[Federal Register Volume 65, Number 73 (Friday, April 14, 2000)]
[Proposed Rules]
[Pages 20110-20120]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-9251]


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DEPARTMENT OF TRANSPORTATION

Coast Guard

46 CFR Part 401

[USCG-1999-6098]
RIN 2115-AF91


Great Lakes Pilotage Rates

AGENCY: Coast Guard, DOT.

[[Page 20111]]


ACTION: Notice of proposed rulemaking.

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SUMMARY: The Coast Guard proposes to update the rates that pilots 
receive for their services on the Great Lakes. We are required by 
regulations to review these rates annually. Based on our review, we 
propose to minimally change the rates for the 2000 season to prevent a 
large rate change in future years.

DATES: Comments and related material must reach the Docket Management 
Facility on or before May 15, 2000.

ADDRESSES: To make sure your comments and related material are not 
entered more than once in the docket, please submit them by only one of 
the following means:
    (1) By mail to the Docket Management Facility (USCG-1999-6098), 
U.S. Department of Transportation, room PL-401, 400 Seventh Street SW., 
Washington, DC 20590-0001.
    (2) By delivery to room PL-401 on the Plaza level of the Nassif 
Building, 400 Seventh Street SW., Washington, DC, between 9 a.m. and 5 
p.m., Monday through Friday, except Federal holidays. The telephone 
number is 202-366-9329.
    (3) By fax to the Docket Management Facility at 202-493-2251.
    (4) Electronically through the Web Site for the Docket Management 
System at http://dms.dot.gov.
    The Docket Management Facility maintains the public docket for this 
rulemaking. Comments and material received from the public, as well as 
documents mentioned in this preamble as being available in the docket, 
will become part of this docket and will be available for inspection or 
copying at room PL-401 on the Plaza level of the Nassif Building, 400 
Seventh Street SW., Washington, DC, between 9 a.m. and 5 p.m., Monday 
through Friday, except Federal holidays. You may also find this docket 
on the Internet at http://dms.dot.gov.

FOR FURTHER INFORMATION CONTACT: For questions on this proposed rule, 
call LCDR Don Darcy, Project Manager, Office of Standards Evaluation 
and Development Division, Commandant (G-MSR-1), U.S. Coast Guard, at 
202-267-1200, by facsimile 202-267-4547, or by email at 
[email protected]. For questions on viewing or submitting material 
to the docket, call Dorothy Walker, Chief, Dockets, Department of 
Transportation, telephone 202-366-9329.

SUPPLEMENTARY INFORMATION:

Request for Comments

    We encourage you to participate in this rulemaking by submitting 
comments and related material. If you do so, please include your name 
and address, identify the docket number for this rulemaking (USCG-1999-
6098), indicate the specific section of this document to which each 
comment applies, and give the reason for each comment. You may submit 
your comments and material by mail, hand delivery, fax, or electronic 
means to the Docket Management Facility at the address under ADDRESSES; 
but please submit your comments and material by only one means. If you 
submit them by mail or hand delivery, submit them in an unbound format, 
no larger than 8\1/2\ by 11 inches, suitable for copying and electronic 
filing. If you submit them by mail and would like to know they reached 
the Facility, please enclose a stamped, self-addressed postcard or 
envelope. We will consider all comments and material received during 
the comment period. We may change this proposed rule in view of them.

Public Meeting

    We do not plan to hold a public meeting. But you may submit a 
request for one to the Docket Management Facility at the address under 
ADDRESSES explaining why one would be beneficial. If we determine that 
one would aid this rulemaking, we will hold one at a time and place 
announced by a later notice in the Federal Register.

Background and Purpose

(a) Regulatory History

    On May 9, 1996, the Department of Transportation published a final 
rule in the Federal Register (61 FR 21081). The rule explained the 
methodology used to set the rates for pilots working in the Great 
Lakes.
    On December 14, 1998, the Coast Guard published a notice of annual 
review findings in the Federal Register (63 FR 68697). The Notice 
announced the results of the 1998 Rate Review and requested comments.

(b) Purpose of This Rulemaking

    The Coast Guard is required by 46 CFR 404.1 (b) to conduct an 
annual review of rates for pilots working in the Great Lakes. We 
reviewed these rates by using the methodology found in 46 CFR, part 
404, Appendix A, Step 2.A. As explained in Step 2.A, the compensation 
target for pilots providing service on designated waters of the Great 
Lakes is equal to the approximate average annual compensation for 
masters on U.S Great Lakes vessels. To calculate the compensation 
target for pilots, multiply the average annual compensation earned by 
first mates on U.S. Great Lakes vessels times 150%. The target 
compensation for pilots providing service on undesignated waters of the 
Great Lakes is equal to the approximate average annual compensation for 
first mates on U.S. Great Lakes vessels. We reviewed these pilotage 
rates and determined that they should be adjusted to meet pilot target 
compensation. Therefore, in accordance with 46 U.S.C. 9303(f), and 
based on the 1999 rate review, we are proposing to update the pilotage 
rates to meet these targets. We would like your comments on these 
updated rates.

What Is the Coast Guard Proposing in This Rulemaking?

