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DECISION NO. 534-W-1990


October 26, 1990

IN THE MATTER OF proposed tariff of pilotage charges published by the Atlantic Pilotage Authority in the Canada Gazette Part l on December 23, l989, pages 5453-5463; and the notices of objection filed by the Shipping Federation of Canada; the Halifax-Dartmouth Port Development Commission; Blue Peter Steamships Limited; the Government of Newfoundland and Labrador; and the Canadian Salt Company Limited.

File No. D 2530-2-2


Pursuant to subsection 34(l) of the Pilotage Act, R.S.C. 1985, c. P-14, the Atlantic Pilotage Authority (hereinafter the Authority) gave public notice in the Canada Gazette Part l on December 23, l989 of a proposed amendment to the Atlantic Pilotage Tariff Regulations. Under a policy change by the Authority which now directs each pilotage area to operate on a self-supporting financial basis, the proposal raises unit charges from 1 to 47 percent, basic charges from 1 to 84 percent and movage charges from 1 to 12.5 percent for ports in the compulsory pilotage areas. The proposal introduces two pilotage zones at Come-by-Chance and Canso as well as maximum pilotage fees at Come-by-Chance and Saint John. The proposal also raises the supplementary and miscellaneous pilotage charges common to pilotage areas by 7 percent.

The proposal was originally forecasted to generate an additional $500,000 in revenue, but this was revised upward during the investigation to $538,000. This additional revenue is expected to cover cost increases and result in a profit of about $265,000 in 1990 based on the assumption that the tariff proposal would have been in effect throughout 1990. The forecast profit of $265,000 for 1990 assumes no repayment of monies (subsidies) received from the Federal Government for capital expenditures in previous years.

Five objections to the proposed amendment were filed with the National Transportation Agency (hereinafter the Agency) by the following parties during the period from January l9 to 22, l990, in accordance with subsection 34(2) of the Pilotage Act:

l.    The Shipping Federation of Canada (hereinafter the Shipping Federation);

2.    Halifax-Dartmouth Port Development Commission (hereinafter the Commission);

3.    Blue Peter Steamships Limited;

4.    Government of Newfoundland and Labrador (hereinafter the Government); and

5.    The Canadian Salt Company Limited.

In addition, an intervention was filed by the Canadian Merchant Service Guild (hereinafter the Guild) to protect the rights of its members, the pilots, and to be a party of record so as to reserve the right to respond to submissions which impinge upon the rights of pilots.

The Authority filed responses to each objection but did not file any comments with respect to the intervention of the Guild.

The Shipping Federation and the Commission filed answers to the responses of the Authority.

The Government and the Shipping Federation filed responses to the intervention filed by the Guild.

The above-noted objections, intervention, responses and answers form part of the public record on this matter which is available for inspection at the Head Office of the Agency in Hull, Quebec and the Regional Office in Moncton, New Brunswick.

The Atlantic Provinces Transportation Commission and the Halifax Port Corporation (hereinafter the Corporation) also filed comments in respect of the proposed pilotage tariff. Although their comments were submitted late, both were considered as interested parties to the proceedings.

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; to make a recommendation to the Authority; and to file a copy of the recommendation with the Minister of Transport. The Authority is obliged to abide by the recommendation.
The Agency issued Order No. 1990-W-42 dated February 5, l990 directing the Authority to produce and file with the Agency, by February l7, l990, certain information, particulars and documents relating to the operation and administration of the Authority. The Order also required the Authority to make available to the objectors and the intervener the same material, except those which are considered to be of a confidential nature, with the cost of reproduction and delivery to be borne by the party making the request.

By letter dated February 28, l990, the Government requested the Agency to establish a date for submission of comments in respect of the documentation provided by the Authority under the Order to Produce. Although the National Transportation Agency General Rules, SOR/88-23, do not provide for an objecting party or intervener to respond to information submitted in an Order to Produce, in the interest of making available all information necessary to proceed with its investigation, the Agency advised all parties on March 2, l990 that they had until March l2, l990 to provide their comments. The Government and the Shipping Federation submitted comments in that regard.

Pursuant to the Pilotage Act, the Authority has the objective 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 basis.

The role of the Agency, in accordance with its mandate under the Pilotage Act, is to determine whether or not the proposed tariff of pilotage charges is 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 tariff of charges is fair and reasonable.

ECONOMIC ISSUES

The major economic issues raised by the objectors to the proposed tariff increases are summarized as follows:

1. financial results and cost-efficiency,
2. allocation of overhead expenses, and
3. cross-subsidization between ports.

