[Federal Register Volume 59, Number 70 (Tuesday, April 12, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-8602]


[[Page Unknown]]

[Federal Register: April 12, 1994]


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DEPARTMENT OF TRANSPORTATION

Coast Guard

 

46 CFR Parts 401, 403, and 404

[CGD 92-072]
RIN 2115-AE45

Great Lakes Pilotage Rate Methodology

AGENCY: Coast Guard, DOT.

ACTION: Notice of proposed rulemaking and hearing.

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SUMMARY: The Coast Guard proposes to amend the Great Lakes Pilotage 
Regulations by establishing new procedures for determining Great Lakes 
pilotage rates, and revising the financial reporting requirements 
mandated for Great Lakes pilot associations. The proposed methodology 
would adopt methods which have proven effective in ratemaking 
methodologies used by regulators of other public service industries. 
This notice of proposed rulemaking (NPRM) does not propose a change to 
the existing Great Lakes pilotage rates and charges, but proposes to 
standardize the methodology by which those rates would be determined in 
the future.

DATES: Comments must be received on or before July 11, 1994.
    A public hearing will be held on May 20, 1994. Details regarding 
the place and time of this hearing are discussed below under ``Request 
for Comments.''

ADDRESSES: Comments may be mailed to the Executive Secretary, Marine 
Safety Council (G-LRA-2/3406) (CGD 92-072), U.S. Coast Guard 
Headquarters, 2100 Second Street, SW., Washington, DC 20593-0001, or 
may be delivered to Room 3406 at the above address between 8 a.m. and 3 
p.m., Monday through Friday, except Federal holidays. The telephone 
number is (202) 267-1477. Comments on collection of information 
requirements must also be mailed to the Office of Information and 
Regulatory Affairs, Office of Management and Budget, 725 17th Street 
NW., Washington, DC 20503, ATTN: Desk Officer, U.S. Coast Guard.
    The Executive Secretary maintains the public docket for this 
rulemaking. Comments will become part of this docket and will be 
available for inspection or copying at room 3406, U.S. Coast Guard 
Headquarters.
    As discussed below under ``Request for Comments,'' the Coast Guard 
intends to conduct a public hearing regarding this NPRM. The public 
hearing will be held in room 769 of the Federal Building, 1240 E. 9th 
Street, Cleveland, OH 44199.

FOR FURTHER INFORMATION CONTACT: Mr. Scott A. Poyer, Project Manager, 
Office of Marine Safety, Security and Environmental Protection, (G-MVP/
12), room 1210, U.S. Coast Guard Headquarters, 2100 Second Street, SW., 
Washington, DC 20593-0001, (202) 267-6249.

SUPPLEMENTARY INFORMATION:

Request for Comments

    The Coast Guard encourages interested persons to participate in 
this rulemaking by submitting written data, views or arguments. Persons 
submitting comments should include their name and address, identify 
this rulemaking (CGD 92-072) and the specific section of this rule to 
which each comment applies, and give a reason for each comment. The 
Coast Guard requests that all comments and attachments be submitted in 
an unbound format suitable for copying and electronic filing. If not 
practical, a second copy of any bound material is requested. Persons 
wanting acknowledgment of receipt of comments should enclose a stamped, 
self-addressed postcard or envelope.
    The Coast Guard will consider all comments received during the 
comment period. It may change this proposal in view of the comments.
    The Coast Guard intends to conduct a public hearing on May 20, 1994 
in room 769 of the Federal Building, 1240 E. 9th Street, Cleveland, OH 
44199. The hearing will begin at 9 a.m. and last until all comments 
have been heard, or until 5 p.m., whichever is earlier. The purpose of 
this hearing is to gather information relating to this rulemaking and 
to permit responses by interested persons to material filed in this 
docket.

Drafting Information

    The principal persons involved in drafting this rule are: Mr. Scott 
A. Poyer, Project Manager, Office of Marine Safety, Security and 
Environmental Protection, Mr. David Richards, Project Consultant, 
Department of Transportation (DOT) Office of International Aviation, 
and Mr. Nicholas Grasselli, Project Counsel, Office of Chief Counsel.

Background and Purpose

    Under the Great Lakes Pilotage Act of 1960 (Pub. L. 86-555, 46 
U.S.C. 9301 et seq.), vessels of the United States operating on 
register and foreign vessels must engage a U.S. or Canadian registered 
pilot when traversing the waters of the Great Lakes. The Great Lakes 
Pilotage Act, as amended, vests the Secretary of Transportation with 
responsibility for setting pilotage rates. The Great Lakes Pilotage Act 
49 U.S.C. 9303 provides that the Secretary shall prescribe by 
regulation rates and charges for pilotage services, giving 
consideration to the public interest and the costs of providing the 
services. This authority, except for the authority to enter into, 
revise or amend arrangements with Canada, has been delegated to the 
Commandant of the Coast Guard by 49 CFR 1.46 (a).
    Currently, the navigable waters of the Great Lakes are divided into 
eight pilotage areas. United States registered pilots, along with their 
Canadian counterparts, provide pilotage services in areas 1, 2, 4, 5, 
6, 7, and 8. Pilotage area 3 (the Welland Canal) is currently a wholly-
Canadian area where only Canadian pilots provide services. Pilotage 
areas 2, 4, 6, and 8 are ``undesignated waters.'' Pilotage areas 1, 5, 
and 7 are ``designated waters.'' Pilots are required to direct 
navigation of vessels in designated waters. Pilots are required to be 
on board and available to direct navigation in undesignated waters. The 
seven U.S. pilotage areas are grouped together into three pilotage 
districts. District 1 consists of areas 1 and 2. District 2 consists of 
areas 4 and 5. District 3 consists of areas 6, 7, and 8. Each district 
has its own pilot association.
    Section 9305 of the Pilotage Act provides that the Secretary of 
Transportation, subject to the concurrence of the Secretary of State, 
may make agreements with the appropriate agency of Canada to prescribe 
joint or identical rates and charges. The latest Memorandum of 
Arrangements between Canada and the United States specifies that the 
Secretary of Transportation and the Minister of Transport will arrange 
for the establishment of regulations imposing identical rates. In the 
past, consultations resulted in nominally identical U.S. and Canadian 
rates. Not only are generally uniform rates required by the agreement 
with Canada, but they are also important from the standpoint of 
predictable costs for vessels requiring pilotage. However, there are 
differences in the cost bases and in the operating organizations of the 
U.S. and Canadian pilots, particularly with regard to pilot 
compensation. These differences need to be taken into account in 
reaching identical U.S. and Canadian rates. Therefore, the proposed 
methodology, like its predecessor, would not translate directly into 
new rates, but rather would form the basis for proposals to be 
negotiated with Canada.
    On December 7, 1988, the Department of Transportation published the 
Great Lakes Pilotage Study Final Report (1988 DOT Pilotage Study). The 
study revealed weaknesses in accounting for the expenses incurred by 
the pilot associations and the need to formally establish the factors 
used in establishing pilotage rates. On April 25, 1990, the Coast Guard 
published a final rule (55 FR 17580) establishing improved audit 
requirements and general guidelines and procedures to be followed in 
ratemaking (CGD 92-072). In May, 1990, the Inspector General (IG) for 
the Department of Transportation initiated an audit of Coast Guard 
oversight of Great Lakes pilotage. The final report of the audit (Audit 
of the U.S. Coast Guard's Oversight and Management of the Great Lakes 
Pilotage Program), detailing further issues affecting the basis for 
Great Lakes pilotage rates, was issued on December 14, 1990.
    On August 2, 1991, a DOT Task Force was formed to: (1) Develop an 
interim rate adjustment; and (2) establish a new pilotage ratemaking 
methodology. On June 5, 1992, an interim rate increase was published 
(CGD 89-104). This rate adjustment was designed to increase the revenue 
received by the pilots, pending development of a permanent rate 
methodology.
    Copies of any of the published material listed above may be 
obtained by contacting Mr. Scott A. Poyer, as indicated in FOR FURTHER 
INFORMATION CONTACT.

Discussion of Proposed Amendments

    This NPRM proposes a new methodology for setting pilotage rates on 
the Great Lakes. This NPRM would replace the general guidelines of the 
existing methodology, set forth in 46 CFR Part 404, with more detailed 
and specific steps to be followed when setting Great Lakes Pilotage 
rates. It would also make correlative changes to the accounting and 
reporting requirements set forth in 46 CFR part 403.
    This NPRM would not change the current Great Lakes pilotage rates 
and charges contained in 46 CFR 401.400-401.428. This NPRM proposes to 
change the methodology by which those rates would be determined during 
Great Lakes pilotage ratemaking proceedings.
    In summary, the proposed ratemaking methodology would provide that 
the Director of Great Lakes Pilotage (the Director), determine the 
timing for reviews of pilotage rates. Interested parties would be able 
to petition the Director for a review at any time. However, the 
Director would decide, under applicable law, if a review is warranted. 
If the Director determined that a review is warranted, he or she would 
accomplish this review by following the steps detailed in this 
rulemaking.
    Basically, these steps involve the projection of operating expenses 
(including pilot compensation) and revenues (using the current rate 
schedule), based on the anticipated demand for pilotage services, by 
pilotage area for the succeeding navigation period. Interest expense on 
the debt of the pilot organizations, and allowances for federal income 
taxes and the capital invested in the pilot organizations would be 
subtracted from this projected operating profit or loss. Ideally, 
projected revenues received under the existing rate schedule would be 
sufficient to cover projected operating expenses, interest, and 
allowances.
    If a rate adjustment appeared warranted, the Director would 
calculate a new hourly rate schedule for basic pilotage service in each 
pilotage area by dividing the sum of the projected costs (operating 
expenses, interest expense, and tax and return allowances) by the 
projected hours of pilotage service. The Coast Guard would publish any 
proposed rate adjustments in a NPRM inviting comments on the changes. 
That NPRM, and any subsequent comments on it, would then form the basis 
for negotiations on pilotage rates between the United States and 
Canada. Once these negotiations resulted in an agreement to change 
pilotage rates, the Coast Guard would publish a rule establishing a new 
rate schedule.
    This NPRM also proposes to change the financial reporting 
requirements for pilot associations to more closely comport to 
ratemaking needs. The proposed changes to the reporting requirements, 
while an integral part of the ratemaking process, should be considered 
independently from any proposed ratemaking provisions. This NPRM also 
proposes to add a certification requirement.
    The proposals contained in the discussion section of this preamble 
are presented in two parts. Part A of this section discusses proposed 
revisions to the ratemaking methodology. Part B addresses proposed 
revisions to the financial reporting requirements. The order of 
discussion in this preamble differs from the order of presentation in 
the regulations. The revisions to the ratemaking methodology are 
discussed first because an understanding of the methodology is 
important to an understanding of the proposed changes to the financial 
reporting requirements, and because the changes to the proposed 
methodology are more extensive than the changes to the financial 
reporting requirements.

Adoption of Public Service Rate Methodology

    The Pilotage Act (46 U.S.C. 9303) provides, in part, that the rates 
and charges for pilotage services shall be fair and equitable, giving 
due consideration to the public interest and the reasonable cost and 
expense of providing and maintaining such facilities and arrangements 
as are required for the efficient performance of pilotage services.
    Because the provision of service by the pilot organizations 
contains many of the characteristics and requirements of a public 
utility, this NPRM proposes to employ basic utility ratemaking 
procedures in setting pilotage rates and charges. Basic utility 
ratemaking concepts include the non-discriminatory treatment of users, 
operational and economic efficiency through the use of ratemaking 
standards, and other general public policies.
    This NPRM describes the general financial structure of public 
service rates and proposes to apply this structure to the three U.S. 
pilot organizations providing pilotage services on the Great Lakes, 
with several economic standards applied to cost elements and specific 
application and designation of revenue categories.

1. General Public Service Rate Structure and Definitions

    Public service rates are generally defined rates with established 
economic standards, most often based upon an allowed return on 
investment. Shown below is a basic structure for such rates:

      Public Service Rate Structure Using Rate of Return Standards      
------------------------------------------------------------------------
              Line                              Description             
------------------------------------------------------------------------
1................................  Adjusted Operating Revenue.          
2. less..........................  Adjusted Operating Expense.          
3. equals........................  Adjusted Operating Profit (Loss).    
4. less..........................  Adjusted Interest Expense.           
5. equals........................  Adjusted Earnings Before Tax.        
6. less..........................  Federal Tax Allowance.               
7. equals........................  Net Income.                          
8................................  Return Element (Net Income plus      
                                    Interest).                          
9. divided by....................  Investment Base (Separately          
                                    determined).                        
10. equals.......................  Return on Investment (ROI).          
------------------------------------------------------------------------

    This NPRM defines the elements of this basic structure for Great 
Lakes Pilotage Rates below.
    1. Adjusted Operating Revenue: Adjusted Operating Revenue is the 
sum of all operating revenues received by the pilot organizations for 
their pilotage services, less revenues from ancillary pilotage services 
that are offset against operating expenses, discussed below.
    2. Adjusted Operating Expense: Adjusted Operating Expense is the 
sum of all operating expenses incurred by the pilot organizations for 
their pilotage services, less the sum of all disallowed expenses, 
discussed below.
    3. Adjusted Operating Profit (Loss): Adjusted Operating Profit 
(Loss) is the Adjusted Operating Revenue, less the Adjusted Operating 
Expense.
    4. Adjusted Interest Expense: Adjusted Interest Expense is the 
reported pilot association interest expense on operations, adjusted to 
exclude any interest expense attributable to non-pilotage operations.
    5. Adjusted Earnings Before Tax: Adjusted Earnings Before Tax is 
the Adjusted Operating Profit (Loss), less the Adjusted Interest 
Expense.
    6. Federal Tax Allowance: The Federal Tax Allowance is the Federal 
statutory tax on Earnings Before Tax, for those pilot organizations 
subject to federal tax.
    7. Adjusted Net Income: Adjusted Net Income is the Adjusted 
Earnings Before Tax, less the Federal Tax Allowance.
    8. Return Element: The Return Element is the Adjusted Net Income, 
plus Adjusted Interest Expense. The return element can be considered 
the sum of the return to equity capital (the net income) and the return 
to debt (the interest expense). Both interest expense and net income 
must be summed to determine the return to the combined debt and equity 
investment, below.
    9. Investment Base: The Investment Base is the net capital invested 
in the pilot organization, including both equity and debt. Should 
capital be invested in other than pilotage operations, that capital and 
related revenues and expenses would be excluded from the rate base. The 
investment base is defined below.
    10. Return on Investment: The Return on Investment (ROI) is the 
Return Element, divided by the Investment Base, and expressed as a 
percent.
    Putting actual data into the format described above would generate 
the pilot organizations' actual financial performance for a past 
period. This NPRM proposes to establish prospective rates, however, and 
therefore propose several additional regulatory adjustments. These 
adjustments include establishing a prospective return to investment, 
adjusting for inflation, and projecting the need for pilotage services. 
These adjustments are described in Part A.