    We propose to change the rates for pilots in 46 CFR 401.405, 
401.407, and 401.410 as follows:

------------------------------------------------------------------------
    If you are a pilot working in . . .         Your rate will . . .
------------------------------------------------------------------------
Area 1....................................  increase 3%
Area 2....................................  decrease 4%
Area 4....................................  decrease 2%
Area 5....................................  decrease 6%
Area 6....................................  no change
Area 7....................................  increase 9%
Area 8....................................  decrease 5%
------------------------------------------------------------------------

We also propose to decrease the rates in 46 CFR 401.420 and 401.428 by 
1% because the average change in rates for all districts is 1%.
    The yearly rate update is designed to minimize fluctuations in 
pilot compensation and avoid large changes in pilotage rates.
    This rulemaking follows the methodology detailed in 46 CFR Part 
404, including the step-by-step ratemaking calculations contained in 
Appendix A to Part 404. We summarized these calculations in the 
following tables and explained them in more detail afterwards.

[[Page 20112]]



                                              Table A.--District 1
----------------------------------------------------------------------------------------------------------------
                                                                    Area 1  St.    Area 2  Lake        Total
                           Methodology                            Lawrence River      Ontario       District 1
----------------------------------------------------------------------------------------------------------------
Step 1, Projection of operating expenses........................        $287,152        $244,612        $531,764
Step 2, Projection of target pilot compensation.................      $1,088,262        $414,576      $1,502,838
Step 3, Projection of revenue...................................      $1,333,991        $687,207      $2,021,198
Step 4, Calculation of investment base..........................              $0              $0              $0
Step 5, Determination of target return on investment............           6.69%           6.69%           6.69%
Step 6, Adjustment determination................................      $1,359,198        $645,374      $2,004,572
Step 7, Adjustment of pilotage rates............................            1.03             .96            1.01
----------------------------------------------------------------------------------------------------------------


                                              Table B.--District 2
----------------------------------------------------------------------------------------------------------------
                                                                                   Area 5  South
                                                                   Area 4  Lake    East Shoal to       Total
                           Methodology                                 Erie         Port Huron      District 2
                                                                                     Michigan
----------------------------------------------------------------------------------------------------------------
Step 1, Projection of operating expenses........................        $609,164        $518,917      $1,128,081
Step 2, Projection of target pilot compensation.................        $518,220      $1,243,728      $1,761,948
Step 3, Projection of revenue...................................      $1,156,057      $1,886,198      $3,042,255
Step 4, Calculation of investment base..........................         $45,397         $71,006        $116,403
Step 5, Determination of target return on investment............           6.69%           6.69%           6.69%
Step 6, Adjustment determination................................      $1,134,321      $1,773,496      $2,907,817
Step 7, Adjustment of pilotage rates............................             .98             .94             .96
----------------------------------------------------------------------------------------------------------------


                                              Table C.--District 3
----------------------------------------------------------------------------------------------------------------
                                                                 Area 6
                                                              Lakes Huron  Area 7  St.     Area 8       Total
                         Methodology                              and         Mary's        Lake      District 3
                                                                Michigan      River       Superior
----------------------------------------------------------------------------------------------------------------
Step 1, Projection of operating expenses....................     $648,500     $128,476     $446,608   $1,223,584
Step 2, Projection of target pilot compensation.............   $1,140,084     $621,864     $829,152   $2,591,100
Step 3, Projection of revenue...............................   $1,797,967     $688,583   $1,338,912   $3,825,462
Step 4, Calculation of investment base......................      $11,997       $4,595       $8,934      $25,526
Step 5, Determination of target return on investment........        6.69%        6.69%        6.69%        6.69%
Step 6, Adjustment determination............................   $1,789,386     $750,648   $1,276,358   $3,816,392
Step 7, Adjustment of pilotage rate.........................         1.00         1.09          .95          .99
----------------------------------------------------------------------------------------------------------------

Here is a detailed explanation of our step-by-step calculations.

Step 1.A: Submission of Financial Information

    Our first step is to gather financial data from each of the three 
Great Lakes pilot associations (the Associations). Each of the 
Associations must obtain an audit by an independent Certified Public 
Accountant (CPA) and submit these audits to the Director of the Great 
Lakes Pilotage (the Director), in accordance with 46 CFR 403.300.

Step 1.B: Determination of Recognizable Expenses

    Each year, the Director determines which Association expenses will 
be recognized for ratemaking purposes. The Director may hire an 
independent CPA firm to review the expenses reported by the Association 
using the guidelines contained in 46 CFR 404.05. However, for 1999 this 
was not possible due to the transfer of the Office of the Director, 
Great Lakes Pilotage from the St. Lawrence Seaway Development 
Corporation to the United States Coast Guard, and the fact that the 
position of Economist on the Director's staff was vacant for the last 
half of 1998. To determine the reasonable and necessary expenses for 
the purpose of the 1999 Rate Review, we used the Director's 1997 
independent audit of the Associations. In the following paragraphs, we 
discuss some of the details of the audit and afterward, we have 
provided you with a table containing the expenses that the Director 
recognized and approved.
    We calculate target pilot compensation each year based on the 
previous year's compensation earned by first mates on U.S. Great Lakes 
vessels. That figure is added to the total expenses to determine the 
revenue needed for ratemaking purposes. District 2 reported pilot 
compensation of $246,649 as training expenses and District 3 reported 
applicant pilot salaries and benefits of $274,509 as an expense. 
Because the figures represent pilot compensation, they cannot be 
considered expenses for ratemaking purposes. The Director subtracted 
these expenses from the expense bases of Districts 1 and 2.
    To support safety and ongoing learning, each Pilot's Association 
agreed to develop a Continuing Education Plan for registered pilots to 
keep them aware of safety issues and refresh their skills. Each 
Association submitted a plan that the Director approved, with minor 
modifications. The Director will continue to monitor these plans to 
ensure they have been implemented, are effective and are applied to 
each District's continuing education account. The Director reserves the 
right to modify each plan as necessary.
    In order to encourage safety and compensate each District for its 
training

[[Page 20113]]

expenses, the Director has added the following figures to the expense 
bases of each District:
    District 1: $30,000.
    District 2: $40,000.
    District 3: $50,000.
    These figures include $2000 for each District for their ``Train the 
Trainer'' courses which prepare pilots to more effectively contribute 
to the training process.
    The following table displays the results of the audits and the 
Director's adjustments.

