------------------------------------------------------------------------------
Step 1, Projection of operating expenses........ $739,550 $292,739 $508,441 $1,540,730
Step 2, Projection of target pilot compensation. 1,099,676 625,315 715,827 2,440,818
Step 3, Projection of revenue................... 1,540,306 1,119,819 1,030,693 3,690,818
Step 4, Calculation of investment base.......... 111,668 83,752 83,752 279,172
Step 5, Determination of target return on 7.04% 7.04% 7.04% 7.04%
investment..................................... 7,861 5,896 5,896 19,654
Step 6, Adjustment determination................ 1,847,087 923,950 1,230,164 4,001,201
Step 7, Adjustment of pilotage rate............. 1.20 (+20%) .83 (-17%) 1.19 (+19%) 1.08 (+8%)
----------------------------------------------------------------------------------------------------------------
Part 2: Calculating the Rate Multiplier
The authority to establish pilotage rates on the Great Lakes
derives from 46 U.S.C. 9303(f), which states, in pertinent part, that:
``[t]he Secretary shall prescribe by regulation rates and charges for
pilotage services, giving consideration to the public interest and the
costs of providing the services.'' The pilotage regulations provide, at
46 CFR 404.1(b), that the pilotage rates ``shall be reviewed annually
in accordance with the procedures detailed in Appendix C'' of the
regulations and, ``the Director shall complete a thorough audit of
pilot association expenses and establish pilotage rates in accordance
with the procedures detailed in Sec. 404.10 of this part at least once
every five years.''
Appendix C to part 404 of title 46, CFR, provides the methodology
used by the pilotage office in connection with annual reviews. The
actual ratemaking methodology is contained in appendix A to part 404 of
title 46, CFR, and is comprised of seven (7) steps. Those steps are:
(1) Projection of Operating Expenses;
(2) Projection of Target Pilot Compensation;
(3) Projection of Revenue;
(4) Calculation of Investment Base;
(5) Determination of Target Return on Investment;
(6) Adjustment Determination (Revenue Needed); and,
(7) Adjustment of the Rates.
The financial data used to calculate each of the seven steps comes
from an independent accountant's review of the books and records of
each association, which is provided the Coast Guard on an annual basis,
and other documents and records provided to the Coast Guard by the
pilotage associations. All documents and records relied upon in this
ratemaking have been made part of the public record and may be found in
the docket for this rulemaking.
The methodology is used to develop a multiplier to be used to
adjust pilotage rates in each pilotage area. The following is an
explanation of each step of the methodology and how the rate multiplier
is derived.
Step 1: Projection of Operating Expenses
(1) The Coast Guard projects the amount of vessel traffic annually.
Based upon that projection, the Coast Guard forecasts the amount of
fair and reasonable operating expenses that pilotage rates should
recover. This consists of the following phases:
(a) Submission of financial information from each association;
(b) Determination of recognizable expenses;
(c) Adjustment for inflation or deflation; and
(d) Final projection of operating expenses.
Step 1.A. Submission of Financial Information
(1) Each Association is responsible for providing detailed
financial information to the Coast Guard, in accordance with part 403
of title 46, CFR. The information is collected and reviewed
[[Page 69570]]
by a Coast Guard-contracted independent accounting firm that compiles
this information into financial reports for each District. The
financial reports are reviewed by the Coast Guard in accordance with
the requirements contained at Appendix C to Part 404, on an annual
basis.
(2) Every five years, the Coast Guard is required by the
regulations to complete a thorough audit of pilot association expenses
and establish pilotage rates in accordance with the procedures detailed
in Sec. 404.10. Because we are issuing an interim rule that adjusts
the current rate, we are following the methodology appearing at
appendix A to part 404.
(3) All data used in this interim rule are taken from these
reports. The reports reflect the period ending December 31, 2001. These
reports may be found in the docket.
Step 1.B. Determination of Recognizable Expenses
(1) The Coast Guard determines which Association expenses will be
recognized for ratemaking purposes, using the guidelines for the
recognition of expenses contained in Sec. 404.05.
(2) The following is a summary of the independent CPA's major
findings and adjustments to the pilot associations' audited expenses,
along with the Coast Guard's corresponding adjustments:
Recognized Expenses
--------------------------------------------------------------------------------------------------------------------------------------------------------
District One District Two District Three
--------------------------------------------------------------------------------------------------------------------------------------------------------
Reported expenses for 2001........................ $687,591 $1,386,376 $1,336,710
Independent CPA Proposed Adjustments.............. Equalization Between Districts Equalization Between Districts Equalization Between Districts
$10,120 None $143,035
$62,096 $152,535
Reimbursed Expenses Reimbursed Expenses Reimbursed Expenses
($13,000) ($83,376) ($163,207)
($174,414)
($211,849)
Not Recognized or Allowed Not Recognized or Allowed Not Recognized or Allowed
($782) ($74) ($995)
($43,100) ($720) ($19,780)
($28,124)
Misclassified Expenses Misclassified Expenses Misclassified Expenses
($4,500) (8,600) ($4,050)
($11,740) ($20,470) ($23,100)
($120,377)
Undocumented Expenses Undocumented Expenses Undocumented Expenses
None (125,559) None
-----------------------------------------------------------------------------------------------------
Total expenses 2001 +......................... $566,308 $733,190 $1,421,148
Inflation adjustment (2%)......................... $11,326 $14,664 $28,423
Coast Guard's Adjustments......................... $21,872 $20,500 $25,00
$43,406 $66,159
=============================
Total projected expenses for 2003 pilotage $599,506 $811,760 $1,540,730
season.......................................
