[Federal Register Volume 59, Number 70 (Tuesday, April 12, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-8602]
[[Page Unknown]]
[Federal Register: April 12, 1994]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF TRANSPORTATION
Coast Guard
46 CFR Parts 401, 403, and 404
[CGD 92-072]
RIN 2115-AE45
Great Lakes Pilotage Rate Methodology
AGENCY: Coast Guard, DOT.
ACTION: Notice of proposed rulemaking and hearing.
-----------------------------------------------------------------------
SUMMARY: The Coast Guard proposes to amend the Great Lakes Pilotage
Regulations by establishing new procedures for determining Great Lakes
pilotage rates, and revising the financial reporting requirements
mandated for Great Lakes pilot associations. The proposed methodology
would adopt methods which have proven effective in ratemaking
methodologies used by regulators of other public service industries.
This notice of proposed rulemaking (NPRM) does not propose a change to
the existing Great Lakes pilotage rates and charges, but proposes to
standardize the methodology by which those rates would be determined in
the future.
DATES: Comments must be received on or before July 11, 1994.
A public hearing will be held on May 20, 1994. Details regarding
the place and time of this hearing are discussed below under ``Request
for Comments.''
ADDRESSES: Comments may be mailed to the Executive Secretary, Marine
Safety Council (G-LRA-2/3406) (CGD 92-072), U.S. Coast Guard
Headquarters, 2100 Second Street, SW., Washington, DC 20593-0001, or
may be delivered to Room 3406 at the above address between 8 a.m. and 3
p.m., Monday through Friday, except Federal holidays. The telephone
number is (202) 267-1477. Comments on collection of information
requirements must also be mailed to the Office of Information and
Regulatory Affairs, Office of Management and Budget, 725 17th Street
NW., Washington, DC 20503, ATTN: Desk Officer, U.S. Coast Guard.
The Executive Secretary maintains the public docket for this
rulemaking. Comments will become part of this docket and will be
available for inspection or copying at room 3406, U.S. Coast Guard
Headquarters.
As discussed below under ``Request for Comments,'' the Coast Guard
intends to conduct a public hearing regarding this NPRM. The public
hearing will be held in room 769 of the Federal Building, 1240 E. 9th
Street, Cleveland, OH 44199.
FOR FURTHER INFORMATION CONTACT: Mr. Scott A. Poyer, Project Manager,
Office of Marine Safety, Security and Environmental Protection, (G-MVP/
12), room 1210, U.S. Coast Guard Headquarters, 2100 Second Street, SW.,
Washington, DC 20593-0001, (202) 267-6249.
SUPPLEMENTARY INFORMATION:
Request for Comments
The Coast Guard encourages interested persons to participate in
this rulemaking by submitting written data, views or arguments. Persons
submitting comments should include their name and address, identify
this rulemaking (CGD 92-072) and the specific section of this rule to
which each comment applies, and give a reason for each comment. The
Coast Guard requests that all comments and attachments be submitted in
an unbound format suitable for copying and electronic filing. If not
practical, a second copy of any bound material is requested. Persons
wanting acknowledgment of receipt of comments should enclose a stamped,
self-addressed postcard or envelope.
The Coast Guard will consider all comments received during the
comment period. It may change this proposal in view of the comments.
The Coast Guard intends to conduct a public hearing on May 20, 1994
in room 769 of the Federal Building, 1240 E. 9th Street, Cleveland, OH
44199. The hearing will begin at 9 a.m. and last until all comments
have been heard, or until 5 p.m., whichever is earlier. The purpose of
this hearing is to gather information relating to this rulemaking and
to permit responses by interested persons to material filed in this
docket.
Drafting Information
The principal persons involved in drafting this rule are: Mr. Scott
A. Poyer, Project Manager, Office of Marine Safety, Security and
Environmental Protection, Mr. David Richards, Project Consultant,
Department of Transportation (DOT) Office of International Aviation,
and Mr. Nicholas Grasselli, Project Counsel, Office of Chief Counsel.
Background and Purpose
Under the Great Lakes Pilotage Act of 1960 (Pub. L. 86-555, 46
U.S.C. 9301 et seq.), vessels of the United States operating on
register and foreign vessels must engage a U.S. or Canadian registered
pilot when traversing the waters of the Great Lakes. The Great Lakes
Pilotage Act, as amended, vests the Secretary of Transportation with
responsibility for setting pilotage rates. The Great Lakes Pilotage Act
49 U.S.C. 9303 provides that the Secretary shall prescribe by
regulation rates and charges for pilotage services, giving
consideration to the public interest and the costs of providing the
services. This authority, except for the authority to enter into,
revise or amend arrangements with Canada, has been delegated to the
Commandant of the Coast Guard by 49 CFR 1.46 (a).
Currently, the navigable waters of the Great Lakes are divided into
eight pilotage areas. United States registered pilots, along with their
Canadian counterparts, provide pilotage services in areas 1, 2, 4, 5,
6, 7, and 8. Pilotage area 3 (the Welland Canal) is currently a wholly-
Canadian area where only Canadian pilots provide services. Pilotage
areas 2, 4, 6, and 8 are ``undesignated waters.'' Pilotage areas 1, 5,
and 7 are ``designated waters.'' Pilots are required to direct
navigation of vessels in designated waters. Pilots are required to be
on board and available to direct navigation in undesignated waters. The
seven U.S. pilotage areas are grouped together into three pilotage
districts. District 1 consists of areas 1 and 2. District 2 consists of
areas 4 and 5. District 3 consists of areas 6, 7, and 8. Each district
has its own pilot association.
Section 9305 of the Pilotage Act provides that the Secretary of
Transportation, subject to the concurrence of the Secretary of State,
may make agreements with the appropriate agency of Canada to prescribe
joint or identical rates and charges. The latest Memorandum of
Arrangements between Canada and the United States specifies that the
Secretary of Transportation and the Minister of Transport will arrange
for the establishment of regulations imposing identical rates. In the
past, consultations resulted in nominally identical U.S. and Canadian
rates. Not only are generally uniform rates required by the agreement
with Canada, but they are also important from the standpoint of
predictable costs for vessels requiring pilotage. However, there are
differences in the cost bases and in the operating organizations of the
U.S. and Canadian pilots, particularly with regard to pilot
compensation. These differences need to be taken into account in
reaching identical U.S. and Canadian rates. Therefore, the proposed
methodology, like its predecessor, would not translate directly into
new rates, but rather would form the basis for proposals to be
negotiated with Canada.
On December 7, 1988, the Department of Transportation published the
Great Lakes Pilotage Study Final Report (1988 DOT Pilotage Study). The
study revealed weaknesses in accounting for the expenses incurred by
the pilot associations and the need to formally establish the factors
used in establishing pilotage rates. On April 25, 1990, the Coast Guard
published a final rule (55 FR 17580) establishing improved audit
requirements and general guidelines and procedures to be followed in
ratemaking (CGD 92-072). In May, 1990, the Inspector General (IG) for
the Department of Transportation initiated an audit of Coast Guard
oversight of Great Lakes pilotage. The final report of the audit (Audit
of the U.S. Coast Guard's Oversight and Management of the Great Lakes
Pilotage Program), detailing further issues affecting the basis for
Great Lakes pilotage rates, was issued on December 14, 1990.
On August 2, 1991, a DOT Task Force was formed to: (1) Develop an
interim rate adjustment; and (2) establish a new pilotage ratemaking
methodology. On June 5, 1992, an interim rate increase was published
(CGD 89-104). This rate adjustment was designed to increase the revenue
received by the pilots, pending development of a permanent rate
methodology.
Copies of any of the published material listed above may be
obtained by contacting Mr. Scott A. Poyer, as indicated in FOR FURTHER
INFORMATION CONTACT.
Discussion of Proposed Amendments
This NPRM proposes a new methodology for setting pilotage rates on
the Great Lakes. This NPRM would replace the general guidelines of the
existing methodology, set forth in 46 CFR Part 404, with more detailed
and specific steps to be followed when setting Great Lakes Pilotage
rates. It would also make correlative changes to the accounting and
reporting requirements set forth in 46 CFR part 403.
This NPRM would not change the current Great Lakes pilotage rates
and charges contained in 46 CFR 401.400-401.428. This NPRM proposes to
change the methodology by which those rates would be determined during
Great Lakes pilotage ratemaking proceedings.
In summary, the proposed ratemaking methodology would provide that
the Director of Great Lakes Pilotage (the Director), determine the
timing for reviews of pilotage rates. Interested parties would be able
to petition the Director for a review at any time. However, the
Director would decide, under applicable law, if a review is warranted.
If the Director determined that a review is warranted, he or she would
accomplish this review by following the steps detailed in this
rulemaking.
Basically, these steps involve the projection of operating expenses
(including pilot compensation) and revenues (using the current rate
schedule), based on the anticipated demand for pilotage services, by
pilotage area for the succeeding navigation period. Interest expense on
the debt of the pilot organizations, and allowances for federal income
taxes and the capital invested in the pilot organizations would be
subtracted from this projected operating profit or loss. Ideally,
projected revenues received under the existing rate schedule would be
sufficient to cover projected operating expenses, interest, and
allowances.
If a rate adjustment appeared warranted, the Director would
calculate a new hourly rate schedule for basic pilotage service in each
pilotage area by dividing the sum of the projected costs (operating
expenses, interest expense, and tax and return allowances) by the
projected hours of pilotage service. The Coast Guard would publish any
proposed rate adjustments in a NPRM inviting comments on the changes.
That NPRM, and any subsequent comments on it, would then form the basis
for negotiations on pilotage rates between the United States and
Canada. Once these negotiations resulted in an agreement to change
pilotage rates, the Coast Guard would publish a rule establishing a new
rate schedule.
This NPRM also proposes to change the financial reporting
requirements for pilot associations to more closely comport to
ratemaking needs. The proposed changes to the reporting requirements,
while an integral part of the ratemaking process, should be considered
independently from any proposed ratemaking provisions. This NPRM also
proposes to add a certification requirement.
The proposals contained in the discussion section of this preamble
are presented in two parts. Part A of this section discusses proposed
revisions to the ratemaking methodology. Part B addresses proposed
revisions to the financial reporting requirements. The order of
discussion in this preamble differs from the order of presentation in
the regulations. The revisions to the ratemaking methodology are
discussed first because an understanding of the methodology is
important to an understanding of the proposed changes to the financial
reporting requirements, and because the changes to the proposed
methodology are more extensive than the changes to the financial
reporting requirements.
Adoption of Public Service Rate Methodology
The Pilotage Act (46 U.S.C. 9303) provides, in part, that the rates
and charges for pilotage services shall be fair and equitable, giving
due consideration to the public interest and the reasonable cost and
expense of providing and maintaining such facilities and arrangements
as are required for the efficient performance of pilotage services.
Because the provision of service by the pilot organizations
contains many of the characteristics and requirements of a public
utility, this NPRM proposes to employ basic utility ratemaking
procedures in setting pilotage rates and charges. Basic utility
ratemaking concepts include the non-discriminatory treatment of users,
operational and economic efficiency through the use of ratemaking
standards, and other general public policies.
This NPRM describes the general financial structure of public
service rates and proposes to apply this structure to the three U.S.
pilot organizations providing pilotage services on the Great Lakes,
with several economic standards applied to cost elements and specific
application and designation of revenue categories.
1. General Public Service Rate Structure and Definitions
Public service rates are generally defined rates with established
economic standards, most often based upon an allowed return on
investment. Shown below is a basic structure for such rates:
Public Service Rate Structure Using Rate of Return Standards
------------------------------------------------------------------------
Line Description
------------------------------------------------------------------------
1................................ Adjusted Operating Revenue.
2. less.......................... Adjusted Operating Expense.
3. equals........................ Adjusted Operating Profit (Loss).
4. less.......................... Adjusted Interest Expense.
5. equals........................ Adjusted Earnings Before Tax.
6. less.......................... Federal Tax Allowance.
7. equals........................ Net Income.
8................................ Return Element (Net Income plus
Interest).
9. divided by.................... Investment Base (Separately
determined).
10. equals....................... Return on Investment (ROI).
------------------------------------------------------------------------
This NPRM defines the elements of this basic structure for Great
Lakes Pilotage Rates below.
1. Adjusted Operating Revenue: Adjusted Operating Revenue is the
sum of all operating revenues received by the pilot organizations for
their pilotage services, less revenues from ancillary pilotage services
that are offset against operating expenses, discussed below.
2. Adjusted Operating Expense: Adjusted Operating Expense is the
sum of all operating expenses incurred by the pilot organizations for
their pilotage services, less the sum of all disallowed expenses,
discussed below.
3. Adjusted Operating Profit (Loss): Adjusted Operating Profit
(Loss) is the Adjusted Operating Revenue, less the Adjusted Operating
Expense.
4. Adjusted Interest Expense: Adjusted Interest Expense is the
reported pilot association interest expense on operations, adjusted to
exclude any interest expense attributable to non-pilotage operations.
5. Adjusted Earnings Before Tax: Adjusted Earnings Before Tax is
the Adjusted Operating Profit (Loss), less the Adjusted Interest
Expense.
6. Federal Tax Allowance: The Federal Tax Allowance is the Federal
statutory tax on Earnings Before Tax, for those pilot organizations
subject to federal tax.
7. Adjusted Net Income: Adjusted Net Income is the Adjusted
Earnings Before Tax, less the Federal Tax Allowance.
8. Return Element: The Return Element is the Adjusted Net Income,
plus Adjusted Interest Expense. The return element can be considered
the sum of the return to equity capital (the net income) and the return
to debt (the interest expense). Both interest expense and net income
must be summed to determine the return to the combined debt and equity
investment, below.
9. Investment Base: The Investment Base is the net capital invested
in the pilot organization, including both equity and debt. Should
capital be invested in other than pilotage operations, that capital and
related revenues and expenses would be excluded from the rate base. The
investment base is defined below.
10. Return on Investment: The Return on Investment (ROI) is the
Return Element, divided by the Investment Base, and expressed as a
percent.
Putting actual data into the format described above would generate
the pilot organizations' actual financial performance for a past
period. This NPRM proposes to establish prospective rates, however, and
therefore propose several additional regulatory adjustments. These
adjustments include establishing a prospective return to investment,
adjusting for inflation, and projecting the need for pilotage services.
These adjustments are described in Part A.
2. Investment Base
The Investment Base is the recognized capital investment in the
useful assets employed by the pilot groups. In general, it is the sum
of available cash and the net value of real assets, less the value of
land. This NPRM proposes to establish the investment base through the
use of the balance sheet accounts, as amended by material supplied in
the Notes to the Financial Statement, discussed below. Below are the
accounts and methodology this NPRM proposes to use. The account numbers
are taken from the accounting revisions in Part B.