                                              Recognizable Expenses
----------------------------------------------------------------------------------------------------------------
                                                                District 1        District 2        District 3
----------------------------------------------------------------------------------------------------------------
Total reported expenses....................................        $343,699         $1,522,063       $1,191,109
Proposed adjustments (independent CPA firm)................          70,939           (225,569)         151,619
Director's adjustments.....................................         (32,894)          (246,649)        (274,509)
                                                                     45,000            (45,602)         (56,203)
                                                                     30,000            (21,151)          40,000
                                                                     40,000                              50,000
                                                            ----------------------------------------------------
    Total recognized expenses..............................        $456,744         $1,023,092       $1,062,016
----------------------------------------------------------------------------------------------------------------

In June 1999, we forwarded the Director's 1997 independent CPA firm 
audit report to the Associations for comment. The following is a 
summary of the CPA firm's major findings and proposed adjustments, 
along with the Director's corresponding adjustments.

Summary of Major Findings and Proposed Adjustments

    We divided the adjustments we made to the reported expenses into 
five categories: (1) Equalization Between districts, (2) reimbursed 
expenses, (3) expenses not necessary for pilotage services, (4) 
expenses related to lobbying, and (5) expenses not conforming to IRS 
guidelines.
(1) Equalization between Associations
    The Coast Guard must ensure that each association's expenses are 
analyzed fairly and consistently with the other associations because 
each one is organized differently. The District 1 and 3 Associations 
are organized as partnerships whereas the District 2 Association is 
organized as a corporation. Because of this difference, the District 2 
Association pays for Social Security taxes, Medicare taxes, insurance 
and travel expenses out of corporate funds while in the District 1 and 
3 Associations these expenses are paid directly by the pilots 
themselves. Since these taxes, insurance and travel expenses are 
legitimate business expenses that should be recognized for ratemaking 
purposes, funds for these expenses have been added to the expense base 
of Districts 1 and 3.
    District 2 spends a great deal more than the other Districts on 
many categories of expenses. For instance, pilot boat expenses in 
District 2 average $176 per trip, while expenses in the other two 
Districts average approximately $97 per trip. Erie Leasing, a wholly 
owned subsidiary of District 2 pilot's association that leases 
equipment back to District 2, reported a net income from operations of 
$70,506 in 1997, while District 3 has no affiliated company and the 
District 1 affiliated company showed a net income of $4520 for 1997.
    In the 1998 rate review, the Director stated that 1998 was the last 
year in which District 2 would be allowed to incur unreasonably high 
expenses. To bring pilot boat charges in line with Districts 1 and 3, 
the Director is reducing District 2's expense base by an additional 
$45,602. This deduction is intended to offset Erie Leasing's net income 
of $70,506 from operations. This, in effect, reduces Erie Leasing's net 
income to $24,904, which represents a 6.69% return on Erie Leasing's 
property and equipment of $372,270.
(2) Reimbursed Expenses
    The independent CPA firm found that multiple parties reimburse some 
expenses for each association and recommended that these expenses 
should not be included in the expense base for each district. Examples 
of these expenses include reimbursement from one pilot association to 
another for shared pilot boats and dispatch, reimbursement from ships 
for tugboat use, and reimbursement from Canadian pilotage operations 
for shared administrative expenses. Although these are legitimate 
business expenses, they are paid by other districts or parties, not by 
basic pilotage rates, and should not be included in the calculation of 
pilotage rates for the district being reimbursed. The Director agrees 
with the independent CPA firm's recommendation to deduct reimbursed 
expenses from the expense bases of District's 2 and 3. These expenses 
include those for Canadian pilotage operations and shared 
administrative expenses.
(3) Expenses Not Necessary for Pilotage Services
    Expenses that are not necessary for the provision of pilotage 
services are disallowed for ratemaking purposes. This is explained in 
46 CFR 404.5 (a)(1), which contains some of the Great Lakes Pilotage 
Ratemaking regulations. This section states: ``Each expense included in 
the rate base is evaluated to determine if it is necessary for the 
provision of pilotage service'' and ``expense items that the Director 
determines are not reasonable and necessary for the provision of 
pilotage service will not be recognized for ratemaking purposes.'' The 
independent CPA firm determined that the largest portion of expenses 
that fits in this category came from the legal challenge by two 
Associations. They challenged the transfer of Great Lakes Pilotage 
oversight functions from the Commandant of the Coast Guard to the 
Administrator of the Saint Lawrence Seaway Development Corporation 
(SLSDC). This transfer did not affect the substantive rules regarding 
pilotage services. These litigation costs are distinguishable from 
expenses that are directly related to the provision of those services, 
such as the cost of transportation to and from vessels or the pilot's 
labor, from which the rate-paying public derives a direct benefit. The 
latter are costs that affect service to the public, while the former 
are not. We allowed some legal expenses directly related to the 
provision of pilotage service, such as the expense of defending a law 
suit by an applicant pilot discharged from the training program for 
cause, which directly affects the quality of service provided the 
public. While it is reasonable to expect the public to share the burden 
of the direct costs of services provided, it is not reasonable to pass 
on the costs of litigation over an issue that has no

