# Decision No. 645-W-2002

November 29, 2002

An erratum was issued on April 21, 2004

REASONS FOR DECISION

November 29, 2002

IN THE MATTER OF the proposed tariff of pilotage charges published by the Laurentian Pilotage Authority; the notices of objection filed by the Chamber of Maritime Commerce, the Canadian Shipowners Association, and The Shipping Federation of Canada and; an intervention filed by la Corporation des pilotes du Bas Saint-Laurent.

File No. W9250-3-7

## INTRODUCTION

Under the Pilotage Act, R.S.C., 1985, c. P-14 (hereinafter the Pilotage Act), the Laurentian Pilotage Authority (hereinafter the Authority) is responsible for providing pilotage services within Canadian waters in and around the province of Quebec, north of the northern entrance to St. Lambert Lock, except the waters of Chaleur Bay. Pilotage is compulsory from the St. Lambert Lock to Les Escoumins, including the Saguenay River, and pilotage is not compulsory east of Les Escoumins. The Authority has divided the compulsory waters into three pilotage districts for administrative purposes: District 1-1 for the Port of Montréal; District 1 from Montréal to Québec; and District 2 from Québec to Les Escoumins (including the Saguenay River).

Pursuant to subsection 34(1) of the Pilotage Act, the Authority published proposed amendments to the Laurentian Pilotage Tariff Regulations in the Canada Gazette Part I edition of July 6, 2002.

Under subsection 34(2) of the Pilotage Act, any interested person who has reason to believe that any charge in a proposed tariff of pilotage charges is prejudicial to the public interest may file an objection with the Canadian Transportation Agency (hereinafter the Agency).

In accordance with this provision, objections to the tariff proposal were filed on August 1, 2002 by the Chamber of Maritime Commerce and the Canadian Shipowners Association and on August 5, 2002 by The Shipping Federation of Canada. An intervention was filed by the Corporation of Lower St. Lawrence River Pilots on September 6, 2002.

Subsection 34(4) of the Pilotage Act requires the Agency to make an investigation of the proposed charge. Section 35 of the Pilotage Act requires the Agency to make a recommendation to the Authority and the Authority is required to govern itself accordingly.

As part of its investigation, the Agency held a hearing in Montréal from November 4 to 6, 2002 after issuing procedural directions on the conduct of the hearing on September 19, 2002.

## RECOMMENDATION

The Agency has considered all of the evidence submitted by the parties.

The Agency is of the opinion that the tariff proposal published by the Laurentian Pilotage Authority on July 6, 2002 for a 3.95 percent tariff increase is not in the public interest and should therefore not be implemented. The Agency is of the opinion that a tariff increase of 2.5 percent is not prejudicial to the public interest and may be implemented.

Reasons for this Decision will follow.

## REASONS FOR DECISION NO. 645-W-2002

February 27, 2003

IN THE MATTER OF the proposed tariff of pilotage charges published by the Laurentian Pilotage Authority; the notices of objection filed by the Chamber of Maritime Commerce, the Canadian Shipowners Association and The Shipping Federation of Canada; and the intervention filed by Corporation des pilotes du Bas Saint-Laurent.

File No. W9250-3-7

## INTRODUCTION

Under the Pilotage Act, R.S.C., l985, c. P-14 (hereinafter the Pilotage Act), the Laurentian Pilotage Authority (hereinafter the Authority) is responsible for providing pilotage services within Canadian waters in and around the province of Quebec, north of the northern entrance to St. Lambert Lock, except the waters of Chaleur Bay. Pilotage is compulsory from the St. Lambert Lock to Les Escoumins, including the Saguenay River, and pilotage is not compulsory east of Les Escoumins. The Authority has divided the compulsory waters into three pilotage districts for administrative purposes: District 1-1 for the Port of Montréal; District 1 from Montréal to Québec; and District 2 from Québec to Les Escoumins, including the Saguenay River.

Pursuant to subsection 34(1) of the Pilotage Act, the Authority published a proposed tariff increase as an amendment to the Laurentian Pilotage Tariff Regulations in the Canada Gazette Part I edition of July 6, 2002.

Under subsection 34(2) of the Pilotage Act, any interested person who has reason to believe that any charge in a proposed tariff of pilotage charges is prejudicial to the public interest may file an objection with the Canadian Transportation Agency (hereinafter the Agency).

On August 1, 2002, objections to the tariff proposal were filed by the Chamber of Maritime Commerce (hereinafter the Chamber) and the Canadian Shipowners Association (hereinafter the CSA). On August 5, 2002, The Shipping Federation of Canada (hereinafter the SFC) also filed an objection. An intervention was filed by Corporation des pilotes du Bas Saint-Laurent (hereinafter the CPBSL).

Subsection 34(4) of the Pilotage Act requires the Agency to conduct an investigation of the proposed tariff amendment. Section 35 of the Pilotage Act requires the Agency to make a recommendation to the Authority and the Authority is required to govern itself accordingly.

## BACKGROUND

Following the receipt of the objections, the Agency began its investigation in accordance with its mandate under the Pilotage Act. By Order No. 2002-W-340 dated August 20, 2002, the Agency directed the Authority to produce and file with the Agency, by September 3, 2002, a tariff justification as well as information, particulars and documents relating to its finances, operations and administration. The Authority was required to provide a copy of the tariff justification to the objectors and to make available to the parties of record, upon request, the information, particulars and documents requested.

In accordance with the National Transportation Agency General Rules, SOR/88-23, the Authority filed its response to the objections on August 30, 2002 and its response to Order No. 2002-W-340 on September 3, 2002.

As part of its investigation, the Agency held a hearing in Montréal, Quebec from November 4 to 6, 2002, and, in that regard, issued procedural directions on September 19, 2002.

By Decision No. LET-W-312-2002 dated October 22, 2002, the Agency directed the Authority to file additional information. The Authority filed the requested information on October 28, 2002.

By letter dated October 23, 2002, the Chamber filed an additional submission to further clarify its objection to the tariff proposal. By Decision No. LET-W-326-2002 dated November 1, 2002, the Agency advised the Chamber that it was prepared to accept the submission providing a representative from the Chamber was present at the hearing for cross-examination in respect of the submission. The submission was subsequently accepted at the hearing.

By Decision Nos. LET-W-314-2002, LET-W-315-2002 and LET-W-316-2002 dated October 23, 2002, the Agency requested additional information from the Chamber, the SFC and the CSA. The information was subsequently filed by the Chamber, the CSA and the SFC.

