[Federal Register Volume 80, Number 38 (Thursday, February 26, 2015)]
[Rules and Regulations]
[Pages 10365-10389]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-04036]


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DEPARTMENT OF HOMELAND SECURITY

Coast Guard

46 CFR Part 401

[Docket No. USCG-2014-0481]
RIN 1625-AC22


Great Lakes Pilotage Rates--2015 Annual Review and Adjustment

AGENCY: Coast Guard, DHS.

ACTION: Final rule.

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SUMMARY: The Coast Guard is adjusting rates for pilotage services on 
the Great Lakes, which were last amended in March 2014. The adjustments 
establish new base rates made in accordance with a full ratemaking 
procedure. Additionally, the Coast Guard exercises the discretion 
provided by Step 7 of the Appendix A methodology. The result is an 
upward adjustment to close the gap between revenues projected by this 
rulemaking and those collected by the pilot associations. Our proposed 
rates planned to maintain parity with the Canadian Great Lakes Pilotage 
Authority. While this continues to be our goal, we have since 
discovered a more significant challenge demonstrated by the recently 
completed revenue audits. This is a more pressing concern for the 
operation of safe, efficient, and reliable pilotage service on the 
Great Lakes than maintaining parity because it demonstrates that the 
pilot associations are unable to properly fund their operations. Also, 
we are implementing temporary surcharges to accelerate recoupment of 
necessary and reasonable training and investment costs for the pilot 
associations. This final rule promotes the Coast Guard's strategic goal 
of maritime safety.

DATES: This final rule is effective August 1, 2015.

ADDRESSES: Comments and material received from the public, as well as 
documents mentioned in this preamble as being available in the docket, 
are part of docket USCG-2014-0481 and are available for inspection or 
copying at the Docket Management Facility (M-30), U.S. Department of 
Transportation, West Building Ground Floor, Room W12-140, 1200 New 
Jersey Avenue SE., Washington, DC 20590, between 9 a.m. and 5 p.m., 
Monday through Friday, except Federal holidays. You may also find this 
docket on the Internet by going to http://www.regulations.gov, 
inserting USCG-2014-0481 in the ``Keyword'' box, and then clicking 
``Search.''

FOR FURTHER INFORMATION CONTACT: If you have questions on this rule, 
call or email Mr. Todd Haviland, Director, Great Lakes Pilotage, 
Commandant (CG-WWM-2), Coast Guard; telephone 202-372-2037, email 
[email protected], or fax 202-372-1914. If you have questions on 
viewing or submitting material to the docket, call Ms. Cheryl Collins, 
Program Manager, Docket Operations, telephone 202-366-9826.

SUPPLEMENTARY INFORMATION: 

Table of Contents for Preamble

I. Abbreviations
II. Regulatory History
III. Basis and Purpose
IV. Background
V. Discussion of Comments and Changes
    A. Ratemaking Methodology
    B. AMOU Contracts
    C. Surcharge
    D. Revenue Audits
    E. Pilot Boats
VI. Summary of the Rule and Discussion of Methodology
    A. Summary of the Rule
    B. Discussion of the Methodology
VII. Regulatory Analyses
    A. Regulatory Planning and Review
    B. Small Entities
    C. Assistance for Small Entities
    D. Collection of Information
    E. Federalism
    F. Unfunded Mandates Reform Act
    G. Taking of Private Property
    H. Civil Justice Reform
    I. Protection of Children
    J. Indian Tribal Governments
    K. Energy Effects
    L. Technical Standards
    M. Environment

I. Abbreviations

AMOU American Maritime Officers Union
APA American Pilots Association
CFR Code of Federal Regulations
CPA Certified public accountant
CPI Consumer Price Index
E.O. Executive Order
FR Federal Register
GLPA Great Lakes Pilotage Association
MISLE Marine Information for Safety and Law Enforcement
MOA Memorandum of Arrangements
MOU Memorandum of Understanding
NAICS North American Industry Classification System
NPRM Notice of proposed rulemaking
OMB Office of Management and Budget
ROI Return on investment
Sec.  Section symbol
U.S.C. United States Code
WGLPA Western Great Lakes Pilots Association