--------------------------------------------------------------------------------------------------------------------------------------------------------
Step 1.C. Adjustment for Inflation or Deflation
(1) In making projections of future expenses, expenses that are
subject to inflationary or deflationary pressures are adjusted. Costs
not subject to inflation or deflation are not adjusted. Annual cost
inflation or deflation will be projected to the succeeding navigation
season, reflecting the gradual increase or decrease in costs throughout
the year. The inflation adjustment is based on the year 2000 change in
the Consumer Price Index for the North Central Region of the United
States.
(2) Based upon the foregoing, a 2 percent inflation adjustment was
made to the expense base. That adjustment appears in the table above.
Step 1.D. Projection of Operating Expenses
Once all adjustments are made to the recognized operating expenses,
the Coast Guard projects these expenses for each pilotage area. In
doing so, the Coast Guard takes into account foreseeable circumstances
that could affect the accuracy of the projection. General and
administrative expenses are apportioned to each area according to the
number of pilots needed in that area. The results of Step 1.D for each
district are displayed as follows:
District One
----------------------------------------------------------------------------------------------------------------
Area 1 St. Area 2 Lake Total District
Lawrence River Ontario One
----------------------------------------------------------------------------------------------------------------
Projection of operating expenses............................. $359,704 $239,802 $599,506
----------------------------------------------------------------------------------------------------------------
[[Page 69571]]
District Two
----------------------------------------------------------------------------------------------------------------
Area 5
Area 4 Lake Southeast Total District
Erie Shoal to Port Two
Huron, MI
----------------------------------------------------------------------------------------------------------------
Projection of operating expenses............................. $365,292 $446,468 $811,760
----------------------------------------------------------------------------------------------------------------
District Three
----------------------------------------------------------------------------------------------------------------
Area 6 Lakes
Huron and Area 7 St. Area 8 Lake Total District
Michigan Mary's River Superior Three
----------------------------------------------------------------------------------------------------------------
Projection of operating expenses............ $739,550 $292,739 $508,441 $1,540,730
----------------------------------------------------------------------------------------------------------------
Step 2: Projection of Target Pilot Compensation
(1) The second step in the ratemaking methodology is to project the
amount of target pilot compensation that pilotage rates should provide
in each area. This step consists of the following phases: a.
Determination of the target rate of compensation; b. Determination of
the number of pilots needed in each pilotage area; and
c. Multiplication of target compensation by the number of pilots
needed to project target pilot compensation needed in each area. Each
of these phases is detailed below.
Step 2.A. Determination of Target Rate of Compensation
(1) Target pilot compensation for pilots providing services in
undesignated waters approximates the average annual compensation for
first mates on U.S. Great Lakes vessels. The average annual
compensation for first mates is determined based on the most current
AMOU contract, and includes wages and benefits received by first mates.
(2) Target pilot compensation for pilots providing services in
designated waters approximates the average annual compensation for
masters on U.S. Great Lakes vessels. It is calculated as 150 percent of
the compensation earned by first mates on U.S. Great Lakes vessels.
Based on detailed information provided by commentators, the Great Lakes
Pilotage Office has consistently calculated this by multiplying the
first mates' salary by 150 percent and adding benefits since this is
the best approximation of the average annual compensation for masters.
(3) The table below summarizes how total target pilot compensation
is determined for undesignated and designated waters:
------------------------------------------------------------------------
Monthly (First Monthly
mate) pilots (master)
Monthly component on pilots on
undesignated designated
waters waters
------------------------------------------------------------------------
$207.70 (Daily Rate) x 44 (Days)........ $9,139 N/A
$207.70 (Daily Rate) x 44 x 1.5......... N/A $13,709
Clerical................................ 126 188
Health.................................. 1,748 1,748
Pension................................. 513 513
Monthly total........................... 11,526 16,158
Monthly total x 9 months................ 103,743 145,422
------------------------------------------------------------------------
Step 2.B. Determination of Number of Pilots Needed
(1) The number of pilots needed in each area of designated waters
is established by dividing the projected bridge hours for that area by
1,000. Bridge hours are the number of hours a pilot is aboard a vessel
providing basic pilotage service.
(2) The number of pilots needed in each area of undesignated waters
is established by dividing the projected bridge hours for that area by
1,800.
(3) In determining the number of pilots needed in each pilotage
area, the Coast Guard is guided by the results of the calculations in
steps 2.A. and 2.B. However, the Coast Guard may also find it necessary
to make adjustments to these numbers to ensure uninterrupted pilotage
service in each area, or for other reasonable circumstances that the
Coast Guard determines are appropriate.