By letter dated October 30, 2002, the Authority filed a motion to deny the objectors the right to cross-examine the Authority's witnesses at the hearing. By Decision No. LET-W-325-2002 dated October 31, 2002, the Agency advised the parties of record that this would be considered as a preliminary matter at the hearing commencing on November 4, 2002 in Montréal. The Agency heard arguments from the Authority and the objectors at the hearing and dismissed the Authority's motion, thereby allowing the objectors the right to cross-examine the witnesses of the Authority.

In its Decision No. 645-W-2002 dated November 29, 2002, the Agency issued its recommendation that the tariff proposal of a 3.95 percent increase, effective January 1, 2003, was prejudicial to the public interest but that an increase of 2.5 percent was not prejudicial to the public interest. The reasons for this Decision are set out below.

## ISSUE

In accordance with subsection 34(2) of the Pilotage Act, the issue to be addressed is whether the proposed tariff of pilotage charges published by the Authority on July 6, 2002 is prejudicial to the public interest.

## POSITIONS OF THE PARTIES

### 1. Tariff increases

The Authority indicates that the proposed 3.95 percent tariff increase is expected to generate an additional $1,634,000 in revenue in 2003. The Authority states that the increase takes into account the loan repayments, the costs arising from contract negotiations and the projected rate of inflation. The Authority argues that the increase in cost per tonne of cargo carried will be very small and will have little or no impact on the movement of cargo. The Authority advises that, through meetings, it informed the CSA, the SFC and St. Lawrence Ship Operators Association of its proposed increase and was advised by those users that they could not accept any further tariff increases in excess of the current change in the consumer price index (hereinafter the CPI) of about 2.4 percent. The Authority contends that a 2.4 percent increase will not allow it to meet the legislative requirement to achieve financial self-sufficiency. The Authority advises that a tariff committee is examining a new tariff structure following the Agency's suggestion from its previous Decision No. 94-W-2001 dated March 2, 2001. The Authority expects the tariff committee to complete its work in the spring of 2003 and to be able to publish a new tariff later in the year. #### Chamber of Maritime Commerce The Chamber is a bi-national trade association representing more than 130 Canadian and American members that rely on an efficient, effective and competitive marine industry. The Chamber asserts that these organizations are affected directly and indirectly by the cost of moving cargo through the areas serviced by the Authority and that this is the third major rise in the Authority's tariffs in three years. As a result, shipping costs have become increasingly more expensive and detrimental to the shipper community. The Chamber indicates that with the 3.95 percent tariff increase, the Authority's tariffs will have increased by an average of more than 4 percent per year since 2000 while the CPI has averaged only 2.53 percent per year over the same period. The Chamber states that many of the shippers it represents ship millions of tonnes of high volume, low value cargo, which are particularly sensitive to any increase in transportation costs. In addition, it stresses that the Canadian commodity producers are price takers and that there has been a steady decline in such prices since 1986. The Chamber contends that these pilotage tariff increases will further erode the competitive position of Canadian shippers. The Chamber asserts that the proposed increase is contrary to the national transportation policy as set out in section 5(g) of the Canada Transportation Act, S.C., 1996, c. 10 (hereinafter the CTA). The Chamber adds that due to the potential negative economic and environmental consequences that could result from these tariff revisions, it is not in the Canadian public's interest to allow these increases. #### Canadian Shipowners Association The CSA represents the interests of eight Canadian domestic fleet operators and has a mandate to promote an economic and competitive Canadian marine transportation industry. The CSA argues that while it is difficult, if not impossible, to link a decrease in marine traffic and pilotage tariff increases, the fact that pilotage charges only represent a small portion of total vessel costs cannot be used as a "licence" to pass on tariff increases indefinitely. The CSA asserts that the argument that pilotage costs have to have a major impact on the marine industry before being considered unreasonable is not acceptable. The CSA adds that if the Authority's position that any pilotage tariff increase is reasonable as pilotage costs will always be a small part of vessel costs is adopted, then a tripling or quadrupling of pilotage charges could be considered reasonable. The CSA submits that it objects to the tariff proposal on the basis that it is prejudicial to the public interest as the proposal is inconsistent with the national transportation policy. The CSA states that the Authority is again seeking rate increases well above the rate of inflation which, in the opinion of the CSA, are not fair and reasonable and do not reflect an efficient pilotage service. The CSA argues that it is not in the public interest for the Authority to be able to pass on any costs simply because it cannot operate at a loss. The CSA asserts that the Authority cannot take the position that safety of navigation justifies anything. #### The Shipping Federation of Canada The SFC represents the interests of foreign shipping companies serving the Canadian overseas trade. The SFC indicates that its member lines expect to pay approximately$1.4 million in additional pilotage charges from the 3.95 percent proposed tariff increase. Depending on the size of ship, the SFC states that the pilotage costs for a voyage from Les Escoumins to Montréal represent between 60 and 70 percent of vessel service costs in winter and between 30 to 40 percent in summer. The SFC provides a comparison of vessel service costs between Europe and the Great Lakes for 1992 and 2002.

1992 2002 Change (%) 184,000 162,000 - 12 % 52,664 43,680 - 17 % 53,000 56,000 + 5 % 18,000 27,000 + 50 % 36,000 39,200 + 9 % 10,000 12,123 + 21 %

The SFC submits that this cost comparison shows that vessel operators have reduced costs under their control (introducing more fuel efficient vessels with smaller crews), but that charges for going through the St. Lawrence - Great Lakes waterway increased, with pilotage charges showing the largest increase of 50 percent over the 10 year period.

The SFC argues that the Agency should not focus on the impact that the proposed tariff increase will have on shipping lines; rather, the focus should be on whether the Authority has met the criteria under the Pilotage Act to justify the increase. The SFC asserts that the Agency must assess whether the Authority has based its costs on economically efficient operations and whether the tariff proposal is fair and reasonable.

The SFC contends that even though financial self-sufficiency is a legislated mandate for all Canadian pilotage authorities, the achievement of this objective is closely linked to the efficiency of the service. The SFC strongly believes that additional efficiencies within the Authority are feasible and attainable and that the Authority must focus on such efficiencies before asking users to support a tariff increase.

The SFC argues that the public interest is not being served by the Authority giving away the right to improve its own efficiency through service contracts with the pilot corporations and by the Authority not having control over efforts to improve efficiency. The SFC adds that the Authority's tariff increase is not in the public interest as it does not represent a fair and reasonable tariff of pilotage charges and would result in an unjustified increase in transportation costs.