Construction of Investment Base
------------------------------------------------------------------------
Account No. Description
------------------------------------------------------------------------
Recognized assets:
+10999............................. Total current assets
-29999............................. Total current liabilities
+20100............................. Current notes payable
+13999............................. Total property and equipment (Net)
-12000............................. Land
+15000............................. Total other assets
------------------------------------------------------------------------
Total recognized assets
Non-recognized assets:
+11999............................. Total investments and special funds
------------------------------------------------------------------------
Total Non-recognized assets
Total Recognized and Non-Recognized Assets
Recognized sources of funds:
+39999............................. Total stockholders equity
+26000............................. Long-term debt
+20100............................. Current notes payable
+24500............................. Advances from affiliated companies
+26100-500......................... Long-term obligations--Capital
leases
------------------------------------------------------------------------
Total recognized sources
Non-Recognized sources of funds:
+26600............................. Pension liability
+26800............................. Other non-current liabilities
+27000............................. Deferred Federal income taxes
+27200............................. Other deferred credits
------------------------------------------------------------------------
Total Non-recognized sources
Total Recognized and Non-Recognized Sources
------------------------------------------------------------------------
The proposed Investment Base is the Recognized Assets, multiplied
by the ratio of Recognized Sources of Funds to Total Sources of Funds.
Recognized assets are adjusted by this ratio to ensure that the assets
are not encumbered by outstanding liabilities. The non-recognized
sources of funds are available only because they have not been
demanded; they represent costs that have been incurred, but not paid.
Notes to the Financial Statement and Other Informational Notes
All matters which may materially influence interpretations or
conclusions drawn from the financial statement with regard to the
financial condition or earnings position are required to be clearly and
completely stated as footnotes to the financial statement (46 CFR Part
403.)
Part A: Proposed Methodology
In summary, the basic steps to be followed in the proposed Great
Lakes pilotage ratemaking methodology would be as follows: (1)
Projection of operating expenses, including target pilot compensation;
(2) projection of operating revenues at current rates, including
revenues from ancillary services; (3) calculation of investment base;
(4) determination of target rate of return on investment; (5)
substitution of data into the basic utility rate structure; and (6)
adjustment of the basic pilotage rate schedule if necessary, subject to
the requirements of the Memorandum of Arrangements between the United
States and Canada. The details of each of these steps can be found in
Appendix A of the proposed amendments to 46 CFR part 404.
General Ratemaking Provisions
The Director would continue to determine, under applicable law,
when reviews of Great Lakes pilotage rates would be conducted. In
addition, this NPRM proposes to allow an interested party or parties to
petition the Director for a review, provided that sufficient
justification is included in the request. This would allow the Director
to react to changing circumstances which might affect pilotage rates.
The Coast Guard invites comment on whether rate reviews should be
conducted at fixed intervals, and if so, what the timing of the
intervals should be.
This NPRM proposes that each of the seven U.S. pilotage areas be
treated as separate cost centers for ratemaking calculations. This is
because each area consists of either designated or undesignated waters,
and the target pilot compensation would be different for each.
Part A.1. Derivation of Return on Investment and Adjustment for
Inflation
Return on Investment
The proposed rate schedule, based on average costs per pilotage
hour as developed below, are in part determined by the permitted rate
of return on investment (ROI). This is calculated by dividing the sum
of return to debt (interest expense) and the return to equity (net
income), by the investment base. Revenues received must be sufficiently
high to create sufficient net income, when added to interest expense
and the sum divided by the investment base, to equal the allowed rate
of return on investment.
The ROI for any industry can vary significantly depending solely on
the mix of debt to equity capital. Many public service ratemaking
authorities determine the allowable ROI using an artificial debt/equity
ratio. This is generally done to encourage equity capital investment in
an industry, since the return to equity is generally set higher than
the return to debt. Since such a mechanism is neither feasible nor
necessary in the case of pilotage services, this NPRM does not propose
to establish any ROI standard based on a specified debt/equity ratio,
but would accept the debt/equity ratio of each of the pilot
organizations as reported.
This NPRM proposes to set the allowed rate of return to equity
capital at the most recent return on stockholder's equity for a
representative cross-section of transportation industry companies,
including maritime companies, with a minimum rate equal to the interest
rate incurred by the associations for debt capital, and a maximum rate
of 20.0 percent. Alternate proposed rate of return to capital
percentages should contain reasonable support for their selection over
this NPRM's proposal. For example, under this NPRM's proposed
methodology, the computed ROI standard for pilotage rates, assuming a
50/50 debt/equity ratio, an implicit interest rate of 14 percent on
debt capital and a 20 percent return to equity capital, would be 17.0
percent (.50 times .14, plus .50 times .20 = .170, or 17.0 percent.)
The average hourly charge for pilotage services would be set to
generate sufficient revenues to cover operating expense and the return
on investment allowance (including Federal taxes, if any).
Adjustment for Inflation
This NPRM proposes to project annual inflation factors to the
succeeding navigation season, reflecting the gradual increase in cost
throughout the season. These inflation factors would be applied to the
actual costs of the pilot organizations, other than for pilot
compensation, in computing the rate necessary to achieve the target
ROI. The factors would not be applied to pilot compensation costs,
which are estimated separately.
This NPRM proposes to project the actual annual experienced changes
in the average costs per pilot assignment for each pilotage area after
the initial two years of cost inflation under this NPRM's proposed rate
methodology. The initial two years of cost adjustment would be based on
the preceding year's change in the North Central Region's Consumer
Price Index, as calculated by the U.S. Bureau of Labor Statistics.
Costs not subject to inflation (depreciation, for example) would not be
adjusted for this initial period. Alternate methods of cost projection
proposed during the comment period of this rule would be carefully
considered.
Part A.2. Recognition of Costs for Ratemaking Purposes
Virtually all regulated rates contain economic incentives,
penalties, or limits. This NPRM has already mentioned one such standard
sometimes used, an artificial debt/equity ratio for return on
investment. This NPRM proposes one explicit economic standard for Great
Lakes pilotage ratemakings--recognition of lease expenses only to the
extent that they either: (a) Approximate open market costs (for those
leased assets with readily available markets); or (b) approximate
ownership cost (for those leased assets with limited alternative
markets, or which were obtained through transaction with affiliated
companies.)
This NPRM also proposes to place expenses that appear excessive
under greater scrutiny than in the past. Regulators may disallow
expenses, subject to appeal by the pilot associations, as excessive or
unrelated to the provision of pilotage services.
Finally, while the Coast Guard is unaware of the use of other than
the straight-line method of recording depreciation expense by the pilot
organizations, this NPRM does not propose to recognize, for rate-
setting purposes, depreciation expenses on other than a straight-line
basis.
Recognition of Lease Expenses
Economic organizations lease equipment or other assets for a number
of operational or financial reasons. This NPRM proposes no general
objection to the leasing of assets. However, lease transactions, and
lease transactions with related companies in particular, are subject to
two general guidelines in public ratesetting. The first guideline
allows recognition of lease expense with no adjustment should the lease
terms generally approximate the market conditions for the leased asset.
The second guideline allows the recognition of lease expenses only to
the extent that the lease cost approximates the cost of owning the
asset.
This NPRM proposes to recognize lease costs to the extent that they
generally approximates open market costs, subject to the condition that
a readily available alternative supplier for the leased asset exists.
Should there be no readily available alternate supplier, recognition of
lease costs would be limited to the approximate cost of ownership,
including a return to capital. Since related-party transactions by
definition are not open market transactions, this NPRM proposes to
generally apply the more stringent guideline to all related-party
transactions. (See 14 CFR 399.43, for example).
This NPRM proposes to amend the financial reporting requirements to
require that lease costs be recorded in accordance with the Financial
Accounting Standards Board (FASB) publication FASB-13, including
subsequent rulings on this subject by the FASB.
Part A.3. Ancillary Charges
Several charges have traditionally been levied for ancillary
pilotage services, such as docking/undocking and moving to an
anchorage, as well as penalty charges, such as for delay or
cancellation. Revenues received for these services have been included
as part of the overall revenues received by the pilot organizations in
estimating the need for rate changes. However, accepting these revenues
as general revenues does not tie the revenues received to the provision
of a service or the incursion of a cost. For example, overhead costs
(non-pilot compensation costs) are incurred in assigning a pilot.
Should that order be later cancelled, the revenue received from the
cancellation charge is reported as cancellation charge revenue, but is
not linked to the overhead cost of assigning the pilot.
This NPRM proposes to link revenues received for ancillary services
to the cost of services provided through the use of revenue offset
methodology. Under this method, revenues received from charges for
ancillary services are ``offset'' against the direct expenses of
providing that service. In the above example, overhead costs would be
reduced by the revenues received for the cancellation charge, other
costs (pilot compensation costs for example) would be unaffected. The
total amount of revenue received (needed) or expenses recognized under
revenue offset methodology is unchanged. However, as discussed below,
this NPRM proposes to set the charges for ancillary services separately
from the basic pilotage rates in this NPRM. In addition, this NPRM also
proposes to equalize ancillary charges between districts. For equity,
as well as for economic reasons, a docking charge at Duluth should be
equal to one at Chicago, Detroit, or Buffalo. This NPRM will discuss
these charges in turn.
Docking/Undocking and Harbor Movement Charges
The current docking/undocking charges in undesignated waters are
$297, $256, and $271, for Districts 1 through 3, respectively.
Districts 1 and 3 also have a direct charge for a moveage in a harbor,
at $580 and $531, respectively. For comparability, during the next
ratemaking the Coast Guard would propose to set the docking/undocking
charge at the same level for all three districts (e.g. at $250),
subject to supported comment for establishment at any other level, or
for differentiation between districts. This NPRM does not propose to
adjust this charge for inflation, but may change the level of the
charge from time to time upon review of the Director. In similar
fashion, during the next ratemaking the Coast Guard would propose to
set the charge for moveage in a harbor for all three districts at twice
the docking charge, (e.g. $500), under the presumption that a moveage
requires both an undocking (or lifting anchor) and a docking
(anchorage). This adjustment is again subject to supported comment as
to level and applicability. Again, this NPRM does not propose to adjust
this charge for inflation, but may change the level of the charge from
time to time upon review of the Director.
Revenue received for docking/undocking and moveage within a harbor
would be offset against revenues required for pilot compensation.
Delay Charges
Delay charges, per hour, whether for trip interruption or departure
or moveage delays, would be set at the rate determined in the pilot
compensation phase, below, as adjusted for ship size. The maximum basic
rate for any 24 hour period would be the per hour delay charge, as
adjusted for ship size, times 16 hours. Delay charges would not be
imposed for interruption caused by ice, weather, or traffic (except
from December 1 through April 8 of each year), and would also not be
imposed in undesignated waters if a trip, though delayed, is still
completed within the minimum 6 hour period under 401.410(a). Revenues
received for delay charges would be offset against revenues required
for pilot compensation.
Cancellation Charges
If a pilot reports for duty and the order is cancelled, the ship
would pay the minimum basic pilot compensation charge for a six-hour
period, unadjusted for ship size; if the order is cancelled, and the
pilot has started travel but not arrived, the minimum charge would also
apply. If the cancellation is more than six hours after the pilot
reports to the designated boarding point, the ship would pay the
minimum basic pilot compensation charge for six-hour period, plus delay
charges for each hour or fraction of an hour over six hours, subject to
the maximum basic rate for delay charges (the delay charge per hour
times 16 hours for any 24 hour period.) Revenues received for
cancellation charges would be offset against operating expenses.
Lock Passage Charges
As for docking/undocking and moveage, this NPRM proposes that the
fee for lock passage should be the same for all three districts. During
the next ratemaking the Coast Guard would propose to set the lock
transit charge at the same level for all three districts (e.g. $150),
subject to supported comment for establishment at any other level, or
for differentiation between districts. This NPRM does not propose to
adjust this charge for inflation, but may change the level of the
charge from time to time upon review of the Director. Revenues received
for lock passage charges would be offset against revenues required for
pilot compensation.
Part A.4. Development and Application of Hourly Pilotage Charges
The operating expenses recognized under this NPRM's proposed
methodology are broken into two major components, pilot compensation
costs and non-pilot operating costs. The projected non-pilot operating
costs for the ensuing navigation season, including the constructed
amount necessary to bring the pilot organizations to the ROI standard,
would be divided by the sum of the estimated pilotage hours for both
designated and undesignated waters, by District. This standard charge
per hour would be applied on a per hour basis for each supplied
pilotage hour, whether in designated or undesignated waters.
Total pilot compensation costs for designated and undesignated
waters are derived from the target pilot compensation for masters and
first mates, times the number of needed pilots. The pilot compensation
cost per hour for designated and undesignated waters is this
constructed cost, divided by the pilot hours projected in designated or
undesignated waters. Target pilot compensation and the number of needed
pilots is developed below.
The sum of non-pilot operating costs per hour and pilot
compensation costs per hour (for designated and undesignated waters
separately) is the total cost per hour to be charged for pilotage
services.
Target Pilot Compensation
The Coast Guard and Department policy is to maintain income
comparability between pilots providing international regulated pilot
services and private masters and first mates operating domestic vessels
on the Great Lakes with similar responsibilities. This NPRM proposes to
continue the current income comparability policy of using as target
compensation for pilots in undesignated waters the compensation of
first mates on U.S. Great Lakes vessels. Target compensation for pilots
providing service in designated waters would continue to be comparable
to masters on Great Lakes vessels, but this NPRM proposes to set the
target at 150% of the compensation of first mates, rather than
attempting to determine the actual average compensation of Great Lakes
masters. While the Coast Guard would periodically review this estimate,
available data indicate that this average premium has remained
reasonably stable, is relatively simple to administer, and avoids
costly sampling of individual master's contracts, which are not
publicly available.
This NPRM lists below those items proposed to be included as part
of the pilot compensation portion of the rate schedule. Line items here
included would be removed from the cost pools included in direct
operating expenses to preclude double counting.
Target Pilot Compensation Designated and Undesignated Waters
Undesignated Waters--First Mate Compensation Component
1. Contractual daily rate @ 260 days: Medical allowance, Pension
allowance, Holiday pay, Overtime pay, Winter close-down allowance.
2. Additions to compensation: F.I.C.A., Workmen's compensation
allowance, Total.
Designated Waters--150 Percent of First Mate Compensation
This NPRM proposes to exclude profit sharing as a component of
pilot compensation expense, since this is a voluntary contribution by
the employer paid from profits, similar in form to the return element
proposed to be paid the pilot organizations (which may be distributed
as a bonus). Profit sharing expense, which may have been included in
past rate-setting as an expense item in the pilot associations expense
accounts, would be disallowed.