METHOD OF INVESTIGATION

The Agency notes that the economic issues raised by the objectors are fundamentally the same issues which were addressed by the Agency in Decision No. 394-W-1988 dated October 26, 1988 and which were discussed in that previous Decision under virtually similar circumstances in terms of economics of operation. As a result, the Agency proceeded with a file investigation of the tariff proposal which culminated in the release of a Staff Investigation Report dated July 1990 to the Authority and parties of record on August 15, 1990. Comments were initially to have been filed by August 27, 1990; however, the Authority requested and received a thirty (30) day extension of the filing deadline to September 26, 1990.

The Staff Investigation Report concluded (1) that the Authority had essentially taken no measures during 1988 or 1989 to reduce operating costs or improve economic efficiency; (2) that pilot productivity remained low and pilot remuneration remained high relative to the amount of work performed; and (3) that the major ports of Halifax and Saint John should not have to cross-subsidize smaller ports. Further to this, the Staff Investigation Report concluded that the review of the tariff proposal confirmed the findings of the Agency set out in Decision No. 394-W-1988 that the Authority could improve its financial position by reducing costs and increasing pilot productivity without adverse effects on safety of navigation or delay to shipping.

COMMENTS ON THE STAFF INVESTIGATION REPORT

Comments were received from the Authority, the Commission, the Shipping Federation, the Government, the Guild and the Corporation.

The Staff Investigation Report together with the comments thereupon of the Authority and the parties noted above also form part of the public record in this matter which, as mentioned earlier, is available for inspection. The essential elements of these submissions are set out in the following paragraphs.

The Authority, in its comments on the Staff Investigation Report, stated that it had reduced costs by eliminating a head office position in Halifax, it had reduced pilot strength at Saint John by one in May, 1989 and it had reduced pilot strength at Miramichi from three to two in September, 1990. On the topic of pilot productivity, the Authority stated that yearly averages based on the number of pilots on payroll were not representative of the actual workload but that workload calculations had to take all forms of leave into account. With respect to the ports of Halifax and Saint John, the Authority stated that it could not provide the mandated service at smaller ports at an acceptable price without financial assistance from the busier, larger ports. The Authority also requested that, in the event that it had not made its problems and constraints sufficiently clear, a public hearing be held. In conclusion, the Authority stated that if its request for tariff increases was not approved it would have to file another tariff proposal almost immediately.

The Guild stated that it was opposed to the conclusions of the Staff Investigation Report and that a sufficient roster of skilled pilots was critical for the provision of safe and efficient services. The Guild argued that the importance of skilled, well-paid pilots was recognized by the Authority in the signing of a new three year contract. The Guild noted that it had the right of collective action to protect the rights of its members.

The Government questioned the rationale of conclusions in favour of tariff increases at certain ports in the face of acknowledging that additional studies of costs and related self-sufficiency of ports were required. As well, the Government questioned the need for the Authority if each port was to become self-sufficient.

The Corporation, the Commission and the Shipping Federation were in general agreement with the conclusions of the Staff Investigation Report. The Commission requested that the Authority be directed to change its method of allocation of overhead costs. The Corporation also encouraged a change in the method of allocating overhead expenses. The Shipping Federation stated that it had hoped that the tariff proposal would have been denied entirely but that it recognized the logic in granting increases at ports where a minimum of two pilots must be employed. The Shipping Federation also expressed concern over the arguments favouring a tariff increase at Come-by-Chance and hoped that the Authority would not take this as permission to exclude this port from economic measures to reduce costs.

CONCLUSIONS

With respect to the comments made by the Authority, the Agency notes that the headquarters position referred to by the Authority was eliminated in 1986 and not as a result of Decision No. 394-W-1988 of October 1988. Regarding pilot productivity, the Agency is of the view that annual average productivity figures as shown in the Staff Investigation Report are appropriate to evaluate pilot performance. The suggestion that productivity be measured solely on the basis of actual pilot availability (excluding all time on leave) is not acceptable since productivity measures must take into account overall employee resources in relation to overall output.

Further on the topic of pilot workload, the working rules of the Authority enable pilots to undertake many recall assignments as well as extra assignments in non-compulsory waters for which the pilots receive additional pay over and above their regular salary. The fact that pilots are at hand and available to work these additional assignments is an indication that the complement of pilots by the Authority is greater than required to discharge its responsibilities in an economically efficient manner. The Agency reiterates in this Decision that the cost of providing pilotage services could be reduced if the working rules better reflected economic principles of pay for reasonable productivity.

Turning to the number of pilots, the Agency notes that although the Authority adjusted pilot strength at Saint John in May of 1989, a sixth pilot was added to the Cape Breton District in June of 1989. As a result, overall pilot strength during 1989 was essentially unchanged. With respect to Miramichi, the reduction in pilot strength should enable the Authority to achieve breakeven financial results on the basis of the 1990 forecast which negates any need for rate increases at this time.