#### Corporation des pilotes du Bas Saint Laurent

The CPBSL represents the District 2 pilots and supports the proposed tariff increase as it will ensure the safety of navigation. The CPBSL states that contract renewals between itself and the Authority now come under a final offer selection process. If negotiations fail, the arbitration process eliminates any worry over unreasonable costs in this regard. The CPBSL indicates that tariff increases in District 2 have always been amongst the lowest in North America based on distance, tonnage carried, and hours of service on board ship. According to the CPBSL, pilotage costs generally only represent 0.5 to 2 percent of total ship operating costs.

#### Laurentian Pilotage Authority

The Authority indicates that the administrative expenses to operate its headquarters in Montréal represent about 5.6 percent of total costs. The costs of its two dispatching centres in Montréal and Québec represent about 4.2 percent of total costs. The Authority states that it has made a number of efforts to reduce costs, such as the introduction of a new computer system for billing and payments, the abolishment of one operational position, the postponement of hiring an administrative director and apprentice pilots, and the development of its website extended over future years.

The Authority submits that the 18 percent increase in its administrative costs in 2001 is the result of three main factors: a government directive to increase retroactively, the salary of the CEO; the hiring of a consultant for the new computer system; and the conduct of a risk-based assessment of compulsory pilotage. In 2002, administrative costs are expected to increase by a further 5 percent to cover the cost of a risk-based assessment for double pilotage.

Mr. Martel, witness for the Authority, states that he went through the exercise of examining each cost component of the Authority's administrative expenses in an attempt to reduce such costs by 10 percent to achieve further savings. Mr. Martel concludes that no further savings could be achieved in administrative costs while maintaining the current level of services. The Authority indicates that it is examining the possibility of relocating its headquarters to produce cost savings in the long term.

#### Chamber of Maritime Commerce

According to the Chamber, the marine industry has responded to market pressures and economic realities by seeking out any and all opportunities to rationalize operations and provide services to clients in a more cost-effective manner. The Chamber contends that the Authority has not considered all of the opportunities to offset pilotage costs. For example, the Chamber submits that the Authority's overhead costs increased an average of 7 percent in the past five years, while the pilot productivity decreased from 120 assignments per pilot in 1997 to 100 assignments per pilot in 2001 - a productivity decrease of 17 percent.

#### The Shipping Federation of Canada

While the SFC recognizes that the Authority has invested in computer aids and software to improve its efficiency, it is of the view that the Authority must be mindful of the need to demonstrate the benefits of such investments to users.

### 3. Pilot costs

#### A. Pilot corporations' fees

##### Laurentian Pilotage Authority

The Authority states that the contracts with the pilot corporations represent 80 percent of its costs and that it is not able to adjust the payments to the pilot corporations in 2003 as these costs are fixed under the service contracts: the District 1 contract expires on June 30, 2003 and the District 2 contract expires on December 31, 2003.

The Authority indicates that all provisions in the service contracts with the pilot corporations will be up for review during the next round of negotiations. Gilles Champagne, Chairman of the Authority, provided testimony indicating that the Authority will be looking for ways to reduce costs in the contracts with the pilots in the next round of negotiations.

The Authority believes that the primary objective of the Pilotage Act is safety of navigation, and not the imposition of limits on payments to the pilot corporations. In response to a question from the Panel, the Authority states that in planning sessions to develop a negotiating strategy with the pilot corporations, it will make sure that the pilots are excluded from such discussions. The fact that the Authority's corporate plan has proposed increases in fees for the pilot corporations is not indicative, in the Authority's opinion, that those planned increases will be part of the negotiating strategy.

Regarding the District 1 contract, the Authority submits that the Corporation des Pilotes du Saint-Laurent central Inc. (hereinafter the CPSLC) objected to the 3 percent fee increase in the last year of the contract by giving the contractually required 90-day notice. The Authority states that the CPSLC was demanding a 12 percent increase and that the Authority was offering a 1.5 percent increase. The Authority advises that arbitration hearings will be held over the next few months in respect of the dispute and it is not expected that the arbitrator will render its decision until some time in 2003.

The CSA states that private businesses, faced with an inability to increase revenues, have all restructured themselves to provide better service at lower costs. The CSA argues that the Authority has done nothing in this regard vis-a-vis the pilot corporations and only acts to pass on the costs of the pilot corporations.

The CSA is of the view that in light of the forthcoming negotiations between the Authority and the pilot corporations in 2003, the Authority should not be making statements in a public forum that it wants to avoid a final offer selection process. The CSA indicates that the Authority would have little chance of obtaining fee increases of less than 3 percent per year (which has already been identified in the Authority's corporate plan), or a freeze in fees, if part of the negotiating strategy is revealed to the pilot corporations.

The CSA notes that the Authority seems to believe that as 80 to 90 percent of its costs are associated with contracts, the Agency cannot examine or comment on such costs. The CSA argues that the Agency has the power to examine all of the Authority's costs, including costs contained in the contracts with the pilot corporations.

#### B. Apprentice pilots

##### Laurentian Pilotage Authority

In response to Question 2, Schedule "A" of Order No. 2002-W-340, a question pertaining to declining traffic, the Authority states "...Le nombre d'apprentis pilotes est aussi réajusté à la baisse diminuant ainsi le niveau des dépenses." (The number of apprentice pilots is also reduced, therefore reducing the Authority's expenses) [translation]. Captain Deschênes, testified that the forecasted 18 apprentice pilots required in 2003, based on a forecast of traffic that was expected to be at a much higher level, must now still be hired regardless of the fact that traffic is decreasing. Captain Deschênes states that pilots were retiring at an earlier age, i.e., before age 65, and that the l8 apprentice pilot were required to avoid a situation of not having enough fully qualified, "Class A" pilots to handle traffic.

The CSA states that this is one of the only areas where the authority has flexibility and that it is not bound by law or contract provision to incur any expense related thereto. Further, the CSA questions the Authority's requirement for 18 apprentice pilots in 2003 and the basis for this number. The CSA states that the Authority did not adjust the number of apprentice pilots in light of declining traffic and that the workload guideline used by the Authority has not been updated for 15 years. The CSA observes that individual pilot workload is decreasing with declining traffic and that the workload does not seem excessive. The CSA finds it unusual that no study has been undertaken to determine if the efficiency of pilotage services could be improved in the face of declining traffic. The CSA states that there has not been any consultations with users regarding possible delays to shipping with associated costs if the hiring of apprentice pilots is delayed.