(4) Projected bridge hours are based on the vessel traffic that
pilots are expected to serve. The Coast Guard projects that bridge
hours for the 2003 season will be the same as or comparable to the
totals of 2001. Dividing the projected annual number of bridge hours
per area by the target number of bridge hours per pilot determines the
number of pilots required in each area to service vessel traffic.
(5) The following table shows the calculation of pilots needed:
----------------------------------------------------------------------------------------------------------------
Projected Divided by
Pilotage area 2003 bridge bridge-hour Pilots
hours target required
----------------------------------------------------------------------------------------------------------------
AREA 1.......................................................... 5,407 1,000 5.4
AREA 2.......................................................... 6,130 1,800 3.4
[[Page 69572]]
AREA 4.......................................................... 8,298 1,800 4.6
AREA 5.......................................................... 6,395 1,000 6.4
AREA 6.......................................................... 19,016 1,800 10.6
AREA 7.......................................................... 4,320 1,000 4.3
AREA 8.......................................................... 12,354 1,800 6.9
----------------------------------------------------------------------------------------------------------------
Step 2.C. Projection of Target Pilot Compensation
(1) The projection of target pilot compensation is determined
separately for each pilotage area by multiplying the number of pilots
needed in an area by the target pilot compensation for pilots working
in that area (i.e., 5.4 pilots are required in Area 1, target
compensation for the designated waters of Area 1 is $145,422, 5.4 x
$145,422 = $785,279).
(2) The results for each pilotage area are summarized below:
District One
----------------------------------------------------------------------------------------------------------------
Area 1 St. Area 2 Lake Total
Lawrence River Ontario District One
----------------------------------------------------------------------------------------------------------------
Projection of target pilot compensation....................... $785,279 $352,726 $1,138,005
----------------------------------------------------------------------------------------------------------------
District Two
----------------------------------------------------------------------------------------------------------------
Area 5
Area 4 Lake Southeast Total District
Erie Shoal to Port Two
Huron, MI
----------------------------------------------------------------------------------------------------------------
Projection of target pilot compensation...................... $477,218 $930,701 $1,407,919
----------------------------------------------------------------------------------------------------------------
District Three
----------------------------------------------------------------------------------------------------------------
Area 6 Lakes
Huron and Area 7 St. Area 8 Lake Total District
Michigan Mary's River Superior Three
----------------------------------------------------------------------------------------------------------------
Projection of target pilot compensation..... $1,099,676 $625,315 $715,827 $2,440,818
----------------------------------------------------------------------------------------------------------------
Step 3: Projection of Revenue
(1) The third step in the ratemaking methodology is to project the
revenue that would be received in each pilotage area if existing rates
were left unchanged. This consists of a projection of both future
vessel traffic and pilotage revenue.
Step 3.A. Projection of Revenue
(1) The Coast Guard projects the pilotage service that will be
required by vessel traffic in each pilotage area. These projections are
based on historical data and all other relevant data available.
Projected demand for pilotage service is multiplied by the existing
pilotage rates for that service, to arrive at the projection of
revenue.
(2) The results of Step 3.A for each district are summarized below:
District One
----------------------------------------------------------------------------------------------------------------
Area 1 St. Area 2 Lake Total District
Lawrence River Ontario One
----------------------------------------------------------------------------------------------------------------
Projection of revenue........................................ $1,105,233 $629,149 $1,734,382
----------------------------------------------------------------------------------------------------------------
District Two
----------------------------------------------------------------------------------------------------------------
Area 5
Area 4 Lake Southeast Total District
Erie Shoal to Port Two
Huron, MI
----------------------------------------------------------------------------------------------------------------
Projection of revenue........................................ $705,015 $1,461,069 $2,166,084
----------------------------------------------------------------------------------------------------------------
[[Page 69573]]
District Three
----------------------------------------------------------------------------------------------------------------
Area 6 Lakes
Huron and Area 7 St. Area 8 Lake Total District
Michigan Mary's River Superior Three
----------------------------------------------------------------------------------------------------------------
Projection of revenue....................... $1,540,306 $1,119,819 $1,030,693 $3,690,818
----------------------------------------------------------------------------------------------------------------
Step 4: Calculation of Investment Base
(1) The fourth step in the ratemaking methodology is the
calculation of the investment base of each Association. The investment
base is the recognized capital investment in the assets employed by
each Association required to support pilotage operations. In general,
it is the sum of available cash and the net value of real assets, less
the value of land. The investment base has been established through the
use of the balance sheet accounts, as amended by material supplied in
the notes to the independent accountant's financial statements, which
are in the public docket, and adjustments taken by the Coast Guard
after consulting with the accountant.
