Availability of the Annual Financial and Operating Statements Filed by Domestic Offshore Carriers

FEDERAL MARITIME COMMISSION

46 CFR Part 552

[Docket No. 95-15]

Availability of the Annual Financial and Operating Statements

Filed by Domestic Offshore Carriers

AGENCY: Federal Maritime Commission.

ACTION: Notice of Proposed Rulemaking.

-----------------------------------------------------------------------

SUMMARY: The Federal Maritime Commission proposes amending its

regulations governing the availability of the annual financial and

operating statements filed by vessel-operating common carriers by water

in the domestic offshore trades. Comments are sought on a proposal to

allow access to the annual statements by the attorneys general of the

non-contiguous states, territories, and possessions having ports in the

trade served by the carrier. The proposed rule addresses a comment made

in a prior proceeding by the State of Hawaii, and is intended to

improve parties' access to the information while avoiding harm to a

regulated carrier's competitive position.

DATES: Comments due November 15, 1995.

ADDRESSES: Comments (original and fifteen copies) to: Joseph C.

Polking, Secretary, Federal Maritime Commission, 800 North Capitol

Street, N.W., Washington D.C. 20573-0001, 202-523-5725.

FOR FURTHER INFORMATION CONTACT:

Anne M. McAloon, Bureau of Economics and Agreement Analysis, Federal

Maritime Commission, 800 North Capitol Street, N.W., Washington D.C.

20573-0001, 202-523-5790

C. Douglass Miller, Office of the General Counsel, Federal Maritime

Commission, 800 North Capitol Street, N.W., Washington D.C. 20573-0001,

202-523-5740

SUPPLEMENTARY INFORMATION: On September 5, 1995, the Federal Maritime

Commission (``FMC'' or ``Commission'') published a final rule in FMC

Docket No. 94-07, Financial Reporting Requirements and Rate of Return

Methodology in the Domestic Offshore Trades (``Docket 94-07''), which

amended the provisions governing carriers' financial reporting

requirements and rate of return methodology in the domestic offshore

trades (60 FR 46047). Among other things, the rule changed the method

of determining the reasonableness of a carrier's return on rate base

from the comparable earnings test to the before-tax weighted average

cost of capital methodology (``BTWACC'').

In comments on the proposed rule in Docket 94-07, the State of

Hawaii (``Hawaii'') argued that the proposed BTWACC methodology would

require that all interested parties have access to complete and

accurate information regarding a carrier's financing and

capitalization. Hawaii pointed out that the comparable earnings test,

which was previously required to be used, does not rely on company-

specific data because it uses a cost of capital estimate based on the

rate of return of U.S. manufacturing firms in general. However, under

the BTWACC methodology, Hawaii noted that carriers would be using

company-specific data to compute their cost of capital and thus any

meaningful rebuttal would require access to such information. Hawaii

concluded therefore that: ``The Commission's current ruling that a

carrier's annual financial report need not be made available to all

parties, places the parties at a disadvantage because it is impossible

to present meaningful rebuttal testimony without a carrier's cost of

capital data.'' (Hawaii Initial Comments at 5).

The Commission's current regulations require the domestic offshore

carriers to file financial and operating data under two circumstances--

annually within 150 days after the close of the carrier's fiscal year

and in support of any general rate increases. The annual statement of

financial and operating data consists of a rate base exhibit and

supporting schedules, an income account exhibit and supporting

schedules, and a rate of return exhibit and supporting schedules. The

annual statement is to be accompanied by a company wide balance sheet

and income statement. The Commission's regulations, at 46 CFR 552.4(c),

protect the carriers' annual reports from public disclosure and treats

them as confidential information in the files of the Commission.

In support of general rate increases, domestic offshore carriers

are required to file, pursuant to 46 CFR 552.2(f), the following

material: an actual midyear rate base exhibit and supporting schedules

for a twelve-month period commencing not more than fifteen months prior

to the proposed increase; a projected midyear rate base exhibit and

supporting schedules for a twelve-month period commencing on the first

day of the month following the date on which the proposed increase will

become effective; a projected income account exhibit and supporting

schedules for the same period as the projected midyear rate base

exhibit; actual and projected rate of return exhibits; and associated

workpapers. In

[[Page 53573]]

the event the general increase in rates is filed within six months of

the end of the carrier's fiscal year, the regulated carrier may submit

its annual report in lieu of the actual and projected income account

exhibit. In addition, Rule 67 of the Commission's Rules of Practice and

Procedure, 46 CFR 502.67, requires the carrier to file, under oath,

testimony and exhibits constituting its direct case. Both the material

submitted pursuant to 46 CFR 552.2(f) and the testimony and exhibits

submitted pursuant to Rule 67 (which includes the 46 CFR 552.2(f)

material) are public.