##### Laurentian Pilotage Authority

In District 1, the Authority states that there is a productivity payment clause in the service contract with the CPSLC to which additional payments are to be made to that corporation when the average number of assignments per pilot exceeds 120. The Authority states that it tries to maintain pilot strength in District 1 at a high enough level to avoid having to make productivity payments. The Authority states that the guideline of 120 assignments per pilot in District 1 was based on a study conducted about 15 years ago and that no new studies have been carried out since then. The Authority expresses the opinion that a new study could very well show that a recommended workload would be less than 120 assignments per pilot. The Authority states that the guideline for workload in District 2 was 95 assignments per pilot per year due to the fact that the assignments are considerably longer in duration as compared with those in District 1.

##### The Shipping Federation of Canada

The SFC states that the contract for pilotage services in District 1 contains a provision for the payment of an extremely high bonus if the workload per pilot is above the maximum stipulated in the contract. The Authority and the service provider need to come to more reasonable terms on this issue as it is a constant threat to the Authority's efforts to maintain a reasonable level of productivity and number of pilots.

#### D. Pilot boats

##### Laurentian Pilotage Authority

The Authority states that it owns and operates 3 pilot boats at Les Escoumins and indicates that it contracts for pilot boat services at four locations; the Authority levies the charge negotiated between itself and the pilot boat contractor as well as an administrative charge for doing so. The Authority adds that the revenue from the negotiated charges is then remitted to the contractor. The Authority advises that there is only a single pilot boat contractor that it must negotiate with for pilot boat services at three of the four locations.

##### The Shipping Federation of Canada

The SFC states that the Authority has to negotiate with a single owner for pilot boat services at three of the four pilot boat locations. This is of concern to the SFC in the face of high rates that are charged for pilot changes, especially in winter, which contributes to the high overall cost of pilotage.

## ANALYSIS AND FINDINGS

### Mandate of the Agency

Under subsection 34(2) of the Pilotage Act, an interested person who has reason to believe that any charge in a proposed tariff of pilotage charges is prejudicial to the public interest may file a notice of objection setting out the grounds therefor with the Agency within thirty days after the publication of the proposed tariff in the Canada Gazette. This provision indicates that the public interest in question includes (without limiting the generality thereof) the public interest consistent with section 5 of the CTA. Pursuant to subsections 34(4) and 35(1) of the Pilotage Act, the Agency is required to investigate objections to any proposed charge and make a recommendation to the authority, which shall govern itself accordingly.

In its Decision No. 94-W-2001, the Agency set forth the following policy statements establishing the framework within which a pilotage authority is to operate:

1. A pilotage authority has an imposed public duty to ensure the safety of navigation in Canadian waters under its jurisdiction.
2. A pilotage authority is entitled to receive reasonable compensation for fulfilling the imposed duty of ensuring the safety of navigation.
3. A pilotage authority has a responsibility to organize and provide services in an efficient manner.
4. A pilotage authority has a requirement to be financially self-sufficient and cannot rely upon government appropriations to achieve this.
5. A pilotage authority has the right to establish user charges at a level that enables it to meet the requirement of being financially self-sufficient.
6. User charges set by a pilotage authority are to be fair and reasonable, reflecting only the justifiable costs of providing the service.

This framework is not only consistent with the Pilotage Act, but also with the national transportation policy as set out in section 5 of the CTA.

The first point relates to the imposed public duty of a pilotage authority to ensure the safety of navigation in Canadian waters under its jurisdiction. This duty originates in section 18 of the Pilotage Act, which provides that the objects of an Authority are to establish, operate, maintain and administer an efficient pilotage service in the interests of safety. This duty is also confirmed in the national transportation policy. Thus, the introductory provision of section 5 and paragraph 5(a) of the CTA recognize the importance of establishing a safe transportation system that meets the highest practicable safety standards.

The second point relates to the compensation to which a pilotage authority is entitled. There is no doubt that a pilotage authority is entitled to receive reasonable compensation for fulfilling the imposed duty of ensuring the safety of navigation. Paragraph (f) of the national transportation policy recognizes this fact. Paragraph (f) nevertheless makes clear that the fairness and reasonableness of this compensation is a function of the resources, facilities and services that the carrier is required to provide as an imposed public duty. A pilotage authority will therefore not be compensated for all of the costs incurred; rather, it will be compensated only for fair and reasonable costs. Further, the compensation to which a pilotage authority is entitled depends on the services that it is required to provide as an imposed public duty. In other words, a pilotage authority could not be compensated for the costs of services that do not directly meet the needs of the public, namely the users.

The issue of compensation is closely linked to the efficiency of the service, which is the third point of the framework of rights and duties of a pilotage authority. Section 18 of the Pilotage Act provides that the pilotage service established by a pilotage authority is to be efficient. This is made clear by the introductory paragraph of the national transportation policy, which recognizes the importance of establishing a viable and effective transportation network, but also in paragraph (b), which recognizes competition and market forces as prime agents in providing viable and effective transportation services. The effectiveness of a pilotage authority can therefore not be determined without regard to the needs of the users that it claims to serve.

The fourth and fifth points of the framework relate to the requirement for a pilotage authority to be financially self-sufficient and the recognized corollary right to establish user charges that enable it to meet that requirement. Moreover, subsection 33(3) of the Pilotage Act requires that the charges be fixed at a level that permits the authority to operate on a self-sustaining financial basis, and that they be fair and reasonable. The requirement to be financially self-sufficient is also reinforced by section 36.01 of the Pilotage Act, which provides that no payment may be made to an authority under an appropriation by Parliament to enable the authority to discharge an obligation or liability. Section 36, however, provides for the borrowing of money by an authority for the purpose of defraying its expenses.

The Agency is of the opinion that the tariff of pilotage charges must permit a pilotage authority to generate sufficient revenues to cover the inherent expenses of the service provided to the users. The requirement to be financially self-sufficient, however, does not mean that users of a pilotage service have to bear costs inconsistent with scrupulous and effective management by an authority. Accordingly, a tariff of pilotage charges that permits an authority to cover the reasonable inherent expenses related to providing an efficient pilotage service will meet the requirement to be financially self-sufficient, as provided for in subsection 33(3) of the Pilotage Act, even if the revenues generated by the tariff are insufficient to cover the authority's anticipated expenses not due to effective management. The Agency is of the opinion that an authority's imposed requirement to be financially self-sufficient is therefore closely linked to its duty of efficiency.

The sixth point of the framework further specifies that user charges must not only be fair and equitable, they must also reflect only the justifiable cost of providing the service. Regarding the fairness and equity of the pilotage charges that may be imposed by a pilotage authority, the Agency refers the parties to what it said on the subject in its Decision No. 94-W-2001. The Agency noted among other things that, in order for pilotage charges to be fair and reasonable, they had to result from an economic and efficient service. The Agency specified that the costs that could legitimately be recovered from users had also to be shown to be based on an economic and efficient service (see in this regard Decision No. 669-W-1995 of the National Transportation Agency). In this respect, the Agency considers that the costs must favour competition and market forces within the meaning of the introductory paragraph of the national transportation policy and its paragraphs (c) and (g).