(2) The formula for determining the investment base appears at
appendix B to part 404. The calculation appears in the independent
accountant's reports for each district. The Investment Base is the
Recognized Assets times the ratio of Recognized Sources of Funds to
Total Sources of Funds. The investment base (Step 4) as calculated for
each district is displayed below:
District One
----------------------------------------------------------------------------------------------------------------
Area 1 St. Area 2 Lake Total District
Lawrence River Ontario One
----------------------------------------------------------------------------------------------------------------
Calculation of investment base............................... $50,000 $50,000 $100,000
----------------------------------------------------------------------------------------------------------------
District Two
----------------------------------------------------------------------------------------------------------------
Area 5
Area 4 Lake Southeast Total District
Erie Shoal to Port Two
Huron, MI
----------------------------------------------------------------------------------------------------------------
Calculation of investment base............................... $89,734 $140,353 $230,087
----------------------------------------------------------------------------------------------------------------
District Three
----------------------------------------------------------------------------------------------------------------
Area 6 Lakes
Huron and Area 7 St. Area 8 Lake Total District
Michigan Mary's River Superior Three
----------------------------------------------------------------------------------------------------------------
Calculation of investment base.............. $111,660 $83,752 $83,752 $279,172
----------------------------------------------------------------------------------------------------------------
Step 5: Determination of Target Rate of Return on Investment
(1) The fifth step in the ratemaking methodology is to determine
the Target Rate of Return on Investment. For each Association, a
market-equivalent return-on-investment is allowed for the recognized
net capital invested in the Association by its members.
(2) The allowed Return on Investment (ROI) is based on the
preceding year's average annual rate of return for new issues of high-
grade corporate securities.
(3) Assets subject to return on investment provisions must be
reasonable in both purpose and amount. If an asset or other investment
is not necessary for the provision of pilotage services, that portion
of the return element is not allowed for ratemaking purposes.
(4) The target rate of return on investment for 2002 was set at
7.04 percent. This is based on the preceding year's (2001's) average
annual rate of return of new issues of high-grade corporate securities
(Moody's AAA rating, average return).
Step 6a: Adjustment Determination--Projected Return on Investment
(1) The next step in the ratemaking methodology is to insert the
results from steps 1, 2, 3, and 4 into a formula that is based on a
basic regulatory rate structure, and comparing the results to step 5.
This basic regulatory rate structure takes into account revenues,
expenses and return on investment, as set out below:
Adjustment Determination (Projected Return on Investment)
------------------------------------------------------------------------
Line Calculation
------------------------------------------------------------------------
1.............................. + Revenue (from Step 3)
2.............................. - Operating Expenses (from Step 1)
3.............................. - Pilot Compensation (from Step 2)
4.............................. = Operating Profit/Loss
5.............................. - Interest Expense (from Audit reports)
6.............................. = Earnings Before Tax
7.............................. - Federal Tax Allowance
8.............................. = Net Income
9.............................. Return Element (Net Income + Interest)
10............................. / Investment Base (from Step 4)
11............................. = Projected Return on Investment
------------------------------------------------------------------------
[[Page 69574]]
Table A.--District One--Projected Return on Investment
----------------------------------------------------------------------------------------------------------------
Total District
Step Area 1 Area 2 One
----------------------------------------------------------------------------------------------------------------
1............................................................ $1,105,233 $629,149 $1,734,382
2............................................................ ($359,704) ($239,802) ($599,506)
3............................................................ ($785,279) ($352,726) ($1,138,005)
4............................................................ ($39,750) $36,621 ($3,129)
5............................................................ 0 0 0
6............................................................ ($39,750) $36,621 ($3,129)
7............................................................ 0 0 0
8............................................................ ($39,750) $36,621 ($3,129)
9............................................................ ($39,750) $36,621 ($3,129)
10........................................................... $50,000 $50,000 $10,000
11........................................................... (0.795) 0.732 (0.031)
----------------------------------------------------------------------------------------------------------------
Table B.--District Two--Adjustment Determination
----------------------------------------------------------------------------------------------------------------
Total District
Step Area 4 Area 5 Two
----------------------------------------------------------------------------------------------------------------
1............................................................ $854,237 $1,392,460 $2,246,697
2............................................................ ($365,292) ($446,468) ($811,760)
3............................................................ ($477,218) ($930,701) ($1,407,919)
4............................................................ $11,727 $15,291 $37,018
5............................................................ ($734) ($734) ($1,468)
6............................................................ $10,993 $14,557 $25,550
7............................................................ ($5,410) ($5,410) ($10,820)
8............................................................ $5,583 $9,147 $14,730
9............................................................ $6,317 $9,881 $16,198
10........................................................... $89,734 $140,353 $230,087
11........................................................... .0704 .0704 .0704
----------------------------------------------------------------------------------------------------------------
Table C.--District Three--Adjustment Determination
----------------------------------------------------------------------------------------------------------------
Step Area 6 Area 7 Area 8 Total District
----------------------------------------------------------------------------------------------------------------
1........................................... $1,847,087 $923,950 $1,230,164 $4,001,202
2........................................... ($739,550) ($292,739) ($508,441) ($1,540,730)
3........................................... ($1,099,676) ($625,315) ($715,827) ($2,440,818)
4........................................... $7,861 $5,896 $5,896 $19,654
5........................................... ($1,909) ($1,909) ($1,909) ($5,727)
6........................................... $5,952 $3,987 $3,987 $13,927
7........................................... 0 0 0 0
8........................................... $5,952 $3,987 $3,987 $13,927
9........................................... $7,861 $5,896 $5,896 $19,654
10.......................................... $111,668 $83,752 $83,752 $279,172
11.......................................... .0704 .0704 .0704 .0704
----------------------------------------------------------------------------------------------------------------
(2) The Coast Guard compares the projected return on investment (as
calculated using the formula in Step 6a) to the target return on
investment (from Step 5), to determine whether an adjustment to the
base pilotage rates is necessary. If the projected return on investment
is significantly different from the target return on investment, the
revenues that would be generated by the current pilotage rates are not
equal to the revenues that would need to be recovered by the pilotage
rates.
