Federal Register, Volume 61 Issue 187 (Wednesday, September 25, 1996)

[Federal Register Volume 61, Number 187 (Wednesday, September 25, 1996)]
[Proposed Rules]
[Pages 50258-50264]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-24489]

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Proposed Rules
Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 61, No. 187 / Wednesday, September 25, 1996 /
Proposed Rules

[[Page 50258]]

DEPARTMENT OF TRANSPORTATION

Saint Lawrence Seaway Development Corporation

33 CFR Parts 404 and 407

Seaway Regulations and Rules: Great Lakes Pilotage Rates

AGENCY: Saint Lawrence Seaway Development Corporation, DOT.

ACTION: Notice of proposed rulemaking and hearing.

-----------------------------------------------------------------------

SUMMARY: The Saint Lawrence Seaway Development Corporation (SLSDC) is
proposing to amend the Great Lakes Pilotage Regulations by increasing
Great Lakes Pilotage Rates by: 6% in Area 1; 20% in Area 2; 7% in Area
4; 35% in Area 5; 11% in Area 6; 44% in Area 7; 12% in Area 8; and 17%
for mutual rates.
The proposed pilotage rate adjustments are different in each area
because the rates have not been set on an area-by-area basis since
1967. In the interim years pilotage rates were increased by a single
percentage across areas and this led to disparities between areas and
between districts. The rates proposed above were calculated by applying
the same formulas uniformly to each area.
The increase in Great Lakes pilotage rates is necessary because
pilot compensation has fallen below established compensation targets.
In accordance with Step 2 of Appendix A to 33 CFR part 407, the
compensation target for pilots providing service in the designated
waters of the Great Lakes is the approximate average annual
compensation for masters on U.S. Great Lakes vessels and the
compensation target for pilots providing service in the undesignated
waters of the Great Lakes is the approximate average annual
compensation for first mates on U.S. Great Lakes vessels. In accordance
with 33 CFR 407.1(b), pilotage rates have been reviewed and it has been
determined that pilots are not meeting these targets. Therefore, in
accordance with 46 U.S.C. 9303(f) the SLSDC is proposing to increase
pilotage rates to meet these targets. The SLSDC requests comments on
these proposed amendments and intends to conduct a public hearing. 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.

DATES: Any party wishing to present views on the proposed amendments
may file comments with the SLSDC on or before November 12, 1996.
The SLSDC intends to conduct a public hearing on October 22, 1996,
which will begin at 10 a.m. and last until all comments have been
heard, or until 3 p.m.

ADDRESSES: Send comments to Marc C. Owen, Chief Counsel, Saint Lawrence
Seaway Development Corporation, 400 Seventh Street, SW., Suite 5424,
Washington, DC 20590.
The hearing will be held at the Crowne Plaza at Detroit Metro
Airport, 8000 Merriman Road, Romulus, MI.

FOR FURTHER INFORMATION CONTACT: Scott A. Poyer, Chief Economist, Saint
Lawrence Seaway Development Corporation, Office of Great Lakes
Pilotage, United States Department of Transportation, 400 7th Street
SW., Suite 5424, Washington, DC 20590, room 5421, 1-800-785-2779, or
Marc C. Owen, Chief Counsel, Saint Lawrence Seaway Development
Corporation, 400 Seventh Street, SW., Suite 5424, Washington, DC 20590,
(202) 366-6823.

SUPPLEMENTARY INFORMATION:

Background

On December 11, 1995, the Secretary of Transportation transferred
responsibility for administration of the Great Lakes Pilotage Act from
the Commandant of the U.S. Coast Guard to the Administrator of the
SLSDC. This transfer was effected by a final rule published by the U.S.
Department of Transportation (DOT) in the Federal Register on December
11, 1995 (60 FR 63444). Among the responsibilities transferred by this
final rule was the responsibility for setting Great Lakes pilotage
rates. On May 9, 1996, the DOT published a final rule in the Federal
Register (61 FR 21081), which was originated and initially drafted when
Great Lakes pilotage functions were administered by the U.S. Coast
Guard. The final rule made the Department's final changes to the
methodology used to set Great Lakes pilotage rates.
This rulemaking represents the first time the new methodology is
being used to set Great Lakes pilotage rates. This rulemaking proposes
the first full rate review since 1987, and the first rate adjustment
since 1992. The magnitude of the rate adjustments proposed by this
rulemaking are due to the nine-year interval since the last full
ratemaking review. The new ratemaking methodology requires that
pilotage rates be reviewed at least once a year. This yearly review is
considered an improvement that will, over time, serve to avoid
fluctuations in pilot compensation and avoid large changes in pilotage
rates.
This rulemaking follows the methodology detailed in 33 CFR Part 407
and in particular the step-by-step ratemaking calculations contained in
Appendix A to Part 407. These step-by-step calculations for each
pilotage area are summarized in the following tables and explained in
more detail afterwards:

Table A
----------------------------------------------------------------------------------------------------------------
Area 1, St. Area 2, Lake Total,
Lawrence River Ontario district 1
----------------------------------------------------------------------------------------------------------------
Step 1: Projection of operating expenses........................ $215,313 $155,916 $371,229
Step 2: Projection of target pilot compensation................. $969,052 $461,450 $1,430,502
Step 3: Projection of revenue................................... $1,129,235 $522,059 $1,651,294
Step 4: Calculation of investment base.......................... $135,076 $97,814 $232,890
Step 5: Determination of target rate of return on investment.... 7.72% 7.72% 7.72%

[[Page 50259]]

Step 6: Adjustment determination................................ $1,194,793 $624,918 $1,819,711
Step 7: Adjustment of pilotage rates............................ 1.06 1.20 1.10
----------------------------------------------------------------------------------------------------------------

Table B
----------------------------------------------------------------------------------------------------------------
Area 5, South
Area 4, Lake East Shoal to Total,
Erie Port Huron, MI district 2
----------------------------------------------------------------------------------------------------------------
Step 1: Projection of operating expenses........................ $355,562 $580,127 $935,689
Step 2: Projection of target pilot compensation................. $461,450 $1,107,488 $1,568,938
Step 3: Projection of revenue................................... $776,886 $1,267,552 $2,044,438
Step 4: Calculation of investment base.......................... $100,885 $164,603 $265,488
Step 5: Determination of target rate of return on investment.... 7.72% 7.72% 7.72%
Step 6: Adjustment determination................................ $828,600 $1,706,522 $2,535,122
Step 7: Adjustment of pilotage rates............................ 1.07 1.35 1.24
----------------------------------------------------------------------------------------------------------

Table C
----------------------------------------------------------------------------------------------------------------
Area 6, Lakes
Huron and Area 7, St. Area 8, Lake Total,
Michigan Mary's River Superior district 3
----------------------------------------------------------------------------------------------------------------
Step 1: Projection of operating expenses........ $499,286 $103,027 $198,130 $800,443
Step 2: Projection of target pilot compensation. $922,900 $276,872 $369,160 $1,568,932
Step 3: Projection of revenue................... $1,284,531 $265,062 $509,735 $2,059,328
Step 4: Calculation of investment base.......... $75,488 $15,577 $29,956 $121,021
Step 5: Determination of target rate of return
on investment.................................. 7.72% 7.72% 7.72% 7.72%
Step 6: Adjustment determination................ $1,428,014 $381,102 $569,602 $2,378,718
Step 7: Adjustment of pilotage rates............ 1.11 1.44 1.12 1.16
----------------------------------------------------------------------------------------------------------------

As summarized in the tables A, B and C above, the SLSDC proposes to
amend the pilotage rates found in 33 CFR 404.405-404.410 by increasing
basic pilotage rates by: 6% in Area 1; 20% in Area 2; 7% in Area 4; 35%
in Area 5; 11% in Area 6; 44% in Area 7; and 12% in Area 8. For the
pilotage rates in 33 CFR 404.420, 404.425 and 404.428, which are paid
in all pilotage areas, the SLSDC proposes to increase these rates by
17% which is the aggregate increase for pilotage rates in all areas.
The calculations summarized in the tables A, B and C above follow
the step-by-step instructions in 33 CFR Part 407 Appendix A. A more
detailed explanation of the calculations in each step is as follows:

Step 1: Projection of Operation Expenses

Step 1.A.--Submission of Financial Information

The first step in determining the amount of operating expenses that
will be allowed in pilotage rates is to gather financial data from each
of the three Great Lakes pilot associations (the Associations). For
1995, the Associations each obtained an audit by an independent
Certified Public Accountant and submitted these audits to the Director
of the Great Lakes Pilotage (the Director), in accordance with 33 CFR
Sec. 406.300.