2. Investment Base

    The Investment Base is the recognized capital investment in the 
useful assets employed by the pilot groups. In general, it is the sum 
of available cash and the net value of real assets, less the value of 
land. This NPRM proposes to establish the investment base through the 
use of the balance sheet accounts, as amended by material supplied in 
the Notes to the Financial Statement, discussed below. Below are the 
accounts and methodology this NPRM proposes to use. The account numbers 
are taken from the accounting revisions in Part B.

                    Construction of Investment Base                     
------------------------------------------------------------------------
            Account No.                          Description            
------------------------------------------------------------------------
Recognized assets:                                                      
+10999.............................  Total current assets               
-29999.............................  Total current liabilities          
+20100.............................  Current notes payable              
+13999.............................  Total property and equipment (Net) 
-12000.............................  Land                               
+15000.............................  Total other assets                 
------------------------------------------------------------------------
                                     Total recognized assets            
Non-recognized assets:                                                  
+11999.............................  Total investments and special funds
------------------------------------------------------------------------
                                     Total Non-recognized assets        
                                                                        
               Total Recognized and Non-Recognized Assets               
                                                                        
Recognized sources of funds:                                            
+39999.............................  Total stockholders equity          
+26000.............................  Long-term debt                     
+20100.............................  Current notes payable              
+24500.............................  Advances from affiliated companies 
+26100-500.........................  Long-term obligations--Capital     
                                      leases                            
------------------------------------------------------------------------
                                     Total recognized sources           
Non-Recognized sources of funds:                                        
+26600.............................  Pension liability                  
+26800.............................  Other non-current liabilities      
+27000.............................  Deferred Federal income taxes      
+27200.............................  Other deferred credits             
------------------------------------------------------------------------
                                     Total Non-recognized sources       
                                                                        
               Total Recognized and Non-Recognized Sources              
                                                                        
------------------------------------------------------------------------

    The proposed Investment Base is the Recognized Assets, multiplied 
by the ratio of Recognized Sources of Funds to Total Sources of Funds. 
Recognized assets are adjusted by this ratio to ensure that the assets 
are not encumbered by outstanding liabilities. The non-recognized 
sources of funds are available only because they have not been 
demanded; they represent costs that have been incurred, but not paid.

Notes to the Financial Statement and Other Informational Notes

    All matters which may materially influence interpretations or 
conclusions drawn from the financial statement with regard to the 
financial condition or earnings position are required to be clearly and 
completely stated as footnotes to the financial statement (46 CFR Part 
403.)

Part A: Proposed Methodology

    In summary, the basic steps to be followed in the proposed Great 
Lakes pilotage ratemaking methodology would be as follows: (1) 
Projection of operating expenses, including target pilot compensation; 
(2) projection of operating revenues at current rates, including 
revenues from ancillary services; (3) calculation of investment base; 
(4) determination of target rate of return on investment; (5) 
substitution of data into the basic utility rate structure; and (6) 
adjustment of the basic pilotage rate schedule if necessary, subject to 
the requirements of the Memorandum of Arrangements between the United 
States and Canada. The details of each of these steps can be found in 
Appendix A of the proposed amendments to 46 CFR part 404.

General Ratemaking Provisions

    The Director would continue to determine, under applicable law, 
when reviews of Great Lakes pilotage rates would be conducted. In 
addition, this NPRM proposes to allow an interested party or parties to 
petition the Director for a review, provided that sufficient 
justification is included in the request. This would allow the Director 
to react to changing circumstances which might affect pilotage rates. 
The Coast Guard invites comment on whether rate reviews should be 
conducted at fixed intervals, and if so, what the timing of the 
intervals should be.
    This NPRM proposes that each of the seven U.S. pilotage areas be 
treated as separate cost centers for ratemaking calculations. This is 
because each area consists of either designated or undesignated waters, 
and the target pilot compensation would be different for each.

Part A.1. Derivation of Return on Investment and Adjustment for 
Inflation

Return on Investment

    The proposed rate schedule, based on average costs per pilotage 
hour as developed below, are in part determined by the permitted rate 
of return on investment (ROI). This is calculated by dividing the sum 
of return to debt (interest expense) and the return to equity (net 
income), by the investment base. Revenues received must be sufficiently 
high to create sufficient net income, when added to interest expense 
and the sum divided by the investment base, to equal the allowed rate 
of return on investment.
    The ROI for any industry can vary significantly depending solely on 
the mix of debt to equity capital. Many public service ratemaking 
authorities determine the allowable ROI using an artificial debt/equity 
ratio. This is generally done to encourage equity capital investment in 
an industry, since the return to equity is generally set higher than 
the return to debt. Since such a mechanism is neither feasible nor 
necessary in the case of pilotage services, this NPRM does not propose 
to establish any ROI standard based on a specified debt/equity ratio, 
but would accept the debt/equity ratio of each of the pilot 
organizations as reported.
    This NPRM proposes to set the allowed rate of return to equity 
capital at the most recent return on stockholder's equity for a 
representative cross-section of transportation industry companies, 
including maritime companies, with a minimum rate equal to the interest 
rate incurred by the associations for debt capital, and a maximum rate 
of 20.0 percent. Alternate proposed rate of return to capital 
percentages should contain reasonable support for their selection over 
this NPRM's proposal. For example, under this NPRM's proposed 
methodology, the computed ROI standard for pilotage rates, assuming a 
50/50 debt/equity ratio, an implicit interest rate of 14 percent on 
debt capital and a 20 percent return to equity capital, would be 17.0 
percent (.50 times .14, plus .50 times .20 = .170, or 17.0 percent.)
    The average hourly charge for pilotage services would be set to 
generate sufficient revenues to cover operating expense and the return 
on investment allowance (including Federal taxes, if any).

Adjustment for Inflation

    This NPRM proposes to project annual inflation factors to the 
succeeding navigation season, reflecting the gradual increase in cost 
throughout the season. These inflation factors would be applied to the 
actual costs of the pilot organizations, other than for pilot 
compensation, in computing the rate necessary to achieve the target 
ROI. The factors would not be applied to pilot compensation costs, 
which are estimated separately.
    This NPRM proposes to project the actual annual experienced changes 
in the average costs per pilot assignment for each pilotage area after 
the initial two years of cost inflation under this NPRM's proposed rate 
methodology. The initial two years of cost adjustment would be based on 
the preceding year's change in the North Central Region's Consumer 
Price Index, as calculated by the U.S. Bureau of Labor Statistics. 
Costs not subject to inflation (depreciation, for example) would not be 
adjusted for this initial period. Alternate methods of cost projection 
proposed during the comment period of this rule would be carefully 
considered.

Part A.2. Recognition of Costs for Ratemaking Purposes

    Virtually all regulated rates contain economic incentives, 
penalties, or limits. This NPRM has already mentioned one such standard 
sometimes used, an artificial debt/equity ratio for return on 
investment. This NPRM proposes one explicit economic standard for Great 
Lakes pilotage ratemakings--recognition of lease expenses only to the 
extent that they either: (a) Approximate open market costs (for those 
leased assets with readily available markets); or (b) approximate 
ownership cost (for those leased assets with limited alternative 
markets, or which were obtained through transaction with affiliated 
companies.)
    This NPRM also proposes to place expenses that appear excessive 
under greater scrutiny than in the past. Regulators may disallow 
expenses, subject to appeal by the pilot associations, as excessive or 
unrelated to the provision of pilotage services.
    Finally, while the Coast Guard is unaware of the use of other than 
the straight-line method of recording depreciation expense by the pilot 
organizations, this NPRM does not propose to recognize, for rate-
setting purposes, depreciation expenses on other than a straight-line 
basis.

Recognition of Lease Expenses

    Economic organizations lease equipment or other assets for a number 
of operational or financial reasons. This NPRM proposes no general 
objection to the leasing of assets. However, lease transactions, and 
lease transactions with related companies in particular, are subject to 
two general guidelines in public ratesetting. The first guideline 
allows recognition of lease expense with no adjustment should the lease 
terms generally approximate the market conditions for the leased asset. 
The second guideline allows the recognition of lease expenses only to 
the extent that the lease cost approximates the cost of owning the 
asset.
    This NPRM proposes to recognize lease costs to the extent that they 
generally approximates open market costs, subject to the condition that 
a readily available alternative supplier for the leased asset exists. 
Should there be no readily available alternate supplier, recognition of 
lease costs would be limited to the approximate cost of ownership, 
including a return to capital. Since related-party transactions by 
definition are not open market transactions, this NPRM proposes to 
generally apply the more stringent guideline to all related-party 
transactions. (See 14 CFR 399.43, for example).
    This NPRM proposes to amend the financial reporting requirements to 
require that lease costs be recorded in accordance with the Financial 
Accounting Standards Board (FASB) publication FASB-13, including 
subsequent rulings on this subject by the FASB.

Part A.3. Ancillary Charges

    Several charges have traditionally been levied for ancillary 
pilotage services, such as docking/undocking and moving to an 
anchorage, as well as penalty charges, such as for delay or 
cancellation. Revenues received for these services have been included 
as part of the overall revenues received by the pilot organizations in 
estimating the need for rate changes. However, accepting these revenues 
as general revenues does not tie the revenues received to the provision 
of a service or the incursion of a cost. For example, overhead costs 
(non-pilot compensation costs) are incurred in assigning a pilot. 
Should that order be later cancelled, the revenue received from the 
cancellation charge is reported as cancellation charge revenue, but is 
not linked to the overhead cost of assigning the pilot.
    This NPRM proposes to link revenues received for ancillary services 
to the cost of services provided through the use of revenue offset 
methodology. Under this method, revenues received from charges for 
ancillary services are ``offset'' against the direct expenses of 
providing that service. In the above example, overhead costs would be 
reduced by the revenues received for the cancellation charge, other 
costs (pilot compensation costs for example) would be unaffected. The 
total amount of revenue received (needed) or expenses recognized under 
revenue offset methodology is unchanged. However, as discussed below, 
this NPRM proposes to set the charges for ancillary services separately 
from the basic pilotage rates in this NPRM. In addition, this NPRM also 
proposes to equalize ancillary charges between districts. For equity, 
as well as for economic reasons, a docking charge at Duluth should be 
equal to one at Chicago, Detroit, or Buffalo. This NPRM will discuss 
these charges in turn.

Docking/Undocking and Harbor Movement Charges

    The current docking/undocking charges in undesignated waters are 
$297, $256, and $271, for Districts 1 through 3, respectively. 
Districts 1 and 3 also have a direct charge for a moveage in a harbor, 
at $580 and $531, respectively. For comparability, during the next 
ratemaking the Coast Guard would propose to set the docking/undocking 
charge at the same level for all three districts (e.g. at $250), 
subject to supported comment for establishment at any other level, or 
for differentiation between districts. This NPRM does not propose to 
adjust this charge for inflation, but may change the level of the 
charge from time to time upon review of the Director. In similar 
fashion, during the next ratemaking the Coast Guard would propose to 
set the charge for moveage in a harbor for all three districts at twice 
the docking charge, (e.g. $500), under the presumption that a moveage 
requires both an undocking (or lifting anchor) and a docking 
(anchorage). This adjustment is again subject to supported comment as 
to level and applicability. Again, this NPRM does not propose to adjust 
this charge for inflation, but may change the level of the charge from 
time to time upon review of the Director.
    Revenue received for docking/undocking and moveage within a harbor 
would be offset against revenues required for pilot compensation.

Delay Charges

    Delay charges, per hour, whether for trip interruption or departure 
or moveage delays, would be set at the rate determined in the pilot 
compensation phase, below, as adjusted for ship size. The maximum basic 
rate for any 24 hour period would be the per hour delay charge, as 
adjusted for ship size, times 16 hours. Delay charges would not be 
imposed for interruption caused by ice, weather, or traffic (except 
from December 1 through April 8 of each year), and would also not be 
imposed in undesignated waters if a trip, though delayed, is still 
completed within the minimum 6 hour period under 401.410(a). Revenues 
received for delay charges would be offset against revenues required 
for pilot compensation.

Cancellation Charges

    If a pilot reports for duty and the order is cancelled, the ship 
would pay the minimum basic pilot compensation charge for a six-hour 
period, unadjusted for ship size; if the order is cancelled, and the 
pilot has started travel but not arrived, the minimum charge would also 
apply. If the cancellation is more than six hours after the pilot 
reports to the designated boarding point, the ship would pay the 
minimum basic pilot compensation charge for six-hour period, plus delay 
charges for each hour or fraction of an hour over six hours, subject to 
the maximum basic rate for delay charges (the delay charge per hour 
times 16 hours for any 24 hour period.) Revenues received for 
cancellation charges would be offset against operating expenses.

Lock Passage Charges

    As for docking/undocking and moveage, this NPRM proposes that the 
fee for lock passage should be the same for all three districts. During 
the next ratemaking the Coast Guard would propose to set the lock 
transit charge at the same level for all three districts (e.g. $150), 
subject to supported comment for establishment at any other level, or 
for differentiation between districts. This NPRM does not propose to 
adjust this charge for inflation, but may change the level of the 
charge from time to time upon review of the Director. Revenues received 
for lock passage charges would be offset against revenues required for 
pilot compensation.

Part A.4. Development and Application of Hourly Pilotage Charges

    The operating expenses recognized under this NPRM's proposed 
methodology are broken into two major components, pilot compensation 
costs and non-pilot operating costs. The projected non-pilot operating 
costs for the ensuing navigation season, including the constructed 
amount necessary to bring the pilot organizations to the ROI standard, 
would be divided by the sum of the estimated pilotage hours for both 
designated and undesignated waters, by District. This standard charge 
per hour would be applied on a per hour basis for each supplied 
pilotage hour, whether in designated or undesignated waters.
    Total pilot compensation costs for designated and undesignated 
waters are derived from the target pilot compensation for masters and 
first mates, times the number of needed pilots. The pilot compensation 
cost per hour for designated and undesignated waters is this 
constructed cost, divided by the pilot hours projected in designated or 
undesignated waters. Target pilot compensation and the number of needed 
pilots is developed below.
    The sum of non-pilot operating costs per hour and pilot 
compensation costs per hour (for designated and undesignated waters 
separately) is the total cost per hour to be charged for pilotage 
services.

Target Pilot Compensation

    The Coast Guard and Department policy is to maintain income 
comparability between pilots providing international regulated pilot 
services and private masters and first mates operating domestic vessels 
on the Great Lakes with similar responsibilities. This NPRM proposes to 
continue the current income comparability policy of using as target 
compensation for pilots in undesignated waters the compensation of 
first mates on U.S. Great Lakes vessels. Target compensation for pilots 
providing service in designated waters would continue to be comparable 
to masters on Great Lakes vessels, but this NPRM proposes to set the 
target at 150% of the compensation of first mates, rather than 
attempting to determine the actual average compensation of Great Lakes 
masters. While the Coast Guard would periodically review this estimate, 
available data indicate that this average premium has remained 
reasonably stable, is relatively simple to administer, and avoids 
costly sampling of individual master's contracts, which are not 
publicly available.
    This NPRM lists below those items proposed to be included as part 
of the pilot compensation portion of the rate schedule. Line items here 
included would be removed from the cost pools included in direct 
operating expenses to preclude double counting.