(3) It is clear from the table below that the difference between
the projected and target Returns on Investment are significant,
indicating that a rate adjustment is necessary.
Table D.--Comparison of Projected Returns on Investment versus Target
Returns on Investment
------------------------------------------------------------------------
Projected
ROI Target ROI
------------------------------------------------------------------------
District 1.................................... (0.031) .0704
District 2.................................... (0.280) .0704
District 3.................................... (1.041) .0704
------------------------------------------------------------------------
(4) The base pilotage revenues that are needed are calculated by
determining what change in projected revenue will make the target
return on investment equal to the projected return on investment. This
projection of revenue needed is used in determining the basis for
proposed adjustments to the base pilotage rates. The mechanism for
adjusting the base pilotage rates is discussed in Step 7 below. The
required return, tax, and interest elements may be considered additions
to the operating expenses and pilot compensation components of the base
pilotage rates.
Step 6b: Revenue Needed Determination
The same formula used in Step 6a, above, is used to calculate the
Adjustment Determination. To find the proper adjustment determination,
Projected Revenue as determined in Step 3, is adjusted in each area
until the formula in Step 6a yields a Projected Return on Investment
equal to the Target Return on Investment from Step
[[Page 69575]]
5. The following tables show the results of these calculations.
Table A.--District One--Adjustment Determination
----------------------------------------------------------------------------------------------------------------
Total District
Step Area 1 Area 2 One
----------------------------------------------------------------------------------------------------------------
1............................................................ $1,148,503 $629,149 $1,744,551
2............................................................ ($359,704) ($239,802) ($599,506)
3............................................................ ($785,279) ($352,726) ($1,138,005)
4............................................................ $3,520 $3,520 $7,040
5............................................................ 0 0 0
6............................................................ $3,520 $3,520 $7,040
7............................................................ 0 0 0
8............................................................ $3,520 $3,520 $7,040
9............................................................ $3,520 $3,520 $7040
10........................................................... $50,000 $50,000 $100,000
11........................................................... .0704 .0704 .0704
----------------------------------------------------------------------------------------------------------------
Table B.--District Two Adjustment Determination
----------------------------------------------------------------------------------------------------------------
Total District
Step Area 4 Area 5 Two
----------------------------------------------------------------------------------------------------------------
1............................................................ $854,237 $1,392,460 $2,246,697
2............................................................ ($365,292) ($446,468) ($811,760)
3............................................................ ($477,218) ($930,701) ($1,407,919)
4............................................................ $11,727 $15,291 $37,018
5............................................................ ($734) ($734) ($1,468)
6............................................................ $10,993 $14,557 $25,550
7............................................................ ($5,410) ($5,410) ($10,820)
8............................................................ $5,583 $9,147 $14,730
9............................................................ $6,317 $9,881 $16,198
10........................................................... $89,734 $140,353 $230,087
11........................................................... .0704 .0704 .0704
----------------------------------------------------------------------------------------------------------------
Table C.--District Three Adjustment Determination
----------------------------------------------------------------------------------------------------------------
Step Area 6 Area 7 Area 8 Total District
----------------------------------------------------------------------------------------------------------------
1........................................... $1,847,087 $923,950 $1,230,164 $4,001,202
2........................................... ($739,550) ($292,739) ($508,441) ($1,540,730)
3........................................... ($1,099,676) ($625,315) ($715,827) ($2,440,818)
4........................................... $7,861 $5,896 $5,896 $19,654
5........................................... ($1,909) ($1,909) ($1,909) ($5,727)
6........................................... $5,952 $3,987 $3,987 $13,927
7........................................... 0 0 0 0
8........................................... $5,952 $3,987 $3,987 $13,927
9........................................... $7,861 $5,896 $5,896 $19,654
10.......................................... $111,668 $83,752 $83,752 $279,172
11.......................................... .0704 .0704 .0704 .0704
----------------------------------------------------------------------------------------------------------------
Step 7: Adjustment of Pilotage Rates
(1) As previously indicated, the final step in the ratemaking
methodology is to adjust base pilotage rates if the calculations from
Step 6 show that pilotage rates in a pilotage area should be adjusted,
and if the Coast Guard determines that it is appropriate to go forward
with a rate adjustment. Rate adjustments are calculated in accordance
with the procedures found in this step.
(2) Pilotage rate adjustments are calculated for each area by
multiplying the existing pilotage rates in each area by the rate
multiplier. The rate multiplier is calculated by inserting the result
from the steps detailed above into the following formula:
------------------------------------------------------------------------
Line Rate multiplier
------------------------------------------------------------------------
1............................... Revenue Needed (from Step 6(C)).
2............................... / Projected Revenue (from Step 3).
