Research Summary - Tariffs and Fees

• As part of the Pilotage Act Review

Michel Leclerc

December 2017

Summary

Pilotage Authorities receive no Parliamentary appropriations and must seek revenues to ensure financial self-sustainability through tariffs and, to a much lesser extent, other fees. To enact tariffs or fees, the Pilotage Authorities must follow the federal regulatory process, which is disproportionately taxing both in duration and requirements when compared to the simpler processes followed by other Crown corporations and non-departmental agencies. Moreover, the regulatory process and the statutory authorities that enable tariff-setting combine to create a very unstable and unpredictable tariff regime, both for clients subject to this mandatory service and the Authorities struggling to ensure their statutory obligation to be financially self-sustaining. In addition, Pilotage Authorities are very limited in the types of services and products for which they can charge fees. Finally, the Canadian Transportation Agency tariff review process and criteria require modernization.

General Observations

• The Pilotage Act is nearly a half century old, contains outdated legislative language and approaches to revenue generation, and lacks clear objectives, processes and costing methodologies to establish tariffs and other fees
• The federal regulatory process is no longer appropriate for tariff-setting compared to the more effective non-regulatory processes followed by other non-departmental agencies
• The objection process can incent tariff appeals when they are not necessary and is awkwardly located in the middle of an increasingly long and complex regulatory process over which the Pilotage Authorities have no control
• Despite sometimes dramatic increases in tariffs, Authorities must still rely on various surcharges and price accommodations to achieve financial self-sustainability from year to year
• Although the Authorities do have the capacity to charge fees for examinations and the issuance of licenses and pilotage certificates under section 20 of the Pilotage Act, none use these authorities the same way or necessarily set fees at similar levels
• The ability to charge fees for other pilotage authority services and products is limited by existing Pilotage Act authorities

Consultations (in person and in writing with Chair)

Clients

• Costs of pilotage services are too high and rising too fast
• Risk management approaches overstate the need for mandatory pilotage in many circumstances
• No consideration of new technologies that might mitigate the need for pilotage services
• Lack of service standards and understandable tariff development methodologies
• Inconsistent tariffs across regions, different definitions of services

Pilotage Authorities

• Current tariff-setting process is rigid and disconnected from operational realities
• Canadian Transportation Agency objection process can threaten revenue requirements for current-year operations
• Canadian Transportation Agency review process should take into account statutory obligation to be financially self-sustaining and other operational considerations
• Existing fee-setting authorities make the Pilotage Authorities too dependent on tariffs alone to maintain financial self-sustainability

Pilots

• Pilots are generally satisfied with the current regime, but agree the Canadian Transportation Agency objection process should be faster

Research on Revenue-Generation Mechanisms

• Modern revenue-generating authorities were reviewed to determine more appropriate mechanisms for the Pilotage Authorities. Reviewed statutes included the Department of Health Act, the Oceans Act, the Service Fees Act, the Canada Marine Act, and the Civil Air Navigation Services Commercialization Act.
• Particular attention was paid to practices in NavCanada, the Port Authorities and the St. Lawrence Seaway Authority.
• Research clearly demonstrated a number of significant deficiencies in the revenue-generation framework for pilotage services in Canada when compared to modern regimes.

Key Recommendations Respecting Tariffs, Fees, and Alternative Revenue Sources

• Pilotage Authorities should have sole responsibility to set tariffs and fees
• The Pilotage Act should allow the Authorities to set fees for a broader array of products and services to reduce the reliance on tariffs; such fees would cover services, the use of facilities, products, rights and privileges, and regulatory processes or approvals
• The process to set tariffs should be streamlined
• Tariff decisions should continue to be subject to Canadian Transportation Agency review, but with clearer criteria, similar to those found in the Civil Air Navigation Services Commercialization Act
• The Pilotage Act should allow annual, automatic fee-increases based on the previous year’s Consumer Price Index, and the maximum allowable increase should be capped^{Footnote 1}, on the understanding that:
  • tariff increases above the Consumer Price Index threshold would require that the Pilotage Authority provide a cost-benefit analysis that justifies increases above the Consumer Price Index level and is made available to clients before new tariffs are introduced; and
  • any increase above the statutory cap in any year should require approval by the Minister of Transport.

Client Support

Clients should support the recommended approach to setting tariffs and fees if:

• There are appropriate tariff-setting methodologies, tariff caps and clear Canadian Transportation Agency review mechanisms
• The Authorities modify the risk management methodologies used to identify compulsory pilotage areas and remove the pilot-bias perceived by clients when compulsory pilotage areas are established
• The Authorities allow greater use of modern technologies or trained ship personnel in lieu of professional pilots in circumstances where new risk assessment methodologies demonstrate that currently-high levels of safety could be maintained by alternative means.