Target Pilot Compensation Designated and Undesignated Waters

Undesignated Waters--First Mate Compensation Component

1. Contractual daily rate @ 260 days: Medical allowance, Pension 
allowance, Holiday pay, Overtime pay, Winter close-down allowance.
2. Additions to compensation: F.I.C.A., Workmen's compensation 
allowance, Total.

Designated Waters--150 Percent of First Mate Compensation

    This NPRM proposes to exclude profit sharing as a component of 
pilot compensation expense, since this is a voluntary contribution by 
the employer paid from profits, similar in form to the return element 
proposed to be paid the pilot organizations (which may be distributed 
as a bonus). Profit sharing expense, which may have been included in 
past rate-setting as an expense item in the pilot associations expense 
accounts, would be disallowed.
    This NPRM proposes to add a F.I.C.A. allowance and a workmen's 
compensation allowance to pilot compensation to ensure comparability 
between pilot groups, and to properly reflect the allocated cost of 
pilot services. Allowances listed here would be transferred from 
general pilot association costs (if included there), or added to the 
cost pools (if not currently included in general association costs). 
This NPRM proposes to require these costs to be separately identified 
and reported in either the financial statement or by special report 
(See Part B).

Number of Required Pilots

    The Coast Guard and Department policies have set the minimum number 
of pilots needed by establishing specific minimum annual pilot hours 
for designated and undesignated waters (1,000 and 1,800 hours per 
pilot, respectively) for a pilot to receive comparable compensation 
discussed above. The required number of pilots for any succeeding 
navigation season was determined by dividing a projection of the number 
of pilot hours required in designated and undesignated waters, by 
District, by the minimum standard annual pilot hours. This required 
number of pilots, for both designated and undesignated services and 
individually rounded upward, was then multiplied by the target income 
per pilot (above) to determine the revenue necessary under the rate.
    This NPRM proposes to continue this policy and methodology in 
determining the number of pilots and the necessary pilot comparability 
income to be included in the rate schedule.

Pilot Compensation Charges Per Hour

    The target pilot compensation, by District and by designated 
(Master) and undesignated (First Mate) compensation, would then be 
divided by the estimated pilotage hours in designated or undesignated 
waters to construct an average hourly cost per hour for pilot 
compensation in designated or undesignated waters.

Total Pilotage Charges Per Hour

    Pilot compensation charges per hour, for designated and 
undesignated waters separately, would be added to the average cost for 
non-pilot compensation expenses per hour. The sum of these average 
costs, for designated and undesignated waters separately, would be the 
average cost per pilotage hour to be recovered under the rate, subject 
to the adjustment for vessel size, below.

Part A.5. Adjustment of Pilotage Charges for Vessel Size

    It is accepted belief and practice that pilotage of larger vessels 
deserves a higher level of compensation than that for smaller vessels. 
The current rate schedule uses a vessel size multiplier to increase the 
charge for larger vessels, and, presumably, the pilot compensation. (46 
CFR 401.400) Also, maintaining shipping in the Great Lakes is a public 
benefit and goal, and is supported by government agencies. As smaller 
ships carry less cargo and are more affected by pilotage cost on a per-
ton basis, a differential in cost (or lesser increase) is likely to 
encourage the continuation of their service.
    Based on this perceived public interest, this NPRM proposes to 
continue to use these vessel-size rate multipliers for the proposed 
rates for all three districts. However, the average base rate derived 
above must be adjusted for such multiplication, since the average base 
rate is an unweighted charge. This NPRM proposes to adjust the base 
rate to reflect a ship weighting factor of 1.0 by dividing the average 
base rate by the average ship weighting factor derived from pilot 
billings. For 1990 the average weighted ship sailing, for designated 
and undesignated waters was as follows: 

                Weighted Ship Sailing Factor, C.Y. 1990                 
------------------------------------------------------------------------
                                                     District           
                                         District1      2      District3
------------------------------------------------------------------------
Designated waters......................      1.269      1.279      1.330
Undesignated waters....................      1.268      1.303      1.309
------------------------------------------------------------------------

    This NPRM proposes to adjust the hourly charge for pilot services 
by dividing the average total pilotage charge by the average vessel 
weighting factor for the preceding year.
    For illustrative purposes only, this adjustment to the pilotage 
charge per hour is shown below. (In the example, the hourly rates are 
derived from the interim rate increase published in the Federal 
Register on June 5, 1992 (CGD 89-104) to calculate charges on an hourly 
basis.) For District 1, Area 1, ship factor 1.0 would equal the average 
cost per hour of $166, divided by the average ship weighting factor of 
1.269, or $131. Ship factor 1.3 would be $131 times 1.3, or $170. For 
ease of calculation this NPRM proposes to continue to use hourly rates 
rounded to the nearest dollar.

Example

Adjustment of Average Pilotage Charge per Hour--To Ship Weighting Factor
                                  1.0                                   
------------------------------------------------------------------------
                                    Unadjusted                          
                                      average    Average    Ship factor 
                                     pilotage      ship    1.0--adjusted
                                      charge/   weighting     pilotage  
                                       hour       factor    charge/hour 
------------------------------------------------------------------------
District 1:                                                             
  Area I..........................       $166       1.269         $131  
  Area II.........................         96       1.268           76  
District 2:                                                             
  Area IV.........................         83       1.303           64  
  Area V..........................        150       1.279          117  
District 3:                                                             
  Area VI.........................         87       1.309           67  
  Area VII........................        179       1.330          135  
  Area VIII.......................         90       1.309           69  
------------------------------------------------------------------------

Part A.6. Application of the Pilotage Charges to Vessel Trips

    The required pilotage charges per pilot hour are determined above. 
Most trips and sailings, however, are provided between relatively few 
points, in part due to pilot changeover, and in part due to ship 
movements involving mostly the larger trading ports. For simplicity and 
operational efficiency, this NPRM proposes to fix the pilotage charges 
for selected sailings and trips, based upon average transit time as 
reported in pilot source forms. This NPRM proposes that the average 
time for sailings served more than ten times per year in each direction 
would adequately define the necessary pilot time for these repeated 
sailings, exclusive of delay and demurrage. This NPRM proposes to 
multiply the average time for these repeated sailings by the adjusted 
pilotage charge for Ship Factor 1 to construct a base charge for these 
sailings. These base charges would be published in matrix form, by 
district.
    This NPRM proposes to base the pilotage charges for sailings to 
less-served points upon the actual time spent in pilotage (subject to 
minimum and incremental hourly charges, below), multiplied by the 
adjusted pilotage charge per hour. Charges listed in matrix form and 
computed time-based charges would be subject to the vessel-size 
multiplier, as in the current rate schedule.
    This NPRM also proposes, for less-served points, to continue a 
minimum six-hour pilotage charge, but with additional charges added in 
three hour increments. This NPRM's proposal to use three hour 
increments represents a reduction from the six hour increments in the 
current rate schedule, to more closely match the services performed.

Part B: Financial Reporting

Summary of Changes to Reporting Requirements

    As indicated in Part A, several changes are proposed to the 
accounting regulations and reporting requirements under the Great Lakes 
Pilotage Regulations. In order to facilitate ratemaking, this NPRM 
proposes to require more detailed financial reporting from each pilot 
association.
    This NPRM proposes that each pilot association report financial 
data in a standard format prescribed by the Director, and that 
financial statements of each association be signed by an officer of 
that association to verify accuracy. In addition, 46 CFR part 403 would 
be renumbered and reorganized to bring this part into conformance with 
current regulatory guidelines on the numbering and organization of 
regulations.
    This NPRM proposes that the general ledger account numbers in part 
403 be expanded from four digits to five digits, and placed in 
Appendices A and B to part 403. This proposed change would allow 
greater flexibility in making future changes to the system of accounts. 
In addition, the definitions of profit and loss accounts currently 
found in 46 CFR 403.9 would be deleted because this section does not 
add any significant information to the uniform accounting system.
    This NPRM proposes that the straight line depreciation method would 
be consistently used by all pilotage associations. Using this method 
would evenly allocate the acquisition costs over the useful life of 
assets subject to depreciation. It would also minimize the annual 
fluctuation of operating expenses and their effect over the ratemaking 
calculations.
    This NPRM proposes that the recording of lease costs be guided by 
the Financial Accounting Standards Board (FASB) publication FASB-13 and 
subsequent pronouncements on this subject by the FASB. This proposed 
change would differentiate capital leases from operating leases, 
updating the Great Lakes pilotage accounting standards in conformance 
with current accounting practices.
    Under the current regulations (46 CFR part 403), all pilot 
associations maintain the same general system of accounts. However, no 
two associations currently report financial information in the same 
format, leading to inconsistencies between associations. This NPRM 
proposes an adjustment to the system of accounts. This change would 
facilitate ratemaking calculations, and would put pilot associations on 
a comparable footing for ratemaking calculations.
    Corporations are required by law to pay certain expenses (e.g., 
Federal Insurance Contribution Act (FICA) and Workmen's Compensation). 
However, for unincorporated associations, these expenses are paid by 
the individual members, and are not shown on the association's 
financial statement. If these expenses are not considered in the 
ratemaking calculations for unincorporated associations, a lower level 
of compensation for those pilots would be shown, as compared to 
compensation for their counterparts in associations organized as 
corporations. This NPRM proposes that each unincorporated pilot 
association report this financial information, now separately reported, 
in notes to the association's financial statement. Only reported items 
would be considered in ratemaking calculations for all pilot 
associations. The Director would not impute such items. This change 
would put pilot associations with different organizations on a 
comparable footing for ratemaking calculations.
    This NPRM proposes to require that financial information which is 
currently reported on a quarterly basis be reported on a semiannual 
basis, and to update the address for the Director. This proposed change 
to the financial reporting requirements would ease the burden on pilot 
associations, without affecting the ratemaking process or oversight of 
the pilot associations.
    This NPRM proposes that profit and loss accounts be reported 
semiannually in accordance with the charter of accounts proposed in 
Appendix B to part 403.
    This NPRM proposes standardized reporting, by account number, for 
financial data now submitted in summarized, unnumbered fashion. The 
proposed revisions and additions to the reporting requirements are 
necessary to examine selected costs for reasonableness (lease and 
interest costs, etc.); to specifically list expenses that would be 
included in pilot compensation costs (e.g., pension and health costs, 
etc.); and to provide identification for costs not currently listed as 
incurred in some districts (e.g., pilot insurance, FICA, retirement).
    For ratemaking purposes, more detailed information is needed than 
that supplied in the current financial statements to determine the 
reasonableness of capital lease agreements and the depreciable lives 
and residual value of selected assets. This NPRM proposes that all 
matters which may materially influence interpretations or conclusions 
drawn from the financial statements of pilot associations with regard 
to the financial condition or earnings position of the association 
would have to be clearly and completely stated as footnotes to the 
financial statement.
    This NPRM proposes to continue the requirement that all financial 
records, including information on lease transactions, be maintained and 
be readily available to the Director's auditors for 10 years.
    This NPRM does not propose any significant changes to the form of 
Inter-Association Settlement Statements. However, comments on whether 
it is necessary to retain this section, or any other suggested changes, 
are specifically requested.

Regulatory Evaluation

    This proposal is a significant regulatory action under Executive 
Order 12866, and significant under the Department of Transportation 
Regulatory Policies and Procedures (44 FR 11040, February 26, 1979). 
The Coast Guard considers this proposed regulation to be significant 
because a rulemaking affecting the setting of pilotage rates is 
controversial and of significant interest to the public.
    The primary purpose of this rulemaking is to standardize the 
financial reporting of Great Lakes pilot associations and to clarify 
the methodology to be used in future ratemakings. The methodology 
proposed is expected to have a minimal impact on pilotage rates. Since 
the effect of the rulemaking on pilotage rates is expected to be 
minimal, a full Regulatory Evaluation is unnecessary.

Small Entities

    Under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.), the 
Coast Guard must consider whether this proposal, if adopted, will have 
a significant economic impact on a substantial number of small 
entities. ``Small entities'' include independently owned and operated 
small businesses that are not dominant in their field and that 
otherwise qualify as ``small business concerns'' under section 3 of the 
Small Business Act (15 U.S.C. 632). Because this proposal does not 
affect the overall level of pilotage rates, this proposal should have 
little or no impact on small entities which pay pilotage rates, or 
receive income from pilotage rates. Because it expects the impact of 
this proposal to be minimal, the Coast Guard certifies under 5 U.S.C. 
605(b) that this proposal, if adopted, will not have a significant 
economic impact on a substantial number of small entities.

Collection of Information

    Under the Paperwork Reduction Act (44 U.S.C. 3501 et seq.), the 
Office of Management and Budget (OMB) reviews each proposed rule that 
contains a collection of information requirement to determine whether 
the practical value of the information is worth the burden imposed by 
its collection. Collection of information requirements include 
reporting, recordkeeping, notification, and other, similar 
requirements.
    This proposal contains collection of information requirements in 
the additions to 46 CFR part 403. The following particulars apply:
    DOT No.: 2115.
    OMB Control No.: 2115-0022.
    Administration: U.S. Coast Guard.
    Title: Great Lakes Pilotage Rate Methodology.
    Need for Information: The information is necessary for ratemaking 
calculations and for the proper financial oversight of the Great Lakes 
pilot associations. However, pilot associations currently report 
financial information as required by 46 CFR part 403. This proposal 
merely amends the existing reporting requirements by separating several 
existing summary accounts into their individual components, and 
requiring that the financial reporting of all accounts be done in a 
standardized format.
    Proposed Use of Information: The reported data would be used in 
Great Lakes pilotage ratemaking calculations, and for the proper 
financial oversight of the Great Lakes pilot associations.
    Frequency of Response: The Balance Sheet, and the Profit and Loss 
Statement, which are currently required quarterly, would be required 
semiannually. Revenue and Traffic Statements would be required monthly.
    Burden Estimate: No change from the current burden.
    Respondents: Each Great Lakes pilot association (there are 
currently three).
    Form(s): Designated by the Director, Great Lakes Pilotage.
    Average Burden Hours Per Respondent: No change to the current 
burden hours.
    The Coast Guard has submitted the requirements to OMB for review 
under section 3504(h) of the Paperwork Reduction Act. Persons 
submitting comments on the requirements should submit their comments 
both to OMB and to the Coast Guard where indicated under ADDRESSES.

Federalism

    The Coast Guard has analyzed this proposed rule in accordance with 
the principles and criteria contained in Executive Order 12612 and has 
determined that this proposed rule does not have sufficient federalism 
implications to warrant the preparation of a Federalism Assessment. 
Under 49 CFR 1.46(a) the Secretary delegates to the Commandant of the 
Coast Guard the authority to carry out the Great Lakes Pilotage Act of 
1960, as amended, except the authority to enter into, revise, or amend 
arrangements with Canada.
    Furthermore, since vessel traffic in the Great Lakes tends to move 
between U.S. ports in the national marketplace, pilotage regulations 
for the Great Lakes is a matter for which regulations should be of 
national scope to avoid unreasonably burdensome variances. State action 
addressing the same subject matter is preempted by 46 U.S.C. 9306, 
which provides that a State or political subdivision of a State may not 
regulate or impose any requirement on pilotage on the Great Lakes.