It is on the basis of these principles, then, that the Agency will exercise its mandate to determine, in accordance with the evidence established by the parties in the written pleadings and at the hearing, whether the proposed tariff of pilotage charges respects the balance of rights and duties of the various parties and is accordingly in the public interest within the meaning of the Pilotage Act and the national transportation policy.

### Financial results

As part of the assessment of the Authority's tariff proposal, the Agency examined the Authority's operational and financial results for the 1998 to 2003 period.

A summary of the financial results is presented in the following table. The figures for 1998 to 2001 are actual results and the figures for 2002 and 2003 are projections. The 2003 forecast includes the proposed 3.95 percent tariff increase. The revenue for the Authority comes entirely from the shipowners, while the bulk of expenses consists of payments to the Districts 1 and 2 pilot corporations.

1998 1999 2000 2001 20021 20032 1,450 1,343 1,459 1,239 1,292 1,343 20,120 20,271 20,353 20,243 21,156 1,992 14,728 15,200 14,667 14,896 15,578 16,193 3,069 2,872 2,842 2,710 3,013 2,875 1,863 1,962 1,833 1,981 2,019 2,251 177 128 281 139 119 121 41407 41776 41435 41208 43177 44775 1,010 1,024 1,247 1,153 1,236 1,290 18,790 18,702 18,931 18,235 18,590 19,458 13,285 13,840 13,562 13,584 14,149 15,016 2,926 2,738 2,712 2,593 2,875 2,743 1,552 1,547 1,678 1,782 2,066 2,037 1,476 1,533 1,715 1,710 1,813 1,959 1,902 1,916 1,957 2,309 2,436 2,264 40,943 41,300 41,804 41,368 43,165 44,767 464 476 -370 -160 12 8 1,649 1,553 1,570 1,229 1,243 1,256 12,750 12,627 12,158 10,975 11,043 11,078 7,619 7,474 7,004 6,571 6,433 6,321 22,018 21,654 20,713 18,775 18,719 18,655

These results show that the Authority's revenues decreased by 0.5 percent from 1998 to 2001, while expenses rose by 1.3 percent. As a result, the Authority went from a profit on operations in 1998 and 1999 to losses in 2000 and 2001.

The Authority is the sole provider of pilotage services to a mainly captive market and these services, for the most part, are subcontracted to the two pilot corporations in Districts 1 and 2.

### Tariff increases

There is considerable evidence on record regarding recent tariff increases of the Authority and increases in the CPI. Information in this regard is summarized below for the 1996 to 2003 period.

Comparison of Authority Tariff Increasesand the Consumer Price Index (%)
Year Authority Tariff Increases Consumer Price Index Canada
1996 7.1% 1.6%
1997 5.4% 1.6%
1998 5.0% 0.9%
1999 3.0% 1.7%
2000 3.0% 2.7%
2001 4.2% 2.6%
2002 4.1% 3.1%
2003 3.95% 2.5%3

In selecting a CPI forecast for 2003, the Agency looked at a number of different forecasts from Canadian banks as well as information provided by Informetrica, which was based on the projections of a group of Canadian economic forecasters. The CPI forecasts from the banks varied from 2.1 to 2.9 percent for 2003, while that from the group of economic forecasters was 2.5 percent. The Agency concluded that the forecast of 2.5 percent for 2003 was the most representative of the expected change in the CPI.

From 1996 to 2002, the Authority had cumulative tariff increases of 36.4 percent, while the cumulative increase in the CPI was 15.1 percent. The addition of the proposed tariff increases for 2003 would bring the cumulative total of tariff increases to 41.8 percent. The CPI cumulative increase would be 18 percent following the addition of the projected increase for 2003.

The Authority's tariff increases have greatly exceeded the change in the CPI, being more than double the rate of change in the CPI over the 1996 to 2002 period. A portion of the tariff increases was related to the repayment of bank loans to cover operation losses from 1996 and 1997. The loans plus interest totalled $4,070,000, which was equivalent to about 10 to 12 percent of the Authority's revenues in one year, or about one-third of the cumulative tariff increases over the 1996 to 2002 period. These loans were fully repaid in June 2002. At the hearing, the Authority was asked to comment on the effect that the tariff increases in recent years have had on the ability of shipowners to compete with other modes of transportation. Mr. Michaud, President and CEO of the Authority, responded by saying that the Authority had not made any comparisons between marine transportation and other modes and that it was not in a position to make such comparisons even though it had heard of the financial difficulties facing the industry. Mr. Michaud testified that the Authority was proud of its performance since 1996 and that it had decided to maintain its course and implement the proposed tariff increases over the next four years. The Agency is of the opinion that the ability of the shipowners and shippers to compete with other modes of transportation is an important element to be considered under the Pilotage Act. The evidence presented by Mr. Michaud on behalf of the Authority indicates a lack of sensitivity to the competitive pressures faced by shipowners and shippers in this industry. The notion put forward by Mr. Michaud with respect to financial self-sufficiency appears to be focussed on tariff increases with little regard for the containment or reduction of costs. Furthermore, the Agency is of the opinion that a government created monopoly service provider is expected to be sensitive to the market conditions faced by its customer base and, for this reason, the legislator provided an appeal mechanism in the Pilotage Act to ensure that a pilotage authority will exercise its monopoly situation in a fair and reasonable manner. ### Expenses The Authority's expenses consist of three main components: pilot boat operations, administrative and dispatching costs, and pilot costs. These three elements are discussed below. #### A. Pilot boat operations Pilot boat operations represent about 10 percent of the Authority's expenses. The Authority explained that the proposed tariff increase would not apply to the pilot boat operations as these were treated separately. The Authority indicated that it contracts for pilot boat services at four locations and these pilot boat charges are set out in the contracts with the operators. The Authority collects the pilot boat charges from users then remits the payments to the pilot boat contractors. The Authority charges an administrative fee for doing so. At Les Escoumins, the Authority sets the pilot boat charge (independent of the general tariff) at a level to cover the cost of operations plus the capital costs associated with the boats that were built in 1996 and 2001. In this way, pilot boat operations are financially self-sustaining and even generate a small surplus for the Authority. #### B. Administrative and dispatching costs Administrative and dispatching expenses taken together represent approximately 10 percent of the Authority's total costs. In its objection, the Chamber commented that the Authority's administrative costs had increased substantially in recent years even though traffic has been declining. The Authority's administrative costs are shown below with comments on year to year changes. Authority Administrative Expenses ($000)
1998 1999 2000 2001 20024 20035
1902 1916 1957 2309 2436 2264

The administrative costs increased by 2.9 percent between 1998 and 2000, then rose by 18 percent in 2001. The Authority indicated that this substantial increase was the result of three main factors: a government directive to increase the salary of the CEO, with retroactive payments to 1999; the hiring of a consultant for a new computer system; and the conduct of a risk-based assessment of compulsory pilotage.