II. Regulatory History

    On September 4, 2014, we published a notice of proposed rulemaking 
(NPRM) titled ``Great Lakes Pilotage Rates--2015 Annual Review and 
Adjustment'' in the Federal Register (79 FR 52602). We received 10 
submissions on the NPRM from multiple sources, including pilotage 
associations, pilots, pilot organizations, and shippers. No public 
meeting was requested and none was held.
    On December 1, 2014, we published the recently completed revenue 
audits of the pilot associations and reopened the public comment period 
in the Federal Register (79 FR 71082). We received 5 submissions on the 
revenue audits.

III. Basis and Purpose

    The basis of this final rule is the Great Lakes Pilotage Act of 
1960 (``the Act'') (46 U.S.C. Chapter 93), which requires U.S. vessels 
operating ``on register'' \1\ and foreign vessels to use U.S. or 
Canadian registered pilots while transiting the U.S. waters of the St. 
Lawrence Seaway and the Great Lakes

[[Page 10366]]

system. 46 U.S.C. 9302(a)(1). The Act requires the Secretary to 
``prescribe by regulation rates and charges for pilotage services, 
giving consideration to the public interest and the costs of providing 
the services.'' 46 U.S.C. 9303(f). Rates must be established or 
reviewed and adjusted each year, not later than March 1. Base rates 
must be established by a full ratemaking at least once every 5 years, 
and in years when base rates are not established, they must be reviewed 
and, if necessary, adjusted. Id. The Secretary's duties and authority 
under the Act have been delegated to the Coast Guard. Department of 
Homeland Security Delegation No. 0170.1, paragraph (92)(f). Coast Guard 
regulations implementing the Act appear in parts 401 through 404 of 
Title 46, Code of Federal Regulations (CFR). Procedures for use in 
establishing base rates appear in 46 CFR part 404, Appendix A, and 
procedures for annual review and adjustment of existing base rates 
appear in 46 CFR part 404, Appendix C.
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    \1\ ``On register'' means that the vessel's certificate of 
documentation has been endorsed with a registry endorsement, and 
therefore, may be employed in foreign trade or trade with Guam, 
American Samoa, Wake, Midway, or Kingman Reef. 46 U.S.C. 12105, 46 
CFR 67.17.
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    The purpose of this final rule is to establish new base pilotage 
rates, using the methodology found in 46 CFR part 404, Appendix A.

IV. Background

    The vessels affected by this final rule are those engaged in 
foreign trade upon the U.S. waters of the Great Lakes. United States 
and Canadian ``lakers,'' \2\ which account for most commercial shipping 
on the Great Lakes, are not affected. 46 U.S.C. 9302.
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    \2\ A ``laker'' is a commercial cargo vessel especially designed 
for and generally limited to use on the Great Lakes.
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    The U.S. waters of the Great Lakes and the St. Lawrence Seaway are 
divided into three pilotage districts. Pilotage in each district is 
provided by an association certified by the Coast Guard Director of 
Great Lakes Pilotage to operate a pilotage pool. It is important to 
note that we do not control the actual compensation that pilots 
receive. The actual compensation is determined by each of the three 
district associations, which use different compensation practices.
    District One, consisting of Areas 1 and 2, includes all U.S. waters 
of the St. Lawrence River and Lake Ontario. District Two, consisting of 
Areas 4 and 5, includes all U.S. waters of Lake Erie, the Detroit 
River, Lake St. Clair, and the St. Clair River. District Three, 
consisting of Areas 6, 7, and 8, includes all U.S. waters of the St. 
Mary's River, Sault Ste. Marie Locks, and Lakes Michigan, Huron, and 
Superior. Area 3 is the Welland Canal, which is serviced exclusively by 
the Canadian Great Lakes Pilotage Association (GLPA) and, accordingly, 
is not included in the United States rate structure. Areas 1, 5, and 7 
have been designated by Presidential Proclamation, pursuant to the Act, 
to be waters in which pilots must, at all times, be fully engaged in 
the navigation of vessels in their charge. Areas 2, 4, 6, and 8 have 
not been so designated because they are open bodies of water. While 
working in those undesignated areas, pilots must only ``be on board and 
available to direct the navigation of the vessel at the discretion of 
and subject to the customary authority of the master.'' 46 U.S.C. 
9302(a) (1) (B).
    This final rule is a full ratemaking to establish new base pilotage 
rates, using the methodology found in 46 CFR part 404, Appendix A 
(hereafter ``Appendix A''). The last full ratemaking established the 
current base rates in March 2014 (79 FR 12084; Mar. 4, 2014). Among 
other things, the Appendix A methodology requires us to review detailed 
pilot association financial information, and we contract with 
independent accountants to assist in that review. We have now completed 
our review of the independent accountants' 2012 financial reports. The 
comments by the pilot associations on those reports and the independent 
accountants' final findings are discussed in our document titled 
``Summary--Independent Accountant's Report on Pilot Association 
Expenses, with Pilot Association Comments and Accountant's Responses,'' 
which appears in the docket. In addition, we also use the independent 
accountant's review of pilot association revenues. The review, 
contracted by the Coast Guard, confirms the revenues of the pilot 
associations and it establishes a baseline of comparison between actual 
collected revenues and those projected by the rulemaking. The revenue 
reports also appear in the docket.