Environment

    The Coast Guard considered the environmental impact of this NPRM 
and concluded that under section 2.B.2 of Commandant Instruction 
M16475.1B, this rule is categorically excluded from further 
environmental documentation. The rule is procedural in nature because 
it deals exclusively with ratemaking and accounting procedures. 
Therefore, this is included in the categorical exclusion in subsection 
2.B.2.1--Administrative actions or procedural regulations and policies 
which clearly do not have any environmental impact. A Categorical 
Exclusion Determination is available in the docket for inspection or 
copying where indicated under ADDRESSES.

List of Subjects in 46 CFR Parts 401, 403, and 404

    Administrative Practice and Procedure, Great Lakes, 
Navigation(water), Penalties, Reporting and Recordkeeping Requirements, 
Seamen.

    For the reasons set out in the preamble, the Coast Guard proposes 
to amend parts 401, 403, and 404 of title 46 of the Code of Federal 
Regulations as follows:

PART 401--[AMENDED]

    1. The authority citation for part 401 is revised to read as 
follows:

    Authority: 46 U.S.C. 2103, 6101, 7701, 9303, 9304; 49 CFR 1.45, 
1.46. 46 CFR 401.105 also issued under the authority of 44 U.S.C. 
3507.

    2. In Sec. 401.110 the introductory text of paragraph (a) and 
paragraph (a)(9) are revised, and paragraph (a)(16) is added to read as 
follows:


Sec. 401.110  Definitions.

    (a) As used in this chapter:
* * * * *
    (9) Director means Director, Great Lakes Pilotage. Communications 
with the Director may be sent to the following address: Director, Great 
Lakes Pilotage, Commandant (G-MVP), 2100 2d Street, SW., Washington, DC 
20593.
* * * * *
    (16) Association means any organization which holds or held a 
Certificate of Authorization issued by the U.S. Coast Guard to operate 
a pilotage pool on the Great Lakes.
    3. Part 403 is revised to read as follows:

PART 403--GREAT LAKES PILOTAGE UNIFORM ACCOUNTING SYSTEM

Subpart A--General

Sec.
403.100  Applicability of system of accounts and reports.
403.105  Waivers from this system of accounts and reports.
403.110  General description of system of accounts and reports.
403.115  System of accounts coding.
403.120  Records.
403.125  Accounting entities.
403.130  Interpretation of accounts.
403.135  Address for reports and correspondence.

Subpart B--General Accounting Policies

403.200  Bases of allocation between pool and nonpool operations.
403.205  Accounting period.
403.210  Liability accruals.
403.215  Federal income tax accruals.
403.220  Delayed items.
403.225  Estimated items.
403.230  Improvements, additions and betterments.
403.235  Accounting for transactions in gross amounts.
403.240  Valuation of assets.
403.245  Establishment of reserves.
403.250  Depreciation and amortization.
403.255  Contingent assets and contingent liabilities.
403.260  Notes to financial statements.

Subpart C--Balance Sheet

403.300  General.
403.305  Balance sheet account groupings.

Subpart D--Profit and Loss Classifications

403.400  General.

Subpart E--Inter-Association Settlements

403.500  General.

Subpart F--Reporting Requirements

403.600  Financial reporting requirements.
403.605  Operating budgets.

Subpart G--Bonds

403.700  Fidelity bonds.

Subpart H--Source Forms

403.800  Uniform pilot's source form.

Appendix A to Part 403--Balance Sheet

Appendix B to Part 403--Profit and Loss

Appendix C to Part 403--Settlement Statement

    Authority: 46 U.S.C. 2103, 9303, 9304; 49 CFR 1.46.

Subpart A--General


Sec. 403.100  Applicability of system of accounts and reports.

    Each Association shall keep its books of account, records and 
memoranda, and make reports to the Director in accordance with the 
system of accounts prescribed in Appendices A, B and C of this part. 
These financial records shall be prepared in accordance with the 
guidelines of the Generally Accepted Accounting Principles (GAAP) 
issued by the Financial Accounting Standards Board (FASB). These 
guidelines are available by writing to the Director, Great Lakes 
Pilotage at the address listed in Sec. 401.110(a)(9) of this chapter. 
The Director reserves the right, however, to expand or otherwise modify 
this system of accounts and reports in accordance with this rule.


Sec. 403.105  Waivers from the system of accounts and reports.

    The Director may grant a waiver from any provision of the system of 
accounts or reports prescribed in this part upon his or her own 
initiative or upon written request from any Association, provided that 
such a waiver is in the public interest. Each request for waiver must 
expressly demonstrate that: existing peculiarities or unusual 
circumstances warrant a departure from a required procedure or 
technique prescribed herein; a specifically defined alternative 
procedure or technique will result in a substantially equivalent or 
more accurate portrayal of operating results or financial condition, 
consistent with the principles embodied in this part; and the 
application of such alternative procedure will maintain or improve 
uniformity in substantive results between Associations.


Sec. 403.110  General description of system of accounts and reports.

    (a) The Uniform System of Accounts required by this part permits 
limited contraction or expansion to reflect the varying needs and 
capabilities of different Associations without impairing basic 
accounting comparability between Associations.
    (b) Under the Uniform System of Accounts, both balance sheet and 
profit and loss accounts and account groupings are designed, in 
general, to embrace all activities, both pool and nonpool, in which the 
Association engages. Except for transactions which are of sufficient 
magnitude to distort current year operating results, prior year 
transactions are recorded in the same accounts as current year 
transactions of a like nature.
    (c) In order to afford each Association flexibility to establish 
ledger and subsidiary accounts to meet its individual needs, a minimum 
number of accounts are prescribed in the Uniform System of Accounts. 
Each Association, in maintaining its accounting records, must use the 
prescribed chart of accounts. If additional accounts are necessary, the 
new accounts must be consistent with the prescribed chart of accounts 
classification.


Sec. 403.115  System of accounts coding.

    A five digit control number is assigned for each balance sheet and 
profit and loss account. Each account is numbered sequentially, within 
blocks, designating basic balance sheet and profit and loss 
classifications.


Sec. 403.120  Records.

    (a) The general books of account and all books, records, and 
supporting memoranda shall be maintained in such manner as to provide, 
at any time, full information relating to any account. Supporting 
memoranda must provide sufficient information to verify the nature and 
character of each entry and its proper classification under the 
prescribed Uniform System of Accounts.
    (b) Each Association shall maintain all records necessary to show 
the history of, or facts regarding, each accounting or financial 
transaction. These records include but are not limited to, organization 
tables and charts, internal accounting manuals and revisions, minutes 
books, stock books, reports, cost distributions and other accounting 
work sheets, correspondence, and memoranda.
    (c) Each Association shall maintain all books, records and 
memoranda in a manner that will readily permit audit and examination by 
the Director or the Director's representatives at any time. All books, 
records and memoranda shall be protected from loss, theft, or damage by 
fire, flood or otherwise, and shall be retained for 10 years unless 
otherwise authorized by the Director.


Sec. 403.125  Accounting entities.

    Each Association shall be a separate accounting entity. However, 
the records shall be maintained with sufficient particularity to 
allocate items to each pilotage pool operation or nonpool operation and 
to support the equitable proration of items which are common to two or 
more pilotage pools.


Sec. 403.130  Interpretation of accounts.

    Questions concerning accounts or reports required by this part 
should be submitted to the Director.


Sec. 403.135  Address for reports and correspondence.

    Reports, statements, and correspondence required by this part shall 
be submitted to the Director at the address listed in 
Sec. 401.110(a)(9) of this chapter.

Subpart B--General Accounting Policies


Sec. 403.200  Bases of allocation between pool and nonpool operations.

    (a) Profit and loss items and assets common to two or more pools or 
to nonpool operations shall be allocated equitably to each pool and to 
nonpool operations.
    (b) Changes in methods of allocating items between pools shall only 
be made as of the beginning of each calendar year.


Sec. 403.205  Accounting period.

    (a) Each Association subject to this part shall maintain its 
accounts on a calendar year basis unless otherwise approved by the 
Director.
    (b) Each Association shall keep its financial accounts and records 
on a full accrual basis. All transactions, as nearly as may reasonably 
be ascertained, shall be reflected in the Association's books for the 
accounting period, matching revenues earned with the costs attaching 
thereto.
    (c) Expenses incurred during the current accounting year which 
demonstrably benefit operations to be performed during subsequent 
accounting years to a significant extent shall be deferred and 
amortized.


Sec. 403.210  Liability accruals.

    Charges shall be made against income and accruals made for only 
those liabilities for which a definitely demonstrable obligation 
exists. Where a definite obligation has been incurred and the precise 
liability has not been determined, an estimate may be made of the 
currently existing liability on such actuarial or other bases as can be 
justified from available information, provided that balances are 
reevaluated and adjusted at least once each accounting year.


Sec. 403.215  Federal income tax accruals.

    (a) All income taxes shall be accrued by proportionate charges or 
credits to income each accounting period in such manner as will 
allocate the charges for taxes, or the tax credits for losses, to the 
periods in which the related profits or losses respectively, are 
reflected.
    (b) The accrual of income taxes for each accounting period requires 
that each Association take up in its accounts an amount equivalent to 
the actual tax liability applicable to the period as computed or 
estimated on the basis of income tax laws and regulations then in 
effect, except where the Association computes depreciation for tax 
purposes at rates which differ from straight-line depreciation based 
upon the estimated life of the asset. In all cases, regardless of the 
amount of depreciation which is reported to Federal, State, and local 
tax authorities for tax purposes, each Associations' financial reports 
to the Director shall reflect adjustment of cost to reflect straight-
line depreciation.


Sec. 403.220  Delayed items.

    (a) All items affecting net income, including income adjustments, 
shall be recorded in appropriate profit and loss accounts and reflected 
on the income statement and shall not be entered directly to retained 
earnings.
    (b) Items applicable to operations occurring prior to the current 
accounting year which were not recorded in the books of account shall 
be included in the same accounts which would have been charged or 
credited if the items had not been delayed; except that if any delayed 
item is relatively so large in amount that its inclusion in the 
accounts for a single year would materially distort the affected 
accounts, it shall be included in profit and loss classification 69000 
``Miscellaneous.''


Sec. 403.225  Estimated items.

    (a) If a transaction has occurred but the amount involved is not 
precisely determinable, the amount shall be estimated, included in the 
proper accounts and, where significant, noted for financial statement 
purposes.


Sec. 403.230  Improvements, additions and betterments.

    (a) As a general rule, expenditures for additions, betterments or 
improvements, which increase the productive capacity of units of 
property or equipment, shall be capitalized rather than charged 
directly against income of the period in which incurred. Expenditures 
of insignificant amount may be expensed as incurred rather than 
capitalized, provided their inclusion as individual items or when 
aggregated for like items, will not distort current operating results.
    (b) The costs to be capitalized shall include all costs directly 
incurred by reason of the acquisition of the capital item, including 
transportation and installation costs.


Sec. 403.235  Accounting for transactions in gross amounts.

    (a) All assets and liabilities shall be stated in balance sheet 
presentations in gross values, provided that all depreciation, 
provisions for uncollectible accounts, and other valuation reserves 
shall be offset against the class of asset to which related.
    (b) The cost of Treasury Certificates or other tax notes, which are 
to be surrendered to the United States Treasury, rather than 
independently sold, in satisfying Federal income tax liabilities, may 
be offset against accrued Federal income tax liabilities provided both 
the gross income tax liability and the value of the tax notes are 
reflected on the face of the balance sheet. The offset of other 
government securities or other assets against Federal income tax 
liabilities is prohibited.


Sec. 403.240  Valuation of assets.

    All assets shall be recorded at cost to the Association and shall 
not be adjusted to reflect changes in market value except that items 
which have been expensed from current inventories, and are recovered, 
may be returned to inventory at estimated value with contra credit to 
the expense accounts initially charged.


Sec. 403.245  Establishment of reserves.

    (a) Provisions for reserves covering transactions or conditions 
which do not diminish assets or result in demonstrable liability to the 
Association, with corresponding diminution in stockholder equity during 
the period over which accrued, shall not be charged against income but 
shall be charged directly against balance sheet account 39100 
``Unappropriated retained earnings.''
    (b) All reserves shall be classified in balance sheet presentations 
in terms of their inherent impact upon the Association's financial 
condition as either valuation of assets (offsetting the assets to which 
related), accrued liabilities, or appropriations of retained earnings.


Sec. 403.250  Depreciation and amortization.

    (a) Assets of a type possessing prolonged service lives 
significantly longer than one year, and which are generally repaired 
and reused shall be written off against operations through periodic 
depreciation or amortization charges from the date first placed in 
regular service. Assets of a type which are recurrently expended and 
replaced, rather than repaired and reused, shall not be depreciated or 
amortized but shall be charged to expense as issued for use.
    (b) Assets of a type which are subject to depreciation shall not be 
classified as current assets but shall be carried in property and 
equipment or other appropriate noncurrent asset account 
classifications. Assets of a type which are recurrently expended and 
replaced shall be classified as current assets.
    (c) Depreciation shall be calculated and reported to the Director 
using the straight-line depreciation method.


Sec. 403.255  Contingent assets and contingent liabilities.

    Contingent assets and contingent liabilities shall not be included 
in the body of the balance sheet but shall be explained in the 
footnotes.


Sec. 403.260  Notes to financial statements.

    (a) All matters which are not clearly identified in the body of the 
financial statements of the Association, but which may materially 
influence interpretations or conclusions that may reasonably be drawn 
in regard to financial condition or earnings position of the 
Association, shall be clearly and completely stated as footnotes to the 
financial statements.
    (b) Financial items which are not otherwise required to be reported 
in the Association financial statements, but which may affect 
ratemaking calculations, are required to be reported to the Director in 
the notes to the financial statements. Any financial items that are not 
reported to the Director will not be imputed by the Director during 
ratemaking procedures contained in part 404 of this chapter.

Subpart C--Balance Sheet


Sec. 403.300  General.

    (a) The balance sheet accounts are designed to show the financial 
conditions of the Association as of a given date, reflecting the asset 
and liability balances carried forward subsequent to the closing or 
constructive closing of the Association's books of account.
    (b) The balance sheet accounts prescribed in this system of 
accounts are listed in appendix A of this part.


Sec. 403.305  Balance sheet account groupings.