This NPRM proposes to add a F.I.C.A. allowance and a workmen's
compensation allowance to pilot compensation to ensure comparability
between pilot groups, and to properly reflect the allocated cost of
pilot services. Allowances listed here would be transferred from
general pilot association costs (if included there), or added to the
cost pools (if not currently included in general association costs).
This NPRM proposes to require these costs to be separately identified
and reported in either the financial statement or by special report
(See Part B).
Number of Required Pilots
The Coast Guard and Department policies have set the minimum number
of pilots needed by establishing specific minimum annual pilot hours
for designated and undesignated waters (1,000 and 1,800 hours per
pilot, respectively) for a pilot to receive comparable compensation
discussed above. The required number of pilots for any succeeding
navigation season was determined by dividing a projection of the number
of pilot hours required in designated and undesignated waters, by
District, by the minimum standard annual pilot hours. This required
number of pilots, for both designated and undesignated services and
individually rounded upward, was then multiplied by the target income
per pilot (above) to determine the revenue necessary under the rate.
This NPRM proposes to continue this policy and methodology in
determining the number of pilots and the necessary pilot comparability
income to be included in the rate schedule.
Pilot Compensation Charges Per Hour
The target pilot compensation, by District and by designated
(Master) and undesignated (First Mate) compensation, would then be
divided by the estimated pilotage hours in designated or undesignated
waters to construct an average hourly cost per hour for pilot
compensation in designated or undesignated waters.
Total Pilotage Charges Per Hour
Pilot compensation charges per hour, for designated and
undesignated waters separately, would be added to the average cost for
non-pilot compensation expenses per hour. The sum of these average
costs, for designated and undesignated waters separately, would be the
average cost per pilotage hour to be recovered under the rate, subject
to the adjustment for vessel size, below.
Part A.5. Adjustment of Pilotage Charges for Vessel Size
It is accepted belief and practice that pilotage of larger vessels
deserves a higher level of compensation than that for smaller vessels.
The current rate schedule uses a vessel size multiplier to increase the
charge for larger vessels, and, presumably, the pilot compensation. (46
CFR 401.400) Also, maintaining shipping in the Great Lakes is a public
benefit and goal, and is supported by government agencies. As smaller
ships carry less cargo and are more affected by pilotage cost on a per-
ton basis, a differential in cost (or lesser increase) is likely to
encourage the continuation of their service.
Based on this perceived public interest, this NPRM proposes to
continue to use these vessel-size rate multipliers for the proposed
rates for all three districts. However, the average base rate derived
above must be adjusted for such multiplication, since the average base
rate is an unweighted charge. This NPRM proposes to adjust the base
rate to reflect a ship weighting factor of 1.0 by dividing the average
base rate by the average ship weighting factor derived from pilot
billings. For 1990 the average weighted ship sailing, for designated
and undesignated waters was as follows:
Weighted Ship Sailing Factor, C.Y. 1990
------------------------------------------------------------------------
District
District1 2 District3
------------------------------------------------------------------------
Designated waters...................... 1.269 1.279 1.330
Undesignated waters.................... 1.268 1.303 1.309
------------------------------------------------------------------------
This NPRM proposes to adjust the hourly charge for pilot services
by dividing the average total pilotage charge by the average vessel
weighting factor for the preceding year.
For illustrative purposes only, this adjustment to the pilotage
charge per hour is shown below. (In the example, the hourly rates are
derived from the interim rate increase published in the Federal
Register on June 5, 1992 (CGD 89-104) to calculate charges on an hourly
basis.) For District 1, Area 1, ship factor 1.0 would equal the average
cost per hour of $166, divided by the average ship weighting factor of
1.269, or $131. Ship factor 1.3 would be $131 times 1.3, or $170. For
ease of calculation this NPRM proposes to continue to use hourly rates
rounded to the nearest dollar.
Example
Adjustment of Average Pilotage Charge per Hour--To Ship Weighting Factor
1.0
------------------------------------------------------------------------
Unadjusted
average Average Ship factor
pilotage ship 1.0--adjusted
charge/ weighting pilotage
hour factor charge/hour
------------------------------------------------------------------------
District 1:
Area I.......................... $166 1.269 $131
Area II......................... 96 1.268 76
District 2:
Area IV......................... 83 1.303 64
Area V.......................... 150 1.279 117
District 3:
Area VI......................... 87 1.309 67
Area VII........................ 179 1.330 135
Area VIII....................... 90 1.309 69
------------------------------------------------------------------------
Part A.6. Application of the Pilotage Charges to Vessel Trips
The required pilotage charges per pilot hour are determined above.
Most trips and sailings, however, are provided between relatively few
points, in part due to pilot changeover, and in part due to ship
movements involving mostly the larger trading ports. For simplicity and
operational efficiency, this NPRM proposes to fix the pilotage charges
for selected sailings and trips, based upon average transit time as
reported in pilot source forms. This NPRM proposes that the average
time for sailings served more than ten times per year in each direction
would adequately define the necessary pilot time for these repeated
sailings, exclusive of delay and demurrage. This NPRM proposes to
multiply the average time for these repeated sailings by the adjusted
pilotage charge for Ship Factor 1 to construct a base charge for these
sailings. These base charges would be published in matrix form, by
district.
This NPRM proposes to base the pilotage charges for sailings to
less-served points upon the actual time spent in pilotage (subject to
minimum and incremental hourly charges, below), multiplied by the
adjusted pilotage charge per hour. Charges listed in matrix form and
computed time-based charges would be subject to the vessel-size
multiplier, as in the current rate schedule.
This NPRM also proposes, for less-served points, to continue a
minimum six-hour pilotage charge, but with additional charges added in
three hour increments. This NPRM's proposal to use three hour
increments represents a reduction from the six hour increments in the
current rate schedule, to more closely match the services performed.
Part B: Financial Reporting
Summary of Changes to Reporting Requirements
As indicated in Part A, several changes are proposed to the
accounting regulations and reporting requirements under the Great Lakes
Pilotage Regulations. In order to facilitate ratemaking, this NPRM
proposes to require more detailed financial reporting from each pilot
association.
This NPRM proposes that each pilot association report financial
data in a standard format prescribed by the Director, and that
financial statements of each association be signed by an officer of
that association to verify accuracy. In addition, 46 CFR part 403 would
be renumbered and reorganized to bring this part into conformance with
current regulatory guidelines on the numbering and organization of
regulations.
This NPRM proposes that the general ledger account numbers in part
403 be expanded from four digits to five digits, and placed in
Appendices A and B to part 403. This proposed change would allow
greater flexibility in making future changes to the system of accounts.
In addition, the definitions of profit and loss accounts currently
found in 46 CFR 403.9 would be deleted because this section does not
add any significant information to the uniform accounting system.
This NPRM proposes that the straight line depreciation method would
be consistently used by all pilotage associations. Using this method
would evenly allocate the acquisition costs over the useful life of
assets subject to depreciation. It would also minimize the annual
fluctuation of operating expenses and their effect over the ratemaking
calculations.
This NPRM proposes that the recording of lease costs be guided by
the Financial Accounting Standards Board (FASB) publication FASB-13 and
subsequent pronouncements on this subject by the FASB. This proposed
change would differentiate capital leases from operating leases,
updating the Great Lakes pilotage accounting standards in conformance
with current accounting practices.
Under the current regulations (46 CFR part 403), all pilot
associations maintain the same general system of accounts. However, no
two associations currently report financial information in the same
format, leading to inconsistencies between associations. This NPRM
proposes an adjustment to the system of accounts. This change would
facilitate ratemaking calculations, and would put pilot associations on
a comparable footing for ratemaking calculations.
Corporations are required by law to pay certain expenses (e.g.,
Federal Insurance Contribution Act (FICA) and Workmen's Compensation).
However, for unincorporated associations, these expenses are paid by
the individual members, and are not shown on the association's
financial statement. If these expenses are not considered in the
ratemaking calculations for unincorporated associations, a lower level
of compensation for those pilots would be shown, as compared to
compensation for their counterparts in associations organized as
corporations. This NPRM proposes that each unincorporated pilot
association report this financial information, now separately reported,
in notes to the association's financial statement. Only reported items
would be considered in ratemaking calculations for all pilot
associations. The Director would not impute such items. This change
would put pilot associations with different organizations on a
comparable footing for ratemaking calculations.
This NPRM proposes to require that financial information which is
currently reported on a quarterly basis be reported on a semiannual
basis, and to update the address for the Director. This proposed change
to the financial reporting requirements would ease the burden on pilot
associations, without affecting the ratemaking process or oversight of
the pilot associations.
This NPRM proposes that profit and loss accounts be reported
semiannually in accordance with the charter of accounts proposed in
Appendix B to part 403.
This NPRM proposes standardized reporting, by account number, for
financial data now submitted in summarized, unnumbered fashion. The
proposed revisions and additions to the reporting requirements are
necessary to examine selected costs for reasonableness (lease and
interest costs, etc.); to specifically list expenses that would be
included in pilot compensation costs (e.g., pension and health costs,
etc.); and to provide identification for costs not currently listed as
incurred in some districts (e.g., pilot insurance, FICA, retirement).
For ratemaking purposes, more detailed information is needed than
that supplied in the current financial statements to determine the
reasonableness of capital lease agreements and the depreciable lives
and residual value of selected assets. This NPRM proposes that all
matters which may materially influence interpretations or conclusions
drawn from the financial statements of pilot associations with regard
to the financial condition or earnings position of the association
would have to be clearly and completely stated as footnotes to the
financial statement.
This NPRM proposes to continue the requirement that all financial
records, including information on lease transactions, be maintained and
be readily available to the Director's auditors for 10 years.
This NPRM does not propose any significant changes to the form of
Inter-Association Settlement Statements. However, comments on whether
it is necessary to retain this section, or any other suggested changes,
are specifically requested.
Regulatory Evaluation
This proposal is a significant regulatory action under Executive
Order 12866, and significant under the Department of Transportation
Regulatory Policies and Procedures (44 FR 11040, February 26, 1979).
The Coast Guard considers this proposed regulation to be significant
because a rulemaking affecting the setting of pilotage rates is
controversial and of significant interest to the public.
The primary purpose of this rulemaking is to standardize the
financial reporting of Great Lakes pilot associations and to clarify
the methodology to be used in future ratemakings. The methodology
proposed is expected to have a minimal impact on pilotage rates. Since
the effect of the rulemaking on pilotage rates is expected to be
minimal, a full Regulatory Evaluation is unnecessary.
Small Entities
Under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.), the
Coast Guard must consider whether this proposal, if adopted, will have
a significant economic impact on a substantial number of small
entities. ``Small entities'' include independently owned and operated
small businesses that are not dominant in their field and that
otherwise qualify as ``small business concerns'' under section 3 of the
Small Business Act (15 U.S.C. 632). Because this proposal does not
affect the overall level of pilotage rates, this proposal should have
little or no impact on small entities which pay pilotage rates, or
receive income from pilotage rates. Because it expects the impact of
this proposal to be minimal, the Coast Guard certifies under 5 U.S.C.
605(b) that this proposal, if adopted, will not have a significant
economic impact on a substantial number of small entities.
Collection of Information
Under the Paperwork Reduction Act (44 U.S.C. 3501 et seq.), the
Office of Management and Budget (OMB) reviews each proposed rule that
contains a collection of information requirement to determine whether
the practical value of the information is worth the burden imposed by
its collection. Collection of information requirements include
reporting, recordkeeping, notification, and other, similar
requirements.
This proposal contains collection of information requirements in
the additions to 46 CFR part 403. The following particulars apply:
DOT No.: 2115.
OMB Control No.: 2115-0022.
Administration: U.S. Coast Guard.
Title: Great Lakes Pilotage Rate Methodology.
Need for Information: The information is necessary for ratemaking
calculations and for the proper financial oversight of the Great Lakes
pilot associations. However, pilot associations currently report
financial information as required by 46 CFR part 403. This proposal
merely amends the existing reporting requirements by separating several
existing summary accounts into their individual components, and
requiring that the financial reporting of all accounts be done in a
standardized format.
Proposed Use of Information: The reported data would be used in
Great Lakes pilotage ratemaking calculations, and for the proper
financial oversight of the Great Lakes pilot associations.
Frequency of Response: The Balance Sheet, and the Profit and Loss
Statement, which are currently required quarterly, would be required
semiannually. Revenue and Traffic Statements would be required monthly.
Burden Estimate: No change from the current burden.
Respondents: Each Great Lakes pilot association (there are
currently three).
Form(s): Designated by the Director, Great Lakes Pilotage.
Average Burden Hours Per Respondent: No change to the current
burden hours.
The Coast Guard has submitted the requirements to OMB for review
under section 3504(h) of the Paperwork Reduction Act. Persons
submitting comments on the requirements should submit their comments
both to OMB and to the Coast Guard where indicated under ADDRESSES.
Federalism
The Coast Guard has analyzed this proposed rule in accordance with
the principles and criteria contained in Executive Order 12612 and has
determined that this proposed rule does not have sufficient federalism
implications to warrant the preparation of a Federalism Assessment.
Under 49 CFR 1.46(a) the Secretary delegates to the Commandant of the
Coast Guard the authority to carry out the Great Lakes Pilotage Act of
1960, as amended, except the authority to enter into, revise, or amend
arrangements with Canada.
Furthermore, since vessel traffic in the Great Lakes tends to move
between U.S. ports in the national marketplace, pilotage regulations
for the Great Lakes is a matter for which regulations should be of
national scope to avoid unreasonably burdensome variances. State action
addressing the same subject matter is preempted by 46 U.S.C. 9306,
which provides that a State or political subdivision of a State may not
regulate or impose any requirement on pilotage on the Great Lakes.
Environment
The Coast Guard considered the environmental impact of this NPRM
and concluded that under section 2.B.2 of Commandant Instruction
M16475.1B, this rule is categorically excluded from further
environmental documentation. The rule is procedural in nature because
it deals exclusively with ratemaking and accounting procedures.
Therefore, this is included in the categorical exclusion in subsection
2.B.2.1--Administrative actions or procedural regulations and policies
which clearly do not have any environmental impact. A Categorical
Exclusion Determination is available in the docket for inspection or
copying where indicated under ADDRESSES.
List of Subjects in 46 CFR Parts 401, 403, and 404
Administrative Practice and Procedure, Great Lakes,
Navigation(water), Penalties, Reporting and Recordkeeping Requirements,
Seamen.
For the reasons set out in the preamble, the Coast Guard proposes
to amend parts 401, 403, and 404 of title 46 of the Code of Federal
Regulations as follows:
PART 401--[AMENDED]
1. The authority citation for part 401 is revised to read as
follows:
Authority: 46 U.S.C. 2103, 6101, 7701, 9303, 9304; 49 CFR 1.45,
1.46. 46 CFR 401.105 also issued under the authority of 44 U.S.C.
