[Federal Register Volume 61, Number 91 (Thursday, May 9, 1996)]
[Rules and Regulations]
[Pages 21081-21084]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-11499]
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DEPARTMENT OF TRANSPORTATION
Office of the Secretary
46 CFR Parts 403 and 404
[OST Docket No. 50248]
RIN 2105-AC21
Great Lakes Pilotage Rate Methodology
AGENCY: Office of the Secretary, DOT.
ACTION: Final rule.
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SUMMARY: The Department of Transportation (the Department) is
responding to comments to a final rule published April 11, 1995,
establishing new procedures and methodology for determining Great Lakes
pilotage rates and making corresponding changes to the financial
reporting requirements required of Great Lakes pilot associations.
Based on these comments, the Department has made minor changes to the
rule. This final rule does not change the existing Great Lakes pilotage
rates and charges.
EFFECTIVE DATE: This rule is effective on June 10, 1996.
ADDRESSES: Unless otherwise indicated, documents referred to in this
preamble are available for inspection or copying at the office of the
Docket Clerk, OST Docket No. 50248, U.S. Department of Transportation,
400 7th St. SW., room PL-401, Washington, DC 20590 from 9 a.m. to 5:30
p.m., Monday through Friday.
FOR FURTHER INFORMATION CONTACT: Scott A. Poyer, Project Manager, St.
Lawrence Seaway Development Corporation, 400 Seventh St. SW, Room 5421,
Washington, DC 20590, 1-800-785-2779, or Steven B. Farbman, Office of
the Assistant General Counsel for Regulation and Enforcement, 400 7th
St. SW., room 10424, Washington, DC 20590, (202) 366-9306.
SUPPLEMENTARY INFORMATION:
Regulatory History
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). The DOT Task Force then developed a new pilotage
ratemaking methodology, which the Coast Guard published in a notice of
proposed rulemaking (NPRM) (59 FR 17303) dated April 12, 1994.
THE NPRM proposed 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 (CGD 92-072). The NPRM also announced a public
hearing which was held in Cleveland, OH on May 20, 1994. The comment
period for the NPRM ended on July 11, 1994.
In response to the NPRM and the public hearing, the Coast Guard
received 31 comments and two requests for additional public meetings to
explain the proposals contained in the NPRM. In the Federal Register
(59 FR 18774) on April 20, 1994, the Coast Guard announced that it
would conduct two public meetings. The first public meeting was held in
Chicago, IL on May 3, 1994. The second public meeting was held in
Massena, NY on May 5, 1994.
The Coast Guard also received one request to extend the comment
period for the NPRM. Because the comment period for the NPRM was 90
days, the Coast Guard and the Department determined that there was
sufficient time to submit comments. Therefore, the comment period was
not extended.
On April 11, 1995, the Department published a final rule with
request for comments (60 FR 18366) (1995 final rule) establishing
improved procedures for determining Great Lakes pilotage rates, and
revised financial reporting requirements mandated for Great Lakes pilot
associations. The comment period ended on May 11, 1995. Although the
Coast Guard issued the NPRM under authority delegated to the Commandant
by the Secretary, the Secretary issued the 1995 final rule. On December
11, 1995, the Secretary transferred authority to administer the Great
Lakes Pilotage Act of 1960 (Public Law 86-555, 46 U.S.C. 9301 et seq.)
(the Act) to the Administrator of the SLSDC. Nevertheless, the
Secretary is issuing this final rule. Under 49 CFR 1.43(a), the
Secretary may exercise powers and duties delegated or assigned to
officials other than the Secretary.
Several commenters requested that the comment period for the
rulemaking be extended. Because all late-filed comments were
considered, and because this rulemaking has already been the subject of
extensive public comment, the Department determined that there was
sufficient time to submit comments regarding this 1995 final rule.
Therefore, the comment period was not extended.
Background and Purpose
Under the Act, 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 Act vests the
Secretary of Transportation with responsibility for setting pilotage
rates. Section 9303(f) of the Act 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.
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
[[Page 21082]]
``undesignated waters.'' Pilotage areas 1, 5, and 7 are ``designated
waters.'' Pilots are required to direct the navigation of vessels in
designated waters. Pilots are required to be on board and available to
direct the navigation of vessels 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 Act provides that the Secretary of
Transportation, subject to the concurrence of the Secretary of State,
may make arrangements with the appropriate agency of Canada to
prescribe joint or identical rates and charges. The latest Memorandum
of Arrangements between the United States and Canada, dated January 18,
1977, specifies that the Secretary of Transportation of the United
States of America and the Minister of Transport of Canada will
establish regulations imposing identical rates. A copy of this
Memorandum of Arrangements is available in the docket and may also be
obtained by writing to Scott A. Poyer, at the address listed under FOR
FURTHER INFORMATION CONTACT, above. In the past, consultations between
the United States and Canada resulted in nominally identical U.S. and
Canadian rates.