Step 1.B.--Determination of Recognizable Expenses

To aid the Director in determining which expenses reported by the
Associations will be recognized for ratemaking purposes, the Director
hired an independent Certified Public Accounting (CPA) firm to review
the expenses reported by the Associations using the guidelines
contained in 33 CFR 407.05. The results of the audits and the
Director's determinations are as follows:

----------------------------------------------------------------------------------------------------------------
District 1 District 2 District 3
----------------------------------------------------------------------------------------------------------------
Total reported expenses....................................... $264,790 $1,118,862 $868,731
Proposed adjustments (independent CPA firm)................... 34,490 (321,774) (8,750)
Director's adjustments........................................ 16,000 110,819 36,797
Total recognized expenses..................................... 315,280 907,907 896,778
----------------------------------------------------------------------------------------------------------------

The reports of the independent CPA firm details its proposed
expense adjustments. The following is a summary of the major findings
and proposed adjustments, along with the Director's corresponding
adjustments where appropriate.
Adjustments made to the reported expenses can be divided into six
categories: (1) equalization between Associations; (2) recordkeeping
deficiencies; (3) reimbursed expenses; (4) expenses not necessary for
the provision of pilotage services; (5) expenses related to lobbying;
and (6)

[[Page 50260]]

expenses which do not conform to Internal Revenue Service guidelines.
Equalization between Associations is necessary because each
Association is organized differently. The District 1 and 3 Associations
are organized as associations/partnerships, whereas the District 2
Association is organized as a corporation. Because of this difference,
the District 2 Association pays for Social Security taxes, Medicare
taxes, insurance and travel expenses out of corporate funds while in
the District 1 and 3 Associations these expenses are paid directly by
the pilots themselves. Since these taxes, insurance and travel expenses
are legitimate business expenses that should be recognized for
ratemaking purposes, funds for these expenses have been added to the
expense base for Districts 1 and 3 ($103,519 for District 1 and
$203,986 for District 3).
Recordkeeping deficiencies were reported by the independent CPA
firm for the District 2 and District 3 Associations. In District 2
contemporaneous logs were not kept for automobile expenses or credit
card/travel expenses, while in District 3 contemporaneous logs were not
kept for automobile expenses. Because of these recordkeeping
deficiencies, the independent CPA firm recommended disallowing $59,867
from District 2 and $20,797 from District 3. The Director agrees that
undocumented expenses should not be allowed for ratemaking purposes.
However, since these recordkeeping practices were allowed in the past
and there is no question that these types of expenses are necessary for
the provision of pilotage services, the Director has reinstated these
expenses into the rate base with the provision that each Association
will address these discrepancies before the next full rate review. The
Director is basing this decision on Step 1(1) of Appendix A to Part 407
which states that ``the Director forecasts the amount of fair and
reasonable operating expenses that pilotage rates should recover.'' The
Director believes it is fair and reasonable to give the Associations an
opportunity to correct recordkeeping deficiencies discovered during
audits. And in reply to the audit findings, each Association is taking
steps to correct perceived recordkeeping deficiencies that were
discovered by the independent CPA firm.
With regard to reimbursed expenses, the independent CPA firm found
that some expenses for each Association are reimbursed by various
parties and recommended that these expenses not be counted in the
expense base for each Association. Examples of these expenses include
reimbursement from one Association to another for shared pilot boat and
dispatch, reimbursement from ships for tug boat use and reimbursement
from Canadian pilotage operations for shared administrative expenses.
These are legitimate business expenses but they are paid by other
Associations or other parties, not by basic pilotage rates, and should
therefore not be used in the calculation of pilotage rates for the
Association being reimbursed. The independent CPA firm recommended
$32,746 be deducted from District 1, $192,825 be deducted from District
2 and $112,812 be deducted from District 3. The Director agrees with
the independent CPA firm's findings and these funds have been deducted
from the rate base, except for $34,952 which the Director has added
back into the expense base for District 2 because the independent CPA
firm counted three years of Workers Compensation refunds instead of
counting only one year's refund. This inadvertent miscalculation is
corrected by the Director's addition of the $34,952.
Expenses that were not necessary for the provision of pilotage
service are disallowed for ratemaking purposes. Under 33 CFR
407.5(a)(1) of the Great Lakes Pilotage Ratemaking regulations,
``[e]ach expense item included in the rate base is evaluated to
determine if it is necessary for the provision of pilotage service''
and ``expense items that the Director determines are not reasonable and
necessary for the provision of pilotage services will not be recognized
for ratemaking purposes.'' The largest portion of expenses that the
independent CPA firm believes fit in this category are costs resulting
from the legal challenge by two Associations to the transfer of Great
Lakes Pilotage oversight functions by the Secretary of Transportation
from the Commandant of the Coast Guard to the Administrator of the
SLSDC, together with the funding and staff. The transfer did not affect
the substantive rules regarding the provision of pilotage services.
These litigation costs are distinguishable from expenses that are
directly related to the provision of those services, such as the cost
of transportation to and from vessels or the labor of the pilots, from
which the public derives a direct benefit. The latter are costs that,
if they were not incurred, would affect the level of service to the
public, while the former are not. Additionally, some legal expenses
which are directly related to the provision of pilot services are
allowed, such as the expense of defending a suit by an applicant pilot
discharged from the training program for cause, which directly affects
the quality of service and safety. While it is reasonable to expect the
public to share the burden of the costs of services provided that have
been incurred by the Associations by passing those costs through the
pilotage rate charged, it is not reasonable to pass on the costs of
litigation over an issue that has no discernable, direct effect on the
actual provision of pilotage services to that public. These costs
therefore are being disallowed for the purposes of establishing the
rate base ($34,411 in District 1, $465 in District 2 and $74,733 in
District 3).
In addition to the costs associated with the litigation over
redelegation of pilotage functions, the independent CPA firm also
recommended an additional $60,585 be deducted from District 2 and $866
be deducted from District 3 for expenses that were not necessary or
reasonable for the provision of pilotage service. Included in these
expenses are overcharges for leases, charitable contributions,
donations, uniforms and expenses for business promotion, none of which
are necessary for the provision of pilotage service by a government
regulated monopoly. The Director agrees with these findings and these
expenses have been deducted from the rate base.
The independent CPA firm recommended that $1,872 be deducted from
District 1, $3,456 be deducted from District 2, and $3,528 be deducted
from District 3 for that portion of dues which go toward lobbying
expenses. The Director has deducted these expenses from the rate base
in accordance with 33 CFR 407.5(a)(8)(ii).
The independent CPA firm recommended that $4,576 be deducted from
District 2 for per diem expenses that were in excess of IRS per diem
guidelines, as per 33 CFR 407.5(a)(2)(iii). The Director agrees with
these findings and the corresponding expenses have been deducted from
the rate base.
During the Seaway Safety Summit held on August 6, 1996, each
Association requested that the Director add funds to each Association's
expense base for the purpose of purchasing portable Electronic Chart
Display Information Systems (ECDIS). This equipment uses the
Differential Global Positioning Satellite (DGPS) system to help
mariners locate their exact positions. ECDIS/DGPS systems are being
used by other pilot associations in the United States. The Director
reviewed the request and is allowing