In 2002, the projected increase is 5.5 percent, due, in part, to the cost of risk-based assessments, one on double pilotage, the other on docking pilotage at the port of Québec. In 2003, administrative expenses are expected to decrease.

The Authority described measures it had taken to keep administrative expenses under control. The factors cited above, related to the substantial increase in administrative costs for 2001, all appear to be one time expenses: e.g. the retroactive portion of the salary increase for the CEO and the consultant costs for the computer system. Notwithstanding these factors, there was no decrease in administrative costs during 2002.

Regarding further risk-based assessments, the Authority acknowledged that it had not yet started the next assessment on double pilotage and that the results would not likely be available in time for the next round of negotiations with the pilot corporations. The Agency is of the view that the Authority does have some flexibility with respect to the timing of this risk-based assessment and, as a result, that the Authority has some flexibility in its projected administrative expenses for 2003.

Having considered the information provided by the Authority, the Agency is of the view that the Authority has not been able to adequately address the continued administrative cost increases in 2002. To the extent that the 2003 projected administrative costs are linked to the 2002 results, the projected administrative costs for 2003 are questionable.

#### C. Pilot costs

Pilot costs constitute the largest expense category for the Authority, representing about 80 percent of the total expenses (based on pilot costs for Districts 1.1, 1 and 2). By removing pilot boat costs from the total expenses (as pilot boat operations are managed separately and the tariff increase does not apply to pilot boat charges), the pilot costs would represent approximately 90 percent of the expenses affected by the proposed tariff increase.

Objectors were concerned with several aspects of the pilot costs: the magnitude of the fee increases awarded to the Districts 1 and 2 pilot corporations, the hiring of apprentice pilots, and the productivity clause contained in the District 1 service contract. These concerns were examined by the Agency along with other aspects of pilot costs.

### Pilot corporations' fees

The current service contract with the CPSLC covers the July 1, 1999 to June 30, 2003 period. There is a 3 percent fee increase in each of the four years of the contract, leading to a cumulative increase of 12.6 percent. By way of comparison, the projected change in the CPI from 1999 to 2002 represents a 10.5 percent increase. The Authority indicated that the CPSLC had rejected the 3 percent increase in the last year of the contract and was demanding a 12 percent increase.

The service contract with the CPBSL covers the January 1, 2000 to December 31, 2003 period. The fee increase was 3 percent for each of the four years covered by the contract, plus an additional 1.75 percent increase in fees for vessel trips in each of the last three years of the contract. The combination of the two increases is equivalent to a 4.59 percent increase in fees in each year of the last three years of the contract. Thus, the cumulative increase in fees over the life of the contract is 17.8 percent. This compares with an increase of 11.4 percent in the CPI over the 2000 to 2003 period.

The foregoing shows that fee increases for the two pilot corporations exceed the increase in the CPI during a time when the Authority has been trying to achieve financial self-sufficiency. The fact that the Authority continues to grant the pilot corporations fee increases that exceed the CPI perpetuates the poor financial state of the Authority. Moreover, the Authority appears to be shackled by its own negotiating strategy with respect to the pilot corporations.

The Authority testified that it wished to avoid the final offer selection process in reaching an agreement on the contract provisions. Making such a public statement appears to the Agency to give the pilot corporations privileged information and, thus, an advantage in future negotiations.

An additional factor, considered to be an aberration by the Agency, is the inclusion of pilot corporation representatives at board planning sessions to discuss the negotiating strategy with the pilot corporations. The Authority acknowledged that, at these board planning sessions, the representative of the concerned corporation was excluded, but the representative of the other pilot corporation took part in the discussion. Mr. Champagne assured the Agency that this would not recur but the Authority obviously had been going into negotiations with a weakened position.

In addition, the Authority has indicated in its public corporate plan summary that it anticipates continued 3 percent increases in fees for the pilot corporations. While the Authority stated at the hearing that these increases do not necessarily reflect what will be presented to the pilot corporations during negotiations, the pilot corporations will be in a strong position to obtain such increases knowing that such increases are being planned. This situation is exacerbated by the disclosure of the fact that the Authority wishes to avoid the final offer selection process.

### Apprentice pilots

The Authority presented evidence on the planned hiring of 18 apprentice pilots in Districts 1 and 2 in 2003 as well as projections of the number of licensed pilots and number of active pilots. The Authority testified that the projected cost of apprentices was $750,000 in 2003 and$1,200,000 in 2004, and that the forecasted number of apprentices is not necessarily affected by the decrease in traffic. The Authority's two witnesses at the hearing could not explain clearly how the number of licensed pilots was determined each year, nor how the Authority determined the number of apprentice pilots to be hired. Moreover, the witnesses appeared to contradict the statement made by the Authority in its response to Order No. 2002-W-340 that the number of apprentice pilots is adjusted when traffic decreases and that there is a corresponding reduction in expenses.

When asked if any internal studies were carried out to find out how many apprentice pilots were needed, the Authority stated that no studies were done, but that the pilot corporations were contacted regarding upcoming pilot retirements. As well, the Authority indicated that it tries to maintain the average workload at about 120 assignments per pilot in District 1 and at 95 assignments per pilot in District 2.

When questioned about the number of apprentice pilots to be hired in 2003, even though traffic has decreased in recent years, the Authority stated that one of the main reasons for recruitment was to replace pilots who are expected to retire in future years. The Authority indicated that the expected retirements would take place regardless of the level of traffic and that there was a need to have a sufficient number of "Class A" pilots in each district.

The Authority stated that there was a tendency for pilots to retire before the age of 65 but it did not present any information to show that this was in fact the case. In addition, the Authority indicated that with a reduced number of "Class A" pilots, there could be a shortage of these pilots as a larger portion of ships now need "Class A" pilots. The Authority did not present any information to substantiate these arguments.

The Agency is of the opinion that the Authority did not substantiate the projected number of apprentice pilots required and also failed to demonstrate that it has defined a plan for pilot succession and attrition, in consultation with the pilots and the industry.