3507.
2. In Sec. 401.110 the introductory text of paragraph (a) and
paragraph (a)(9) are revised, and paragraph (a)(16) is added to read as
follows:
Sec. 401.110 Definitions.
(a) As used in this chapter:
* * * * *
(9) Director means Director, Great Lakes Pilotage. Communications
with the Director may be sent to the following address: Director, Great
Lakes Pilotage, Commandant (G-MVP), 2100 2d Street, SW., Washington, DC
20593.
* * * * *
(16) Association means any organization which holds or held a
Certificate of Authorization issued by the U.S. Coast Guard to operate
a pilotage pool on the Great Lakes.
3. Part 403 is revised to read as follows:
PART 403--GREAT LAKES PILOTAGE UNIFORM ACCOUNTING SYSTEM
Subpart A--General
Sec.
403.100 Applicability of system of accounts and reports.
403.105 Waivers from this system of accounts and reports.
403.110 General description of system of accounts and reports.
403.115 System of accounts coding.
403.120 Records.
403.125 Accounting entities.
403.130 Interpretation of accounts.
403.135 Address for reports and correspondence.
Subpart B--General Accounting Policies
403.200 Bases of allocation between pool and nonpool operations.
403.205 Accounting period.
403.210 Liability accruals.
403.215 Federal income tax accruals.
403.220 Delayed items.
403.225 Estimated items.
403.230 Improvements, additions and betterments.
403.235 Accounting for transactions in gross amounts.
403.240 Valuation of assets.
403.245 Establishment of reserves.
403.250 Depreciation and amortization.
403.255 Contingent assets and contingent liabilities.
403.260 Notes to financial statements.
Subpart C--Balance Sheet
403.300 General.
403.305 Balance sheet account groupings.
Subpart D--Profit and Loss Classifications
403.400 General.
Subpart E--Inter-Association Settlements
403.500 General.
Subpart F--Reporting Requirements
403.600 Financial reporting requirements.
403.605 Operating budgets.
Subpart G--Bonds
403.700 Fidelity bonds.
Subpart H--Source Forms
403.800 Uniform pilot's source form.
Appendix A to Part 403--Balance Sheet
Appendix B to Part 403--Profit and Loss
Appendix C to Part 403--Settlement Statement
Authority: 46 U.S.C. 2103, 9303, 9304; 49 CFR 1.46.
Subpart A--General
Sec. 403.100 Applicability of system of accounts and reports.
Each Association shall keep its books of account, records and
memoranda, and make reports to the Director in accordance with the
system of accounts prescribed in Appendices A, B and C of this part.
These financial records shall be prepared in accordance with the
guidelines of the Generally Accepted Accounting Principles (GAAP)
issued by the Financial Accounting Standards Board (FASB). These
guidelines are available by writing to the Director, Great Lakes
Pilotage at the address listed in Sec. 401.110(a)(9) of this chapter.
The Director reserves the right, however, to expand or otherwise modify
this system of accounts and reports in accordance with this rule.
Sec. 403.105 Waivers from the system of accounts and reports.
The Director may grant a waiver from any provision of the system of
accounts or reports prescribed in this part upon his or her own
initiative or upon written request from any Association, provided that
such a waiver is in the public interest. Each request for waiver must
expressly demonstrate that: existing peculiarities or unusual
circumstances warrant a departure from a required procedure or
technique prescribed herein; a specifically defined alternative
procedure or technique will result in a substantially equivalent or
more accurate portrayal of operating results or financial condition,
consistent with the principles embodied in this part; and the
application of such alternative procedure will maintain or improve
uniformity in substantive results between Associations.
Sec. 403.110 General description of system of accounts and reports.
(a) The Uniform System of Accounts required by this part permits
limited contraction or expansion to reflect the varying needs and
capabilities of different Associations without impairing basic
accounting comparability between Associations.
(b) Under the Uniform System of Accounts, both balance sheet and
profit and loss accounts and account groupings are designed, in
general, to embrace all activities, both pool and nonpool, in which the
Association engages. Except for transactions which are of sufficient
magnitude to distort current year operating results, prior year
transactions are recorded in the same accounts as current year
transactions of a like nature.
(c) In order to afford each Association flexibility to establish
ledger and subsidiary accounts to meet its individual needs, a minimum
number of accounts are prescribed in the Uniform System of Accounts.
Each Association, in maintaining its accounting records, must use the
prescribed chart of accounts. If additional accounts are necessary, the
new accounts must be consistent with the prescribed chart of accounts
classification.
Sec. 403.115 System of accounts coding.
A five digit control number is assigned for each balance sheet and
profit and loss account. Each account is numbered sequentially, within
blocks, designating basic balance sheet and profit and loss
classifications.
Sec. 403.120 Records.
(a) The general books of account and all books, records, and
supporting memoranda shall be maintained in such manner as to provide,
at any time, full information relating to any account. Supporting
memoranda must provide sufficient information to verify the nature and
character of each entry and its proper classification under the
prescribed Uniform System of Accounts.
(b) Each Association shall maintain all records necessary to show
the history of, or facts regarding, each accounting or financial
transaction. These records include but are not limited to, organization
tables and charts, internal accounting manuals and revisions, minutes
books, stock books, reports, cost distributions and other accounting
work sheets, correspondence, and memoranda.
(c) Each Association shall maintain all books, records and
memoranda in a manner that will readily permit audit and examination by
the Director or the Director's representatives at any time. All books,
records and memoranda shall be protected from loss, theft, or damage by
fire, flood or otherwise, and shall be retained for 10 years unless
otherwise authorized by the Director.
Sec. 403.125 Accounting entities.
Each Association shall be a separate accounting entity. However,
the records shall be maintained with sufficient particularity to
allocate items to each pilotage pool operation or nonpool operation and
to support the equitable proration of items which are common to two or
more pilotage pools.
Sec. 403.130 Interpretation of accounts.
Questions concerning accounts or reports required by this part
should be submitted to the Director.
Sec. 403.135 Address for reports and correspondence.
Reports, statements, and correspondence required by this part shall
be submitted to the Director at the address listed in
Sec. 401.110(a)(9) of this chapter.
Subpart B--General Accounting Policies
Sec. 403.200 Bases of allocation between pool and nonpool operations.
(a) Profit and loss items and assets common to two or more pools or
to nonpool operations shall be allocated equitably to each pool and to
nonpool operations.
(b) Changes in methods of allocating items between pools shall only
be made as of the beginning of each calendar year.
Sec. 403.205 Accounting period.
(a) Each Association subject to this part shall maintain its
accounts on a calendar year basis unless otherwise approved by the
Director.
(b) Each Association shall keep its financial accounts and records
on a full accrual basis. All transactions, as nearly as may reasonably
be ascertained, shall be reflected in the Association's books for the
accounting period, matching revenues earned with the costs attaching
thereto.
(c) Expenses incurred during the current accounting year which
demonstrably benefit operations to be performed during subsequent
accounting years to a significant extent shall be deferred and
amortized.
Sec. 403.210 Liability accruals.
Charges shall be made against income and accruals made for only
those liabilities for which a definitely demonstrable obligation
exists. Where a definite obligation has been incurred and the precise
liability has not been determined, an estimate may be made of the
currently existing liability on such actuarial or other bases as can be
justified from available information, provided that balances are
reevaluated and adjusted at least once each accounting year.
Sec. 403.215 Federal income tax accruals.
(a) All income taxes shall be accrued by proportionate charges or
credits to income each accounting period in such manner as will
allocate the charges for taxes, or the tax credits for losses, to the
periods in which the related profits or losses respectively, are
reflected.
(b) The accrual of income taxes for each accounting period requires
that each Association take up in its accounts an amount equivalent to
the actual tax liability applicable to the period as computed or
estimated on the basis of income tax laws and regulations then in
effect, except where the Association computes depreciation for tax
purposes at rates which differ from straight-line depreciation based
upon the estimated life of the asset. In all cases, regardless of the
amount of depreciation which is reported to Federal, State, and local
tax authorities for tax purposes, each Associations' financial reports
to the Director shall reflect adjustment of cost to reflect straight-
line depreciation.
Sec. 403.220 Delayed items.
(a) All items affecting net income, including income adjustments,
shall be recorded in appropriate profit and loss accounts and reflected
on the income statement and shall not be entered directly to retained
earnings.
(b) Items applicable to operations occurring prior to the current
accounting year which were not recorded in the books of account shall
be included in the same accounts which would have been charged or
credited if the items had not been delayed; except that if any delayed
item is relatively so large in amount that its inclusion in the
accounts for a single year would materially distort the affected
accounts, it shall be included in profit and loss classification 69000
``Miscellaneous.''
Sec. 403.225 Estimated items.
(a) If a transaction has occurred but the amount involved is not
precisely determinable, the amount shall be estimated, included in the
proper accounts and, where significant, noted for financial statement
purposes.
Sec. 403.230 Improvements, additions and betterments.
(a) As a general rule, expenditures for additions, betterments or
improvements, which increase the productive capacity of units of
property or equipment, shall be capitalized rather than charged
directly against income of the period in which incurred. Expenditures
of insignificant amount may be expensed as incurred rather than
capitalized, provided their inclusion as individual items or when
aggregated for like items, will not distort current operating results.
(b) The costs to be capitalized shall include all costs directly
incurred by reason of the acquisition of the capital item, including
transportation and installation costs.
Sec. 403.235 Accounting for transactions in gross amounts.
(a) All assets and liabilities shall be stated in balance sheet
presentations in gross values, provided that all depreciation,
provisions for uncollectible accounts, and other valuation reserves
shall be offset against the class of asset to which related.
(b) The cost of Treasury Certificates or other tax notes, which are
to be surrendered to the United States Treasury, rather than
independently sold, in satisfying Federal income tax liabilities, may
be offset against accrued Federal income tax liabilities provided both
the gross income tax liability and the value of the tax notes are
reflected on the face of the balance sheet. The offset of other
government securities or other assets against Federal income tax
liabilities is prohibited.
Sec. 403.240 Valuation of assets.
All assets shall be recorded at cost to the Association and shall
not be adjusted to reflect changes in market value except that items
which have been expensed from current inventories, and are recovered,
may be returned to inventory at estimated value with contra credit to
the expense accounts initially charged.
Sec. 403.245 Establishment of reserves.
(a) Provisions for reserves covering transactions or conditions
which do not diminish assets or result in demonstrable liability to the
Association, with corresponding diminution in stockholder equity during
the period over which accrued, shall not be charged against income but
shall be charged directly against balance sheet account 39100
``Unappropriated retained earnings.''
(b) All reserves shall be classified in balance sheet presentations
in terms of their inherent impact upon the Association's financial
condition as either valuation of assets (offsetting the assets to which
related), accrued liabilities, or appropriations of retained earnings.
Sec. 403.250 Depreciation and amortization.
(a) Assets of a type possessing prolonged service lives
significantly longer than one year, and which are generally repaired
and reused shall be written off against operations through periodic
depreciation or amortization charges from the date first placed in
regular service. Assets of a type which are recurrently expended and
replaced, rather than repaired and reused, shall not be depreciated or
amortized but shall be charged to expense as issued for use.
(b) Assets of a type which are subject to depreciation shall not be
classified as current assets but shall be carried in property and
equipment or other appropriate noncurrent asset account
classifications. Assets of a type which are recurrently expended and
replaced shall be classified as current assets.
(c) Depreciation shall be calculated and reported to the Director
using the straight-line depreciation method.
Sec. 403.255 Contingent assets and contingent liabilities.
Contingent assets and contingent liabilities shall not be included
in the body of the balance sheet but shall be explained in the
footnotes.
Sec. 403.260 Notes to financial statements.
(a) All matters which are not clearly identified in the body of the
financial statements of the Association, but which may materially
influence interpretations or conclusions that may reasonably be drawn
in regard to financial condition or earnings position of the
Association, shall be clearly and completely stated as footnotes to the
financial statements.
(b) Financial items which are not otherwise required to be reported
in the Association financial statements, but which may affect
ratemaking calculations, are required to be reported to the Director in
the notes to the financial statements. Any financial items that are not
reported to the Director will not be imputed by the Director during
ratemaking procedures contained in part 404 of this chapter.
Subpart C--Balance Sheet
Sec. 403.300 General.
(a) The balance sheet accounts are designed to show the financial
conditions of the Association as of a given date, reflecting the asset
and liability balances carried forward subsequent to the closing or
constructive closing of the Association's books of account.
(b) The balance sheet accounts prescribed in this system of
accounts are listed in appendix A of this part.
Sec. 403.305 Balance sheet account groupings.
(a) Current Assets. (1) Each Association shall include in this
classification all resources which may reasonably be expected to be
realized in cash or sold or consumed within one year, including but not
limited to:
(i) Unrestricted cash;
(ii) Assets that are readily convertible into cash; or
(iii) Assets held for current receivables and claims against others
to the extent settlement is reasonably assured.
(2) Securities of investment and special fund accounts at date of
acquisition need not be reclassified until disposition.
(3) Inventories of all materials, supplies, lubricating oils, motor
fuels, and expendable spares shall be physically verified at least
annually. Differences between the inventory account and the actual
physical inventory due to shortage, overage, shrinkage, etc. shall be
adjusted by charges or credits to the appropriate expense account.
(4) Items of general current asset characteristics which are not
expected to be realized or consumed within one year may be included in
this classification provided the noncurrent portion is not substantial
in amount and classification as a current item will not impair the
significance of working capital.
(b) Investments and special funds. (1) Each Association shall
include in this classification long-term investments in securities of
others exclusive of United States Government securities, including:
(i) Securities which are not readily marketable;
(ii) Funds set aside for specific purposes or involving
restrictions preventing current use;
(iii) Contract performance deposits and other securities
receivable; or
(iv) Funds not available for current operations.
(2) Investments in United States Government securities shall be
included in the current assets account group.
(3) Investments in securities of others shall be recorded at cost
exclusive of amounts paid for accrued interest or dividends.
(c) Property and equipment. (1) All investments of the Association
in land and units of tangible property and equipment shall be included
within this general classification.
(2) The property and equipment records shall be maintained so as to
identify property with each pool operation, with nonpool operations,
and joint pool or nonpool operations. Property used by two or more
pools or nonpool operations will be maintained to permit an equitable
proration of depreciation, amortization, and repair and maintenance
cost.
(3) Operating and nonoperating property and equipment shall be
accounted for separately as follows:
(i) Investment in property and equipment shall be recorded at total
cost including all expenditures applicable to acquisition, other costs
of a preliminary nature, costs incidental to placing in position and
conditioning for operation, and costs of additions, betterments,
improvements and modifications.