[[Page 50261]]

$16,000 per Association for the purchase, test and evaluation of two
portable ECDIS/DGPS system per Association.
During the audit of Association expenses, each Association
requested expenses be allowed in advance for items that they had not
yet purchased. Examples of these items include funding for applicant
trainees, continuing education, establishment of a capital improvement/
replacement account, and purchase of a new pilot boat in District 1.
All of these items may be considered in future ratemakings. At this
time, however, there has been no agreement between the Director and the
Associations on whether or how much to fund these items, therefore it
would be premature to include funds for these items in this rulemaking.

Step 1.C.--Adjustment for Inflation or Deflation

The total recognized expenses for each Association were increased
by 3.06% to adjust Association expenses for inflation. The 3.06%
adjustment is based on the 1995 change in the consumer price index
(CPI) for the North Central region of the United States. This measure
of inflation is in wide usage throughout the United States and is a
generally accepted method for adjusting for inflation. Appendix A, Step
1.C., details another measure which consists of creating a separate
inflation index for each Association. It is proposed that Step 1.C. be
amended to discontinue this alternative measure for three reasons.
First, there is no reason to believe that the inflation experienced by
Great Lakes pilots is any different from that experienced by everyone
else in that area of the United States. Second, the creation of a
separate index for each Association is counterproductive to the goal of
treating each Association equally. Third, in order to implement this
alternative measure the 1995 independent CPA firm audits would have to
be compared to 1994 independent CPA firm audits. There are no 1994
independent CPA firm audits because this is the first time this rate
methodology has been implemented and the first time the independent CPA
firm was hired was for the 1995 audits. Completion of 1994 independent
CPA firm audits would lead to a substantial delay in this rulemaking.
Given the ready availability of an acceptable measure of inflation, it
would not be fair and reasonable to delay the ratemaking over this
limited issue. Therefore, the same inflation index (3.06%) was applied
to each Association.