[[Page 20114]]

discernable effect on the actual provision of pilotage services. 
Therefore, we are disallowing these legal costs for the purposes of 
this ratemaking ($19,900 in District 1, $36,869 in District 3).
    Furthermore, the Director believes that a major portion of the 
remaining legal costs, even after disallowance for the above, are still 
excessive. In 1997, District 1 reported $34,138 in legal expenses, 
District 2: $21,151, and District 3: $56,203. The Director intends to 
recognize only those legal expenses that are reasonable, necessary and 
directly related to the provision of pilotage services (i.e., they 
directly result from a legal action). In 1997, District 1 incurred 
$34,138 in legal expenses; $1,244 of which was directly related to 
litigation. Therefore, in the absence of any documentation to justify 
these legal expenses, the Director, for ratemaking purposes, is 
disallowing $32,894 in legal expenses for District 1. Furthermore, 
because there were no legal expenses related to litigation in Districts 
2 and 3, the Director is disallowing $21,151 for District 2 and $56,203 
for District 3.
    In addition to the costs associated with legal expenses, the 
independent CPA firm also recommended additional deductions from 
District 2's expenses in the amount of $4800 for overpayment of rent, 
$947 for business promotion, $400 in donations, and $1,988 for 
uniforms. None of these charges are necessary for the provision of 
pilotage services. The Director agrees with the independent CPA firm's 
findings and these expenses have been deducted from the rate base.
(4) Expenses Related to Lobbying
    The independent CPA firm recommended that we deduct $1,392 from 
District 1, $3,428 from District 2, and $12,495 from District 3 for 
lobbying expenses including dues, legal charges, employee payrolls, and 
travel.
(5) Expenses Not Conforming to IRS Guidelines
    The independent CPA firm recommended that we deduct $2,484 from 
District 2's expense base for overpayment of a subsistence allowance 
that does not conform to IRS guidelines. The Director agrees with these 
findings and we deducted these expenses from the rate base.
    During the 1999 navigational season, the Director initiated a 
change to District 1's Working Rules, in order to reduce pilot fatigue. 
This change increased the pilot's minimum time between assignments from 
eleven hours to thirteen hours and approved the use of a car service 
between home and pilot change points. During 1999, the cost of the car 
service was applied as a surcharge on the pilot's uniform source form. 
To incorporate this expense in District 1's expense base, the Director 
has approved an additional $45,000.

Step 1.C: Adjustment for Inflation or Deflation

    To adjust expenses for inflation, we increased the total recognized 
expenses for each association by 2.1%. The 2.1% inflation figure is 
based on the change in the Consumer Price Index (CPI) from January 1998 
to April 1999.

Step 1.D: Projection of Operating Expenses

    Once all adjustments are made to the recognized operating expenses, 
the Director projects these expenses for each pilotage area. The 
Director considers foreseeable circumstances that could affect the 
accuracy of the projection and, as best as possible, determines the 
``projection of operating expenses.''
    For this rulemaking, we adjusted association expenses by 
multiplying the pilotage hour projection for each district (described 
in step 2.B., below) by the aggregate percentage of Association 
expenses that change in relation to a change in pilotage hours. 
Analysis indicates about 57% of Association expenses are affected by a 
change in pilotage hours. For instance, in District 1, pilotage hours 
are projected to decrease 5% (see step 2.B. below) which is multiplied 
by 57% to project that District 1's operating expenses should decrease 
2.8% in response to the projected decrease in pilotage hours. Then, 
District-wide expenses were apportioned to each area according to the 
number of pilots in that area, as determined in step 2.B., below. For 
instance, District 1 is calculated to need seven pilots in Area 1 and 
four pilots in Area 2, therefore, Area 1 was assigned 64% of the 
expenses for the District and Area 2 was assigned 36% of the expenses 
for the District. The results of Step 1 for each district are displayed 
below.

                                                   District 1
----------------------------------------------------------------------------------------------------------------
                                                                    Area 1 St.      Area 2 Lake   Total District
                           Methodology                            Lawrence River      Ontario            1
----------------------------------------------------------------------------------------------------------------
Projection of operating expenses................................        $287,152        $244,612        $531,764
----------------------------------------------------------------------------------------------------------------


                                                   District 2
----------------------------------------------------------------------------------------------------------------
                                                                                   Area 5 South
                           Methodology                              Area 4 Lake    East Shoal to  Total District
                                                                       Erie        Port Huron MI         2
----------------------------------------------------------------------------------------------------------------
Projection of operating expenses................................        $609,164        $518,917       1,128,081
----------------------------------------------------------------------------------------------------------------


                                                   District 3
----------------------------------------------------------------------------------------------------------------
                                                                 Area 6
                                                              Lakes Huron   Area 7 St.  Area 8 Lake     Total
                         Methodology                               and        Mary's      Superior    District 3
                                                                Michigan      River
----------------------------------------------------------------------------------------------------------------
Projection of operating expenses............................     $648,500     $128,476     $446,608   $1,223,584
----------------------------------------------------------------------------------------------------------------


[[Page 20115]]

Step 2.A: Determination of Target Rate of Compensation

    For pilots providing service in undesignated waters, the target 
rate of compensation is equal to the average yearly compensation earned 
by first mates on U.S. Great Lakes vessels. Effective August 1, 1999, 
the rate is $103,644, according to information from the American 
Maritime Officers Union and Great Lakes Ship Operating Companies. This 
rate covers wages and compensation which include work days, vacation 
pay, weekend pay, holiday pay, bonuses, clerical pay, medical benefits 
and pension contributions.
    For pilots providing services in designated waters the target rate 
of compensation is 1.5 times the yearly rate of first mate 
compensation, which is calculated at $155,466. These figures represent 
a 12% increase in pilot's target compensation since pilotage rates were 
last set in 1997.