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 takes
into account in reaching identical U.S. and Canadian rates. As a
result, the ratemaking methodology contained in this final rule would
not translate directly into new rates, but rather would form the basis
for proposals to be negotiated with Canada.
Discussion of Comments and Changes
The Department received nine comments and thirteen endorsements of
one of the nine comments. Comments came from one Great Lakes pilot
association, three Great Lakes Registered Pilots, one professional
association representing pilots, one professional association
representing vessel operators and steamship agents on the Great Lakes,
one labor organization, one professional auditor, and the comptroller
of one Great Lakes pilot association with thirteen endorsements by
individual members of that association. Some of the comments addressed
issues that were not the subject of the 1995 final rule. The Department
is responding only to those comments relating to this rulemaking.
Three comments were generally supportive of the 1995 final rule and
characterized it as an improvement over the NPRM, but with some areas
that still need improvement. These comments were made by one pilot
group, one professional organization representing pilots, and one labor
organization. Six comments objected to the 1995 final rule because it
was considered to be confusing, not viable, or not in concurrence with
the DOT IG's intentions. These comments were made by one professional
organization representing vessel agents, one professional auditor,
three Great Lakes Registered pilots, and one comptroller of a Great
Lakes pilot association with thirteen endorsements. The Department
believes most of the methodology presented in the 1995 final rule
represents a workable compromise between the disparate interests
involved. Therefore, the ratemaking methodology presented in the 1995
final rule is substantially retained in this final rule.
Four commenters objected to what they perceived as the 1995 final
rule's ``elimination of annual audits.'' The two types of audits
discussed in the Great Lakes pilotage regulations (i.e., audits by
pilot associations, and audits by the Director) are discussed in 46 CFR
Secs. 403.300(b) and 404.1(b). Commenters believed that the amended
wording of these sections eliminated a requirement that pilot
associations and/or the Director conduct annual audits of the pilot
associations. Commenters believed the elimination of these annual audit
requirements would weaken financial oversight of pilot associations and
encourage spending abuse.
In fact, the 1995 final rule did not eliminate annual audits. Pilot
associations were still required to obtain an annual audit by an
independent certified public accountant.
However, the Department agrees that the wording of the audit
requirements was not as clear as it could have been. To make this
requirement more clear, the language of section 403.300(b) has been
amended to reinforce the requirement that pilot associations be audited
by an independent CPA every year, and to require that the audit results
be forwarded to the Director every year. Section 404.1(b) has been
amended to reinforce the requirement that the Director review the
annual association audits every year, and conduct a thorough audit of
pilot association expenses at a minimum of once every five years.
One commenter stated that certification of financial reports by an
association officer, as required by 46 CFR Sec. 403.300(a)(3), is
redundant and ``prejudicial'' to the association's regular financial
reporting. The Department does not understand how certification of
financial documents could in any way be ``prejudicial,'' and the
commenter did not elaborate on this point. The Department agrees that
there is a certain amount of redundancy in requiring an association
officer such as a Treasurer, to review the work of a bookkeeper or
accountant who prepares the financial reports. However, this redundancy
is standard procedure in most well-managed businesses, and is an
important safeguard against waste, fraud, and abuse. For these reasons,
section 403.300(a)(3) is retained.
One commenter objected to section 404.5(a)(2) which requires the
Director to determine the reasonableness of pilot association expenses
by comparing them to comparable expenses paid by others in the maritime
industry. The commenter believes that there are no industries on the
Great Lakes comparable to Great Lakes pilotage, as pilotage is ``vastly
different'' from other industries. The department disagrees. The
commenter did not elaborate on how pilotage was different from all
other industries. Pilots operate in the same marketplace as other
maritime industries on the Great Lakes, and incur many of the same
types of expenses. The Department does not believe there is any basis
for the claim that pilotage expenses cannot be compared with anything
else; therefore section 404.5(a)(2) is retained.
One commenter stated that the provisions of 46 CFR Sec. 404.5(a)(5)
are unclear, inappropriate, and unfair. This section requires that
profits, but not losses, from non-pilotage transactions be included in
ratemaking calculations. The Department designed this section as a
disincentive to pilot association speculation in non-pilotage related
businesses, since the Department does not consider these types of
transactions to be in the public interest. As such, section 404.5(a)(5)
accomplishes its intended objective, and is therefore retained.
One commenter objected to 46 CFR Sec. 404.5(a)(8)(ii), which
provides that lobbying expenses will not be allowed for ratemaking
purposes. The Department has no objection to pilot associations who
wish to expend money for lobbying purposes. However, it does not seem
reasonable to make others, i.e., those members of the public who pay
pilotage rates, pay for these expenses. Therefore, section
404.5(a)(8)(ii) is retained.