Step 1.D.--Projection of Operating Expenses

The final step in determining what Association operating expenses
are included in rate calculations consists of projecting Association
expenses forward to the rate period and apportioning District-wide
expenses to each area within that District. In this way the pilotage
charges in each area will more accurately reflect the expected cost of
service in that area. A description of the pilotage areas is found in
33 CFR 407.10(b). For this rulemaking, Association expenses were
adjusted by multiplying the pilotage hour projection for each district,
as determined in step 2.B., below, by the aggregate percentage of
Association expenses that change in response to a change in pilotage
hours. Analysis indicates about 57% of Association expenses are
affected by a change in pilotage hours. For instance, in District 1
pilotage hours are projected to increase 25% (see Step 2.B.), which is
multiplied by 57% to project that District 1's operating expenses
should increase 14% in response to the projected increase in pilotage
hours. Then, District-wide expenses were apportioned to each area
according to the number of pilots in that area, as determined in Step
2.B., below. For instance, District 1 is calculated to need seven
pilots in Area One and five pilots in Area Two, therefore Area One was
assigned 58% of the expenses for the District and Area Two was assigned
42% of the expenses for the District. The resultant Projection of
Operating Expenses are displayed in the first row of Tables A, B and C,
above.

Step 2: Projection of Target Pilot Compensation

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

For pilots providing service in undesignated waters the target rate
of compensation is equal to the yearly compensation earned by first
mates on U.S. Great Lakes vessels. Information from the American
Maritime Officers Union and Great Lakes Ship Operating Companies
indicates that this current rate is $92,290, which covers all wages and
compensation received including: work days; vacation pay; weekend pay;
holiday pay; bonus; clerical pay; medical benefits; and pension
contribution. For pilots providing service in Designated Waters the
target rate of compensation is 1.5 times first mate compensation, which
is calculated to be $138,435.

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

The number of pilots needed is determined by dividing the projected
bridge hours for each area by the work hour targets for each area,
i.e., 1,000 hours in designated waters and 1,800 hours in undesignated
waters. Pilot Bridge hours are projected based on the vessel traffic
that those pilots are expected to serve. The detailed 1996 vessel
traffic and bridge hour projections are in the docket and are available
for inspection. In summary, the SLSDC used four sources to project
vessel traffic and bridge hours. These sources were industry survey
results, commodity prices, mathematical modeling and current bridge
hour levels. The projections for 1996 are for a 25% increase in bridge
hours in District 1, no change in District 2 and a 25% decrease in
District 3. The major differences in the predicted traffic in each
District is due to the effects of the current grain shortage. Grain
becomes a bigger proportion of cargoes as one travels west on the Great
Lakes. Grain supplies this year have been lower than in past years due
to bad weather. Applying this analysis to pilot bridge hours, it is
projected that in 1996, Area 1 will require the equivalent of 7 pilots,
Area 2 will require the equivalent of 5 pilots, Area 4 will require the
equivalent of 5 pilots, Area 5 will require the equivalent of 8 pilots,
Area 6 will require the equivalent of 8 pilots, Area 7 will require the
equivalent of 2 pilots and Area 8 will require the equivalent of 4
pilots. The term ``equivalent'' is used because the actual assignment
of pilots to each area varies according to the needs of vessel traffic.
The Director proposes the equivalent of 10 pilots for Area 6 to
cushion the effect of this year's rapid decrease in bridge hours in
that area. As of June 30, 1996, pilot bridge hours were 42.80% lower in
District 3 compared with the same period last year, with Area 6 losing
the most pilots as a result. Decreases in traffic should lead to
decreases in pilot numbers. However, this year's extraordinary decrease
is believed to be related to the shortage of grain cargoes at the
beginning of 1996. This problem is not expected to continue into next
year, so reducing the number of pilots rapidly this year would lead to
a shortage of pilots next year. That is why the Director believes it is
prudent to allow for 10 pilots in Area 6.

[[Page 50262]]

Step 2.C.--Projection of Target Pilot Compensation

Multiplying the target compensation for each area by the number of
pilots in each area, the target pilot compensation for each area is
determined and displayed in Tables A, B and C, above.

Step 3: Projection of Revenue

Step 3.A.--Projection of Revenue

Pilotage Revenue was projected by multiplying the revenue earned by
each Association in 1995 by the change in traffic projected for each
Association. The result for each District was divided among the
pilotage areas based on the number of pilots in each area.

Step 4: Calculation of Investment Base

The Investment Base was calculated for each Association during the
analysis performed by the independent CPA firm hired by the Director.
The results of those calculations are contained in the reports of the
CPA firm, which are in the docket. The Investment Base for each
Association was calculated to be: $232,890 in District 1; $265,488 in
District 2; and $119,823 in District 3. The District 1 and 2
Associations also had affiliated/related companies and the Investment
Base for these companies was also calculated, but it was not used in
the ratemaking because it was found that both of these companies were
profitable and were already earning a return on investment which was
within the range of reasonableness. If the Investment Base from these
companies were also counted in the calculation of pilotage rates, this
would result in an unfair double-counting of assets for return
purposes.