    (a) Current Assets. (1) Each Association shall include in this 
classification all resources which may reasonably be expected to be 
realized in cash or sold or consumed within one year, including but not 
limited to:
    (i) Unrestricted cash;
    (ii) Assets that are readily convertible into cash; or
    (iii) Assets held for current receivables and claims against others 
to the extent settlement is reasonably assured.
    (2) Securities of investment and special fund accounts at date of 
acquisition need not be reclassified until disposition.
    (3) Inventories of all materials, supplies, lubricating oils, motor 
fuels, and expendable spares shall be physically verified at least 
annually. Differences between the inventory account and the actual 
physical inventory due to shortage, overage, shrinkage, etc. shall be 
adjusted by charges or credits to the appropriate expense account.
    (4) Items of general current asset characteristics which are not 
expected to be realized or consumed within one year may be included in 
this classification provided the noncurrent portion is not substantial 
in amount and classification as a current item will not impair the 
significance of working capital.
    (b) Investments and special funds. (1) Each Association shall 
include in this classification long-term investments in securities of 
others exclusive of United States Government securities, including:
    (i) Securities which are not readily marketable;
    (ii) Funds set aside for specific purposes or involving 
restrictions preventing current use;
    (iii) Contract performance deposits and other securities 
receivable; or
    (iv) Funds not available for current operations.
    (2) Investments in United States Government securities shall be 
included in the current assets account group.
    (3) Investments in securities of others shall be recorded at cost 
exclusive of amounts paid for accrued interest or dividends.
    (c) Property and equipment. (1) All investments of the Association 
in land and units of tangible property and equipment shall be included 
within this general classification.
    (2) The property and equipment records shall be maintained so as to 
identify property with each pool operation, with nonpool operations, 
and joint pool or nonpool operations. Property used by two or more 
pools or nonpool operations will be maintained to permit an equitable 
proration of depreciation, amortization, and repair and maintenance 
cost.
    (3) Operating and nonoperating property and equipment shall be 
accounted for separately as follows:
    (i) Investment in property and equipment shall be recorded at total 
cost including all expenditures applicable to acquisition, other costs 
of a preliminary nature, costs incidental to placing in position and 
conditioning for operation, and costs of additions, betterments, 
improvements and modifications.
    (ii) Upon disposal by sale, retirement, abandonment, dismantling, 
or otherwise, of equipment depreciated on a unit basis, the Association 
shall:
    (A) Credit the account in which the property or equipment is 
carried with the cost thereof;
    (B) Charge the depreciation and maintenance reserves with the 
related reserve balance applicable to the property disposed of;
    (C) Charge the cash proceeds of the sale or the value of salvaged 
material to the appropriate asset accounts; and
    (D) When the sales price or salvage value less the cost of 
dismantling differs from the cost of the property less accrued 
depreciation and maintenance reserves, the difference shall be recorded 
in the appropriate capital gain or loss accounts.
    (iii) Upon disposal by sale, retirement, abandonment, dismantling, 
or otherwise, of equipment depreciated on a group basis, the 
Association shall credit the account in which the property or equipment 
is carried, and charge the related depreciation reserve with the 
original cost thereof, less any salvage realized, regardless of the age 
of the item. No gain or loss is recognized on the retirement of 
individual items of property or equipment depreciated on a group basis.
    (iv) When property or equipment owned by the Association is applied 
as part payment of the purchase price of new property or equipment, the 
new property or equipment shall be recorded at its full purchase price, 
provided an excessive allowance is not made for assets traded-in, in 
lieu of price adjustments or discounts on the purchase price of assets 
acquired. The difference between the depreciated cost of assets applied 
as payment and the amount allowed therefor shall be treated as 
retirement gain or loss.
    (v) The Association shall maintain property and equipment records 
setting forth the description of all property and equipment recorded in 
balance sheet classification 12000-13000, Property and Equipment. With 
respect to each unit or group of property or equipment, the record 
shall show the description, location, date of acquisition, the original 
cost, the cost of additions and betterments, the cost of parts retired, 
rates of depreciation, residual values not subject to depreciation, and 
the date of retirement or other disposition.
    (d) Property and equipment depreciation and maintenance reserves. 
(1) Each Association shall include in this balance sheet classification 
the accumulation of all provisions for losses occurring in property or 
equipment from use and obsolescence. For example, it shall include 
accumulated depreciation established to record current and cumulative 
cost expiration of assets being depreciated due to wear and tear from 
use and the action of time and the elements which are not replaced by 
current repairs; as well as losses in capacity for use or service 
occasioned by obsolescence, supersession, discoveries, change in 
popular demand, or the requirement of public authority. Residual values 
and rates for accrual of depreciation and maintenance shall be 
calculated using the straight-line depreciation method.
    (2) Depreciation shall be calculated from the date on which a 
building, structure or unit of property is placed in service, and shall 
cease on the date such property is disposed of by sale, retirement, 
abandonment, or dismantling, or when the difference between the cost 
and residual value shall have been charged to expense.
    (3) Land owned or held in perpetuity; expenditures on uncompleted 
units of property and equipment during construction or manufacture; and 
items classified as current assets are not subject to depreciation.
    (e) Other assets. (1) Each Association shall include in this 
classification all debit balances in general clearing accounts, 
including charges held in suspense pending receipt of information 
necessary for final disposition, prepayments chargeable against 
operations over a period of years, capitalized expenditures of an 
organizational or developmental character, property acquisition 
adjustments, and the cost of patents, copyrights, and miscellaneous 
intangibles.
    (2) Deferred charges having a definite time incidence shall be 
amortized over the periods to which they apply.
    (f) Current liabilities. (1) Each Association shall include in this 
classification all debts or obligations for which liquidation or 
payment is reasonably expected to require the use, within one year, of 
existing resources of a type which are properly classifiable as current 
assets, or the creation of other current liabilities. Current 
liabilities shall include payables incurred in the acquisition of 
materials, collections received in advance of performance of services, 
debts accruing from expenses incurred from operations, and other 
liabilities that are regularly and ordinarily subject to current 
liquidation.
    (2) Lease costs shall be recorded in accordance with the guidelines 
of the Financial Accounting Standards Board (FASB) publication number 
13, and subsequent pronouncements on this subject by the FASB. Lease 
costs payable on demand within one year, including the portion of long-
term debt due within one year of the balance sheet date, shall be 
recorded in balance sheet account 20100.
    (g) Noncurrent liabilities. (1) Each Association shall include in 
this classification all debts or obligations for which liquidation or 
payment is not reasonably expected to require the use, within one year, 
of existing resources of a type which are properly classifiable as 
current assets, or the creation of current liabilities. Noncurrent 
liabilities include mortgages, bonds and debentures maturing more than 
one year from the date of the balance sheet, or other obligations not 
payable within 12 months. This classification shall reflect the 
principal amount or par value of debt securities issued or other long-
term debt assumed by the Association. Discount and expenses on long-
term debt shall be recorded in the Deferred Charges balance sheet 
group. Premiums on long-term debt shall be recorded in the Deferred 
Credits balance sheet account group.
    (2) In cases where debt coming due within 12 months is to be 
refunded, or where payment is to be made from assets of a type not 
properly classifiable as current, the amount payable shall not be 
removed from this classification.
    (3) Gains or losses on liquidation of bonds, debentures, or other 
debt securities of the Association shall be entered in profit and loss 
classification 47000 ``Other Income,'' or 69000 ``Miscellaneous.'' 
Gains and losses or adjustments to liabilities applicable to expenses 
incurred in operations shall be entered in the expense accounts 
initially charged.
    (h) Deferred credits. (1) Each Association shall include in this 
classification all credit balances in general clearing accounts, 
including credits held in suspense pending receipt of information 
necessary for final disposition and premiums on long-term debt 
securities of the Association.
    (2) Deferred credits having a definite time incidence shall be 
amortized over the periods to which they apply.
    (i) Stockholder's equity (Capital). (1) Each Association shall 
include in this classification all items which record the aggregate 
interest of Association members in assets owned by the Association.
    (2) The general classification ``Stockholder's Equity (Capital)'' 
shall be subdivided between that portion representing direct 
contributions of the members (Paid-In Capital) and that portion 
representing income retained from operations of the Association 
(Retained Earnings).
    (3) The ``Paid-In Capital'' classification shall be subdivided 
between membership shares and ``Other Paid-In Capital.'' Membership 
shares shall include par or stated value of shares issued or the cash 
value of the consideration actually received, in cases of shares having 
no par or stated value. ``Other Paid-In Capital,'' shall include the 
excess (premium) or deficiency (discount) of each value of the 
consideration received from the issue of any shares having par or 
stated value, donations by stockholders, adjustments of capital 
resulting from reorganization or recapitalization, and gains or losses 
from reacquisition and resale or retirement of the Association's 
shares.
    (4) The ``Retained Earnings'' balance sheet classification shall 
reflect the balance of net profits, income, and gains of the 
Association from the date of formation. In cases where a deficit has 
been absorbed by a reduction of ``Other Paid-In Capital'' as a result 
of a restatement of shares or retained earnings, a new Retained 
Earnings account shall be established, dated to show that it runs from 
the effective date of the restatement. This date shall be disclosed in 
financial statements until such time as the effective date no longer 
possesses special significance.

Subpart D--Profit and Loss Classifications


Sec. 403.400  General.

    (a) Each Association shall keep profit and loss accounts in 
accordance with the Chart of Profit and Loss Accounts in appendix B to 
this part. The profit and loss accounts are designed to reflect, 
through natural groupings, the elements entering into income or loss 
accruing to the proprietary interests during each accounting period.
    (b) The system of accounts in appendix B to this part provides for 
the coordinated grouping of all revenues and expenses in terms of both 
major objectives and functional activities.

Subpart E--Inter-Association Settlements


Sec. 403.500  General.

    Each Association that shares revenues and expenses with the 
Canadian Great Lakes Pilotage Authority (GLPA) shall submit settlement 
statements completed in the format shown in Appendix C to this part. 
The Memorandum of Arrangements (MOA) between the United States and 
Canada provides that settlement of accounts between United States pools 
and Canadian pools shall be effected on an interim basis as of the end 
of each month with an annual settlement as of December 31 of each year. 
Payments on account shall be made by the 15th of the following month on 
a net balance basis.

Subpart F--Reporting requirements


Sec. 403.600  Financial reporting requirements.

    (a) Each Association shall file semiannually with the Director the 
following financial statements:
    (1) Balance Sheet.
    (2) Profit and Loss Statement.
    (b) The financial statements shall list each active account, 
including subsidiary accounts, in the Uniform System of Accounts in 
Appendices A and B of this part.
    (c) The financial statements shall be prepared for the six months 
ending June 30, and December 31, unless otherwise authorized in writing 
by the Director. An officer of the Association shall certify the 
accuracy of the financial statements.
    (d) Each Association shall furnish the Director a copy of all 
settlement statements, including monthly settlement statements.
    (e) The financial statements, together with any other required 
statistical data, shall be submitted to the Director within 30 days of 
the end of the reporting period, unless otherwise authorized by the 
Director.
    (f) Each Association shall furnish the Director, by April 1 of each 
year, an unqualified long form audit report for the preceding year 
prepared by an Independent Certified Public Accountant. The audit shall 
conform to the Generally Accepted Auditing Standards promulgated by the 
American Institute of Certified Public Accountants.
    (g) Each Association shall furnish the Director with monthly 
revenue and traffic reports listing data on a monthly and year-to-date 
basis.


Sec. 403.605  Operating budgets.

    (a) Each Association shall prepare and submit to the Director, by 
the 31st day of January each year, an estimated operating budget for 
the forthcoming operating season.
    (b) Estimates of revenue shall be itemized to reflect the principal 
sources of income, with pilotage income segregated from other classes 
of income.
    (c) Estimates of expenses shall be on a calendar year basis, with 
adequate explanation of any unusual or nonrecurring items.
    (d) Those items of expenses includable in Inter-Association 
settlement statements shall be segregated and supported by required 
detail.

Subpart G--Bonds


Sec. 403.700  Fidelity bonds.

    (a) Each Association shall maintain a fidelity bond to indemnify 
against loss of money or other property through fraudulent or dishonest 
acts by employees.
    (b) The Officers of each Association shall annually fix the amount 
and character of fidelity bonds required of those persons handling or 
having custody of funds or other liquid assets.
    (c) The Director shall be advised of the amount and period of 
coverage.

Subpart H--Source Forms


Sec. 403.800  Uniform pilot's source form.

    (a) The ``Pilot's Source Form-Great Lakes Pilotage'' shall be used 
by all Great Lakes pilotage districts. This form shall be issued to 
pilots by authorized United States pilotage pools and changes shall not 
be made in the format thereof unless authorized by the Director.
    (b) Pilots shall complete forms in detail as soon as possible after 
completion of assignment and return the entire set to the dispatching 
office, together with adequate support for reimbursable travel expense.
    (c) Upon receipt by the Association, the forms shall be completed 
by insertion of rates and charges as specified in part 401 of this 
chapter.
    (d) Copies of the form shall be distributed as follows:
    (i) Original to accompany invoice;
    (ii) First copy to Director for statistical purposes;
    (iii) Second copy to billing office for accounting record;
    (iv) Third copy to pilot's own Association for pilot's personal 
record;
    (v) Fourth copy to corresponding Canadian Association or agency for 
office use.
    Associations shall account by number for all pilot source forms 
issued.

Appendix A to Part 403--Balance Sheet

    Chart of balance sheet accounts.

Current Assets

Account No. and Title

10100  Cash
10130  Cash--Payroll
10140  Cash--Special Deposits
10160  Petty Cash
10170  Cash--Temporary Investments
10200  Accounts Receivable--Pilotage
10210  Accounts Receivable--Pilot Boat
10220  Accounts Receivable--Other
10240  Allowance for Bad Debts
10300  Notes Receivable
10310  Notes Receivable from Affiliates
10320  Interest Receivable
10410  Prepaid Insurance
10420  Prepaid Fuel
10500  Advances to Pilots
10530  Advances to Employees
10550  Advances to Affiliated Companies
10560  Other Prepaid and Advances
10600  Materials and Supplies
10700  Deferred Federal Income Tax
10800  Other Current Assets

Investments and Special Funds

11000  Investment in Securities
11100  Notes Receivable
11200  Advance and Investment in Affiliated Companies
11300  Special Funds
11400  Other Long-Term Investments

Property and Equipment

12000  Land
12100  Buildings and Structures
12150  Accumulated Depreciation--Buildings
12200  Machinery and Equipment
12250  Accumulated Depreciation--Machinery and Equipment
12300  Furniture and Fixtures
12350  Accumulated Depreciation--Furniture and Fixtures
12400  Automobiles
12450  Accumulated Depreciation--Automobiles
12500  Computers and Software
12550  Accumulated Depreciation--Computer and Software
13000  Capital Leases--Pilot Boats
13050  Accumulated Depreciation--Pilot Boats
13100  Leased Automobiles
13150  Accumulated Depreciation--Leased Automobiles
13500  Leasehold Improvements
13550  Accumulated Depreciation--Leasehold Improvements

Deferred Charges

14000  Long-Term Prepayments
14300  Deferred Federal Income Tax
15000  Other Assets

Current Liabilities

20000  Accounts Payable--Trade
20100  Notes Payable
20120  Current Portion--Capital Lease Obligations
20130  Current Portion--Other Long-Term Debts
20140  Deferred Income Tax
20200  Interest
20300  Due Pilots
20400  Due Employees
21000  Federal Income Tax
21100  State Income Tax
21200  City Income Tax
21300  FICA Tax Payable
21400  Federal Unemployment Tax
21500  State Unemployment Tax
22000  Accrued Payroll--Pilots
23000  Accrued Payroll--Employees
24000  Accrued Interest
24100  Accrued Taxes
24200  Accrued Vacation
24210  Sick Leave
24300  Accrued Pension
24400  Accrued Workmen's Compensation
24500  Advances from Affiliated Companies
24600  Dividends
24700  Other Current Liabilities

Non-Current Liabilities

26000  Long-Term Debt
26100  Capital Lease Obligations--Pilot Boats
26400  Capital Lease Obligations--Automobiles
26500  Capital Lease Obligations--Other
26600  Pension Liabilities
26700  Advances from Affiliated Companies
26800  Other Non-Current Liabilities

Deferred Credits

27000  Deferred Income Tax Liabilities
27100  Deferred Gain on Sale of Assets
27200  Other Deferred Credits

Stockholders' Equity (Capital)

30000  Pilots' Capital (Partnership)
31000  Common Stock
32000  Preferred Stock
33000  Paid-in Capital in Excess of Par-Common Stock
34000  Paid-in Capital in Excess of Par-Preferred Stock
36000  Treasury Stock
38000  Prior Year Adjustments
39000  Appropriations of Retained Earnings
39100  Unappropriated Retained Earnings

Description and classification of balance sheet accounts.