Step 2.B: Determination of Number of Pilots Needed

    The number of pilots needed is determined by dividing the projected 
bridge hours for each area by the work hour targets for each area i.e., 
1000 hours in designated waters and 1800 hours in undesignated waters. 
Pilot bridge hours are projected based on the vessel traffic that these 
pilots are expected to serve. The Coast Guard used three sources to 
project vessel traffic and bridge hours. These sources included 
industry surveys, projections by the St. Lawrence Seaway Corporation 
and current bridge hour levels. The projection for 1999 is for a 5% 
reduction in Districts 1, 2, and 3. The following bullets list the 
projected equivalent pilot needs for 1999, by area:
     Area 1: 7 pilots.
     Area 2: 4 pilots.
     Area 4: 5 pilots.
     Area 5: 8 pilots.
     Area 6: 11 pilots.
     Area 7: 4 pilots.
     Area 8: 8 pilots.

(We use the term ``equivalent'' because the actual assignment of pilots 
to each area varies according to the needs of vessel traffic). Applying 
this methodology to the undesignated waters of District 3 results in a 
total of 19.2 pilots required for both Areas 6 and 8. Because District 
3 utilizes contract pilots, a total of 19 pilots was utilized instead 
of 20 pilots to determine total pilot target compensation for the 
District. This certainly is not intended to penalize District 3 in any 
manner. Contract pilots enhance profitability while providing District 
3 an added flexibility to comfortably handle sudden surges in traffic, 
while protecting pilot compensation targets in the event that projected 
traffic projections fall short of estimates.

Step 2.C. Projection of Target Pilot Compensation

    Target pilot compensation is determined by multiplying the target 
compensation for each area by the number of pilots in each area. The 
results of Step 2 are summarized below.

                                                   District 1
----------------------------------------------------------------------------------------------------------------
                                                                    Area 1  St.    Area 2  Lake        Total
                                                                  Lawrence River      Ontario       District 1
----------------------------------------------------------------------------------------------------------------
Projection of target pilot compensation.........................      $1,088,262        $414,576      $1,502,838
----------------------------------------------------------------------------------------------------------------


                                                   District 2
----------------------------------------------------------------------------------------------------------------
                                                                                   Area 5  South
                                                                   Area 4  Lake    East Shoal to       Total
                                                                       Erie       Port Huron, MI    District 2
----------------------------------------------------------------------------------------------------------------
Projection of target pilot compensation.........................        $518,220      $1,243,728      $1,761,948
----------------------------------------------------------------------------------------------------------------


                                                   District 3
----------------------------------------------------------------------------------------------------------------
                                                   Area 6  Lakes
                                                     Huron and      Area 7  St.    Area 8  Lake        Total
                                                     Michigan      Mary's River      Superior       District 3
----------------------------------------------------------------------------------------------------------------
Projection of target pilot compensation.........      $1,140,084        $621,864        $829,152      $2,591,100
----------------------------------------------------------------------------------------------------------------

Step 3.A. Projection of Revenue

    We projected Pilotage Revenue by multiplying the revenue by each 
Association in 1998 by the change in traffic projected for each 
Association. The result for each was divided among the pilotage areas 
based on the number of pilots in each area. The results of Step 3 for 
each district are summarized below.

                                                   District 1
----------------------------------------------------------------------------------------------------------------
                                                                    Area 1  St.    Area 2  Lake        Total
                                                                  Lawrence River      Ontario       District 1
----------------------------------------------------------------------------------------------------------------
Projection of revenue...........................................      $1,333,991        $687,207      $2,021,198
----------------------------------------------------------------------------------------------------------------


[[Page 20116]]


                                                   District 2
----------------------------------------------------------------------------------------------------------------
                                                                                   Area 5  South
                                                                   Area 4  Lake    East Shoal to       Total
                                                                       Erie       Port Huron, MI    District 2
----------------------------------------------------------------------------------------------------------------
Projection of revenue...........................................      $1,156,057      $1,886,198      $3,042,255
----------------------------------------------------------------------------------------------------------------


                                                   District 3
----------------------------------------------------------------------------------------------------------------
                                                   Area 6  Lakes
                                                     Huron and      Area 7  St.    Area 8  Lake        Total
                                                     Michigan      Mary's River      Superior       District 3
----------------------------------------------------------------------------------------------------------------
Projection of revenue...........................      $1,797,967        $688,583      $3,825,462
                                                                      $1,338,912
----------------------------------------------------------------------------------------------------------------

Step 4. Calculation of Investment Base

    The independent CPA firm hired by the Director calculated the 
Investment Base for each Association during the analysis. The results 
of those calculations are contained in the reports of the CPA firm, 
which have been forwarded to each of the Districts for comment. The 
Step 4 Investment Base as calculated for each district is displayed 
below.