Step 5: Determination of Target Rate of Return on Investment

The rate of return on investment (ROI) for 1996 was set at 7.72%.
This is the 1995 average annual rate for new issues of high grade
corporate securities as determined by the Market Finance Division of
the Department of Treasury. Section (2) of Appendix A to 33 CFR Part
407 indicates that the rate of return will be calculated based on ``the
most recent return on stockholder's equity for a representative cross
section of transportation industry companies.'' At the time the Great
Lakes Pilotage Ratemaking Methodology was written, this data was
available from the U.S. Bureau of Economic Analysis (BEA). However, due
to downsizing and restructuring of the Federal Government, the BEA no
longer keeps this information. Therefore, the SLSDC proposes to amend
Section (2) of Appendix A to set the rate of return equal to the
previous year's average annual rate of return for new issues of high
grade corporate securities.

Step 6: Adjustment Determination

The adjustment determination is made using the numbers listed above
and following the formula found in Step 6 of Appendix A to 33 CFR Part
407. The results of this formula are found in Tables A, B and C listed
above.

Step 7: Adjustment of Pilotage Rates

The adjustments to pilotage rates in each area are determined by
multiplying the current pilotage rates in those areas by the rate
multiplier. The rate multiplier is calculated by dividing the revenue
needed (from step 6) by the projected revenue (from step 3) for each
area. The results are listed in Tables A, B and C above. The SLSDC
proposes to amend the pilotage rates in 33 CFR 404.405-410 with the
rates obtained by multiplying the current pilotage rates times the rate
multiplier calculated for each pilotage area.
The SLSDC also proposes to change the format for how pilotage rates
are presented. Instead of the current format which describes basic
pilotage fees in a paragraph format in 33 CFR 404.405 and 404.410, the
SLSDC proposes to list pilotage fees in three easier to-read, point-to-
point tables which will become Secs. 404.405, 404.407 and 404.410,
respectively. This format has the advantages of being more complete and
less confusing than the old format. Pilotage charges are grouped by
geographic area in roughly east-to-west order rather than by Designated
Waters and Undesignated Waters. Also, pilotage charges which had to be
inferred under the old format are specifically listed in the new
format, such as the charge from Detour to Sault St. Marie, Michigan.
The proposed format and charges are presented below in 33 CFR 404.405,
404.407 and 404.410.
The SLSDC also proposes to amend 33 CFR 404.400(a) and 404.405 by
adding a metric equivalent to the current rates which list measurements
in feet and miles. This addition is made to make pilotage rates easier
to understand for the international community.

Regulatory Evaluation

This proposed regulation involves a foreign affairs function of the
United States and therefore, Executive Order 12866 does not apply. The
Great Lakes Pilotage Act (46 U.S.C. 9305) provides for agreements with
the appropriate agency of Canada to prescribe joint or identical
pilotage rates and charges. The Secretary of Transportation and the
Minister of Transport of Canada have signed a Memorandum of Agreement
concerning Great Lakes Pilotage dated January 18, 1977, section 7 of
which provides for the establishment of identical rates, charges and
any other conditions or terms of service of pilots in the waters of the
Great Lakes.
This proposed regulation has also been evaluated under the
Department of Transportation's Regulatory Policies and Procedures and
the proposed regulation is considered to be substantive but
nonsignificant under those procedures. All previous pilotage rate
rulemakings have been considered nonsignificant except for the interim
pilotage rate adjustment of June 5, 1992, (57 FR 23955). This interim
adjustment was necessary because a new rate methodology was being
designed and was significant because the interim rate adjustment was
put in before the methodology was completed. The rate methodology has
now been completed and 33 CFR Sec. 407.1(b) requires that pilotage
rates be reviewed annually.
The economic impact of this rulemaking is expected to be minimal so
that a full economic evaluation is not warranted. Fees for Great Lakes
registered pilotage service are paid almost exclusively by foreign
vessels. Therefore, the effect of the proposed increase in Great Lakes
pilotage rates will be borne almost exclusively by foreign vessels
operators, not U.S. entities.

Regulatory Flexibility Act Determination

The SLSDC certifies that this proposed regulation, if adopted,
would not have a significant economic impact on a substantial number of
small entities. As discussed above under ``Regulatory Evaluation,'' the
SLSDC expects the impact of this proposed rule to be minimal. Also,
since the vast majority of pilotage fees are paid by foreign vessels,
any resulting costs will be borne almost exclusively by foreign vessel
operators.

Environmental Impact

This proposed regulation does not require an environmental impact
statement under the National Environmental Policy Act (49 U.S.C. 4321,
et seq.) because it is not a major federal action significantly
affecting the quality of the human environment.

