delete PART 404—GREAT LAKES PILOTAGE RATEMAKING
The regulation establishes a detailed, formulaic ratemaking process for Great Lakes pilotage services. The Coast Guard Director uses independent expense reviews to determine 'necessary and reasonable' costs, adjusts for inflation, projects pilot numbers, applies compensation benchmarks, calculates working capital needs, and derives hourly base rates. Full reviews occur every 5 years with interim adjustments, relying on various economic indices and complex calculations.
This rate-of-return regulation imposes heavy compliance and administrative costs while distorting economic incentives. The Averch-Johnson effect encourages over-investment in capital to inflate the rate base, and the subjective 'necessary and reasonable' standard fosters regulatory capture and rent-seeking. No central agency can accurately determine proper rates due to the knowledge problem, making this intervention inherently inefficient and harmful to market discipline.