    (a) Current assets.
    (1) 10100  Cash.
    Record here increases and decreases in cash (deposits and 
payments of funds) which are available for general operating 
business activities.
    (2) 10130  Cash--Payroll.
    Record here increases and decreases in cash (deposits and 
payments of funds) which are assigned for payroll transactions.
    (3) 10140  Cash--Special Deposits.
    Record here cash deposits not of a current nature and restricted 
as to general availability.
    (4) 10160  Petty Cash Fund.
    Record here all cash transactions made out of the petty cash 
fund. This fund is established for a fixed amount and periodically 
reimbursed for the exact amount necessary to bring it back to the 
fixed amount. The fund is used for making small expenditures that 
are most conveniently paid in cash, such as postage stamps, shipping 
charges, or minor purchases of supplies.
    (5) 10170  Cash--Temporary Investments.
    Record here the cost of marketable securities and other short-
term negotiable instruments acquired for the purpose of temporarily 
investing cash. This account will be charged or credited for 
discount or premium to be amortized to profit and loss account 45500 
Interest Income.
    (6) 10200  Accounts Receivable--Pilotage.
    Record here all amounts billed for pilotage services.
    (7) 10210  Accounts Receivable--Pilot Boat.
    Record here all receivables billed for pilot boat services.
    (8) 10220  Accounts Receivable--Other.
    Record here all receivables resulting from revenue producing 
activities not recorded in accounts 10200 and 10210.
    (9) 10240  Allowance for Bad Debts.
    Record here estimated losses from uncollectible accounts. An 
annual review of the account balance must be made to determine the 
amount of uncollectible receivables and the related bad debt expense 
at year end.
    (10) 10300  Notes Receivable.
    Record here amounts due from others on demand or at a future 
date not to exceed 12 months. This amount will be in the form of 
promissory notes recorded at their current value.
    (11) 10310  Notes Receivable from Affiliates.
    Record here amounts due from affiliated companies on demand or 
at a future date not to exceed 12 months at their current value.
    (12) 10320  Interest Receivable.
    Record here interest income earned but not yet received, and due 
within one year.
    (13) 10410  Prepaid Insurance.
    Record here amounts paid in advance for insurance premiums that 
will be expensed within one year.
    (14) 10420  Prepaid Fuel.
    Record here amounts paid in advance for fuel to be used and 
expensed within one year.
    (15) 10500  Advances to Pilots.
    Record here amounts paid in advance to pilots, such as wages or 
travel advances.
    (16) 10530  Advances to Employees.
    Record here amounts paid in advance to Employees, such as wages 
and travel advances.
    (17) 10550  Advances to Affiliated Companies.
    Record here short-term advances paid to Affiliated Companies.
    (18) 10560  Other Prepaid and Advances.
    Record here other prepaid and short-term advances paid to 
entities not provided for in other accounts.
    (19) 10600  Materials and Supplies.
    Record here the cost of materials and supplies on hand at the 
balance sheet date, such as motor oil, stationery, and office 
supplies.
    (20) 10700  Deferred Federal Income Tax.
    Record here the difference between actual income tax payable and 
income tax expenses for the accounting period. This deferred amount 
is due to timing differences.
    (21) 10800  Other Current Assets.
    Record here other current assets not provided for in other 
balance sheet accounts.
    (b) Investments and special funds.
    (1) 11000  Investment in Securities.
    Record here long-term investments in marketable securities, such 
as shares of stock or Government securities, at the lower of cost or 
market value.
    (2) 11100  Notes Receivable.
    Record here long-term notes receivable not provided for in 
accounts 10300 and 10310.
    (3) 11200  Advance and Investment in Affiliated Companies.
    Record here long-term investments in, or advances to, affiliated 
companies at cost.
    (4) 11300  Special Funds.
    Record here special funds not of a current nature and restricted 
as to general availability. Include items such as cash and 
securities deposited with courts of law, employee funds for the 
purchase of membership shares, and equipment purchase funds.
    (5) 11400  Other Long-Term Investments.
    Record here all other long-term investments not recorded in 
other investment accounts.
    (c) Property and equipment.
    (1) 12000  Land.
    Record here the total cost of all land owned by the Association. 
The cost of land includes: (1) Purchase price; (2) all closing costs 
and costs of obtaining clear title, such as commissions, legal fees, 
escrow fees, title investigations, and title insurance; (3) all 
costs of surveying, clearing, draining, or filling to make the 
property suitable for the desired use; and (4) cost of land 
improvements that have an indefinite economic life.
    (2) 12100  Buildings and Structures.
    Record here the total cost of all buildings and structures owned 
by the Association. The cost includes the original cost and cost of 
any capital improvements incurred after the acquisition date. The 
account includes fixtures and equipment built into the structure or 
permanently affixed thereto, such as plumbing, heating, and lighting 
fixtures.
    (3) 12150  Accumulated Depreciation--Buildings.
    Record here the accumulated amount of expenses for the portion 
of the acquisition cost of buildings which has been used up through 
the depreciation process.
    (4) 12200  Machinery and Equipment.
    Record here the total acquisition costs of all machinery and 
equipment, including the necessary costs associated with acquisition 
and preparation for use.
    (5) 12250  Accumulated Depreciation--Machinery and Equipment.
    Record here the accumulated amount of expenses for the portion 
of the acquisition costs of machinery and equipment which has been 
used up through the depreciation process.
    (6) 12300  Furniture and Fixtures.
    Record here the total acquisition costs of all furniture and 
fixtures, including the necessary costs associated with acquisition 
and preparation for use.
    (7) 12350  Accumulated Depreciation--Furniture and Fixtures.
    Record here the accumulated amount of expenses for the portion 
of the acquisition costs of furniture and fixtures which has been 
used up through the depreciation process.
    (8) 12400  Automobiles.
    Record here the total acquisition costs of all automobiles, 
including the necessary costs associated with acquisition and 
preparation for use.
    (9) 12450  Accumulated Depreciation--Automobiles.
    Record here the accumulated amount of expenses for the portion 
of the acquisition costs of automobiles which has been used up 
through the process of depreciation.
    (10) 12500  Computers and Software.
    Record here the total acquisition costs of all computers and 
software, including the necessary costs associated with acquisition 
and preparation for use.
    (11) 12550  Accumulated Depreciation--Computers and Software.
    Record here the accumulated amount of expenses for the portion 
of the acquisition costs of computers and software, which has been 
used up through the process of depreciation.
    (12) 13000  Capital Leases--Pilot Boats.
    Record here capital lease assets for pilot boats under capital 
lease options.
    (13) 13050  Accumulated Depreciation--Pilot Boats.
    Record here the accumulated amount of expenses for the portion 
of capital leases for pilot boats which has expired for 
depreciation.
    (14) 13100  Leased Automobiles.
    Record here the capital lease assets for automobiles leased 
under capital lease options.
    (15) 13150  Accumulated Depreciation--Leased Automobiles.
    Record here the accumulated amount of expenses for the portion 
of capital leases for automobiles which has expired for 
depreciation.
    (16) 13500  Leasehold Improvements.
    Record here total cost to the Association incurred in connection 
with modification, conversion, or other improvements to leased 
property.
    (17) 13550  Accumulated Depreciation--Leasehold Improvements.
    Record here the accumulated amount of expenses for the portion 
of the acquisition costs of Leasehold Improvements which has been 
used up through the process of depreciation.
    (d) Deferred charges.
    (1) 14000  Long-Term Prepayments.
    Record here prepayments of obligations applicable to periods 
extending beyond one year, such as payments on leased property and 
equipment, and advances for rents, rights or other privileges.
    (2) 14300  Deferred Federal Income Tax.
    Record here the difference between actual income taxes payable 
and income tax expenses for the accounting period. This deferred 
amount is due to timing differences. Thus this expense originates in 
one accounting period and reverses in future periods. Most timing 
differences reduce income taxes that would otherwise be payable 
currently (i.e., when accounting income is smaller than taxable 
income), but few timing differences increase the amount of income 
taxes payable during the current accounting period.
    (3) 15000  Other Assets.
    Record here assets which were not provided for in other 
accounts.
    (e) Current liabilities.
    (1) 20000  Accounts Payable--Trade.
    Record here all accounts payable incurred in the normal course 
of business, which are due within one year.
    (2) 20100  Notes Payable.
    Record here the face value of all notes, drafts, or other 
similar evidence of indebtedness, payable on demand or within one 
year including the long-term debt due within one year of the balance 
sheet date.
    (3) 20120  Current Portion--Capital Lease Obligations.
    Record here Capital lease obligations due within one year.
    (4) 20130  Current Portion--Other Long-Term Debts.
    Record here the current portion of other long-term liabilities 
due within one year.
    (5) 20140  Deferred Income Tax--Current Portion.
    Record here accruals for currently payable federal income taxes.
    (6) 20200  Interest Payable.
    Record here interest payable that is due within one year.
    (7) 20300  Due Pilots.
    Record here any liabilities due pilots to be paid within one 
year.
    (8) 20400  Due Employees.
    Record here any amounts due employees to be paid within one 
year.
    (9) 21000  Federal Income Tax.
    Record here federal income tax withheld from employees wages and 
payable at the balance sheet date.
    (10) 21100  State Income Tax.
    Record here State income tax withheld from employees wages and 
payable at the balance sheet date.
    (11) 21200  City Income Tax.
    Record here city income tax withheld from employees wages and 
payable at the balance sheet date.
    (12) 21300  FICA Tax Payable.
    Record here social security taxes withheld from employees wages 
and accrued, payable at the balance sheet date.
    (13) 21400  Federal Unemployment Tax.
    Record here Federal unemployment tax (FUTA) accrued and payable 
at the balance sheet date.
    (14) 21500  State Unemployment Tax.
    Record here State unemployment tax (SUTA) accrued and payable at 
the balance sheet date.
    (15) 22000  Accrued Payroll--Pilots.
    Record here the accrued liabilities incurred for pilots payroll, 
but not yet paid at the balance sheet date.
    (16) 23000  Accrued Payroll--Employees.
    Record here accrued liabilities incurred for employees payroll, 
but not yet paid at the balance sheet date.
    (17) 24000  Accrued Interest.
    Record here accrued interest liabilities incurred but not yet 
paid at the balance sheet date.
    (18) 24100  Accrued Taxes.
    Record here accrued tax liabilities incurred but not yet paid at 
the balance sheet date.
    (19) 24200  Accrued Vacation.
    Record here accrued vacation liabilities incurred but not yet 
paid at the balance sheet date.
    (20) 24210  Accrued Sick Leave.
    Record here accrued sick leave liabilities incurred but not yet 
paid at the balance sheet date.
    (21) 24300  Accrued Pension.
    Record here accrued pension plan liabilities incurred but not 
yet paid at the balance sheet date.
    (22) 24400  Accrued Workmen's Compensation.
    Record here accrued workmen's compensation liabilities incurred 
but not yet paid at the balance sheet date.
    (23) 24500  Advances from Affiliated Companies.
    Record here loans, advances, and other obligations received from 
entities affiliated with the Association.
    (24) 24600  Dividends.
    Record here dividends declared by the Association's Board of 
Directors, but not yet paid.
    (25) 24700  Other Current Liabilities.
    Record here all other current liabilities which are not provided 
for in other accounts and are due within one year.
    (f) Non-current liabilities.
    (1) 26000  Long-Term Debt.
    Record here the face value or principal amount of debt 
securities issued or assumed by the Association which have not been 
retired or cancelled and are not payable within 12 months of the 
balance sheet date.
    (2) 26100  Capital Lease Obligations--Pilot Boats.
    Record here long-term obligations from Pilot Boat Capital leases 
which are not payable within 12 months of the balance sheet date.
    (3) 26400  Capital Lease Obligations--Automobiles.
    Record here long-term obligations from automobile lease 
agreements not payable within 12 months.
    (4) 26500  Capital Lease Obligations--Others.
    Record here long-term obligations from other capital leases not 
provided for in accounts 26100 and 26400.
    (5) 26600  Pension Liabilities.
    Record here the Association's liabilities under the employee 
pension plan.
    (6) 26700  Advances from Affiliated Companies.
    Record here the net amount due affiliated companies for notes, 
loans and advances.
    (7) 26800  Other Non-Current Liabilities.
    Record here non-current liabilities not provided for in other 
accounts.
    (8) 27000  Deferred Income Tax Liabilities.
    Record here deferred income tax liabilities (i.e. the difference 
between actual income taxes payable and income tax expenses for the 
accounting period) not payable within 12 months.
    (9) 27100  Deferred Gain On Sale of Assets.
    Record here the total gain from sales of assets which will be 
amortized over a period of more than 12 months from the balance 
sheet date.
    (10) 27200  Other Deferred Credits.
    Record here credits not provided for elsewhere.
    (g) Capital and stockholders' equity.
    (1) 30000  Pilots' Capital (Partnership).
    Record here the Association's capital contributions made by each 
individual partner (pilot). This is an equity account similar to 
shareholders' equity in a corporation. Accounting for partnerships 
should comply with the legal requirements as set forth by the 
Uniform Partnership Act (UPA) (e.g., liquidation payments to 
partnership creditors before any distribution to partners) or other 
applicable State and Federal laws and regulations, as well as 
complying with partnership agreements.
    (2) 31000  Common Stock.
    Record here the par or stated value of common stock purchased by 
stockholders (registered pilots only). Common stock represents the 
residual ownership interest in the Association. In addition to 
bearing the greatest risk it also carries voting rights, dividend 
rights, preemptive rights to purchase stock issued by the 
corporation and rights to share in the distribution of assets if the 
corporation is liquidated.
    (3) 32000  Preferred Stock.
    Record here the par or stated value of preferred stock purchased 
by stockholders (registered pilots only). Preferred stock carries 
certain preferences or priorities not found in common stock, such as 
to dividends at a stated percentage of par or stated value, and 
assets distribution in the event of liquidation. Shareholders of the 
corporation may redeem shares of preferred stock at their option, at 
a specific price per share.
    (4) 33000  Paid-in Capital in Excess of Par-Common Stock.
    Record here paid-in capital in excess of par or stated value of 
common stock.
    (5) 34000  Paid-in Capital in Excess of Par-Preferred Stock.
    Record here paid-in capital in excess of par or stated value of 
preferred stock.
    (6) 36000  Treasury Stock.
    Record here capital stock which has been legally issued, fully 
paid for, and subsequently acquired by the Association but not 
formally retired.
    (7) 38000  Prior Year Adjustments.
    Record here all adjustments relating to prior year's operations 
that have an effect on the current year's financial statements.
    (8) 39000  Appropriations of Retained Earnings.
    Record here retained earnings restricted by the Association's 
Board of Directors for contingencies and other special purposes.
    (9) 39100  Unappropriated Retained Earnings.
    Record here net income or loss from operations of the 
Association, dividends declared, and any other year-end adjustments.