The Commission has traditionally recognized that disclosing the

information contained in the domestic offshore carriers' annual reports

(FMC Forms 377 and 378) to third parties may cause harm to the

regulated carrier's competitive position. However, given the changes to

the rate of return methodology made in Docket 94-07, the Commission

believes that Hawaii's statement merits further consideration. For

example, the BTWACC methodology prescribes the use of a proxy group to

determine the cost of common-stock equity for a company that does not

issue its own common-stock equity, and requires selection criteria for

proxy group members which are based on information that may be

available only from the annual reports (e.g., annual income in the

trade). Further, proxy group selection would most probably require

historical information beyond that accompanying a general rate increase

filing. Even if a carrier were to include all historical information it

used in choosing a proxy group, other historical annual report

information might suggest a different proxy group selection.

The Commission has found that most federal and state regulatory

agencies do not consider the regulated companies' annual reports to be

confidential. On the federal level, both the Federal Energy Regulatory

Commission and the Federal Communications Commission consider the

annual financial and operating reports of the regulated companies as

public information. Likewise, of those state regulatory agencies

requiring public utilities to file annual financial reports, the

majority regard the contents of those reports to be public

information.\1\

\1\ See ``Table 59, Annual Accounting Report Forms,'' in Utility

Regulatory Policy in the United States and Canada Compilation 1992-

1993, National Association of Utility Regulatory Commissioners

(``NAURC''), Washington, D.C., 1993, pp. 126-7.

---------------------------------------------------------------------------

The Commission, therefore, is proposing to amend its rules to allow

access to the annual reports by the attorneys general of noncontiguous

states, commonwealths, possessions or territories having ports in the

relevant trade served by the regulated carrier. The government officers

and employees given access to the annual statements would be required

to certify to the Commission that the information will not be disclosed

to the public and will only be used in connection with analyzing the

allowable rate of return for the regulated carrier in FMC proceedings.

This should allow entities charged with protecting consumer welfare

access to complete financial information concerning the carrier, while

at the same time avoiding harm to the regulated carrier.

Commenters on this proposal are directed to specifically address

the necessity of obtaining the information contained in the carriers'

annual reports and whether that information may be obtained from other

sources.

The Federal Maritime Commission certifies pursuant to section

605(b) of the Regulatory Flexibility Act, 5 U.S.C. 605(n), that this

rule will not have a significant economic impact on a substantial

number of small entities, including small businesses, small

organizational units and small government jurisdictions. The rule is

procedural only and will provide certain parties with more complete

information upon which to base a protest under section 3 of the

Intercoastal Shipping Act, 1933, 46 U.S.C. app. 845. This proposed rule

does not contain a collection of information within the meaning of the

Paperwork Reduction Act of 1995, 44 U.S.C. 3501, et seq., as

implemented by regulations prescribed within 5 CFR Part 1320.

Accordingly, OMB review is not required.

List of Subjects in 46 CFR Part 552

Maritime carriers, Reporting and recordkeeping requirements,

Uniform system of accounts.

Therefore, pursuant to 5 U.S.C. 553, sections 18 and 43 of the

Shipping Act, 1916, 46 U.S.C. app. 817 and 841a, and sections 2 and 3

of the Intercoastal Shipping Act, 1933, 46 U.S.C. app. 844 and 845,

Part 552 of Title 46, Code of Federal Regulations, is proposed to be

amended as follows:

PART 552--FINANCIAL REPORTS OF VESSEL OPERATING COMMON CARRIERS BY

WATER IN THE DOMESTIC OFFSHORE TRADES

1. The authority citation for Part 552 continues to read as

follows:

Authority: 5 U.S.C. 553; 46 U.S.C. app. 817(a), 820, 841(a),

843, 844, 845, 845a and 847.

2. In Sec. 552.4 a new paragraph (d) is added to read as follows.

Sec. 552.4 Access to and audit of records

* * * * *

(d). The annual statements filed by the carriers with the

Commission may be obtained from the Commission by the attorneys general

of every noncontiguous State, Commonwealth, possession or territory

having ports in the relevant trade that are served by the carrier, and

the employees of such attorneys general, upon the submission of the

following certification, under oath, to the Commission:

CERTIFICATION

I, (Name and title if applicable), of (Full name of entity),

having been duly sworn, certify that the annual statements of (Name

of Carrier) will be used solely in order to prepare protests to the

Federal Maritime Commission (``FMC'') or to participate in FMC

proceedings relating to (Name of Carrier) and that their contents

will not be disclosed to any person who has not signed, under oath,

a certification in the form prescribed, which has been filed with

the Federal Maritime Commission, unless public disclosure is

specifically authorized by an order of the Commission or the

presiding officer in an FMC proceeding.

Signature:-------------------------------------------------------------

Date:------------------------------------------------------------------

Signed and sworn before me this ________ day of __________,

19______.

Notary Public:---------------------------------------------------------

My Commission expires:-------------------------------------------------

By the Commission.

Joseph C. Polking,

Secretary.

[FR Doc. 95-25581 Filed 10-13-95; 8:45 am]

BILLING CODE 6730-01-M