                                                   District 1
----------------------------------------------------------------------------------------------------------------
                                                                    Area 1  St.    Area 2  Lake        Total
                                                                  Lawrence River      Ontario       District 1
----------------------------------------------------------------------------------------------------------------
Calculation of investment base..................................              $0              $0              $0
----------------------------------------------------------------------------------------------------------------


                                                   District 2
----------------------------------------------------------------------------------------------------------------
                                                                                   Area 5  South
                                                                   Area 4  Lake    East Shoal to       Total
                                                                       Erie       Port Huron, MI    District 2
----------------------------------------------------------------------------------------------------------------
Calculation of investment base..................................         $45,397         $71,006        $116,403
----------------------------------------------------------------------------------------------------------------


                                                   District 3
----------------------------------------------------------------------------------------------------------------
                                                   Area 6  Lakes
                                                     Huron and      Area 7  St.    Area 8  Lake        Total
                                                     Michigan      Mary's River      Superior       District 3
----------------------------------------------------------------------------------------------------------------
Calculation of investment base..................         $11,997          $4,595          $8,934         $25,526
----------------------------------------------------------------------------------------------------------------

Step 5. Determination of Target Rate of Return

    The rate of return on investment (ROI) for 1999 was set at 6.69%. 
This is based on the preceding year's average annual rate of return of 
new issues of high-grade corporate securities (Moody's AAA rating, 
average return). The Step 5 determination of target return on 
investment is displayed below.

                                                   District 1
----------------------------------------------------------------------------------------------------------------
                                                                    Area 1  St.    Area 2  Lake        Total
                                                                  Lawrence River      Ontario       District 1
                                                                     (percent)       (percent)       (percent)
----------------------------------------------------------------------------------------------------------------
Determination of target return on investment....................            6.69            6.69            6.69
----------------------------------------------------------------------------------------------------------------


[[Page 20117]]


                                                   District 2
----------------------------------------------------------------------------------------------------------------
                                                                                   Area 5  South
                                                                   Area 4  Lake    East Shoal to       Total
                                                                       Erie       Port Huron, MI    District 2
                                                                     (percent)       (percent)       (percent)
----------------------------------------------------------------------------------------------------------------
Determination of target return on investment....................            6.69            6.69            6.69
----------------------------------------------------------------------------------------------------------------


                                                   District 3
----------------------------------------------------------------------------------------------------------------
                                                                   Area 6  Lakes
                                                                     Huron and      Area 7  St.        Total
                                                                     Michigan      Mary's River     District 3
                                                                     (percent)       (percent)       (percent)
----------------------------------------------------------------------------------------------------------------
Determination of target return on investment....................            6.69            6.69            6.69
----------------------------------------------------------------------------------------------------------------

Step 6. Adjustment Determination

    We made the adjustment determination using the numbers listed above 
and following the formula found in Step 6 of Appendix A to 46 CFR Part 
404. The Step 6 results for each district are displayed below.

                                                   District 1
----------------------------------------------------------------------------------------------------------------
                                                                    Area 1  St.    Area 2  Lake   Total District
                                                                  Lawrence River      Ontario      1  (percent)
----------------------------------------------------------------------------------------------------------------
Adjustment determination........................................      $1,375,414        $659,187      $2,034,602
----------------------------------------------------------------------------------------------------------------


                                                   District 2
----------------------------------------------------------------------------------------------------------------
                                                                                   Area 5  South
                                                                   Area 4  Lake    East Shoal to       Total
                                                                       Erie        Port Huron MI    District 2
----------------------------------------------------------------------------------------------------------------
Adjustment determination........................................      $1,134,321      $1,773,496       $2,907,81
----------------------------------------------------------------------------------------------------------------


                                                   District 3
----------------------------------------------------------------------------------------------------------------
                                                   Area 6  Lakes
                                                     Huron and      Area 7  St.    Area 8  Lake   Total District
                                                     Michigan      Mary's, River     Superior            3
----------------------------------------------------------------------------------------------------------------
Adjustment determination........................      $1,789,386        $750,648      $1,276,358      $3,816,392
----------------------------------------------------------------------------------------------------------------

Step 7. Adjustment of Pilotage Rates

    To determine the adjustments to pilotage rates in each area we 
multiplied the current pilotage rates in those areas by the rate 
multiplier. The rate multiplier is calculated by dividing the revenue 
needed (from step 6) by the revenue needed (from step 3) for each area. 
The Coast Guard proposes to amend the pilotage rates in 46-404.05-410 
with the rates obtained by multiplying the current pilotage rates times 
the rate multiplier calculated for each pilotage area. The Step 7 
Adjustments of Pilotage Rates for each district are displayed below.

                                                   District 1
----------------------------------------------------------------------------------------------------------------
                                                                    Area 1  St.    Area 2  Lake        Total
                                                                  Lawrence River      Ontario       District 1
----------------------------------------------------------------------------------------------------------------
Adjustment of pilotage rates....................................            1.03             .96            1.01
----------------------------------------------------------------------------------------------------------------


[[Page 20118]]


                                                   District 2
----------------------------------------------------------------------------------------------------------------
                                                                                   Area 5  South
                                                                   Area 4  Lake    East Shoal to       Total
                                                                       Erie       Port Huron MI.    District 2
----------------------------------------------------------------------------------------------------------------
Adjustment of pilotage rates....................................             .98             .94             .96
----------------------------------------------------------------------------------------------------------------