Appendix B to Part 403--Profit and Loss

    Chart of profit and loss accounts.

Revenues

Account No. and Title

40100  Pilotage--Designated Waters
40200  Pilotage--Undesignated Waters
40500  Docking/Undocking
40600  Movage
41000  Detention
41200  Cancellation
41300  Delay
42000  Winter Navigation
43000  Dispatching
44000  Pilot Boat Income
45000  Gain(Loss) on Sale of Assets
46000  Interest Income
47000  Other Income

Operating expenses

50100  Registered Pilots' Salaries
50110  Temporarily Registered Pilots' Salaries
50120  Applicant Pilots' Salaries
50200  Pilot Boat Salaries
50500  Dispatching Salaries
51300  Payroll Taxes
51310  FICA
51320  Federal Unemployment Tax
51330  State Unemployment Tax
51400  Retirement Plan Contribution
51500  Workmen's Compensation
50600  Insurance
52150  Depreciation--Buildings
52250  Depreciation--Machinery and Equipment
52450  Depreciation--Automobiles
53050  Depreciation--Pilot Boats
53550  Depreciation--Leasehold Improvements
54000  Travel--Pilots
55000  Fuel
55100  Repairs and Maintenance
56000  Winter Navigation
56100  Canadian Pilot Earnings
59000  Other Operating Expenses

General and Administrative Expenses

60100  Salaries and Wages--Employees
60200  Salaries and Wages--Officers
60300  Payroll Taxes
60310  FICA
60320  Federal Unemployment Tax
60330  State Unemployment Tax
60400  Retirement Plan Contributions
60500  Workmen's Compensation
60600  Insurance
61000  Legal Fees
61100  Accounting and Auditing Fees
61200  Other Professional Fees
62350  Depreciation--Furniture and Fixtures
62550  Depreciation--Computers and Software
63000  Office Rent
63100  Rent
63200  Interest
63300  Donations
63400  Bad Debts
63500  Meetings
64000  Repairs and Maintenance
64100  Medical Insurance
64200  Licenses and Dues
65000  Supplies
65100  Postage
65200  Telephone
65300  Travel
65400  Utilities
65500  Bank Service charges
69000  Miscellaneous

Appendix C to Part 403--Settlement Statement

    (a) Monthly settlement statements of the following form are to 
be submitted by each Association sharing revenues and expenses with 
the Canadian Great Lakes Pilotage Authority: 
      

Settlement Statement 

                                 Revenue                                
                               [Dollars]                                
------------------------------------------------------------------------
                                                  Current               
                                                   month     Yearto-date
------------------------------------------------------------------------
40100-42000Pilotage revenue:                    ...........  ...........
    United States pilots......................  ...........  ...........
    Canadian pilots...........................  ...........  ...........
                                               -------------------------
      Total...................................  ...........  ...........
                                                                        
              Operating Expenses                                        
                                                                        
54000Subsistence and travel-pilots............  ...........  ...........
60100Salaries and wages-employees.............  ...........  ...........
63000Rental-office space and equipment........  ...........  ...........
65400Heat, light, and power...................  ...........  ...........
65000Office stationery and supplies...........  ...........  ...........
64000Repairs and Maintenance..................  ...........  ...........
65300Administrative travel....................  ...........  ...........
65200Telephone, telegraph, and teletype.......  ...........  ...........
60600Insurance and bonding....................  ...........  ...........
65100Postage and express......................  ...........  ...........
65500Bank service charges.....................  ...........  ...........
69000Other....................................  ...........  ...........
63400Bad debt.................................  ...........  ...........
                                               -------------------------
      Total...................................  ...........  ...........
                                               -------------------------
        Net operating income..................  ...........  ...........
        Less: Outstanding accounts receivable.  ...........  ...........
        Amount available for distribution.....  ...........  ...........
------------------------------------------------------------------------


                                                                        
                               [Dollars]                                
------------------------------------------------------------------------
                                      U.S.        Canada        Total   
------------------------------------------------------------------------
Total pilotage revenue billed....  ...........  ...........  ...........
Respective share of amount                                              
 available.......................  ...........  ...........  ...........
------------------------------------------------------------------------


             Statement of Account as at------(End of Month)             
                               [Dollars]                                
------------------------------------------------------------------------
                                                   Canada               
                                    U.S. share     share     Total share
------------------------------------------------------------------------
Share to date....................  ...........  ...........  ...........
Boat and taxi charges paid.......  ...........  ...........  ...........
Payments made to.................  ...........  ...........  ...........
                                                                        
          (End of month)                                                
                                                                        
Distribution this period.........  ...........  ...........  ...........
Undistributed balance............  ...........  ...........  ...........
------------------------------------------------------------------------

    (b) Under the Memorandum of Arrangements, the pilotage pool 
having the larger amount of cash available for distribution will 
make payment of the excess to the United States or Canadian 
counterpart pool in the currency of the nationality of the paying 
pilotage pool. The following statement will be submitted by the 
Associations making net balance payments.

Amount available for distribution--$______
    Less applied credit______ (amount) at ____ (rate) ____
    Remaining balance ______

    (c) Associations making net balance payment will make the 
following accounting entry:


------------------------------------------------------------------------
  Account No.        Description of Account        Debit        Credit  
------------------------------------------------------------------------
24500...........  Advances from Affiliated      ...........  ...........
                   Companies.                                           
10220...........  Accounts Receivable--Other..  ...........  ...........
10100...........  Cash........................  ...........  ...........
------------------------------------------------------------------------

    To record settlement of account with Canadian pool for month 
ended ________ (month) ____ (day) ____  ____ (year).
    (d) Associations receiving net balance payment will make the 
following accounting entry:

------------------------------------------------------------------------
  Account No.        Description of Account        Debit       Credit   
------------------------------------------------------------------------
10100...........  Cash........................  ...........  ...........
24500...........  Advances from Affiliated      ...........  ...........
                   Companies.                                           
10220...........  Accounts Receivable--Other..  ...........  ...........
------------------------------------------------------------------------

    To record receipt of settlement from Canadian pool for month 
ended ________ (month) ____ (day) ____ ____ (year).

Journal Entries

    (a) Accounts 40100 through 42000, Pilotage Revenue, are to be 
supported by copies of invoices prepared by issuing offices.
    (b) Account 54000, Subsistence and Travel-Pilots, are to be 
supported by listings giving the pilot's name and amount. The travel 
expenses recorded in this account are only those provided for under 
paragraph 4(c) of the United States-Canada MOA and which are 
recoverable from operators of vessels.
    (c) Account 60100, Salaries and Wages-Employees, are to be 
supported by lists showing employees' name, title and salary. Only 
employees directly engaged in dispatching and accounting activities 
are included.
    (d) Account 63000, Office Rent, are to include the agreed amount 
of rental for office space and necessary equipment.
    (e) Account 65200, Telephone, are to be supported by listing of 
supplier and amounts.
    (f) Accounts 65000, 64000, 65300, 60600, 65100, 65500, 69000, 
and 63400 do not require supporting data.
    (g) Journal entries are to be made in corresponding accounts to 
record transactions from settlement statements, to record 
Association's share of revenue and expenses transferred from other 
Associations. The debits and credits will be determined by 
multiplying the current month totals shown on the settlement 
statement by the Association's pro-rata share and then in turn 
multiplying the result by the exchange rate.
    4. Part 404 is revised to read as follows:

PART 404--GREAT LAKES PILOTAGE RATEMAKING

Sec.
404.1  General ratemaking provisions.
404.5  Guidelines for the recognition of expenses.
404.10  Ratemaking procedures and guidelines.

Appendix A to Part 404--Ratemaking Methology

Appendix B to Part 404--Ratemaking Definitions and Formulas

    Authority: 46 U.S.C. 2103, 9303, 9304; 49 CFR 1.46.


Sec. 404.1  General ratemaking provisions.

    (a) The purpose of this part is to provide guidelines and 
procedures for Great Lakes pilotage ratemaking. Included in this 
part are explanations of the steps followed in developing a pilotage 
rate adjustment, the analysis used, and the guidelines followed in 
arriving at the pilotage rates contained in part 401 of this 
chapter.
    (b) The Director determines the timing for reviews of Great 
Lakes pilotage rates. These reviews are conducted at his or her 
discretion and are intended to determine whether existing Great 
Lakes pilotage rates are fair and reasonable, or should be adjusted. 
An interested party or parties may also petition the Director for a 
review at any time. The petition must present a reasonable basis for 
concluding that a review may be warranted. If the Director 
determines, from the information contained in the petition, that the 
existing rates may no longer be reasonable, a full review of the 
pilotage rates will be conducted. If the full review shows that 
pilotage rates are within a reasonable range of their target, no 
adjustment to the rates will be initiated.


Sec. 404.5  Guidelines for the recognition of expenses.

    (a) The following is a listing of the principal guidelines 
followed by the Director when determining whether expenses will be 
recognized in the ratemaking process:
    (1) Each expense item included in the rate base is evaluated to 
determine if it is necessary for the provision of pilotage service, 
and if so, what dollar amount is reasonable for that expense item. 
Each Association is responsible for providing the Director with 
sufficient information to show the reasonableness of all expense 
items. The Director will give the Association the opportunity to 
defend any expenses which are questioned. However, subject to the 
terms and conditions contained in other provisions of this part, 
expense items which the Director determines are not reasonable and 
necessary for the provision of pilotage services will not be 
recognized for ratemaking purposes.
    (2) In determining reasonableness, each expense item is measured 
against one or more of the following:
    (i) Comparable or similar expenses paid by others in the 
maritime industry,
    (ii) Comparable or similar expenses paid by other industries, or
    (iii) U.S. Internal Revenue Service guidelines.
    (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). 
Lease costs which exceed these standards are not recognized for 
ratemaking purposes.
    (4) For each Association, a market-equivalent return-on-
investment is allowed for the net capital invested in the 
Association by its members. Assets subject to return on investment 
provisions are subject to reasonableness provisions. If an asset or 
other investment is not necessary for the provision of pilotage 
services, the return element is not allowed for ratemaking purposes.
    (5) For ratemaking purposes, the revenues and expenses generated 
from Association transactions which are not directly related to the 
provision of pilotage services are included in ratemaking 
calculations as long as the revenues exceed the expenses from these 
transactions. For non-pilotage transactions which result in a net 
financial loss for the Association, the amount of the loss is not 
recognized for ratemaking purposes. The Director reviews non-
pilotage activities to determine if any adversely impact the 
provision of pilotage service, and may make ratemaking adjustments 
or take other steps to ensure the provision of pilotage service.
    (6) Medical, pension, and other benefits paid to pilots, or for 
the benefit of pilots, by the Association are treated as pilot 
compensation. The amount recognized for each of these benefits is 
the cost of these benefits in the most recent union contract for 
first mates on Great Lakes vessels. Any expenses in excess of this 
amount are not recognized for ratemaking purposes.
    (7) Expense items which are not reported to the Director by the 
Association are not considered by the Director in ratemaking 
calculations.
    (8) Expenses are appropriate and allowable if they are 
reasonable, and directly related to pilotage. Each Association must 
substantiate its expenses, including legal expenses. In general, the 
following are not recognized as reasonable expenses for ratemaking 
purposes:
    (i) Undocumented fees;
    (ii) Fees for lobbying;
    (iii) Fees for non-pilotage personal matters;
    (iv) Fees which are not commensurate with the work performed; 
and
    (v) Any other fees not directly related to pilotage.
    (9) In any Great Lakes pilotage district where revenues and 
expenses from Canadian pilots are commingled with revenues and 
expenses from U.S. pilots, Canadian revenues and expenses are not 
included in the U.S. calculations for setting pilotage rates.
    (10) Profit sharing expenses are not recognized for ratemaking 
purposes.


Sec. 404.10  Ratemaking procedures and guidelines.

    (a) Appendix A to this part is a description of the types of 
analyses performed and the methodology followed in the development 
of Great Lakes pilotage rate adjustments. Ratemaking calculations in 
Appendix A of this part are made using the definitions and formulas 
contained in Appendix B of this part. Pilotage rates actually 
implemented may vary from the results of the calculations in 
Appendices A and B, because of agreements with Canada requiring 
identical rates, or because of other circumstances to be determined 
by the Director. Additional analysis may also be performed as 
circumstances require. The guidelines contained in Sec. 404.05 are 
applied in the steps identified in Appendix A to this part.
    (b) A separate ratemaking calculation is made for each of the 
following U.S. pilotage areas:

Area 1--the St. Lawrence River;
Area 2--Lake Ontario;
Area 4--Lake Erie;
Area 5--the navigable waters from South East Shoal to Port Huron, 
MI;
Area 6--Lakes Huron and Michigan;
Area 7--the St. Mary's River; and
Area 8--Lake Superior.

Appendix A to Part 404--Ratemaking Methodology

Step 1: Projection of Operating Expenses

    (1) The first Step in the Great Lakes pilotage ratemaking 
methodology is to project the amount of fair and reasonable 
operating expenses that basic pilotage rates should recover, as 
determined by the Director. This step consists of the following 
phases: (a) Submission of financial information from each 
Association; (b) determination of recognizable expenses; (c) 
adjustment for ancillary revenues; (d) adjustment for inflation or 
deflation; and (e) final projection of operating expenses. Each of 
these phases is detailed below.

Step 1.A.--Submission of Financial Information

    (1) Each Association is responsible for providing detailed 
financial information to the Director, in accordance with Part 403 
of this chapter.

Step 1.B.--Determination of Recognizable Expenses

    (1) The Director determines which Association expenses will be 
recognized for ratemaking purposes, using the guidelines for the 
recognition of expenses contained in Sec. 404.05 of this chapter. 
Each Association is responsible for providing sufficient data for 
the Director to make this determination.

Step 1.C.--Adjustment for Ancillary Revenues

    (1) Several charges have traditionally been levied for pilotage 
services which are additional to basic pilotage service. These 
charges are termed ``ancillary charges,'' and are defined as charges 
for docking, undocking, moveage, delay, cancellation, and lock 
transit. Revenues received from these ancillary charges will be 
offset against the operational expenses of the Associations. Rates 
for ancillary services will be set separately from basic pilotage 
rates. The method for setting ancillary rates is discussed in Step 
7.D., below.