Four sets of comments from pilots and their representatives
questioned the
[[Page 21083]]
methods used to compute pilot compensation targets and pilot work hour
targets, which are used to set the number of pilots for ratemaking
purposes. These methods are contained in Step 2 of Appendix A to Part
404, and section 404.5(a). This section continues the Department policy
of maintaining income comparability between Great Lakes Registered
Pilots, and masters/chief mates on Great Lakes vessels, and the
Department's pilot work hour targets of 1000 hours in designated waters
and 1800 hours in undesignated waters. These policies were established
as a result of the 1988 DOT Pilotage Study, which examined many
alternatives and selected the master/chief mate targets and the work
hour targets. Commenters believed pilots should earn more than masters/
chief mates, and/or pilots should work fewer hours. Commenters proposed
several alternatives including income comparability with State pilots,
and inclusion of travel time in the calculation of pilot work hours.
After considering all the alternatives, the Department is keeping this
section of the final rule unchanged. This is fully consistent with the
recommendation in the 1988 DOT Pilotage Study, which states, ``The
study team believes that pilot compensation should be tied to the local
economy. The use of local masters and mates pay scales has the
important impact of tying pilot compensation to the regional industry
pay levels. Salaries of pilots, like those of teachers, physicians,
lawyers, and other professionals, are tied to the fluctuations of
supply and demand for their services in their particular locality. In
this fashion, Great Lakes pilots share in the fortunes of the Great
Lakes.'' Commenters offered no new information that alters this
assessment. Therefore Step 2 of Appendix A to Part 404, and section
404.5(a) are retained.
One commenter objected to the Return on Investment (ROI) provisions
detailed in Step 5 of Appendix A to Part 404. The commenter believed a
ROI is not applicable or feasible for Great Lakes pilot associations
because: (a) Pilot associations have no inventory, or investment in
inventory, and accounts receivable are systematically collected within
a 12 month period; (b) the value of fixed assets on the organizations'
balance sheets is immaterial and all equipment is leased from related
parties; (c) there is no stockholder's equity in two associations and
in the third association it is not owned by all the pilots; and (d) the
ROI would not have a significant impact on pilotage rates. As stated by
the Department in the 1995 final rule, a return element is an important
component of cost-based rate methodologies. Rates that have been set
without a return element have been vulnerable to legal challenge and do
not meet the goals of the investigations and audits that underlie this
rulemaking. Also, in order to negotiate with the Canadians we must have
rates that can withstand scrutiny as to their conformity to sound
ratemaking principles. The Department believes it is only fair to allow
pilots a return on the capital they invest. If, as the commenter
asserts, it is true that pilot associations have little or no capital
investments, then it is true that the return on these investments will
be small. However, this does not invalidate the principle that pilots
should receive a return on the capital they invest. Whether their
capital be small or large, individuals who invest in a business have a
right to expect a return on that capital. Therefore the ROI provisions
of section 404.5(a)(4), step 5 of appendix A, and the formulas
contained in appendix B are retained.
Two commenters believe the 1995 final rule should address the
business structure of pilot associations. Currently two pilot
associations are structured as partnerships and one pilot association
is structured as a corporation. One commenter believes that the rule
should better equalize for the differences in association structure.
The other commenter recommends that the 1995 final rule require all
associations to adopt the same business structure. At the present time,
it is Department policy that each pilot association should be permitted
to adopt the business structure that best suits its needs, and it is
incumbent on each association to live with the costs and benefits
inherent in its choice. This policy allows pilots the freedom to run
their own businesses to the maximum extent practicable, with no
discernably negative consequences for the public. The Department is not
aware of any abuses of this policy at the present time. However, if it
becomes necessary to reverse this policy, this matter would be the
subject of a future rulemaking, subject to public input and comment.
One commenter recommends that the Great Lakes pilotage ratemaking
methodology should be clear and easy to implement, and any future
changes to the methodology should be made with the participation of the
pilot associations and a committee of independent and professional
individuals. The Department agrees. The Department has endeavored to
make the ratemaking methodology contained in this rule as clear and
easy as practical. In that regard, three commenters agree that the
methodology contained in the 1995 final rule is an improvement over the
methodology proposed in the NPRM. Any changes to the Great Lakes
pilotage ratemaking methodology that may be the subject of future
rulemakings will involve input and comments from the pilot associations
and other members of the public.