(ii) Upon disposal by sale, retirement, abandonment, dismantling,
or otherwise, of equipment depreciated on a unit basis, the Association
shall:
(A) Credit the account in which the property or equipment is
carried with the cost thereof;
(B) Charge the depreciation and maintenance reserves with the
related reserve balance applicable to the property disposed of;
(C) Charge the cash proceeds of the sale or the value of salvaged
material to the appropriate asset accounts; and
(D) When the sales price or salvage value less the cost of
dismantling differs from the cost of the property less accrued
depreciation and maintenance reserves, the difference shall be recorded
in the appropriate capital gain or loss accounts.
(iii) Upon disposal by sale, retirement, abandonment, dismantling,
or otherwise, of equipment depreciated on a group basis, the
Association shall credit the account in which the property or equipment
is carried, and charge the related depreciation reserve with the
original cost thereof, less any salvage realized, regardless of the age
of the item. No gain or loss is recognized on the retirement of
individual items of property or equipment depreciated on a group basis.
(iv) When property or equipment owned by the Association is applied
as part payment of the purchase price of new property or equipment, the
new property or equipment shall be recorded at its full purchase price,
provided an excessive allowance is not made for assets traded-in, in
lieu of price adjustments or discounts on the purchase price of assets
acquired. The difference between the depreciated cost of assets applied
as payment and the amount allowed therefor shall be treated as
retirement gain or loss.
(v) The Association shall maintain property and equipment records
setting forth the description of all property and equipment recorded in
balance sheet classification 12000-13000, Property and Equipment. With
respect to each unit or group of property or equipment, the record
shall show the description, location, date of acquisition, the original
cost, the cost of additions and betterments, the cost of parts retired,
rates of depreciation, residual values not subject to depreciation, and
the date of retirement or other disposition.
(d) Property and equipment depreciation and maintenance reserves.
(1) Each Association shall include in this balance sheet classification
the accumulation of all provisions for losses occurring in property or
equipment from use and obsolescence. For example, it shall include
accumulated depreciation established to record current and cumulative
cost expiration of assets being depreciated due to wear and tear from
use and the action of time and the elements which are not replaced by
current repairs; as well as losses in capacity for use or service
occasioned by obsolescence, supersession, discoveries, change in
popular demand, or the requirement of public authority. Residual values
and rates for accrual of depreciation and maintenance shall be
calculated using the straight-line depreciation method.
(2) Depreciation shall be calculated from the date on which a
building, structure or unit of property is placed in service, and shall
cease on the date such property is disposed of by sale, retirement,
abandonment, or dismantling, or when the difference between the cost
and residual value shall have been charged to expense.
(3) Land owned or held in perpetuity; expenditures on uncompleted
units of property and equipment during construction or manufacture; and
items classified as current assets are not subject to depreciation.
(e) Other assets. (1) Each Association shall include in this
classification all debit balances in general clearing accounts,
including charges held in suspense pending receipt of information
necessary for final disposition, prepayments chargeable against
operations over a period of years, capitalized expenditures of an
organizational or developmental character, property acquisition
adjustments, and the cost of patents, copyrights, and miscellaneous
intangibles.
(2) Deferred charges having a definite time incidence shall be
amortized over the periods to which they apply.
(f) Current liabilities. (1) Each Association shall include in this
classification all debts or obligations for which liquidation or
payment is reasonably expected to require the use, within one year, of
existing resources of a type which are properly classifiable as current
assets, or the creation of other current liabilities. Current
liabilities shall include payables incurred in the acquisition of
materials, collections received in advance of performance of services,
debts accruing from expenses incurred from operations, and other
liabilities that are regularly and ordinarily subject to current
liquidation.
(2) Lease costs shall be recorded in accordance with the guidelines
of the Financial Accounting Standards Board (FASB) publication number
13, and subsequent pronouncements on this subject by the FASB. Lease
costs payable on demand within one year, including the portion of long-
term debt due within one year of the balance sheet date, shall be
recorded in balance sheet account 20100.
(g) Noncurrent liabilities. (1) Each Association shall include in
this classification all debts or obligations for which liquidation or
payment is not reasonably expected to require the use, within one year,
of existing resources of a type which are properly classifiable as
current assets, or the creation of current liabilities. Noncurrent
liabilities include mortgages, bonds and debentures maturing more than
one year from the date of the balance sheet, or other obligations not
payable within 12 months. This classification shall reflect the
principal amount or par value of debt securities issued or other long-
term debt assumed by the Association. Discount and expenses on long-
term debt shall be recorded in the Deferred Charges balance sheet
group. Premiums on long-term debt shall be recorded in the Deferred
Credits balance sheet account group.
(2) In cases where debt coming due within 12 months is to be
refunded, or where payment is to be made from assets of a type not
properly classifiable as current, the amount payable shall not be
removed from this classification.
(3) Gains or losses on liquidation of bonds, debentures, or other
debt securities of the Association shall be entered in profit and loss
classification 47000 ``Other Income,'' or 69000 ``Miscellaneous.''
Gains and losses or adjustments to liabilities applicable to expenses
incurred in operations shall be entered in the expense accounts
initially charged.
(h) Deferred credits. (1) Each Association shall include in this
classification all credit balances in general clearing accounts,
including credits held in suspense pending receipt of information
necessary for final disposition and premiums on long-term debt
securities of the Association.
(2) Deferred credits having a definite time incidence shall be
amortized over the periods to which they apply.
(i) Stockholder's equity (Capital). (1) Each Association shall
include in this classification all items which record the aggregate
interest of Association members in assets owned by the Association.
(2) The general classification ``Stockholder's Equity (Capital)''
shall be subdivided between that portion representing direct
contributions of the members (Paid-In Capital) and that portion
representing income retained from operations of the Association
(Retained Earnings).
(3) The ``Paid-In Capital'' classification shall be subdivided
between membership shares and ``Other Paid-In Capital.'' Membership
shares shall include par or stated value of shares issued or the cash
value of the consideration actually received, in cases of shares having
no par or stated value. ``Other Paid-In Capital,'' shall include the
excess (premium) or deficiency (discount) of each value of the
consideration received from the issue of any shares having par or
stated value, donations by stockholders, adjustments of capital
resulting from reorganization or recapitalization, and gains or losses
from reacquisition and resale or retirement of the Association's
shares.
(4) The ``Retained Earnings'' balance sheet classification shall
reflect the balance of net profits, income, and gains of the
Association from the date of formation. In cases where a deficit has
been absorbed by a reduction of ``Other Paid-In Capital'' as a result
of a restatement of shares or retained earnings, a new Retained
Earnings account shall be established, dated to show that it runs from
the effective date of the restatement. This date shall be disclosed in
financial statements until such time as the effective date no longer
possesses special significance.
Subpart D--Profit and Loss Classifications
Sec. 403.400 General.
(a) Each Association shall keep profit and loss accounts in
accordance with the Chart of Profit and Loss Accounts in appendix B to
this part. The profit and loss accounts are designed to reflect,
through natural groupings, the elements entering into income or loss
accruing to the proprietary interests during each accounting period.
(b) The system of accounts in appendix B to this part provides for
the coordinated grouping of all revenues and expenses in terms of both
major objectives and functional activities.
Subpart E--Inter-Association Settlements
Sec. 403.500 General.
Each Association that shares revenues and expenses with the
Canadian Great Lakes Pilotage Authority (GLPA) shall submit settlement
statements completed in the format shown in Appendix C to this part.
The Memorandum of Arrangements (MOA) between the United States and
Canada provides that settlement of accounts between United States pools
and Canadian pools shall be effected on an interim basis as of the end
of each month with an annual settlement as of December 31 of each year.
Payments on account shall be made by the 15th of the following month on
a net balance basis.
Subpart F--Reporting requirements
Sec. 403.600 Financial reporting requirements.
(a) Each Association shall file semiannually with the Director the
following financial statements:
(1) Balance Sheet.
(2) Profit and Loss Statement.
(b) The financial statements shall list each active account,
including subsidiary accounts, in the Uniform System of Accounts in
Appendices A and B of this part.
(c) The financial statements shall be prepared for the six months
ending June 30, and December 31, unless otherwise authorized in writing
by the Director. An officer of the Association shall certify the
accuracy of the financial statements.
(d) Each Association shall furnish the Director a copy of all
settlement statements, including monthly settlement statements.
(e) The financial statements, together with any other required
statistical data, shall be submitted to the Director within 30 days of
the end of the reporting period, unless otherwise authorized by the
Director.
(f) Each Association shall furnish the Director, by April 1 of each
year, an unqualified long form audit report for the preceding year
prepared by an Independent Certified Public Accountant. The audit shall
conform to the Generally Accepted Auditing Standards promulgated by the
American Institute of Certified Public Accountants.
(g) Each Association shall furnish the Director with monthly
revenue and traffic reports listing data on a monthly and year-to-date
basis.
Sec. 403.605 Operating budgets.
(a) Each Association shall prepare and submit to the Director, by
the 31st day of January each year, an estimated operating budget for
the forthcoming operating season.
(b) Estimates of revenue shall be itemized to reflect the principal
sources of income, with pilotage income segregated from other classes
of income.
(c) Estimates of expenses shall be on a calendar year basis, with
adequate explanation of any unusual or nonrecurring items.
(d) Those items of expenses includable in Inter-Association
settlement statements shall be segregated and supported by required
detail.
Subpart G--Bonds
Sec. 403.700 Fidelity bonds.
(a) Each Association shall maintain a fidelity bond to indemnify
against loss of money or other property through fraudulent or dishonest
acts by employees.
(b) The Officers of each Association shall annually fix the amount
and character of fidelity bonds required of those persons handling or
having custody of funds or other liquid assets.
(c) The Director shall be advised of the amount and period of
coverage.
Subpart H--Source Forms
Sec. 403.800 Uniform pilot's source form.
(a) The ``Pilot's Source Form-Great Lakes Pilotage'' shall be used
by all Great Lakes pilotage districts. This form shall be issued to
pilots by authorized United States pilotage pools and changes shall not
be made in the format thereof unless authorized by the Director.
(b) Pilots shall complete forms in detail as soon as possible after
completion of assignment and return the entire set to the dispatching
office, together with adequate support for reimbursable travel expense.
(c) Upon receipt by the Association, the forms shall be completed
by insertion of rates and charges as specified in part 401 of this
chapter.
(d) Copies of the form shall be distributed as follows:
(i) Original to accompany invoice;
(ii) First copy to Director for statistical purposes;
(iii) Second copy to billing office for accounting record;
(iv) Third copy to pilot's own Association for pilot's personal
record;
(v) Fourth copy to corresponding Canadian Association or agency for
office use.
Associations shall account by number for all pilot source forms
issued.
Appendix A to Part 403--Balance Sheet
Chart of balance sheet accounts.
Current Assets
Account No. and Title
10100 Cash
10130 Cash--Payroll
10140 Cash--Special Deposits
10160 Petty Cash
10170 Cash--Temporary Investments
10200 Accounts Receivable--Pilotage
10210 Accounts Receivable--Pilot Boat
10220 Accounts Receivable--Other
10240 Allowance for Bad Debts
10300 Notes Receivable
10310 Notes Receivable from Affiliates
10320 Interest Receivable
10410 Prepaid Insurance
10420 Prepaid Fuel
10500 Advances to Pilots
10530 Advances to Employees
10550 Advances to Affiliated Companies
10560 Other Prepaid and Advances
10600 Materials and Supplies
10700 Deferred Federal Income Tax
10800 Other Current Assets
Investments and Special Funds
11000 Investment in Securities
11100 Notes Receivable
11200 Advance and Investment in Affiliated Companies
11300 Special Funds
11400 Other Long-Term Investments
Property and Equipment
12000 Land
12100 Buildings and Structures
12150 Accumulated Depreciation--Buildings
12200 Machinery and Equipment
12250 Accumulated Depreciation--Machinery and Equipment
12300 Furniture and Fixtures
12350 Accumulated Depreciation--Furniture and Fixtures
12400 Automobiles
12450 Accumulated Depreciation--Automobiles
12500 Computers and Software
12550 Accumulated Depreciation--Computer and Software
13000 Capital Leases--Pilot Boats
13050 Accumulated Depreciation--Pilot Boats
13100 Leased Automobiles
13150 Accumulated Depreciation--Leased Automobiles
13500 Leasehold Improvements
13550 Accumulated Depreciation--Leasehold Improvements
Deferred Charges
14000 Long-Term Prepayments
14300 Deferred Federal Income Tax
15000 Other Assets
Current Liabilities
20000 Accounts Payable--Trade
20100 Notes Payable
20120 Current Portion--Capital Lease Obligations
20130 Current Portion--Other Long-Term Debts
20140 Deferred Income Tax
20200 Interest
20300 Due Pilots
20400 Due Employees
21000 Federal Income Tax
21100 State Income Tax
21200 City Income Tax
21300 FICA Tax Payable
21400 Federal Unemployment Tax
21500 State Unemployment Tax
22000 Accrued Payroll--Pilots
23000 Accrued Payroll--Employees
24000 Accrued Interest
24100 Accrued Taxes
24200 Accrued Vacation
24210 Sick Leave
24300 Accrued Pension
24400 Accrued Workmen's Compensation
24500 Advances from Affiliated Companies
24600 Dividends
24700 Other Current Liabilities
Non-Current Liabilities
26000 Long-Term Debt
26100 Capital Lease Obligations--Pilot Boats
26400 Capital Lease Obligations--Automobiles
26500 Capital Lease Obligations--Other
26600 Pension Liabilities
26700 Advances from Affiliated Companies
26800 Other Non-Current Liabilities
Deferred Credits
27000 Deferred Income Tax Liabilities
27100 Deferred Gain on Sale of Assets
27200 Other Deferred Credits
Stockholders' Equity (Capital)
30000 Pilots' Capital (Partnership)
31000 Common Stock
32000 Preferred Stock
33000 Paid-in Capital in Excess of Par-Common Stock
34000 Paid-in Capital in Excess of Par-Preferred Stock
36000 Treasury Stock
38000 Prior Year Adjustments
39000 Appropriations of Retained Earnings
39100 Unappropriated Retained Earnings
Description and classification of balance sheet accounts.
(a) Current assets.
(1) 10100 Cash.
Record here increases and decreases in cash (deposits and
payments of funds) which are available for general operating
business activities.
(2) 10130 Cash--Payroll.
Record here increases and decreases in cash (deposits and
payments of funds) which are assigned for payroll transactions.
(3) 10140 Cash--Special Deposits.
Record here cash deposits not of a current nature and restricted
as to general availability.
(4) 10160 Petty Cash Fund.