Federalism

The Corporation has analyzed this proposal under the principles and

[[Page 50263]]

criteria in Executive Order 12612 and has determined that this proposal
does not have sufficient federalism implications to warrant the
preparation of a Federalism Assessment.

List of Subjects in 33 CFR Parts 404 and 407

Administrative practice and procedure, Great Lakes, Navigation
(water), Penalties, Reporting and recordkeeping requirements, Seamen.
For reasons set out in the preamble, the SLSDC proposes to amend
Part 404 and 407 of Title 33 of the Code of Federal Regulations as
follows:

PART 404--[AMENDED]

1. The authority citation for part 404 continues to read as
follows:

Authority: 46 U.S.C. 6101, 7701, 8105, 9303, 9304; 49 CFR 1.45,
1.52. 33 CFR 404.105 also is issued under the authority of 44 U.S.C.
3507.

2. Section 404.400(a) is revised to read as follows:

Sec. 404.400 Calculation of pilotage units and determination of
weighing factors.

* * * * *
(a) Pilotage unit computation:
Pilot Unit=(Length x Breadth x Depth)/283.17 (measured in meters)
Pilot Unit=(Length x Breadth x Depth)/10,000 (measured in feet)
* * * * *
3. Section 404.405 is revised to read as follows:

Sec. 404.405 Basic rates and charges on the St. Lawrence River and
Lake Ontario.

Except as provided in Sec. 404.420, the following basic rates are
payable for all services and assignments performed by U.S. registered
pilots in the St. Lawrence River and Lake Ontario:
(a) Area 1 (Designated Waters):

------------------------------------------------------------------------
Service St. Lawrence River
------------------------------------------------------------------------
Basic pilotage............................ $7.74 ^{1 per kilometer or
$12.47 ^{1 per mile.
Each lock transited....................... $166.^{1
Harbor movage............................. $547.^{1
------------------------------------------------------------------------
^{1 The minimum basic rate for assignment of a pilot in the St. Lawrence
River is $364 and the maximum basic rate for a through trip is $1,597.

(b) Area 2 (Undesignated Waters):

------------------------------------------------------------------------
Lake
Service Ontario
------------------------------------------------------------------------
Six-hour period............................................... $332
Docking/undocking............................................. $317
------------------------------------------------------------------------

4. Section 404.407 is added to read as follows:

Sec. 404.407 Basic rates and charges on Lake Erie and the navigable
waters from Southeast Shoal to Port Huron, MI.

Except as provided in Sec. 404.420, the following basic rates are
payable for all services and assignments performed by U.S. registered
pilots on Lake Erie and the navigable waters from Southeast Shoal to
Port Huron, MI:
(a) Area 4 (Undesignated Waters):

------------------------------------------------------------------------
Lake Erie
(East of
Service Southeast Buffalo
Shoal)
------------------------------------------------------------------------
Six Hour Period............................... $345 $345
Docking/Undocking............................. $265 $265
Any Point on the Niagara River below the Black
Rock Lock.................................... N/A $677
------------------------------------------------------------------------

(b) Area 5 (Designated Waters):

----------------------------------------------------------------------------------------------------------------
Toledo or
any port on
Southeast Lake Erie Detroit Detroit St. Clair
Any point on/in Shoal west of River Pilot Boat River
Southeast
Shoal
----------------------------------------------------------------------------------------------------------------
Toledo or any port on Lake Erie west of
Southeast Shoal............................... $1,018 $601 $1,322 $1,018 N/A
Port Huron Change Point........................ \1\ 1,773 \1\ 2,053 1,332 1,035 737
St. Clair River................................ \1\ 1,773 N/A 1,332 1,332 601
Detroit or Windsor or the Detroit River........ 1,018 1,322 601 N/A 1,332
Detroit Pilot Boat............................. 737 1,018 N/A N/A 1,332
----------------------------------------------------------------------------------------------------------------
^{1 When pilots are not changed at the Detroit Pilot Boat.

5. Section 404.410 is revised to read as follows:

Sec. 404.410 Basic rates and charges on Lakes Huron, Michigan and
Superior and the St. Mary's River.