3............................... = Rate multiplier
------------------------------------------------------------------------
(1) Using the formula above, the following are the calculations for
the rate multiplier by District and Area:
Table A.--District 1--Rate Multiplier
[Revenue Needed / Projected Revenue = Rate Multiplier]
------------------------------------------------------------------------
------------------------------------------------------------------------
Area 1........................ $1,148,503 / $1,105,233 1.04
Area 2........................ $596,048 / $629,149 0.95
Total..................... $1,744,551 / $1,734,382 1.01
------------------------------------------------------------------------
[[Page 69576]]
Table B.--District 2--Rate Multiplier
[Revenue Needed / Projected Revenue = Rate Multiplier]
------------------------------------------------------------------------
------------------------------------------------------------------------
Area 4........................ $854,237 / $705,015 1.21
Area 5........................ $1,392,460 / $1,461,069 0.95
Total..................... $2,246,697 / $2,166,084 1.04
------------------------------------------------------------------------
Table C.--District 3--Rate Multiplier
[Revenue Needed / Projected Revenue = Rate Multiplier]
------------------------------------------------------------------------
------------------------------------------------------------------------
Area 6........................ $1,847,087 / $1,540,306 1.20
Area 7........................ $923,950 / $1,119,819 0.83
Area 8........................ $1,230,164 / $1,030,693 1.19
Total..................... $4,001,202 / $3,690,818 1.08
------------------------------------------------------------------------
Total Across All Districts--Rate Multiplier
[Revenue Needed / Projected Revenue = Rate Multiplier]
------------------------------------------------------------------------
------------------------------------------------------------------------
All Districts................. $7,992,450 / $7,591,284 1.05
------------------------------------------------------------------------
(2) The Coast Guard amends the pilotage rates for the waters
treated in 46 CFR 401.405 through 46 CFR 401.410 by multiplying the
current pilotage rates by the rate multiplier for each pilotage area.
The following table shows the percentage changes in rates by Area.
------------------------------------------------------------------------
If you require pilotage service in: The rate will:
------------------------------------------------------------------------
Area 1 (Designated waters)................ Increase by 4%.
Area 2.................................... Decrease by 5%.
Area 4.................................... Increase by 21%.
Area 5 (Designated waters)................ Decrease by 5%.
Area 6.................................... Increase by 20%.
Area 7 (Designated waters)................ Decrease by 17%.
Area 8.................................... Increase by 19%.
------------------------------------------------------------------------
The total change across all Districts is 5 percent.
Part 3: Differences Between This Interim Ratemaking Regulation and the
NPRM Published in January 2003
(1) Pending an opportunity to finish reviewing certain comments
that were received in connection with the NPRM published in the Federal
Register on January 23, 2003 (68 FR 3202), the Coast Guard has
concluded that while many of these comments raised important points to
be further explored, it was also equally important to establish at
least a partial rate adjustment pending that review. We adopted a
number of suggestions raised by comments, which has had the effect of
reducing the rates proposed in the NPRM.
(2) Calculations to determine pilot target compensation for
undesignated and designated waters of the Great Lakes differs from the
calculations published in the NPRM (68 FR 3202). Comments received in
response to the NPRM stated that the Coast Guard should credit only 5
days a month as vacations days vice 15 days to determine pilots' target
compensation. The Coast Guard, in previous rulemakings, has included 15
days a month in its calculation of pilots' target compensation. For
purposes of this interim rule, the Coast Guard has used the figures of
those favoring a 44-day multiplier over a 54-day multiplier. This
change has decreased the rate proposed in the NPRM. The Coast Guard
continues to review this issue and expects to make a determination
before calculating the full rate adjustment for the supplemental notice
of proposed rulemaking (SNPRM).
(3) Many comments suggested that the needs of pilotage on the Great
Lakes could be met with fewer than the total number of pilots
recommended in the NPRM. This season's decline in shipping indicates
that for the near term the rounding up of pilotage numbers, which is
frequently performed in the course of determining the number of pilots
needed, is not necessary, pending a full economic review of the Great
Lakes basin. This, too, has resulted in a reduction to rates proposed
in the NPRM.
Small Entities
Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we have
considered whether this rule would have a significant economic impact
on a substantial number of small entities. The term ``small entities''
comprises small businesses, not-for-profit organizations that are
independently owned and operated and are not dominant in their fields,
and governmental jurisdictions with populations of less than 50,000.
There are no small entities that will be directly affected by this
interim rule. The businesses directly affected will be owners and
operators of vessels who generally are large companies or are
affiliated with large companies. Indirectly affected entities, such as
shippers of major commodities like steel, iron ore, and grain will be
affected only to the extent that these changes cause owners and
operators of vessels to adjust shipping charges.
Therefore, the Coast Guard certifies under 5 U.S.C. 605(b) that
this rule will not have a significant economic impact on a substantial
number of small entities. If you think that your business,
organization, or governmental jurisdiction qualifies as a small entity
and that this rule will have a significant economic impact on it,
please submit a comment to the Docket Management Facility at the
address under ADDRESSES. In your comment, explain why you think it
qualifies and how and to what degree this rule will economically affect
it.