Record here all cash transactions made out of the petty cash
fund. This fund is established for a fixed amount and periodically
reimbursed for the exact amount necessary to bring it back to the
fixed amount. The fund is used for making small expenditures that
are most conveniently paid in cash, such as postage stamps, shipping
charges, or minor purchases of supplies.
(5) 10170 Cash--Temporary Investments.
Record here the cost of marketable securities and other short-
term negotiable instruments acquired for the purpose of temporarily
investing cash. This account will be charged or credited for
discount or premium to be amortized to profit and loss account 45500
Interest Income.
(6) 10200 Accounts Receivable--Pilotage.
Record here all amounts billed for pilotage services.
(7) 10210 Accounts Receivable--Pilot Boat.
Record here all receivables billed for pilot boat services.
(8) 10220 Accounts Receivable--Other.
Record here all receivables resulting from revenue producing
activities not recorded in accounts 10200 and 10210.
(9) 10240 Allowance for Bad Debts.
Record here estimated losses from uncollectible accounts. An
annual review of the account balance must be made to determine the
amount of uncollectible receivables and the related bad debt expense
at year end.
(10) 10300 Notes Receivable.
Record here amounts due from others on demand or at a future
date not to exceed 12 months. This amount will be in the form of
promissory notes recorded at their current value.
(11) 10310 Notes Receivable from Affiliates.
Record here amounts due from affiliated companies on demand or
at a future date not to exceed 12 months at their current value.
(12) 10320 Interest Receivable.
Record here interest income earned but not yet received, and due
within one year.
(13) 10410 Prepaid Insurance.
Record here amounts paid in advance for insurance premiums that
will be expensed within one year.
(14) 10420 Prepaid Fuel.
Record here amounts paid in advance for fuel to be used and
expensed within one year.
(15) 10500 Advances to Pilots.
Record here amounts paid in advance to pilots, such as wages or
travel advances.
(16) 10530 Advances to Employees.
Record here amounts paid in advance to Employees, such as wages
and travel advances.
(17) 10550 Advances to Affiliated Companies.
Record here short-term advances paid to Affiliated Companies.
(18) 10560 Other Prepaid and Advances.
Record here other prepaid and short-term advances paid to
entities not provided for in other accounts.
(19) 10600 Materials and Supplies.
Record here the cost of materials and supplies on hand at the
balance sheet date, such as motor oil, stationery, and office
supplies.
(20) 10700 Deferred Federal Income Tax.
Record here the difference between actual income tax payable and
income tax expenses for the accounting period. This deferred amount
is due to timing differences.
(21) 10800 Other Current Assets.
Record here other current assets not provided for in other
balance sheet accounts.
(b) Investments and special funds.
(1) 11000 Investment in Securities.
Record here long-term investments in marketable securities, such
as shares of stock or Government securities, at the lower of cost or
market value.
(2) 11100 Notes Receivable.
Record here long-term notes receivable not provided for in
accounts 10300 and 10310.
(3) 11200 Advance and Investment in Affiliated Companies.
Record here long-term investments in, or advances to, affiliated
companies at cost.
(4) 11300 Special Funds.
Record here special funds not of a current nature and restricted
as to general availability. Include items such as cash and
securities deposited with courts of law, employee funds for the
purchase of membership shares, and equipment purchase funds.
(5) 11400 Other Long-Term Investments.
Record here all other long-term investments not recorded in
other investment accounts.
(c) Property and equipment.
(1) 12000 Land.
Record here the total cost of all land owned by the Association.
The cost of land includes: (1) Purchase price; (2) all closing costs
and costs of obtaining clear title, such as commissions, legal fees,
escrow fees, title investigations, and title insurance; (3) all
costs of surveying, clearing, draining, or filling to make the
property suitable for the desired use; and (4) cost of land
improvements that have an indefinite economic life.
(2) 12100 Buildings and Structures.
Record here the total cost of all buildings and structures owned
by the Association. The cost includes the original cost and cost of
any capital improvements incurred after the acquisition date. The
account includes fixtures and equipment built into the structure or
permanently affixed thereto, such as plumbing, heating, and lighting
fixtures.
(3) 12150 Accumulated Depreciation--Buildings.
Record here the accumulated amount of expenses for the portion
of the acquisition cost of buildings which has been used up through
the depreciation process.
(4) 12200 Machinery and Equipment.
Record here the total acquisition costs of all machinery and
equipment, including the necessary costs associated with acquisition
and preparation for use.
(5) 12250 Accumulated Depreciation--Machinery and Equipment.
Record here the accumulated amount of expenses for the portion
of the acquisition costs of machinery and equipment which has been
used up through the depreciation process.
(6) 12300 Furniture and Fixtures.
Record here the total acquisition costs of all furniture and
fixtures, including the necessary costs associated with acquisition
and preparation for use.
(7) 12350 Accumulated Depreciation--Furniture and Fixtures.
Record here the accumulated amount of expenses for the portion
of the acquisition costs of furniture and fixtures which has been
used up through the depreciation process.
(8) 12400 Automobiles.
Record here the total acquisition costs of all automobiles,
including the necessary costs associated with acquisition and
preparation for use.
(9) 12450 Accumulated Depreciation--Automobiles.
Record here the accumulated amount of expenses for the portion
of the acquisition costs of automobiles which has been used up
through the process of depreciation.
(10) 12500 Computers and Software.
Record here the total acquisition costs of all computers and
software, including the necessary costs associated with acquisition
and preparation for use.
(11) 12550 Accumulated Depreciation--Computers and Software.
Record here the accumulated amount of expenses for the portion
of the acquisition costs of computers and software, which has been
used up through the process of depreciation.
(12) 13000 Capital Leases--Pilot Boats.
Record here capital lease assets for pilot boats under capital
lease options.
(13) 13050 Accumulated Depreciation--Pilot Boats.
Record here the accumulated amount of expenses for the portion
of capital leases for pilot boats which has expired for
depreciation.
(14) 13100 Leased Automobiles.
Record here the capital lease assets for automobiles leased
under capital lease options.
(15) 13150 Accumulated Depreciation--Leased Automobiles.
Record here the accumulated amount of expenses for the portion
of capital leases for automobiles which has expired for
depreciation.
(16) 13500 Leasehold Improvements.
Record here total cost to the Association incurred in connection
with modification, conversion, or other improvements to leased
property.
(17) 13550 Accumulated Depreciation--Leasehold Improvements.
Record here the accumulated amount of expenses for the portion
of the acquisition costs of Leasehold Improvements which has been
used up through the process of depreciation.
(d) Deferred charges.
(1) 14000 Long-Term Prepayments.
Record here prepayments of obligations applicable to periods
extending beyond one year, such as payments on leased property and
equipment, and advances for rents, rights or other privileges.
(2) 14300 Deferred Federal Income Tax.
Record here the difference between actual income taxes payable
and income tax expenses for the accounting period. This deferred
amount is due to timing differences. Thus this expense originates in
one accounting period and reverses in future periods. Most timing
differences reduce income taxes that would otherwise be payable
currently (i.e., when accounting income is smaller than taxable
income), but few timing differences increase the amount of income
taxes payable during the current accounting period.
(3) 15000 Other Assets.
Record here assets which were not provided for in other
accounts.
(e) Current liabilities.
(1) 20000 Accounts Payable--Trade.
Record here all accounts payable incurred in the normal course
of business, which are due within one year.
(2) 20100 Notes Payable.
Record here the face value of all notes, drafts, or other
similar evidence of indebtedness, payable on demand or within one
year including the long-term debt due within one year of the balance
sheet date.
(3) 20120 Current Portion--Capital Lease Obligations.
Record here Capital lease obligations due within one year.
(4) 20130 Current Portion--Other Long-Term Debts.
Record here the current portion of other long-term liabilities
due within one year.
(5) 20140 Deferred Income Tax--Current Portion.
Record here accruals for currently payable federal income taxes.
(6) 20200 Interest Payable.
Record here interest payable that is due within one year.
(7) 20300 Due Pilots.
Record here any liabilities due pilots to be paid within one
year.
(8) 20400 Due Employees.
Record here any amounts due employees to be paid within one
year.
(9) 21000 Federal Income Tax.
Record here federal income tax withheld from employees wages and
payable at the balance sheet date.
(10) 21100 State Income Tax.
Record here State income tax withheld from employees wages and
payable at the balance sheet date.
(11) 21200 City Income Tax.
Record here city income tax withheld from employees wages and
payable at the balance sheet date.
(12) 21300 FICA Tax Payable.
Record here social security taxes withheld from employees wages
and accrued, payable at the balance sheet date.
(13) 21400 Federal Unemployment Tax.
Record here Federal unemployment tax (FUTA) accrued and payable
at the balance sheet date.
(14) 21500 State Unemployment Tax.
Record here State unemployment tax (SUTA) accrued and payable at
the balance sheet date.
(15) 22000 Accrued Payroll--Pilots.
Record here the accrued liabilities incurred for pilots payroll,
but not yet paid at the balance sheet date.
(16) 23000 Accrued Payroll--Employees.
Record here accrued liabilities incurred for employees payroll,
but not yet paid at the balance sheet date.
(17) 24000 Accrued Interest.
Record here accrued interest liabilities incurred but not yet
paid at the balance sheet date.
(18) 24100 Accrued Taxes.
Record here accrued tax liabilities incurred but not yet paid at
the balance sheet date.
(19) 24200 Accrued Vacation.
Record here accrued vacation liabilities incurred but not yet
paid at the balance sheet date.
(20) 24210 Accrued Sick Leave.
Record here accrued sick leave liabilities incurred but not yet
paid at the balance sheet date.
(21) 24300 Accrued Pension.
Record here accrued pension plan liabilities incurred but not
yet paid at the balance sheet date.
(22) 24400 Accrued Workmen's Compensation.
Record here accrued workmen's compensation liabilities incurred
but not yet paid at the balance sheet date.
(23) 24500 Advances from Affiliated Companies.
Record here loans, advances, and other obligations received from
entities affiliated with the Association.
(24) 24600 Dividends.
Record here dividends declared by the Association's Board of
Directors, but not yet paid.
(25) 24700 Other Current Liabilities.
Record here all other current liabilities which are not provided
for in other accounts and are due within one year.
(f) Non-current liabilities.
(1) 26000 Long-Term Debt.
Record here the face value or principal amount of debt
securities issued or assumed by the Association which have not been
retired or cancelled and are not payable within 12 months of the
balance sheet date.
(2) 26100 Capital Lease Obligations--Pilot Boats.
Record here long-term obligations from Pilot Boat Capital leases
which are not payable within 12 months of the balance sheet date.
(3) 26400 Capital Lease Obligations--Automobiles.
Record here long-term obligations from automobile lease
agreements not payable within 12 months.
(4) 26500 Capital Lease Obligations--Others.
Record here long-term obligations from other capital leases not
provided for in accounts 26100 and 26400.
(5) 26600 Pension Liabilities.
Record here the Association's liabilities under the employee
pension plan.
(6) 26700 Advances from Affiliated Companies.
Record here the net amount due affiliated companies for notes,
loans and advances.
(7) 26800 Other Non-Current Liabilities.
Record here non-current liabilities not provided for in other
accounts.
(8) 27000 Deferred Income Tax Liabilities.
Record here deferred income tax liabilities (i.e. the difference
between actual income taxes payable and income tax expenses for the
accounting period) not payable within 12 months.
(9) 27100 Deferred Gain On Sale of Assets.
Record here the total gain from sales of assets which will be
amortized over a period of more than 12 months from the balance
sheet date.
(10) 27200 Other Deferred Credits.
Record here credits not provided for elsewhere.
(g) Capital and stockholders' equity.
(1) 30000 Pilots' Capital (Partnership).
Record here the Association's capital contributions made by each
individual partner (pilot). This is an equity account similar to
shareholders' equity in a corporation. Accounting for partnerships
should comply with the legal requirements as set forth by the
Uniform Partnership Act (UPA) (e.g., liquidation payments to
partnership creditors before any distribution to partners) or other
applicable State and Federal laws and regulations, as well as
complying with partnership agreements.
(2) 31000 Common Stock.
Record here the par or stated value of common stock purchased by
stockholders (registered pilots only). Common stock represents the
residual ownership interest in the Association. In addition to
bearing the greatest risk it also carries voting rights, dividend
rights, preemptive rights to purchase stock issued by the
corporation and rights to share in the distribution of assets if the
corporation is liquidated.
(3) 32000 Preferred Stock.
Record here the par or stated value of preferred stock purchased
by stockholders (registered pilots only). Preferred stock carries
certain preferences or priorities not found in common stock, such as
to dividends at a stated percentage of par or stated value, and
assets distribution in the event of liquidation. Shareholders of the
corporation may redeem shares of preferred stock at their option, at
a specific price per share.
(4) 33000 Paid-in Capital in Excess of Par-Common Stock.
Record here paid-in capital in excess of par or stated value of
common stock.
(5) 34000 Paid-in Capital in Excess of Par-Preferred Stock.
Record here paid-in capital in excess of par or stated value of
preferred stock.
(6) 36000 Treasury Stock.
Record here capital stock which has been legally issued, fully
paid for, and subsequently acquired by the Association but not
formally retired.
(7) 38000 Prior Year Adjustments.
Record here all adjustments relating to prior year's operations
that have an effect on the current year's financial statements.
(8) 39000 Appropriations of Retained Earnings.
Record here retained earnings restricted by the Association's
Board of Directors for contingencies and other special purposes.
(9) 39100 Unappropriated Retained Earnings.
Record here net income or loss from operations of the
Association, dividends declared, and any other year-end adjustments.
Appendix B to Part 403--Profit and Loss
Chart of profit and loss accounts.