On the topic of cross-subsidization, the Agency notes that the arguments for removing the cross-subsidy burden from Halifax and Saint John were set out in the Report of the Inquiry Officer of February 1988 which was accepted by the Agency in Decision No. 394-W-1988. These arguments remain valid as both ports continue to compete with other large North American ports and total ship charges, of which pilotage charges are one element, must be kept to a minimum. The Report of the Inquiry Officer of February 1988 did not recommend complete elimination of cross-subsidy but pointed out the economic consequences of continuing the policy on a long term basis. The Staff Investigation Report of July 1990 indicated that achieving financial self-sufficiency on a district basis was a more practical initial goal.

In view of the foregoing, the Agency is of the opinion that the comments of the Authority do not alter the substance of the conclusions contained in the Staff Investigation Report.

Regarding the comments of the other parties of record, the Agency is of the view that none affect the validity of the Staff Investigation Report. Although the Government questioned the rationale leading to the conclusions that certain tariff increases were justified in the face of the recognition of a need for further study, the Agency is of the view that further study on its part is not justified until such time as the Authority has addressed the issue of economic inefficiency. With regard to the comments questioning the continued need for the Authority, this is a matter of Government policy outside the purview of the Agency.

With regard to the issue of the allocation of overhead expenses, this matter was addressed in the Report of the Inquiry Officer of February 18, 1988 which was accepted by the Agency in Decision No. 394-W-1988. In this Report, the statement was made that the allocation of overhead expenses on the basis of pilotage units represented a disguised form of price discrimination. Notwithstanding, the further statement was made in the Report that, under present financial conditions of the Authority, the disbenefits of a change in the method of allocation would outweigh the benefits, and that the method of allocation should only be reconsidered after the issue of cost-efficiency of the Authority had been resolved. As has already been noted the Authority has essentially taken no measures during 1988 or 1989 to reduce costs or improve economic efficiency. Therefore, the matter of cost inefficiency of the Authority is essentially unchanged since the issuance of the previous Decision of the Agency and a change in the method of allocation of overhead expenses is not, in the Agency's view, appropriate at this time.

Turning to the concern raised by the Shipping Federation, the conclusion that rate increases be allowed to go into effect at Come-by-Chance was made in the context of the Authority achieving financial self-sufficiency as well as economic efficiency. The Staff Investigation Report pointed to the inefficient use of pilot resources in the St. John's District and pilot productivity well below the standard that the Authority has adopted. Thus, while the Staff Investigation Report indicated that there was room for improvement in productivity and efficiency in this District, the port of Come-by-Chance was viewed as a special case; i.e. operations should be on a breakeven basis and any cross-subsidization of operations should be eliminated as quickly as possible.

The Agency, having carefully reviewed the comments of the Authority and other parties, is of the view that the conclusions reached in the Staff Investigation Report of July 1990 are valid. The Agency therefore accepts the Staff Investigation Report and adopts the conclusions contained therein.

Having dealt with the economic issues arising from the investigation of the tariff proposal, the Agency now turns to the request made by the Authority for a hearing. The Agency has carefully reviewed the entire pleadings submitted in respect of the current tariff proposal, including the Staff Investigation Report and comments thereupon and has come to the conclusion that a decision may be rendered on the basis of this information. As a consequence, the Agency is of the opinion that a hearing is not warranted.

Regarding the intention stated by the Authority to republish a tariff increase, the mandate of the Agency requires that, in pilotage cases, a decision must be based on public interest considerations and an investigation must be conducted to determine, inter alia, whether the costs of the Authority result from an efficient pilotage operation and whether the proposed tariff is fair and reasonable. The Agency cannot be expected to allow the recovery from users of any real costs other than those attributable to an economic efficient service. Accordingly, in light of the conclusions set out in Decision No. 394-W-1988 and the reinforcement of these conclusions in the present Decision, if objections to a new tariff proposal are filed, the Authority will have to provide concrete evidence of cost reduction measures taken to achieve economic efficiency as well as sound justification of its costs.

RECOMMENDATIONS

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

    1. the proposed rate increases at Halifax, Saint John, Bras d'Or, Canso, Sydney, Holyrood, St. John's, Clarenville, and Miramichi not be implemented as such increases are prejudicial to the public interest;

    2. the proposed maximum fee at Saint John not be implemented as such is prejudicial to the public interest;

    3. the proposed rate increases at Stephenville, Humber Arm, Bay of Exploits, Restigouche, Charlottetown and Pugwash be implemented as such are not prejudicial to the public interest;

    4. the proposed increases in unit, basic and movage charges at Come-by-Chance be implemented as such are not prejudicial to the public interest but that the proposed maximum fee not be implemented as such is prejudicial to the public interest; and

    5. the proposed rate increases for supplementary and miscellaneous charges not be implemented as such are prejudicial to the public interest.


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