Step 1.D.--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 (e.g., depreciation, 
long-term leases, pilot compensation, etc.) are not adjusted. The 
inclusion of an inflation or deflation adjustment does not imply 
that pilotage rates will be automatically adjusted each shipping 
season, without a pilotage rate review. The inflation or deflation 
adjustment is only made during the expense projection phase of a 
full-scale pilotage rate review.
    Annual cost inflation or deflation rates will be projected to 
the succeeding navigation season, reflecting the gradual increase or 
decrease in cost throughout the year.
    For ratemaking calculations begun after January 1, 1996, the 
actual annual experienced change in the average cost in non-pilot 
operational costs per pilot assignment for each pilotage area will 
be used to project the inflation or deflation adjustment. For 
ratemaking calculations begun prior to January 1, 1996, the 
inflation or deflation adjustment will be based on the preceding 
year's change in the North Central Region's Consumer Price Index as 
calculated by the U.S. Bureau of Labor Statistics.

Step 1.E.--Projection of Operating Expenses

    (1) Once all adjustments are made to the recognized operating 
expenses, the Director projects these expenses for each pilotage 
district. In doing so, the Director takes into account foreseeable 
circumstances which could affect the accuracy of the projection. The 
Director will determine, as accurately as reasonably practicable, 
the ``projection of operating expenses.''

Step 2: Projection of Target Pilot Compensation

    (1) The second Step in the Great Lakes pilotage 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 target rate of 
compensation; (b) determination of number of pilots needed in each 
pilotage area; and (c) multiplication of the target compensation by 
the number of pilots needed to project target pilot compensation 
needed in each area. Each of these proposed phases is detailed 
below.

Step 2.A.--Determination of Target Rate of Compensation

    (1) Target pilot compensation for pilots providing services in 
undesignated waters is 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 union contracts, 
and includes wages and benefits.
    (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% of the 
compensation earned by first mates on U.S. Great Lakes vessels.

Step 2.B.--Determination of Number of Pilots Needed

    (1) The basis for 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 basis for 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 Director is guided by the results of the calculations in 
steps 2.A. and 2.B. However, the Director may also find it necessary 
to make adjustments to these numbers in order to ensure 
uninterrupted pilotage service in each area, or for other reasonable 
circumstances which the Director determines are appropriate.

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 that area by the target pilot 
compensation for pilots working in that area.

Step 3: Projection of Revenue

    (1) The third step in the Great Lakes pilotage ratemaking 
methodology is to project the revenue that would be received in each 
pilotage area if existing rates were left unchanged. This step 
consists of two phases: (a) Projection of future vessel traffic and 
pilotage revenue; and (b) adjustment for ancillary revenues.

Step 3.A.--Projection of Revenue

    (1) The Director generates the most accurate projections 
reasonably possible of 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 all pilotage 
revenue.

Step 3.B.--Adjustment for Ancillary Revenues

    (1) The projection of pilotage revenue from Step 3.A., above, is 
adjusted for ancillary revenues (i.e., revenue from docking, 
undocking, moveage, delay, cancellation, and lock transit). 
Ancillary revenues are subtracted from the projection of all 
pilotage revenue because the rates for ancillary services are set 
separately from the basic pilotage rates. The method for setting 
ancillary charges is discussed in Step 7.D., below.
    (2) After adjustment for ancillary revenues, the result is the 
projection for revenues which would be generated by basic pilotage 
services if existing rates are left unchanged. The results of these 
calculations is defined as the ``projection of revenue.''

Step 4: Calculation of Investment Base

    (1) The fourth step in the Great Lakes pilotage 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 will be established through the use of the balance 
sheet accounts, as amended by material supplied in the Notes to the 
Financial Statement. The formula used in calculating the investment 
base is detailed in Appendix B to this part.

Step 5: Determination of Target Rate of Return on Investment

    (1) The fifth step in the Great Lakes pilotage ratemaking 
methodology is to determine the Target Rate of Return on Investment. 
For each Association, a market-equivalent return-on-investment (ROI) 
is allowed for the recognized net capital invested in the 
Association by its members.
    (2) The allowed ROI is based on the rate of the most recent 
return on stockholder's equity for a representative cross section of 
transportation industry companies, including maritime companies, 
with a minimum rate equal to the interest rate incurred by the 
Associations for debt capital, and a maximum rate of 20 percent.
    (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.

Step 6: Adjustment Determination

    (1) The next step in the Great Lakes pilotage ratemaking 
methodology is to insert the results from steps 1, 2, 3, and 4 into 
a formula which is based on a standard utility rate structure, and 
comparing the results to step 5. This basic utility rate structure 
takes into account revenues, expenses and return on investment, and 
is of the following form:

------------------------------------------------------------------------
   Line               Ratemaking projections for basic pilotage         
------------------------------------------------------------------------
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.            = Return on Investment.                                  
------------------------------------------------------------------------

    (2) The Director will compare the projected return on investment 
(as calculated using the formula above) to the target return on 
investment (from step 5), to determine whether an adjustment to the 
basic pilotage rates is necessary. If the projected return on 
investment is significantly different from the target return on 
investment, the revenues which would be generated by the current 
pilotage rates are not equal to the revenues which would need to be 
recovered by the pilotage rates.
    (3) The basic pilotage revenues that are needed are calculated 
by substituting in a figure for the projected revenue which 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 basic pilotage 
rates. The mechanism for adjusting the basic 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 hourly charge for basic 
pilotage service, which is discussed in Step 7.A. below.

Step 7: Adjustment of Pilotage Rates

    (1) The final step in the Great Lakes pilotage ratemaking 
methodology is to adjust Great Lakes pilotage rates if the 
calculations from Step 6 show that pilotage rates in a pilotage area 
should be adjusted, and if the Director 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. 
However, pilotage rates calculated in this step are subject to 
adjustment based on requirements of the Memorandum of Arrangements 
between the United States and Canada, and other supportable 
circumstances which may be appropriate. Pilotage rate adjustments 
consist of the following: (a) Calculation of the hourly pilotage 
charge; (b) calculation of pilotage charges for unspecified trips; 
(c) calculation of pilotage charges for specified trips; (d) 
calculation of pilotage charges for ancillary services; and (e) 
adjustment of pilotage charges for vessel size. Each of these is 
detailed below.

Step 7.A.--Calculation of Hourly Charge

    (1) The Director determines a proposed hourly charge for basic 
pilotage service in each pilotage area. This hourly charge is used 
in the calculation of pilotage rates discussed in Steps 7.B., 7.C., 
and 7.D., below.
    (2) The proposed total hourly charge for pilotage service in 
each pilotage area consists of two components, i.e., pilot 
compensation, and operating expenses.
    (3) The pilot compensation component of the hourly charge is 
derived by dividing the projected target pilot compensation for each 
area, by the estimated pilotage hours (i.e., bridge hours) for that 
area. This calculation results in a pilot compensation charge for 
each hour of pilotage service in that pilotage area.
    (4) The operating expense component of the hourly charge is 
derived by dividing the projected operating expenses for each 
pilotage district, including the constructed amount necessary to 
bring the Associations to the ROI standard, by the estimated 
pilotage hours (bridge hours). This calculation results in an 
operating expense charge for each hour of pilotage service in that 
pilotage district.
    (5) The total hourly charge for basic pilotage service in each 
pilotage area is derived by adding the pilot compensation charge for 
that area to the operating expense charge for the district in which 
that area is located. These calculations are adjusted for average 
ship size as discussed in Step 7.E., below.

Step 7.B.--Calculation of Charges for Unspecified Trips

    (1) For transits which are not specified in Sec. 401.405 and 
Sec. 401.410 of this chapter, the Director bases basic pilotage 
rates on the hourly charge developed in Step 7.A., above. This 
hourly charge for basic pilotage service is assessed for each hour 
that a registered pilot is aboard a vessel, subject to a six-hour 
minimum each time a pilot is assigned, with three-hour increments 
thereafter.

Step 7.C.--Calculation of Charges for Specified Trips

    (1) For transits which are specified in Sec. 401.405 and 
Sec. 401.410 of this chapter, the Director periodically reviews the 
average time for each individual transit, using the travel time in 
both directions. This review will be accomplished at least once 
every five years. The proposed basic pilotage fee listed for 
specified transits in Sec. 401.405 and Sec. 401.410 of this chapter 
is based on the result of multiplying the hourly basic pilotage fee 
by the average transit time calculated for that transit.
    (2) During ratemaking proceedings which occur between periodic 
reviews of average vessel transit times, the rates for specified 
transits are adjusted as a group. The pilotage rate for specified 
transits in each area is adjusted by subtracting the ``projection of 
revenue'' from the ``projection of revenue needed'' and dividing by 
the ``projection of revenue,'' with the resultant deficit or surplus 
expressed in percentage terms, rounded to the nearest whole number. 
The proposed basic pilotage rates for specified transits are 
determined by multiplying the existing rates by the resultant 
percentage.

Step 7.D.--Calculation of Charges for Ancillary Services

    (1) Ancillary charges are equalized between districts. These 
charges need not be adjusted during every ratemaking. These charges 
are reviewed at intervals of not more than five years, during the 
periodic review of average vessel transit time for specified trips 
discussed in Step 7.C., above. Each of these charges is discussed 
below.
    (A) Docking, Undocking and Harbor Movement Charges--For 
consistency, these charges are set at the same level in all 
districts. The charges are determined by the Director, subject to 
the requirements of the Memorandum of Arrangements between the 
United States and Canada.
    (B) Moveage--The charge for moveage in a harbor for all three 
districts is twice the docking charge.
    (C) Delay Charges--Delay charges, per hour, whether for trip 
interruption or departure or moveage delays, are set at the rate 
determined in the pilot compensation phase discussed in Step 2 
above, as adjusted for ship size. The maximum delay charge for any 
24-hour period is the per hour delay charge, as adjusted for ship 
size, times 16 hours.
    (D) Cancellation Charges--Cancellation charges are set at the 
rate determined in the pilot compensation phase discussed in Step 2 
above, and are not adjusted for ship size. If the cancellation 
occurs less than six hours after the pilot reports, the maximum 
charge is the basic pilot compensation charge for a six-hour period. 
If the cancellation occurs more than six hours after the pilot 
reports, the charge is the basic pilot compensation charge for each 
hour or fraction of an hour, to a maximum of 16 hours.
    (E) Lock Passage Charges--For consistency, these charges are set 
at the same level in all districts. The level will be determined by 
the Director, subject to the requirements of the Memorandum of 
Arrangements between the United States and Canada.

Step 7.E.--Adjustment for Ship Size

    (1) The hourly charge for basic pilotage services discussed in 
Step 7.A., above, is adjusted by dividing the basic charge by the 
average weighting factor of the preceding year, as determined from 
charges adjusted in accordance with Sec. 401.400 of this chapter.

Appendix B to Part 404--Ratemaking Definitions and Formulas

    The following definitions apply to the ratemaking formula 
contained in this appendix. The account numbers correspond to the 
account numbers in Appendix A to part 403 of this chapter.
    (1) Operating Revenue--means the sum of all operating revenues 
received by the Association for pilotage services, less ancillary 
revenues that are offset against operating expenses.
    (2) Operating Expense--means the sum of all operating expenses 
incurred by the Association for pilotage services, less the sum of 
disallowed expenses.
    (3) Target Pilot Compensation--means the compensation that 
pilots are intended to receive for full time employment. For pilots 
providing services in undesignated waters, the target pilot 
compensation is the average annual compensation for first mates on 
U.S. Great Lakes vessels. For pilots providing services in 
designated waters, the target pilot compensation is 150% of the 
average annual compensation for first mates on U.S. Great Lakes 
vessels.
    (4) Operating Profit/(Loss)--means Operating Revenue less 
Operating Expense and Target Pilot Compensation.
    (5) Interest Expense--means the reported Association interest 
expense on operations, as adjusted to exclude any interest expense 
attributable to losses from non-pilotage operations.
    (6) Earnings Before Tax--means Operating Profit/(Loss), less the 
Interest Expense.
    (7) Federal Tax Allowance--means the Federal statutory tax on 
Earnings Before Tax, for those Associations subject to Federal tax.
    (8) Net Income--means the Earnings Before Tax, less the Federal 
Tax Allowance.
    (9) Return Element (Net Income plus Interest)--means the Net 
Income, plus Interest Expense. The return element can be considered 
the sum of the return to equity capital (the Net Income), and the 
return to debt (the Interest Expense).
    (10) Investment Base (separately determined)--means the net 
recognized capital invested in the Association, including both 
equity and debt. Should capital be invested in other than pilotage 
operations, that capital is excluded from the rate base.
    (11) Return on Investment--means the Return element, divided by 
the Investment Base, and expressed as a percent.
    Investment base formula.
    (1) Regulatory Investment (Investment Base) is the recognized 
capital investment in the useful assets employed by the pilot 
groups. In general, it is the sum of available cash and the net 
value of real assets, less the value of land. The investment base is 
established through the use of the balance sheet accounts, as 
amended by material supplied in the Notes to the Financial 
Statement.
    (2) The Investment Base is calculated using data from the 
Uniform System of Accounts described in part 403, as audited and 
approved by the Director. Accounts, listed in the Investment Base 
formula below, which end in 999 are not separate accounts, but the 
summation of the accounts listed in each particular grouping. For 
instance, account no. 10999 is not a separate balance sheet account, 
it is the summation of all individual balance sheet accounts in the 
10000 grouping. The Investment Base would be calculated as follows: 

------------------------------------------------------------------------
  Account No.                          Description                      
------------------------------------------------------------------------
Recognized Assets:                                                      
                                                                        
10999             + Total Current Assets                                
29999             - Total Current Liabilities                           
20100             + Current Notes Payable                               
13999             + Total Property and Equipment (Net)                  
12000             - Land                                                
15000             + Total Other Assets                                  
                 -------------------------------------------------------
                  = Total Recognized Assets                             
                                                                        
Non-Recognized Assets:                                                  
                                                                        
11999             + Total Investments and Special Funds                 
                 -------------------------------------------------------
                  = Total Non-Recognized Assets                         
                                                                        
Total Assets:                                                           
                                                                        
                  + Total Recognized Assets                             
                  + Total Non-Recognized Assets                         
                 -------------------------------------------------------
                  = Total Assets                                        
                                                                        
Recognized Sources of Funds:                                            
                                                                        
39999             + Total Stockholders' Equity                          
26000             + Long-Term Debt                                      
20100             + Current Notes Payable                               
24500             + Advances from Affiliated Companies                  
26100-500         + Long-Term Obligations-Capital Leases                
                 -------------------------------------------------------
                  = Total Recognized Sources                            
                                                                        
Non-Recognized Sources of Funds:                                        
                                                                        
26600             + Pension Liability                                   
26800             + Other Non-Current Liabilities                       
27000             + Deferred Federal Income Taxes                       
27200             + Other Deferred Credits                              
                 -------------------------------------------------------
                  = Total Non-Recognized Sources                        
                                                                        
Total Sources of Funds:                                                 
                                                                        
                  + Total Recognized Sources                            
                  + Total Non-Recognized Sources                        
                 -------------------------------------------------------
                  = Total Sources of Funds                              
------------------------------------------------------------------------

    (3) Using the figures developed above, the Investment Base is 
the Recognized Assets times the ratio of Recognized Sources of Funds 
to Total Sources of Funds.

    Dated: April 1, 1994.
Robert T. Nelson,
Vice Admiral, U.S. Coast Guard, Acting Commandant.
[FR Doc. 94-8602 Filed 4-11-94; 8:45 am]
BILLING CODE 4910-14-M