Revenues
Account No. and Title
40100 Pilotage--Designated Waters
40200 Pilotage--Undesignated Waters
40500 Docking/Undocking
40600 Movage
41000 Detention
41200 Cancellation
41300 Delay
42000 Winter Navigation
43000 Dispatching
44000 Pilot Boat Income
45000 Gain(Loss) on Sale of Assets
46000 Interest Income
47000 Other Income
Operating expenses
50100 Registered Pilots' Salaries
50110 Temporarily Registered Pilots' Salaries
50120 Applicant Pilots' Salaries
50200 Pilot Boat Salaries
50500 Dispatching Salaries
51300 Payroll Taxes
51310 FICA
51320 Federal Unemployment Tax
51330 State Unemployment Tax
51400 Retirement Plan Contribution
51500 Workmen's Compensation
50600 Insurance
52150 Depreciation--Buildings
52250 Depreciation--Machinery and Equipment
52450 Depreciation--Automobiles
53050 Depreciation--Pilot Boats
53550 Depreciation--Leasehold Improvements
54000 Travel--Pilots
55000 Fuel
55100 Repairs and Maintenance
56000 Winter Navigation
56100 Canadian Pilot Earnings
59000 Other Operating Expenses
General and Administrative Expenses
60100 Salaries and Wages--Employees
60200 Salaries and Wages--Officers
60300 Payroll Taxes
60310 FICA
60320 Federal Unemployment Tax
60330 State Unemployment Tax
60400 Retirement Plan Contributions
60500 Workmen's Compensation
60600 Insurance
61000 Legal Fees
61100 Accounting and Auditing Fees
61200 Other Professional Fees
62350 Depreciation--Furniture and Fixtures
62550 Depreciation--Computers and Software
63000 Office Rent
63100 Rent
63200 Interest
63300 Donations
63400 Bad Debts
63500 Meetings
64000 Repairs and Maintenance
64100 Medical Insurance
64200 Licenses and Dues
65000 Supplies
65100 Postage
65200 Telephone
65300 Travel
65400 Utilities
65500 Bank Service charges
69000 Miscellaneous
Appendix C to Part 403--Settlement Statement
(a) Monthly settlement statements of the following form are to
be submitted by each Association sharing revenues and expenses with
the Canadian Great Lakes Pilotage Authority:
Settlement Statement
Revenue
[Dollars]
------------------------------------------------------------------------
Current
month Yearto-date
------------------------------------------------------------------------
40100-42000Pilotage revenue: ........... ...........
United States pilots...................... ........... ...........
Canadian pilots........................... ........... ...........
-------------------------
Total................................... ........... ...........
Operating Expenses
54000Subsistence and travel-pilots............ ........... ...........
60100Salaries and wages-employees............. ........... ...........
63000Rental-office space and equipment........ ........... ...........
65400Heat, light, and power................... ........... ...........
65000Office stationery and supplies........... ........... ...........
64000Repairs and Maintenance.................. ........... ...........
65300Administrative travel.................... ........... ...........
65200Telephone, telegraph, and teletype....... ........... ...........
60600Insurance and bonding.................... ........... ...........
65100Postage and express...................... ........... ...........
65500Bank service charges..................... ........... ...........
69000Other.................................... ........... ...........
63400Bad debt................................. ........... ...........
-------------------------
Total................................... ........... ...........
-------------------------
Net operating income.................. ........... ...........
Less: Outstanding accounts receivable. ........... ...........
Amount available for distribution..... ........... ...........
------------------------------------------------------------------------
[Dollars]
------------------------------------------------------------------------
U.S. Canada Total
------------------------------------------------------------------------
Total pilotage revenue billed.... ........... ........... ...........
Respective share of amount
available....................... ........... ........... ...........
------------------------------------------------------------------------
Statement of Account as at------(End of Month)
[Dollars]
------------------------------------------------------------------------
Canada
U.S. share share Total share
------------------------------------------------------------------------
Share to date.................... ........... ........... ...........
Boat and taxi charges paid....... ........... ........... ...........
Payments made to................. ........... ........... ...........
(End of month)
Distribution this period......... ........... ........... ...........
Undistributed balance............ ........... ........... ...........
------------------------------------------------------------------------
(b) Under the Memorandum of Arrangements, the pilotage pool
having the larger amount of cash available for distribution will
make payment of the excess to the United States or Canadian
counterpart pool in the currency of the nationality of the paying
pilotage pool. The following statement will be submitted by the
Associations making net balance payments.
Amount available for distribution--$______
Less applied credit______ (amount) at ____ (rate) ____
Remaining balance ______
(c) Associations making net balance payment will make the
following accounting entry:
------------------------------------------------------------------------
Account No. Description of Account Debit Credit
------------------------------------------------------------------------
24500........... Advances from Affiliated ........... ...........
Companies.
10220........... Accounts Receivable--Other.. ........... ...........
10100........... Cash........................ ........... ...........
------------------------------------------------------------------------
To record settlement of account with Canadian pool for month
ended ________ (month) ____ (day) ____ ____ (year).
(d) Associations receiving net balance payment will make the
following accounting entry:
------------------------------------------------------------------------
Account No. Description of Account Debit Credit
------------------------------------------------------------------------
10100........... Cash........................ ........... ...........
24500........... Advances from Affiliated ........... ...........
Companies.
10220........... Accounts Receivable--Other.. ........... ...........
------------------------------------------------------------------------
To record receipt of settlement from Canadian pool for month
ended ________ (month) ____ (day) ____ ____ (year).
Journal Entries
(a) Accounts 40100 through 42000, Pilotage Revenue, are to be
supported by copies of invoices prepared by issuing offices.
(b) Account 54000, Subsistence and Travel-Pilots, are to be
supported by listings giving the pilot's name and amount. The travel
expenses recorded in this account are only those provided for under
paragraph 4(c) of the United States-Canada MOA and which are
recoverable from operators of vessels.
(c) Account 60100, Salaries and Wages-Employees, are to be
supported by lists showing employees' name, title and salary. Only
employees directly engaged in dispatching and accounting activities
are included.
(d) Account 63000, Office Rent, are to include the agreed amount
of rental for office space and necessary equipment.
(e) Account 65200, Telephone, are to be supported by listing of
supplier and amounts.
(f) Accounts 65000, 64000, 65300, 60600, 65100, 65500, 69000,
and 63400 do not require supporting data.
(g) Journal entries are to be made in corresponding accounts to
record transactions from settlement statements, to record
Association's share of revenue and expenses transferred from other
Associations. The debits and credits will be determined by
multiplying the current month totals shown on the settlement
statement by the Association's pro-rata share and then in turn
multiplying the result by the exchange rate.
4. Part 404 is revised to read as follows:
PART 404--GREAT LAKES PILOTAGE RATEMAKING
Sec.
404.1 General ratemaking provisions.
404.5 Guidelines for the recognition of expenses.
404.10 Ratemaking procedures and guidelines.
Appendix A to Part 404--Ratemaking Methology
Appendix B to Part 404--Ratemaking Definitions and Formulas
Authority: 46 U.S.C. 2103, 9303, 9304; 49 CFR 1.46.
Sec. 404.1 General ratemaking provisions.
(a) The purpose of this part is to provide guidelines and
procedures for Great Lakes pilotage ratemaking. Included in this
part are explanations of the steps followed in developing a pilotage
rate adjustment, the analysis used, and the guidelines followed in
arriving at the pilotage rates contained in part 401 of this
chapter.
(b) The Director determines the timing for reviews of Great
Lakes pilotage rates. These reviews are conducted at his or her
discretion and are intended to determine whether existing Great
Lakes pilotage rates are fair and reasonable, or should be adjusted.
An interested party or parties may also petition the Director for a
review at any time. The petition must present a reasonable basis for
concluding that a review may be warranted. If the Director
determines, from the information contained in the petition, that the
existing rates may no longer be reasonable, a full review of the
pilotage rates will be conducted. If the full review shows that
pilotage rates are within a reasonable range of their target, no
adjustment to the rates will be initiated.
Sec. 404.5 Guidelines for the recognition of expenses.
(a) The following is a listing of the principal guidelines
followed by the Director when determining whether expenses will be
recognized in the ratemaking process:
(1) Each expense item included in the rate base is evaluated to
determine if it is necessary for the provision of pilotage service,
and if so, what dollar amount is reasonable for that expense item.
Each Association is responsible for providing the Director with
sufficient information to show the reasonableness of all expense
items. The Director will give the Association the opportunity to
defend any expenses which are questioned. However, subject to the
terms and conditions contained in other provisions of this part,
expense items which the Director determines are not reasonable and
necessary for the provision of pilotage services will not be
recognized for ratemaking purposes.
(2) In determining reasonableness, each expense item is measured
against one or more of the following:
(i) Comparable or similar expenses paid by others in the
maritime industry,
(ii) Comparable or similar expenses paid by other industries, or
(iii) U.S. Internal Revenue Service guidelines.
(3) Lease costs for both operating and capital leases are
recognized for ratemaking purposes to the extent that they conform
to market rates. In the absence of a comparable market, lease costs
are recognized for ratemaking purposes to the extent that they
conform to depreciation plus an allowance for return on investment
(computed as if the asset had been purchased with equity capital).
Lease costs which exceed these standards are not recognized for
ratemaking purposes.
(4) For each Association, a market-equivalent return-on-
investment is allowed for the net capital invested in the
Association by its members. Assets subject to return on investment
provisions are subject to reasonableness provisions. If an asset or
other investment is not necessary for the provision of pilotage
services, the return element is not allowed for ratemaking purposes.
(5) For ratemaking purposes, the revenues and expenses generated
from Association transactions which are not directly related to the
provision of pilotage services are included in ratemaking
calculations as long as the revenues exceed the expenses from these
transactions. For non-pilotage transactions which result in a net
financial loss for the Association, the amount of the loss is not
recognized for ratemaking purposes. The Director reviews non-
pilotage activities to determine if any adversely impact the
provision of pilotage service, and may make ratemaking adjustments
or take other steps to ensure the provision of pilotage service.
(6) Medical, pension, and other benefits paid to pilots, or for
the benefit of pilots, by the Association are treated as pilot
compensation. The amount recognized for each of these benefits is
the cost of these benefits in the most recent union contract for
first mates on Great Lakes vessels. Any expenses in excess of this
amount are not recognized for ratemaking purposes.
(7) Expense items which are not reported to the Director by the
Association are not considered by the Director in ratemaking
calculations.
(8) Expenses are appropriate and allowable if they are
reasonable, and directly related to pilotage. Each Association must
substantiate its expenses, including legal expenses. In general, the
following are not recognized as reasonable expenses for ratemaking
purposes:
(i) Undocumented fees;
(ii) Fees for lobbying;
(iii) Fees for non-pilotage personal matters;
(iv) Fees which are not commensurate with the work performed;
and
(v) Any other fees not directly related to pilotage.
(9) In any Great Lakes pilotage district where revenues and
expenses from Canadian pilots are commingled with revenues and
expenses from U.S. pilots, Canadian revenues and expenses are not
included in the U.S. calculations for setting pilotage rates.
(10) Profit sharing expenses are not recognized for ratemaking
purposes.
Sec. 404.10 Ratemaking procedures and guidelines.
(a) Appendix A to this part is a description of the types of
analyses performed and the methodology followed in the development
of Great Lakes pilotage rate adjustments. Ratemaking calculations in
Appendix A of this part are made using the definitions and formulas
contained in Appendix B of this part. Pilotage rates actually
implemented may vary from the results of the calculations in
Appendices A and B, because of agreements with Canada requiring
identical rates, or because of other circumstances to be determined
by the Director. Additional analysis may also be performed as
circumstances require. The guidelines contained in Sec. 404.05 are
applied in the steps identified in Appendix A to this part.
(b) A separate ratemaking calculation is made for each of the
following U.S. pilotage areas:
Area 1--the St. Lawrence River;
Area 2--Lake Ontario;
Area 4--Lake Erie;
Area 5--the navigable waters from South East Shoal to Port Huron,
MI;
Area 6--Lakes Huron and Michigan;
Area 7--the St. Mary's River; and
Area 8--Lake Superior.
Appendix A to Part 404--Ratemaking Methodology
Step 1: Projection of Operating Expenses
(1) The first Step in the Great Lakes pilotage ratemaking
methodology is to project the amount of fair and reasonable
operating expenses that basic pilotage rates should recover, as
determined by the Director. This step consists of the following
phases: (a) Submission of financial information from each
Association; (b) determination of recognizable expenses; (c)
adjustment for ancillary revenues; (d) adjustment for inflation or
deflation; and (e) final projection of operating expenses. Each of
these phases is detailed below.
Step 1.A.--Submission of Financial Information
(1) Each Association is responsible for providing detailed
financial information to the Director, in accordance with Part 403
of this chapter.
Step 1.B.--Determination of Recognizable Expenses
(1) The Director determines which Association expenses will be
recognized for ratemaking purposes, using the guidelines for the
recognition of expenses contained in Sec. 404.05 of this chapter.
Each Association is responsible for providing sufficient data for
the Director to make this determination.
Step 1.C.--Adjustment for Ancillary Revenues
(1) Several charges have traditionally been levied for pilotage
services which are additional to basic pilotage service. These
charges are termed ``ancillary charges,'' and are defined as charges
for docking, undocking, moveage, delay, cancellation, and lock
transit. Revenues received from these ancillary charges will be
offset against the operational expenses of the Associations. Rates
for ancillary services will be set separately from basic pilotage
rates. The method for setting ancillary rates is discussed in Step
7.D., below.
Step 1.D.--Adjustment for Inflation or Deflation
(1) In making projections of future expenses, expenses that are
subject to inflationary or deflationary pressures are adjusted.
Costs not subject to inflation or deflation (e.g., depreciation,
long-term leases, pilot compensation, etc.) are not adjusted. The
inclusion of an inflation or deflation adjustment does not imply
that pilotage rates will be automatically adjusted each shipping
season, without a pilotage rate review. The inflation or deflation
adjustment is only made during the expense projection phase of a
full-scale pilotage rate review.
Annual cost inflation or deflation rates will be projected to
the succeeding navigation season, reflecting the gradual increase or
decrease in cost throughout the year.
For ratemaking calculations begun after January 1, 1996, the
actual annual experienced change in the average cost in non-pilot
operational costs per pilot assignment for each pilotage area will
be used to project the inflation or deflation adjustment. For
ratemaking calculations begun prior to January 1, 1996, the
inflation or deflation adjustment will be based on the preceding
year's change in the North Central Region's Consumer Price Index as
calculated by the U.S. Bureau of Labor Statistics.
Step 1.E.--Projection of Operating Expenses
(1) Once all adjustments are made to the recognized operating
expenses, the Director projects these expenses for each pilotage
district. In doing so, the Director takes into account foreseeable
circumstances which could affect the accuracy of the projection. The
Director will determine, as accurately as reasonably practicable,
the ``projection of operating expenses.''
Step 2: Projection of Target Pilot Compensation
(1) The second Step in the Great Lakes pilotage ratemaking
methodology is to project the amount of target pilot compensation
that pilotage rates should provide in each area. This Step consists
of the following phases: (a) Determination of target rate of
compensation; (b) determination of number of pilots needed in each
pilotage area; and (c) multiplication of the target compensation by
the number of pilots needed to project target pilot compensation
needed in each area. Each of these proposed phases is detailed
below.
Step 2.A.--Determination of Target Rate of Compensation
(1) Target pilot compensation for pilots providing services in
undesignated waters is average annual compensation for first mates
on U.S. Great Lakes vessels. The average annual compensation for
first mates is determined based on the most current union contracts,
and includes wages and benefits.
(2) Target pilot compensation for pilots providing services in
designated waters approximates the average annual compensation for
masters on U.S. Great Lakes vessels. It is calculated as 150% of the
compensation earned by first mates on U.S. Great Lakes vessels.