Assistance for Small Entities
Under section 213(a) of the Small Business Regulatory Enforcement
Fairness Act of 1996 (Pub. L. 104-121), we want to assist small
entities in understanding this rule so that they can better evaluate
its effects on them and participate in the rulemaking. If the rule
would affect your small business, organization, or governmental
jurisdiction and you have questions concerning its provisions or
options for compliance, please call Paul Wasserman, Director, Office of
Great Lakes Pilotage, (G-MWP-1), Coast Guard, telephone (202) 267-2856
or
[[Page 69577]]
send him e-mail at Pwasserman@comdt.uscg.mil.
Small businesses may send comments on the actions of Federal
employees who enforce, or otherwise determine compliance with, Federal
regulations to the Small Business and Agriculture Regulatory
Enforcement Ombudsman and the Regional Small Business Regulatory
Fairness Boards. The Ombudsman evaluates these actions annually and
rates each agency's responsiveness to small business. If you wish to
comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR
(1-888-734-3247).
Collection of Information
This interim rule calls for no new collection of information under
the Paperwork Reduction Act of 1995 [44 U.S.C. 3501-3520].
Federalism
A rule has implications for federalism under Executive Order 13132,
Federalism, if it has a substantial direct effect on State or local
governments and would either preempt State law or impose a substantial
direct cost of compliance on them. We have analyzed this rule under
that Order and have determined that it does not have implications for
federalism.
Unfunded Mandates Reform Act
The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538)
requires Federal agencies to assess the effects of their discretionary
regulatory actions. In particular, the Act addresses actions that may
result in the expenditure by a State, local, or tribal government, in
the aggregate, or by the private sector of $100,000,000 or more in any
one year. Though this rule will not result in such an expenditure, we
do discuss the effects of this rule elsewhere in this preamble.
Taking of Private Property
This rule will not effect a taking of private property or otherwise
have taking implications under Executive Order 12630, Governmental
Actions and Interference with Constitutionally Protected Property
Rights.
Civil Justice Reform
This rule meets applicable standards in sections 3(a) and 3(b)(2)
of Executive Order 12988, Civil Justice Reform, to minimize litigation,
eliminate ambiguity, and reduce burden.
Protection of Children
We have analyzed this rule under Executive Order 13045, Protection
of Children from Environmental Health Risks and Safety Risks. This rule
is not an economically significant rule and does not create an
environmental risk to health or risk to safety that may
disproportionately affect children.
Indian Tribal Governments
This rule does not have tribal implications under Executive Order
13175, Consultation and Coordination with Indian Tribal Governments,
because it does not have a substantial direct effect on one or more
Indian tribes, on the relationship between the Federal Government and
Indian tribes, or on the distribution of power and responsibilities
between the Federal Government and Indian tribes.
Energy Effects
We have analyzed this rule under Executive Order 13211, Actions
Concerning Regulations That Significantly Affect Energy Supply,
Distribution, or Use. We have determined that it is not a ``significant
energy action'' under that order because it is not a ``significant
regulatory action'' under Executive Order 12866 and is not likely to
have a significant adverse effect on the supply, distribution, or use
of energy. The Administrator of the Office of Information and
Regulatory Affairs has not designated it as a significant energy
action. Therefore, it does not require a Statement of Energy Effects
under Executive Order 13211.
Environment
We have analyzed this rule under Commandant Instruction M16475.lD,
which guides the Coast Guard in complying with the National
Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321-4370f), and
have concluded that there are no factors in this case that would limit
the use of a categorical exclusion under section 2.B.2 of the
Instruction. Therefore, this rule is categorically excluded, under
figure 2-1, paragraph (34)(a), of the Instruction, from further
environmental documentation. An ``Environmental Analysis Check List''
and a ``Categorical Exclusion Determination'' are available in the
docket where indicated under the section of this preamble on ``Public
Participation and Request for Comments''. We will consider comments on
this section before we make the final decision on whether this rule
should be categorically excluded from further environmental review.
List of Subjects
46 CFR Part 401
Administrative practice and procedures, Great Lakes, Navigation
(water), Penalties, Reporting and recordkeeping requirements, Seamen.
46 CFR Part 404
Great Lakes, Navigation (water), Seamen.
0
For the reasons discussed in the preamble, the Coast Guard amends 46
CFR parts 401 and 404 as follows:
PART 401--GREAT LAKES PILOTAGE REGULATIONS
0
1. Revise the authority citation for part 401 to read as follows:
Authority: 46 U.S.C. 2104(a), 6101, 7701, 8105, 9303, 9304;
Department of Homeland Security Delegation No. 0170.1; 46 CFR
401.105 also issued under the authority of 44 U.S.C. 3507.
0
2. In Sec. 401.405, revise paragraphs (a) and (b), to read as follows:
Sec. 401.405 Basic rates and charges on the St. Lawrence River and
Lake Ontario.
* * * * *
(a) Area 1 (Designated Waters):
------------------------------------------------------------------------
Service St. Lawrence River
------------------------------------------------------------------------
Basic Pilotage............................ $8 per kilometer or $15 per
mile\1\
Each Lock Transited....................... \1\$185
Harbor Movage............................. \1\$607
------------------------------------------------------------------------
\1\ The minimum basic rate for assignment of a pilot in the St. Lawrence
River is $405, and the maximum basic rate for a through trip is
$1,777.