                                                   District 3
----------------------------------------------------------------------------------------------------------------
                                                   Area 6  Lakes
                                                     Huron and      Area 7  St.    Area 8  Lake        Total
                                                     Michigan      Mary's River      Superior       District 3
----------------------------------------------------------------------------------------------------------------
Adjustment of pilotage rate.....................            1.00            1.09             .95             .99
----------------------------------------------------------------------------------------------------------------

Regulatory Evaluation

    This proposed rule is not a ``significant regulatory action'' under 
section 3(f) of Executive Order 12866 and does not require an 
assessment of potential costs and benefits under section 6(a)(3) of 
that Order. The Office of Management and Budget has not reviewed it 
under that Order. It is not ``significant'' under the regulatory 
policies and procedures of the Department of Transportation (DOT)(44 FR 
11040, February 26, 1979).
    We expect the economic impact of this proposed rule to be so 
minimal that a full Regulatory Evaluation under paragraph 10e of the 
regulatory policies and procedures of DOT is unnecessary. This proposed 
rule would make minimal adjustments to the pilotage rates for the Great 
Lakes 2000 shipping season. The Coast Guard used the ratemaking 
methodology found in 46 CFR part 404, Appendix A to identify 
adjustments necessary to achieve target pilot compensation by 
establishing these new rates for pilotage. This ratemaking methodology 
is designed to annually review pilotage rates in order to avoid 
fluctuations in pilot compensation thus avoiding large changes in 
pilotage rates. This notice of proposed rulemaking provides a step-by-
step economic guide to show how the pilotage rates would be changed. 
The results of this rulemaking are in keeping with the Coast Guard's 
desire for a fair and efficient pilotage system.

Small Entities

    Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we 
considered whether this proposed rule would have a significant economic 
impact on a substantial number of small entities. The term ``small 
entities'' comprises small businesses, not-for-profit organizations 
that are independently owned and operated and are not dominant in their 
fields, and governmental jurisdictions with populations of less than 
50,000.
    For the Great Lakes region, small entities potentially impacted by 
this proposed rulemaking include shippers, Great Lakes ports, carriers, 
and shipping agents. The proposed decreases in Great Lakes pilotage 
rates are not expected to significantly impact small businesses because 
this rulemaking actually reduces the financial burden on small entities 
and on the general public.
    Therefore, the Coast Guard certifies under 5 U.S.C. 605(b) that 
this proposed rule would not have a significant economic impact on a 
substantial number of small entities. If you think that your business, 
organization, or governmental jurisdiction qualifies as a small entity 
and that this rule would have a significant economic impact on it, 
please submit a comment to the Docket Management Facility at the 
address under ADDRESSES. In your comment, explain why you think it 
qualifies and how and to what degree this rule would economically 
affect it.

Assistance for Small Entities

    Under section 213(a) of the Small Business Regulatory Enforcement 
Fairness Act of 1996 (Pub. L. 104-121), we want to assist small 
entities in understanding this proposed rule so that they can better 
evaluate its effects on them and participate in the rulemaking. If the 
rule would affect your small business, organization, or governmental 
jurisdiction and you have questions concerning its provisions or 
options for compliance, please consult Tom Lawler, Chief Economist, 
Great Lakes Pilotage (G-MW-1), U.S. Coast Guard, at 202-267-6447, by 
facsimile 202-267-4700, or by email at [email protected].
    Small businesses may send comments on the actions of Federal 
employees who enforce, or otherwise determine compliance with, Federal 
regulations to the Small Business and Agriculture Regulatory 
Enforcement Ombudsman and the Regional Small Business Regulatory 
Fairness Boards. The Ombudsman evaluates these actions annually and 
rates each agency's responsiveness to small business. If you wish to 
comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR 
(1-888-734-3247).

Collection of Information

    This proposed rule would call for no new collection of information 
under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

Federalism

    The Coast Guard has analyzed this proposal under the principles and 
criteria in Executive Order 12612 and has determined that this proposal 
does not have sufficient federalism implications to warrant the 
preparation of a Federalism Assessment.

Unfunded Mandates Reform Act

    The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) 
requires Federal agencies to assess the effects of their regulatory 
actions not specifically required by law. In particular, the Act 
addresses actions that may result in the expenditure by a State, local, 
or tribal government, in the aggregate, or by the private sector of 
$100,000,000 or more in any one year. Though this proposed rule would 
not result in such an expenditure, we do discuss the effects of this 
rule elsewhere in this preamble.

Taking of Private Property

    This proposed rule would not effect a taking of private property or 
otherwise have taking implications under E.O. 12630, Governmental 
Actions and Interference with Constitutionally Protected Property 
Rights.

Civil Justice Reform

    This proposed rule meets applicable standards in sections 3(a) and 
3(b)(2) of E.O. 12988, Civil Justice Reform, to

[[Page 20119]]

minimize litigation, eliminate ambiguity, and reduce burden.

Protection of Children

    We have analyzed this proposed rule under E.O. 13045, Protection of 
Children from Environmental Health Risks and Safety Risks. This rule is 
not an economically significant rule and does not concern an 
environmental risk to health or risk to safety that may 
disproportionately affect children.

Environment

    We considered the environmental impact of this proposed rule and 
concluded that under figure 2-1, paragraph 34(a), of the Commandants 
Instruction M16475.1C, this rule is categorically excluded from further 
environmental documentation. The proposed rule is procedural in nature 
because it deals exclusively with adjusting pilotage rates for the 
Great Lakes. A ``Categorical Exclusion Determination'' is available in 
the docket where indicated under ADDRESSES.