As noted earlier, the Authority tries to maintain pilot strength at a level consistent with the average workload of 120 assignments per pilot in District 1 and of 95 assignments per pilot in District 2.To calculate the average workload, the Authority uses the number of effective pilots on duty each year, rather than the number of licensed pilots. To arrive at the number of effective pilots, the Authority reduces the number of licensed pilots by a factor to account for those pilots on a pre-retirement program, by the number of pilots who are on long-term sick leave, by the number of pilots who are president of pilot corporations and by the number of pilots who will retire in each year.

The Authority did not explain why the number of licensed pilots is reduced by the number of pilots engaged in the management of the corporations. The Agency is of the opinion that having a licensed pilot manage a corporation is a choice made by the corporations, but this pilot is still part of the group of active pilots and should be included in the number of effective pilots.

The Authority indicated that the average pilot workload was based on studies carried out about 15 years ago. The Agency notes that a series of pilot productivity studies were carried out in 1986, 1987 and 1988. The 1988 productivity study examined operations in District 1 and recommended that the workload be 120 assignments per pilot per year. The Authority stated that it has not carried out any workload studies in recent years to see if the workload guideline is still valid under current circumstances. It recognized however that a new study could very well show a lower recommended workload guideline. In this regard, comments were made by witnesses for the Authority indicating that changes have taken place in the size and types of ships. The Agency is also aware that considerable progress has been made in vessel navigation technology in recent years.

Given the length of time that has elapsed since previous pilot workload studies were carried out and the changes that have taken place in ship design and technology, an examination of the pilot workload would seem to be appropriate.

### Contract provisions

The Authority has included provisions in the service contracts that relate to its regulatory powers and also have cost implications for users. One example of this is a contract provision whereby the pilot corporation is recognized as the principal party for making recommendations on pilotage matters and on navigational safety.

Other examples of clauses in the service contracts that relate to the regulatory powers of the Authority are those related to situations or types of ships that require the assignment of two pilots on board the vessel: i.e., tankers, cruise ships, winter season. There are also clauses in the service contracts that relate to the issuance of pilotage certificates.

The Minister of Transport noted his concern over such contract provisions in his letter to the Authority dated November 15, 1999, following the completion of the Ministerial Pilotage Review. In that letter, the Minister stated, inter alia:

.... The inclusion of issues subject to regulation in pilotage service contracts would make it appear that the Authority has circumvented the federal regulatory process....

Provisions, such as these, which require regulatory approval should not be included in any future service contracts.

Thus the Minister of Transport has indicated clearly that the Authority should not include any provisions in service contracts that relate to the regulatory powers of the Authority under the Pilotage Act.

The Authority should conduct a thorough review of all contract provisions to ensure that all clauses relating to regulatory powers are removed in accordance with the Ministerial directive. The inclusion of such clauses in the service contracts is an improper delegation of the Authority's powers to the pilot corporations. In so doing, the Authority has limited itself as to actions or changes that it can make through regulatory amendments which it is mandated to do under the Pilotage Act.

At the hearing, when questioned about efforts of the Authority to reduce costs and to contain pilot corporation fee increases to less than 3 percent, Mr. Champagne made the following statement:

(translation) It is necessary to find ways to reduce cost items within the contracts with the pilot corporations.

The Agency is encouraged by Mr. Champagne's comments. Cost savings from the service contracts should have a significant impact on the overall expenses of the Authority as they represent its largest expense item.

The Authority has also included in the service contracts with the Districts 1 and 2 pilot corporations a clause whereby the contract can be reopened by one of the parties on 90 days notice. This provision has been exercised by the CPSLC in respect of the 3 percent fee increase for the last year of the contract - July 1, 2002 to June 30, 2003. That corporation advised the Authority that it wanted a 12 percent fee increase. Arbitration hearings on the issue were held in November 2002, but the outcome of these hearings was not known at the time of writing of this Decision. The provision whereby one of the parties can unilaterally reopen the contract is unusual and may have cost implications for users.

After having considered the evidence, the Agency finds that the Authority's negotiating and planning strategies appear to have led it to make concessions to the two pilot corporations that have weakened both the Authority's financial situation and the effective management of its regulatory responsibilities, notably for the following reasons:

• The inclusion of board members pilot representatives in board planning sessions to discuss negotiation strategy with the pilot corporations.
• The indication in the Authority's public corporate plan summary that it projects annual 3 percent fee increases for the pilot corporations, thereby indicating to both corporations that such an increase is the effective base case.
• The public notification made by the Authority that it wishes to avoid the final offer selection process in reaching agreements with the pilot corporations, thereby indicating its potential willingness to make concessions rather than running the risk of going into a final offer selection process with a well documented case for lesser increases.
• The failure by the Authority to substantiate the projected numbers of apprentice pilots required and to demonstrate that it has a specific plan for pilot succession and attrition, in consultation with the pilots and the industry.
• The statement made by the Authority that the average pilot work load is based on studies carried out 15 years ago and that no studies have been carried out in recent years to validate the appropriateness of the workload guideline under the current circumstances.
• The inclusion of clauses in the service contracts with the pilot corporations that relate to the regulatory powers of the Authority under the Pilotage Act.

For these reasons, the Agency concludes that the Authority has hindered its ability to manage the costs of its pilotage services effectively and efficiently.

### Public interest

As has been noted earlier, the Agency's examination of the public interest must take into consideration the public interest that is consistent with the national transportation policy provisions of the CTA. These provisions encompass the concepts of fairness and reasonableness that are referred to in section 33 of the Pilotage Act, which describes a pilotage authority's mandate to establish pilotage tariffs. In past investigations, the Agency has established that in order for pilotage tariffs to be fair and reasonable, they must result from economic and efficient pilotage services.

The objectors argued that the tariff proposal was contrary to certain aspects of section 5 of the CTA and that, consequently, it could not be considered to be in the public interest. The objectors referred to the provisions of the national transportation policy dealing with the ability of carriers to compete freely with other carriers or other modes of transportation, the ability to transport goods between points in Canada without undue economic obstacles and the ability to be economically viable.

The objectors argued that the cumulative effect of continued increases in pilotage tariffs was detrimental to their ability to compete and also impacted the marine industry's economic viability. The objectors recognized that pilotage charges are and always will be a relatively small portion of overall vessel operating costs, but that this did not mean that there could be continued increases in pilotage costs and that pilotage costs could simply be ignored.

The CSA argued that while it was impossible to establish the existence of direct harm to shipowners from continually increasing pilotage, it was a matter of common sense that increased costs would have an impact on the ability of shipowners to compete.