(b) Area 2 (Undesignated Waters):
------------------------------------------------------------------------
Service Lake Ontario
------------------------------------------------------------------------
Six-Hour Period......................................... $327
Docking or Undocking.................................... $312
------------------------------------------------------------------------
0
3. In Sec. 401.407, revise paragraphs (a) and (b) to read as follows:
Sec. 401.407 Basic rates and charges on Lake Erie and the navigable
waters from Southeast Shoal to Port Huron, MI.
* * * * *
(a) Area 4 (Undesignated Waters):
------------------------------------------------------------------------
Lake Erie
(East of
Service southeast Buffalo
shoal)
------------------------------------------------------------------------
Six-Hour Period............................... $405 $405
Docking or Undocking.......................... $312 $312
Any Point on the Niagara River below the Black N/A $796
Rock Lock....................................
------------------------------------------------------------------------
(b) Area 5 (Designated Waters):
[[Page 69578]]
----------------------------------------------------------------------------------------------------------------
Toledo or
any Point
on Lake
Any point on or in Southeast Erie west Detroit Detroit St. Clair
Shoal of River Pilot Boat River
Southeast
Shoal
----------------------------------------------------------------------------------------------------------------
Toledo or any port on Lake Erie west of $939 $554 $1,218 $939 N/A
Southeast Shoal...............................
Port Huron Change Point........................ \1\ $1,634 \1\ $1,893 $1,228 $955 $679
St. Clair River................................ \1\ $1,634 N/A $1,228 $1,228 $554
Detroit or Windsor or the Detroit River........ $939 $1,218 $554 N/A $1,228
Detroit Pilot Boat............................. $679 $939 N/A N/A $1,228
----------------------------------------------------------------------------------------------------------------
\1\ When pilots are not changed at the Detroit Pilot Boat.
0
4. In Sec. 401.410, revise paragraphs (a), (b), and (c) to read as
follows:
Sec. 401.410 Basic rates and charges on Lakes Huron, Michigan, and
Superior, and the St Mary's River.
* * * * *
(a) Area 6 (Undesignated Waters):
------------------------------------------------------------------------
Lakes Huron
Service and
Michigan
------------------------------------------------------------------------
Six-Hour Period............................................ $336
Docking or Undocking....................................... $319
------------------------------------------------------------------------
(b) Area 7 (Designated Waters):
------------------------------------------------------------------------
Any
Area Detour Gros Cap harbor
------------------------------------------------------------------------
Gros Cap............................... $1,192 N/A N/A
Algoma Steel Corporation Wharf at Sault $1,192 $449 N/A
Ste. Marie Ontario....................
Any point in Sault Ste. Marie, Ontario, $999 $449 N/A
except the Algoma Steel Corporation
Wharf.................................
Sault Ste. Marie, MI................... $999 $449 N/A
Harbor Movage.......................... N/A N/A $449
------------------------------------------------------------------------
(c) Area 8 (Undesignated Waters):
------------------------------------------------------------------------
Lake
Service Superior
------------------------------------------------------------------------
Six-Hour Period............................................ $311
Docking or Undocking....................................... $296
------------------------------------------------------------------------
Sec. 401.420 [Amended]
0
5. In Sec. 401.420--
0
a. In paragraph (a), remove the number ``$53'' and add, in its place,
the number ``$56''; and remove the number ``$831'' and add, in its
place, the number ``$873''.
0
b. In paragraph (b), remove the number ``$53'' and add, in its place,
the number ``$56''; and remove the number ``$831'' and add, in its
place, the number ``$873''.
0
c. In paragraph (c)(1), remove the number ``$314'' and add, in its
place, the number ``$330''; in paragraph (c)(3), remove the number
``$53'' and add, in its place, the number ``$56''; and, also in
paragraph (c)(3), remove the number ``$831'' and add, in its place, the
number ``$873''.
Sec. 401.428 [Amended]
0
6. In Sec. 401.428, remove the number ``$321'' and add, in its place,
the number ``$337''.
PART 404--GREAT LAKES PILOTAGE RATEMAKING
0
7. Revise the authority citation for part 404 to read as follows:
Authority: 46 U.S.C. 2104(a), 8105, 9303, 9304; Department of
Homeland Security Delegation No. 0170.1.
Appendix A to Part 404 [Amended]
0
8. In Appendix A to part 404, in Step 6, paragraph 1, line 10 of the
table, remove the symbol ``+'' and add, in its place, the symbol ``/''.
Dated: December 8, 2003.
T.H. Gilmour,
Rear Admiral, U.S. Coast Guard, Assistant Commandant for Marine Safety,
Security and Environmental Protection.
[FR Doc. 03-30711 Filed 12-8-03; 4:37 pm]
BILLING CODE 4910-15-P
Browse by Year
/ 2003
/ December
/ Friday, December 12, 2003
Credit Cards - Arizona Pools - Arizona Landscaping - Guitar Lessons
|
|
