[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]


 ========================================================================
 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.
 
 ========================================================================
 

  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
------------------------------------------------------------------------

    (c) Area 8 (Undesignated Waters):

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