List of Subjects in 46 CFR Part 401

    Administrative practice and procedure, Great Lakes, Navigation 
(water), Penalties, Reporting and recordkeeping requirements, Seamen.

    For the reasons discussed in the preamble, the Coast Guard proposes 
to amend 46 CFR part 401 as follows:

PART 401--GREAT LAKES PILOTAGE REGULATIONS

    1. The authority citation for part 401 continues to read as 
follows:

    Authority: 46 U.S.C. 2104(a), 6101, 7701, 8105, 9303, 9304; 49 
CFR 1.45, 1.46 (mmm), 46 CFR 401.105 also issued the authority of 44 
U.S.C. 3507.

    2. In Sec. 401.405, revise tables (a) and (b) to read as follows:


Sec. 401.405  Basic rates and charges on the St. Lawrence River and 
Lake Ontario.

* * * * *
    (a) Area 1 (Designated Waters):

------------------------------------------------------------------------
                  Service                        St. Lawrence River
------------------------------------------------------------------------
Basic Pilotage............................  $8 Kilometer or $13 per
                                             mile. \1\
Each Lock Transited.......................  $176 \1\
Harbor Movage.............................  $579 \1\
------------------------------------------------------------------------
\1\ The minimum basic rate for assignment of a pilot in the St. Lawrence
  River is $381 and the maximum basic rate for a through trip is $1,676.

    (b) Area 2 (Undesignated Waters):

------------------------------------------------------------------------
                         Service                           Lake Ontario
------------------------------------------------------------------------
Six Hour Period.........................................            $282
Docking/Undocking.......................................             269
------------------------------------------------------------------------

    3. In Sec. 401.407, revise tables (a) and (b) to read as follows:

Sec. 401.407  Basic rates and charges on Lake Erie and the 
navigable waters from Southeast Shoal to Port Huron, MI.

* * * * *
    (a) Area 4 (Undesignated Waters):

 
------------------------------------------------------------------------
                                             Lake Erie
                                             (East of
                 Service                     Southeast        Buffalo
                                              Shoal)
------------------------------------------------------------------------
Six Hour Period.........................            $316            $316
Docking/Undocking.......................             243             243
Any Point on the Niagara River below the             N/A             620
 Black Rock Lock........................
------------------------------------------------------------------------

    (b) Area 5 (Designated Waters):

----------------------------------------------------------------------------------------------------------------
                                                   Toledo or any
                                                   point on Lake
         Any point on/in             Southeast     Erie west of    Detroit River   Detroit pilot     St. Clair
                                       Shoal         Southeast                         boat            River
                                                       Shoal
----------------------------------------------------------------------------------------------------------------
Toledo or any port on Lake Erie             $929            $548          $1,205            $929             N/A
 west of South-East Shoal.......
Port Huron Change Point.........       \1\ 1,617       \1\ 1,873           1,215             945            $672
St. Clair River.................       \1\ 1,617             N/A           1,215           1,215             548
Detroit or Windsor or the                    929           1,205             548             N/A           1,215
 Detroit River..................
Detroit Pilot Boat..............             672             929             N/A             N/A          1,215
----------------------------------------------------------------------------------------------------------------
\1\ When pilots are not changed at the Detroit Pilot Boat.

    4. In Sec. 401.410, revise tables (b) and (c) to read as follows:

Sec. 401.410  Basic rates and charges on Lake Huron, Michigan and 
Superior and the St Mary's River.

* * * * * * *
    (b) Area 7 (Designated Waters):

----------------------------------------------------------------------------------------------------------------
                              Area                                    Detour         Gros Cap       Any Harbor
----------------------------------------------------------------------------------------------------------------
Gros Cap........................................................          $1,436             N/A             N/A
Algoma Steel Corporation Wharf at Sault Ste. Marie Ontario......           1,436             541             N/A
Any point in Sault Ste. Marie, Ontario except the Algoma Steel             1,204             541             N/A
 Corporation Wharf..............................................
Sault Ste. Marie, Michigan......................................           1,204             541             N/A
Harbor Movage...................................................             N/A             N/A             541
----------------------------------------------------------------------------------------------------------------


[[Page 20120]]

    (c) Area 8 (Undesignated Waters):

------------------------------------------------------------------------
                         Service                           Lake Superior
------------------------------------------------------------------------
Six Hour Period.........................................            $248
Docking/Undocking.......................................             237
------------------------------------------------------------------------

Sec. 401.420  [Amended]

    5. In Sec. 401.420--
    a. In paragraph (a), remove the number ``$51'' and add, in its 
place, the number ``$50''; and remove the number ``$807'' and add, in 
its place, the number ``$799''.
    b. In paragraph (b), remove the number ``$51'' and add, in its 
place, the number ``$50''; and remove the number ``$807'' and add, in 
its place, the number ``$799''.
    c. In paragraph (c) (1), remove the number ``$305'' and add, in its 
place, the number ``$302''; in paragraph (c) (3), remove the number 
``$51'' and add, in its place, the number ``$50'' and also in paragraph 
(c) (3), remove the number ``$807'', and add, in its place, the number 
``$799''.


Sec. 401.428  [Amended]

    6. In Sec. 401.428, remove the number ``$312'' and add, in its 
place, the number ``$309''.

    Dated: April 5, 2000.
R.C. North,
Rear Admiral, U.S. Coast GuardAssistant Commandant for Marine Safety 
and Environmental Protection.
[FR Doc. 00-9251 Filed 4-13-00; 8:45 am]
BILLING CODE 4910-15-P