For these reasons, the objectors argued that increases above the change in the CPI are unreasonable and result in undue economic obstacles and hardship for users of the St. Lawrence waterway.

While the Agency recognizes that the Authority is vested with the public duty to provide pilotage services to ensure safe navigation in a portion of the St. Lawrence River, and while the Agency recognizes that in accomplishing this mandate, the Authority has the right to recover from the users the inherent costs associated with such service or mandate, one must not forget that the discretion conferred upon the Authority to establish a tariff of pilotage charges is not an unfettered right. To the contrary, the Pilotage Act carefully circumscribed this right.

Subsection 33(3) of the Pilotage Act sets out the factors that the Authority must balance when establishing tariffs of pilotage charges. In this respect, tariffs of pilotage charges must, on the one hand, permit the Authority to operate on a self-sustainable financial basis and, on the other hand, be fair and reasonable.

The evidence shows that the Authority has difficulty in controlling its costs. This difficulty has resulted in year over year increases in expenditures that has had the effect of forcing the Authority to seek yearly increases to its pilotage tariff that are well beyond the rate of change in the CPI. This is evidenced from a cumulative increase in tariff of pilotage charges of 36.4 percent from 1996 to 2002, as compared to a cumulative increase in the CPI of 15.1 percent over the same period.

The Agency is troubled by the fact that during a period when the Authority is struggling to achieve financial self-sufficiency, is, by its own admission, trying to control or reduce its administrative costs, and is aware that the users of the pilotage services have been faced with a cumulative tariff increase of 36.4 percent, the Authority nevertheless decided to grant or is projecting to grant its two pilot corporations fee increases which continue to be beyond the change in the CPI.

In addition, the inability of the Authority to substantiate the projected number of apprentice pilots required for 2003 and the decision of the Authority to agree to the various contractual clauses discussed earlier, which only inflate its yearly expenditure, lead the Agency to the conclusion that the Authority is operating with some significant inefficiencies.

The obligation imposed on an Authority under the Pilotage Act to operate efficiently is an important one. It not only ensures the users that the pilotage service offered is safe, but it also ensures that the cost charged for the use of this service does not exceed what is otherwise fair and reasonable.

In the present case, and in light of the above findings, the Agency has determined that the users of the pilotage service cannot and should not be constantly asked to bear yearly tariff increases well beyond the change in the CPI. This is neither the intent of the Pilotage Act nor the national transportation policy found in the CTA.

Accordingly, the Agency concludes that the proposed 3.95 tariff increase for 2003 is prejudicial to the public interest. The Agency is of the opinion, however, that an increase equivalent to the projected change in the CPI for 2003 of 2.5 percent is not detrimental to the public interest.

### Related issues

#### Communications

In Decision No. 94-W-2001, the Agency noted that there was a need for greater communication between the Authority and interested parties. The Agency heard from the Authority at the hearing that it had adopted a communication strategy, but this was not fully described by the Authority at the hearing. The Agency notes that while the Authority has held a series of meetings with interested parties, these meetings, as described by the Authority, all seem to be for information purposes to describe what the Authority has done and what the Authority is proposing to do in the future. There still does not appear to be meaningful consultation with users to seek their input on the cost of the pilotage services. Moreover, the Authority continues to repeatedly exclude the Chamber from any of its so called consultations, although this group has clearly shown its interest in pilotage issues in the Laurentian region over many years and its membership represents most of the shippers, who, in the end, pay for the pilotage services.

The Authority described a new procedure that will allow users to be informed of the progress of negotiations with the pilot corporations. This appears to be a useful step in getting input from users and other interested parties on the strategy to be employed in negotiations. However, the consultations should not be limited to the associations representing shipping lines; they should also include shipper associations.

In discussing possible cost reductions at the hearing, the Authority made a suggestion that night pilotage could be discontinued as a measure to reduce costs. This appears to be another example of a situation where the Authority has not had any real communication with the users on possible changes to pilotage services, as the users stated that such a proposal had never been presented to them formally with a request for feedback. The Agency points out that a public hearing is not a forum where new proposals should be placed before users with the expectation that the users will be able to respond at that time.

The Agency is of the opinion that there is still a lack of meaningful communication between the Authority and interested parties where input is sought from such parties. The Authority seems to be content with telling parties of its decisions rather than seeking input from the parties before major decisions are taken. The Agency agrees with Mr. Champagne that there is a need to have a better dialogue among the Authority, the users and other parties than has been the case to date. Mr. Champagne stated that there was a need for a better relationship between parties to overcome the somewhat confrontational attitude that has existed for a long time and this can only be achieved with better communication.

While the extent of the communications between the Authority and interested parties did not influence the Agency's determination of whether the tariff proposal is prejudicial to the public interest, the Agency is concerned about the seemingly one-sided communication and the exclusion of a major group of interested parties.

#### Productivity payment clause

The productivity payment clause in the service contract with the CPSLC is of considerable importance to the Authority. If the average workload in the district rises above 120 assignments per pilot per year, then the Authority must pay a bonus for each additional assignment above this guideline; the bonus is equivalent to an additional 50 percent of the payment for the assignment. For each assignment requiring a bonus payment, the Authority receives less revenue from the user than the cost it must pay to the CPSLC.

The Agency commented on the productivity payment clause in Decision No. 94-W-2001. The Agency reiterates that productivity payments are normally made where there is increased efficiency or increased productivity. This is not the case with the contracted pilotage services. The pilots perform assignments in accordance with a duty roster and in accordance with regulations to ensure that a pilot is rested between assignments. Thus, there is no compelling reason why the CPSLC should receive a bonus payment for each assignment over and above the average of 120 assignments per pilot per year.

The Agency is of the view that the productivity payment clause only leads to greater costs for users, without any added value, and is a financial burden for the Authority with no offsetting revenue. The Agency is of the opinion that the productivity payment clause is, in its present form, detrimental to the industry and to the Authority's efforts to achieve financial self-sufficiency.

## RECOMMENDATION

The Agency is of the opinion that the tariff proposal published by the Laurentian Pilotage Authority on July 6, 2002 for a 3.95 percent tariff increase is not in the public interest and should therefore not be implemented. The Agency is of the opinion that a tariff increase of 2.5 percent is not prejudicial to the public interest and may be implemented.

This Decision takes effect as of November 29, 2002, the date on which Decision No. 645-W-2002, containing the recommendation of the Agency, issued.

1. Projections
2. Projections
3. The CPI for 2002 is the year to year change as of October 2002. The forecast for 2003 is from a group of Canadian economic forecasters.
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5. Projections
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