Decision No. 796-W-1993

November 18, 1993

File Nos. W 9250-2-7
W 9250-2-8

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BACKGROUND

Pursuant to subsection 34(1) of the Pilotage Act, R.S.C., 1985, c. P-14, the Atlantic Pilotage Authority (hereinafter the Authority) gave public notice of a proposed amendment to the Atlantic Pilotage Tariff Regulations in the Canada Gazette Part I on June 12, 1993. The proposal provides for a 3 percent tariff increase for the non-compulsory pilotage areas of Newfoundland and Labrador effective immediately, and a subsequent 3 percent increase one year from the effective date of the first increase.

On July 3, 1993, the Authority, pursuant to subsection 34(1) of the Pilotage Act, gave public notice in the Canada Gazette Part I of another proposed amendment to the Atlantic Pilotage Tariff Regulations. This proposal provides for an 8 percent tariff increase for the non-compulsory pilotage areas in the Atlantic Region, excluding Newfoundland and Labrador, effective as soon as possible, and a subsequent 3 percent increase one year from the effective date of the first increase.

A notice of objection to each of the proposed tariff amendments was filed with the National Transportation Agency (hereinafter the Agency) pursuant to subsection 34(2) of the Pilotage Act. The objections were filed on July 5, 1993 and August 3, 1993 by The Shipping Federation of Canada (hereinafter the Federation).

The Authority requested an extension of time to file an answer to the objection to the proposed tariff increases in the non-compulsory waters of Newfoundland and Labrador and the Agency granted it until September 3, 1993 to do so. The Authority filed an answer to the two objections by letter dated September 1, 1993.

Where a notice of objection is filed, subsection 34(4) of the Pilotage Act requires the Agency to make an investigation of the proposed charge set out in the notice of objection as in its opinion is necessary or desirable in the public interest. Section 35 of the Pilotage Act requires the Agency to also make a recommendation to the Authority and to file a copy of the recommendation with the Minister of Transport. The Authority must abide by the recommendation.

The Agency, by letter dated September 27, 1993, requested the Authority to file with the Agency certain information relating to its non-compulsory pilotage operations in order to supplement the information already received from the Authority in response to Agency Order No. 1993-W-181 dated June 14, 1993. The letter and Order also required the Authority to make the same material available to the Federation, if requested.

Pursuant to the Pilotage Act, the Authority is required to establish, operate, maintain and administer in the interests of safety an efficient pilotage service. In carrying out this mandate, the Authority is required to prescribe pilotage charges which are to be fair and reasonable and consistent with providing a revenue, together with any revenue from other sources, sufficient to permit the Authority to operate on a self-sustaining financial basis.

The role of the Agency, in accordance with its mandate under the Pilotage Act, is to determine whether or not the proposed tariffs of pilotage charges are prejudicial to the public interest. In doing so, the Agency must determine whether or not the Authority has based its costs on an economically efficient operation and whether or not the proposed tariffs of charges are fair and reasonable.

POSITION OF THE FEDERATION

The principal concern expressed by the Federation is that there is no justification for the proposed tariff increases in the non-compulsory pilotage areas of Newfoundland and Labrador, while the proposed tariff increases in the non-compulsory pilotage areas of the Atlantic Region are excessive.

The Federation raised the following additional arguments in its objection to the proposed tariff increases in the non-compulsory pilotage areas of Newfoundland and Labrador:

• The proposed tariff increases would result in an increase in earnings of the Authority's employee pilots despite the Federal Government's wage restraint policy.
• The proposed tariff increases would contribute little to the Authority's deficit problem.
• In certain instances, a ship has little choice but to utilize the Authority's non-compulsory pilotage services.

AGENCY EXAMINATION OF ISSUES

A review of all of the material received and on file was sufficient to enable the Agency to assess all of the issues determined to be relevant to these proposed tariff increases by the Authority in the non-compulsory pilotage areas.

The Authority reported an overall net loss (for compulsory and non-compulsory operations) of almost $1.5 million in 1992, the largest loss since it commenced operations in 1972. This loss was in large part attributable to the significant decline in activity at most of the compulsory pilotage ports that fall under the jurisdiction of the Authority. The Authority anticipates a further loss of slightly less than $1 million in 1993.

An examination of the financial results for the non-compulsory pilotage areas indicates that after several years of profitability, these operations were unprofitable in 1991 and 1992.

In 1991 and 1992, the Authority began to allocate pilot boat costs and revenues to non-compulsory areas that had previously been charged to compulsory area ports where the pilot boats were based. This allocation is done when a compulsory area pilot boat is used for an assignment in non-compulsory waters. The allocation of pilot boat costs to non-compulsory areas in such instances provides a more realistic indication of the true costs of providing pilotage services in non-compulsory areas.

Although the Authority anticipates that a small profit will be generated in 1993 and in 1994 from non-compulsory pilotage operations, these improved results are dependent upon achieving an increase in the number of assignments and average vessel size and a reduction in administration expenses from the 1992 levels.

The proposed tariff increases are expected to generate an additional revenue of approximately $50,000 per year and to contribute almost $10,000 per year to net income. This additional revenue should enable the Authority's non-compulsory operations to be viable and also allow the Authority to slightly reduce overall operating losses in its efforts to achieve financial self-sufficiency.

A review of Consumer Price Index information obtained from Statistics Canada indicates that the proposed initial tariff rate increases of 3 percent for the non-compulsory pilotage areas in Newfoundland and Labrador and of 8 percent for the non-compulsory pilotage areas in the Atlantic Region are either below or comparable to the increases in the Consumer Price Index which have occurred since the implementation of the previous tariff increases. Should shipping lines determine that such increases are excessive in non-compulsory areas, they still have the option to not utilize the pilotage services provided by the Authority.

In regard to the argument by the Federation that the proposed tariff increases in the non-compulsory areas of Newfoundland and Labrador would have a negligible impact on the Authority's deficit, the financial review indicates that while the increases will not have a significant impact on the level of the deficit, they should nonetheless have a positive impact on overall operating results and contribute to the Authority's efforts to achieve financial self-sufficiency.

With respect to the wage restraint policy of the Federal Government, it should be noted that the said policy applies to wages and not to pilotage fees. Moreover, the Agency notes that the Authority's pilots have accepted a new contract which provides for no salary increases in 1993 and 1994.

CONCLUSION

The Agency, having reviewed the issues determined to be relevant to the proposed tariff increases by the Authority in non-compulsory areas, concludes that the proposed rate increases are fair and reasonable.

RECOMMENDATIONS

The Agency, having carefully investigated the present tariff proposals, recommends to the Authority:

1. in respect of the non-compulsory pilotage areas of Newfoundland and Labrador, that the proposed rate increase of 3 percent effective immediately and the subsequent increase of 3 percent one year from the effective date of the first increase be implemented, as such implementation is not prejudicial to the public interest; and
2. in respect of the non-compulsory pilotage areas in the Atlantic Region, excluding Newfoundland and Labrador, that the proposed rate increase of 8 percent effective as soon as possible and the subsequent increase of 3 percent effective one year from the date of the first increase be implemented, as such implementation is not prejudicial to the public interest.