Except as provided in Sec. 404.420, the following basic rates are
payable for all services and assignments performed by U.S. registered
pilots on Lakes Huron, Michigan and Superior and the St. Mary's River:
(a) Area 6 (Undesignated Waters):

------------------------------------------------------------------------
Lakes Huron
Service and Michigan
------------------------------------------------------------------------
Six-hour period......................................... $279
Docking/undocking....................................... $265
------------------------------------------------------------------------

(b) Area 7 (Designated Waters):

------------------------------------------------------------------------
Area Detour Gros Cap Any Harbor
------------------------------------------------------------------------
Gros Cap......................... $1,788 N/A N/A
Algoma Steel Corporation Wharf at
Sault Ste. Marie, Ontario....... $1,788 $674 N/A
Any point in Sault Ste. Marie,
Ontario except the Algoma Steel
Corporation Wharf............... $1,500 $674 N/A
Sault Ste. Marie, Michigan....... $1,500 $674 N/A

[[Page 50264]]

Harbor Movage.................... N/A N/A $674
------------------------------------------------------------------------

------------------------------------------------------------------------
Lake
Service Superior
------------------------------------------------------------------------
Six Hour Period............................................... $281
Docking/Undocking............................................. $268
------------------------------------------------------------------------

6. Section 404.420 is revised to read as follows:

Sec. 404.420 Cancellation, delay or interruption in rendition of
services.

(a) Except as provided in this section, whenever the passage of a
ship is interrupted and the services of a U.S. pilot are retained
during the period of the interruption or when a U.S. pilot is detained
on board a ship after the end of an assignment for the convenience of
the ship, the ship shall pay an additional charge calculated on a basic
rate of $54 for each hour or part of an hour during which each
interruption or detention lasts with a maximum basic rate of $851 for
each continuous 24 hour period during which the interruption or
detention continues. There is no charge for an interruption or
detention caused by ice, weather or traffic, except during the period
beginning the 1st of December and ending on the 8th of the following
April. No charge may be made for an interruption or detention if the
total interruption or detention ends during the 6 hour period for which
a charge has been made under Secs. 404.405-404.410.
(b) When the departure or movage of a ship for which a U.S. pilot
has been ordered is delayed for the convenience of the ship for more
than one hour after the U.S. pilot reports for duty at the designated
boarding point or after the time for which the pilot is ordered,
whichever is later, the ship shall pay an additional charge calculated
on a basic rate of $54 for each hour or part of an hour including the
first hour of the delay, with a maximum basic rate of $851 for each
continuous 24 hour period of the delay.
(c) When a U.S. pilot reports for duty as ordered and the order is
cancelled, the ship shall pay:
(1) A cancellation charge calculated on a basic rate of $322;
(2) A charge for reasonable travel expenses if the cancellation
occurs after the pilot has commenced travel; and
(3) If the cancellation is more than one hour after the pilot
reports for duty at the designated boarding point or after the time for
which the pilot is ordered, whichever is later, a charge calculated on
a basic rate of $54 for each hour or part of an hour including the
first hour, with a maximum basic rate of $851 for each 24 hour period.

Sec. 404.425 [Amended]

7. Section 404.425 is amended by replacing the term
``Secs. 404.405, 404.410, and 404.420'' with the term ``Secs. 404.405,
404.407, 404.410 and 404.420''.
8. Section 404.428 is revised to read as follows:

Sec. 404.428 Basic rates and charges for carrying a U.S. pilot beyond
normal change point or for boarding at other than the normal boarding
point.

If a U.S. pilot is carried beyond the normal change point or is
unable to board at the normal boarding point, the ship shall pay at the
rate of $329 per day or part thereof, plus reasonable travel expenses
to or from the pilot's base. These charges are not applicable if the
ship utilizes the services of the pilot beyond the normal change point
and the ship is billed for these services. The change points to which
this section applies are designated in Sec. 404.450.

PART 407--[AMENDED]

9. The authority citation for Part 407 continues to read as
follows:

Authority: 46 U.S.C. 8105, 9303, 9304; 49 CFR 1.52.

10. Appendix A to Part 407, Step 1.C. and Step 5(2) are revised to
read as follows:

Appendix A to Part 407--Ratemaking Analyses and Methodology

* * * * *

Step 1.C.--Adjustment for Inflation or Deflation

(1) In making projections of future expenses, expenses that are
subject to inflationary or deflationary pressures are adjusted.
Costs not subject to inflation or deflation are not adjusted. Annual
cost inflation or deflation rates will be projected to the
succeeding navigation season, reflecting the gradual increase or
decrease in costs throughout the year. The inflation adjustment will
be based on the preceding year's change in the Consumer Price Index
for the North Central Region of the United States.
* * * * *
Step 5: * * *
(2) The allowed Return on Investment (ROI) is based on the
preceding year's average annual rate of return for new issues of
high grade corporate securities.
* * * * *
Issued at Washington, D.C. on September 17, 1996.

Saint Lawrence Seaway Development Corporation.
Gail C. McDonald,
Administrator.
[FR Doc. 96-24489 Filed 9-24-96; 8:45 am]
BILLING CODE 4910-61-P}}}}}}