Four commenters believe the 1995 final rule granted the Director of
Great Lakes Pilotage too much authority and would allow the Director to
micro-manage activities of the pilot associations of which the Director
is not sufficiently knowledgeable. The Department disagrees. The
incumbent Director of Great Lakes Pilotage is extremely knowledgeable
of pilotage and other maritime activities. He has been involved in the
performance of Great Lakes Pilotage Act functions for approximately 11
years. He is a licensed merchant mariner, and the former Head of the
Navigation Department at the Maritime Institute of Technology and
Graduate Studies, the advanced training facility of the International
Organization of Masters, Mates and Pilots. Moreover, every previous
Director of Great Lakes Pilotage has had an extensive maritime
background, as well as experience in dealing with merchant mariners and
pilots. The position description for the Director of Great Lakes
Pilotage position requires a substantial maritime background. In
addition, the remaining pilotage staff have extensive maritime
backgrounds and their positions require maritime, economic, and
ratesetting knowledge and experience. Therefore, the sections of the
1995 final rule related to the Director's authority and discretion are
retained.
Two commenters believe the U.S. Government should cease oversight
of Great Lakes Pilotage, including the ratemaking and financial
oversight regulations contained in this rulemaking. The Department is
making no changes pursuant to this comment. As stated earlier, the Act
requires the Secretary to prescribe by regulation rates and charges for
pilotage services.
Executive Order 12866
This rule is a significant regulatory action under section 3(f) of
Executive Order 12866 and has been reviewed by the Office of Management
and Budget under that order. It is significant under the regulatory
policies and procedures of the Department of Transportation (44 FR
11040; February 26, 1979) because rulemaking affecting the setting of
pilotage rates has been controversial and of significant interest to
the public.
[[Page 21084]]
The Department expects the economic impact of this rule to be
minimal. This rule does not represent a significant departure from the
current ratemaking process, and there are no expected increases in
costs. Therefore, a full regulatory evaluation is not necessary.
Small Entities
Under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.), the
Department must consider whether this final rule 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). One commenter believes that this rule
will have a significant economic impact on a substantial number of
small entities. However, the commenter did not elaborate on why this
impact would occur. Since this rule is not a major change from past
rulemaking practices, and only three pilot associations with a total of
approximately 40 members will be directly affected by this rule, this
final rule should have little or no impact on small entities that pay
pilotage rates or that receive income from pilotage rates. Because it
expects the impact of this proposal to be minimal, the Department
certifies under 5 U.S.C. 605(b) of the Regulatory Flexibility Act (5
U.S.C. 601 et seq.) that this final rule will not have a significant
economic impact on a substantial number of small entities.
Collection of Information
This rule contains collection-of-information requirements. The
Department has submitted the requirements to the Office of Management
and Budget (OMB) for review under section 3504(h) of the paperwork
Reduction Act (44 U.S.C. 3501 et seq.), and OMB has approved them. The
part numbers are parts 401 and 403 and the corresponding OMB approval
number is OMB Control Number 2115-0616.
Federalism
The Department has analyzed this final rule under the principles
and criteria contained in Executive Order 12612, and has determined
that this rule does not have sufficient federalism implications to
warrant the preparation of a Federalism Assessment. State action
addressing pilotage regulation 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 Department considered the environmental impact of this final
rule and concluded that this rule is categorically excluded from
further environmental documentation under section 2.B.2 of Commandant
Instruction M16475.1B. 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 has been placed in the docket.
List of Subjects in 46 CFR Parts 403 and 404
Administrative practice and procedure, Great Lakes, Navigation
(water), Penalties, Reporting and recordkeeping requirements, Seamen.
For reasons set out in the preamble, the Department proposes to
amend Parts 403 and 404 of Title 46 of the Code of Federal Regulations
as follows:
PART 403--[AMENDED]
1. The authority citation for part 403 continues to read as
follows:
Authority: 46 U.S.C. 8105, 9303, 9304; 49 CFR 1.46.
2. Section 403.300(b) is revised to read as follows:
Sec. 403.300 Financial reporting requirements.
* * * * *
(b) Required Reports:
(1) By April 1 of each year, each Association shall obtain an
annual unqualified long form audit report for the preceding year,
audited and prepared in accordance with generally accepted auditing
standards by an independent certified public accountant.
(2) Each Association shall forward their annual unqualified long
form audit report, and any associated settlement statements, to the
Director no later than April 7 of each year.
PART 404--[AMENDED]
3. Section 404.1(b) is revised to read as follows:
Authority: 46 U.S.C. 8105, 9303, 9304, 49 CFR 1.46.
Sec. 404.1 General ratemaking provisions.
* * * * *
(b) Great Lakes pilotage rates shall be reviewed annually in
accordance with the procedures detailed in Appendix C to this part. The
Director shall review Association audit reports annually and, at a
minimum, the Director shall complete a thorough audit of pilot
association expenses and establish pilotage rates in accordance with
the procedures detailed in Sec. 404.10 of this part at least once every
five years. 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.
Issued at Washington, DC this 2nd day of May, 1996.
Federico Pena,
Secretary of Transportation.
[FR Doc. 96-11499 Filed 5-8-96; 8:45 am]
BILLING CODE 4910-62-P