Step 2.B.--Determination of Number of Pilots Needed
(1) The basis for the number of pilots needed in each area of
designated waters is established by dividing the projected bridge
hours for that area by 1,000. Bridge hours are the number of hours a
pilot is aboard a vessel providing basic pilotage service.
(2) The basis for the number of pilots needed in each area of
undesignated waters is established by dividing the projected bridge
hours for that area by 1,800.
(3) In determining the number of pilots needed in each pilotage
area, the Director is guided by the results of the calculations in
steps 2.A. and 2.B. However, the Director may also find it necessary
to make adjustments to these numbers in order to ensure
uninterrupted pilotage service in each area, or for other reasonable
circumstances which the Director determines are appropriate.
Step 2.C.--Projection of Target Pilot Compensation
(1) The ``projection of target pilot compensation'' is
determined separately for each pilotage area by multiplying the
number of pilots needed in that area by the target pilot
compensation for pilots working in that area.
Step 3: Projection of Revenue
(1) The third step in the Great Lakes pilotage ratemaking
methodology is to project the revenue that would be received in each
pilotage area if existing rates were left unchanged. This step
consists of two phases: (a) Projection of future vessel traffic and
pilotage revenue; and (b) adjustment for ancillary revenues.
Step 3.A.--Projection of Revenue
(1) The Director generates the most accurate projections
reasonably possible of the pilotage service that will be required by
vessel traffic in each pilotage area. These projections are based on
historical data and all other relevant data available. Projected
demand for pilotage service is multiplied by the existing pilotage
rates for that service, to arrive at the projection of all pilotage
revenue.
Step 3.B.--Adjustment for Ancillary Revenues
(1) The projection of pilotage revenue from Step 3.A., above, is
adjusted for ancillary revenues (i.e., revenue from docking,
undocking, moveage, delay, cancellation, and lock transit).
Ancillary revenues are subtracted from the projection of all
pilotage revenue because the rates for ancillary services are set
separately from the basic pilotage rates. The method for setting
ancillary charges is discussed in Step 7.D., below.
(2) After adjustment for ancillary revenues, the result is the
projection for revenues which would be generated by basic pilotage
services if existing rates are left unchanged. The results of these
calculations is defined as the ``projection of revenue.''
Step 4: Calculation of Investment Base
(1) The fourth step in the Great Lakes pilotage ratemaking
methodology is the calculation of the investment base of each
Association. The investment base is the recognized capital
investment in the assets employed by each Association required to
support pilotage operations. In general, it is the sum of available
cash and the net value of real assets, less the value of land. The
investment base will be established through the use of the balance
sheet accounts, as amended by material supplied in the Notes to the
Financial Statement. The formula used in calculating the investment
base is detailed in Appendix B to this part.
Step 5: Determination of Target Rate of Return on Investment
(1) The fifth step in the Great Lakes pilotage ratemaking
methodology is to determine the Target Rate of Return on Investment.
For each Association, a market-equivalent return-on-investment (ROI)
is allowed for the recognized net capital invested in the
Association by its members.
(2) The allowed ROI is based on the rate of the most recent
return on stockholder's equity for a representative cross section of
transportation industry companies, including maritime companies,
with a minimum rate equal to the interest rate incurred by the
Associations for debt capital, and a maximum rate of 20 percent.
(3) Assets subject to return on investment provisions must be
reasonable in both purpose and amount. If an asset or other
investment is not necessary for the provision of pilotage services,
that portion of the return element is not allowed for ratemaking
purposes.
Step 6: Adjustment Determination
(1) The next step in the Great Lakes pilotage ratemaking
methodology is to insert the results from steps 1, 2, 3, and 4 into
a formula which is based on a standard utility rate structure, and
comparing the results to step 5. This basic utility rate structure
takes into account revenues, expenses and return on investment, and
is of the following form:
------------------------------------------------------------------------
Line Ratemaking projections for basic pilotage
------------------------------------------------------------------------
1. + Revenue (from step 3).
2. - Operating Expenses (from step 1).
3. - Pilot Compensation (from step 2).
----------------------------------------------------------
4. = Operating Profit/(Loss).
5. - Interest Expense (from Audit reports).
----------------------------------------------------------
6. = Earnings Before Tax.
7. - Federal Tax Allowance.
----------------------------------------------------------
8. = Net Income.
9. Return Element (Net Income + Interest).
10. Investment Base (from step 4)
----------------------------------------------------------
11. = Return on Investment.
------------------------------------------------------------------------
(2) The Director will compare the projected return on investment
(as calculated using the formula above) to the target return on
investment (from step 5), to determine whether an adjustment to the
basic pilotage rates is necessary. If the projected return on
investment is significantly different from the target return on
investment, the revenues which would be generated by the current
pilotage rates are not equal to the revenues which would need to be
recovered by the pilotage rates.
(3) The basic pilotage revenues that are needed are calculated
by substituting in a figure for the projected revenue which will
make the target return on investment equal to the projected return
on investment. This ``projection of revenue needed'' is used in
determining the basis for proposed adjustments to the basic pilotage
rates. The mechanism for adjusting the basic pilotage rates is
discussed in Step 7 below. The required return, tax, and interest
elements may be considered additions to the operating expenses and
pilot compensation components of the hourly charge for basic
pilotage service, which is discussed in Step 7.A. below.
Step 7: Adjustment of Pilotage Rates
(1) The final step in the Great Lakes pilotage ratemaking
methodology is to adjust Great Lakes pilotage rates if the
calculations from Step 6 show that pilotage rates in a pilotage area
should be adjusted, and if the Director determines that it is
appropriate to go forward with a rate adjustment. Rate adjustments
are calculated in accordance with the procedures found in this step.
However, pilotage rates calculated in this step are subject to
adjustment based on requirements of the Memorandum of Arrangements
between the United States and Canada, and other supportable
circumstances which may be appropriate. Pilotage rate adjustments
consist of the following: (a) Calculation of the hourly pilotage
charge; (b) calculation of pilotage charges for unspecified trips;
(c) calculation of pilotage charges for specified trips; (d)
calculation of pilotage charges for ancillary services; and (e)
adjustment of pilotage charges for vessel size. Each of these is
detailed below.
Step 7.A.--Calculation of Hourly Charge
(1) The Director determines a proposed hourly charge for basic
pilotage service in each pilotage area. This hourly charge is used
in the calculation of pilotage rates discussed in Steps 7.B., 7.C.,
and 7.D., below.
(2) The proposed total hourly charge for pilotage service in
each pilotage area consists of two components, i.e., pilot
compensation, and operating expenses.
(3) The pilot compensation component of the hourly charge is
derived by dividing the projected target pilot compensation for each
area, by the estimated pilotage hours (i.e., bridge hours) for that
area. This calculation results in a pilot compensation charge for
each hour of pilotage service in that pilotage area.
(4) The operating expense component of the hourly charge is
derived by dividing the projected operating expenses for each
pilotage district, including the constructed amount necessary to
bring the Associations to the ROI standard, by the estimated
pilotage hours (bridge hours). This calculation results in an
operating expense charge for each hour of pilotage service in that
pilotage district.
(5) The total hourly charge for basic pilotage service in each
pilotage area is derived by adding the pilot compensation charge for
that area to the operating expense charge for the district in which
that area is located. These calculations are adjusted for average
ship size as discussed in Step 7.E., below.
Step 7.B.--Calculation of Charges for Unspecified Trips
(1) For transits which are not specified in Sec. 401.405 and
Sec. 401.410 of this chapter, the Director bases basic pilotage
rates on the hourly charge developed in Step 7.A., above. This
hourly charge for basic pilotage service is assessed for each hour
that a registered pilot is aboard a vessel, subject to a six-hour
minimum each time a pilot is assigned, with three-hour increments
thereafter.
Step 7.C.--Calculation of Charges for Specified Trips
(1) For transits which are specified in Sec. 401.405 and
Sec. 401.410 of this chapter, the Director periodically reviews the
average time for each individual transit, using the travel time in
both directions. This review will be accomplished at least once
every five years. The proposed basic pilotage fee listed for
specified transits in Sec. 401.405 and Sec. 401.410 of this chapter
is based on the result of multiplying the hourly basic pilotage fee
by the average transit time calculated for that transit.
(2) During ratemaking proceedings which occur between periodic
reviews of average vessel transit times, the rates for specified
transits are adjusted as a group. The pilotage rate for specified
transits in each area is adjusted by subtracting the ``projection of
revenue'' from the ``projection of revenue needed'' and dividing by
the ``projection of revenue,'' with the resultant deficit or surplus
expressed in percentage terms, rounded to the nearest whole number.
The proposed basic pilotage rates for specified transits are
determined by multiplying the existing rates by the resultant
percentage.
Step 7.D.--Calculation of Charges for Ancillary Services
(1) Ancillary charges are equalized between districts. These
charges need not be adjusted during every ratemaking. These charges
are reviewed at intervals of not more than five years, during the
periodic review of average vessel transit time for specified trips
discussed in Step 7.C., above. Each of these charges is discussed
below.
(A) Docking, Undocking and Harbor Movement Charges--For
consistency, these charges are set at the same level in all
districts. The charges are determined by the Director, subject to
the requirements of the Memorandum of Arrangements between the
United States and Canada.
(B) Moveage--The charge for moveage in a harbor for all three
districts is twice the docking charge.
(C) Delay Charges--Delay charges, per hour, whether for trip
interruption or departure or moveage delays, are set at the rate
determined in the pilot compensation phase discussed in Step 2
above, as adjusted for ship size. The maximum delay charge for any
24-hour period is the per hour delay charge, as adjusted for ship
size, times 16 hours.
(D) Cancellation Charges--Cancellation charges are set at the
rate determined in the pilot compensation phase discussed in Step 2
above, and are not adjusted for ship size. If the cancellation
occurs less than six hours after the pilot reports, the maximum
charge is the basic pilot compensation charge for a six-hour period.
If the cancellation occurs more than six hours after the pilot
reports, the charge is the basic pilot compensation charge for each
hour or fraction of an hour, to a maximum of 16 hours.
(E) Lock Passage Charges--For consistency, these charges are set
at the same level in all districts. The level will be determined by
the Director, subject to the requirements of the Memorandum of
Arrangements between the United States and Canada.
Step 7.E.--Adjustment for Ship Size
(1) The hourly charge for basic pilotage services discussed in
Step 7.A., above, is adjusted by dividing the basic charge by the
average weighting factor of the preceding year, as determined from
charges adjusted in accordance with Sec. 401.400 of this chapter.
Appendix B to Part 404--Ratemaking Definitions and Formulas
The following definitions apply to the ratemaking formula
contained in this appendix. The account numbers correspond to the
account numbers in Appendix A to part 403 of this chapter.
(1) Operating Revenue--means the sum of all operating revenues
received by the Association for pilotage services, less ancillary
revenues that are offset against operating expenses.
(2) Operating Expense--means the sum of all operating expenses
incurred by the Association for pilotage services, less the sum of
disallowed expenses.
(3) Target Pilot Compensation--means the compensation that
pilots are intended to receive for full time employment. For pilots
providing services in undesignated waters, the target pilot
compensation is the average annual compensation for first mates on
U.S. Great Lakes vessels. For pilots providing services in
designated waters, the target pilot compensation is 150% of the
average annual compensation for first mates on U.S. Great Lakes
vessels.
(4) Operating Profit/(Loss)--means Operating Revenue less
Operating Expense and Target Pilot Compensation.
(5) Interest Expense--means the reported Association interest
expense on operations, as adjusted to exclude any interest expense
attributable to losses from non-pilotage operations.
(6) Earnings Before Tax--means Operating Profit/(Loss), less the
Interest Expense.
(7) Federal Tax Allowance--means the Federal statutory tax on
Earnings Before Tax, for those Associations subject to Federal tax.
(8) Net Income--means the Earnings Before Tax, less the Federal
Tax Allowance.
(9) Return Element (Net Income plus Interest)--means the Net
Income, plus Interest Expense. The return element can be considered
the sum of the return to equity capital (the Net Income), and the
return to debt (the Interest Expense).
(10) Investment Base (separately determined)--means the net
recognized capital invested in the Association, including both
equity and debt. Should capital be invested in other than pilotage
operations, that capital is excluded from the rate base.
(11) Return on Investment--means the Return element, divided by
the Investment Base, and expressed as a percent.
Investment base formula.
(1) Regulatory Investment (Investment Base) is the recognized
capital investment in the useful assets employed by the pilot
groups. In general, it is the sum of available cash and the net
value of real assets, less the value of land. The investment base is
established through the use of the balance sheet accounts, as
amended by material supplied in the Notes to the Financial
Statement.
(2) The Investment Base is calculated using data from the
Uniform System of Accounts described in part 403, as audited and
approved by the Director. Accounts, listed in the Investment Base
formula below, which end in 999 are not separate accounts, but the
summation of the accounts listed in each particular grouping. For
instance, account no. 10999 is not a separate balance sheet account,
it is the summation of all individual balance sheet accounts in the
10000 grouping. The Investment Base would be calculated as follows:
------------------------------------------------------------------------
Account No. Description
------------------------------------------------------------------------
Recognized Assets:
10999 + Total Current Assets
29999 - Total Current Liabilities
20100 + Current Notes Payable
13999 + Total Property and Equipment (Net)
12000 - Land
15000 + Total Other Assets
-------------------------------------------------------
= Total Recognized Assets
Non-Recognized Assets:
11999 + Total Investments and Special Funds
-------------------------------------------------------
= Total Non-Recognized Assets
Total Assets:
+ Total Recognized Assets
+ Total Non-Recognized Assets
-------------------------------------------------------
= Total Assets
Recognized Sources of Funds:
39999 + Total Stockholders' Equity
26000 + Long-Term Debt
20100 + Current Notes Payable
24500 + Advances from Affiliated Companies
26100-500 + Long-Term Obligations-Capital Leases
-------------------------------------------------------
= Total Recognized Sources
Non-Recognized Sources of Funds:
26600 + Pension Liability
26800 + Other Non-Current Liabilities
27000 + Deferred Federal Income Taxes
27200 + Other Deferred Credits
-------------------------------------------------------
= Total Non-Recognized Sources
Total Sources of Funds:
+ Total Recognized Sources
+ Total Non-Recognized Sources
-------------------------------------------------------
= Total Sources of Funds
------------------------------------------------------------------------
(3) Using the figures developed above, the Investment Base is
the Recognized Assets times the ratio of Recognized Sources of Funds
to Total Sources of Funds.
Dated: April 1, 1994.
Robert T. Nelson,
Vice Admiral, U.S. Coast Guard, Acting Commandant.
[FR Doc. 94-8602 Filed 4-11-94; 8:45 am]
BILLING CODE 4910-14-M