V. Discussion of Comments and Changes

    We received 10 public submissions in response to the initial public 
comment period of our NPRM.
    In the NPRM, the Coast Guard proposed a 2.5 percent across the 
board rate increase for the three pilotage districts and varying 
surcharge levels across the three districts. However, due to the 
completion of the revenue audits during the initial comment period, the 
Coast Guard extended the comment period for 30 days for the public to 
comment on the revenue audits. We received an additional five comments 
to our supplementary comment period focusing on the revenue audits. Of 
all the comments we received, 10 came from pilots or pilot 
associations, 3 came from industry groups, and 2 came from the union 
whose contract data provides benchmark data for pilot compensation.
    Based on the comments and revenue audits, the Coast Guard is 
implementing a 10 percent across the board rate increase for the three 
pilotage districts and a 10 percent surcharge for each district. The 
reasoning behind the changes follows. Any further changes involving the 
Appendix A methodology will be published for notice and comment in a 
future rulemaking.

A. Ratemaking Methodology

    Three commenters questioned various aspects of the ratemaking 
methodology. First, a pilot from the Western Great Lakes Pilots 
Association (WGLPA) questioned the application of bridge hours, as well 
as what the definition should include. We are currently working with 
the pilots, industry, and the American Pilots Association to finalize a 
new model to gauge necessary pilot strength. We plan to propose this 
model in a future rulemaking. We believe this coordinated, thorough 
process is needed to address the longstanding challenges with pilot 
recruitment and retention on the Great Lakes. Another pilot suggested 
that we need to incorporate multiple years of inflation in the rate to 
compensate for the time lapse between the conduct of the audits and the 
effective date of the rate. Under Step 1.C of the Appendix A 
methodology, the adjustment for inflation or deflation is a 1-year 
adjustment between the reported year (the audit year) and the 
succeeding navigation season. As we have stated in previous 
rulemakings, we are unable to incorporate a multiyear adjustment in the 
current methodology. We will consider changing this step in a future 
rulemaking.
    Also, the same commenter questioned our application of benefits to 
the American Maritime Officers Union (AMOU) contract. This is a 
longstanding issue and the commenter argues that we should multiply 
first mate wages and benefits by 150 percent to determine designated 
waters compensation. We disagree and continue to maintain that the 150 
percent applies only to wages; benefits are then added to the result. 
As part of our extensive review of the Appendix A methodology, we are 
actively seeking alternative compensation benchmarks to the AMOU 
contracts. Another commenter believes that compensation must exceed 
that of the AMOU in order to successfully recruit future pilots. We

[[Page 10367]]

agree that actual pilot compensation should be sufficient to attract 
and retain U.S. Registered Pilots and we are actively pursuing 
alternatives to the AMOU contracts for a new pilot compensation 
standard. Two commenters suggested that the pilot strength called for 
in the rate is inadequate. As discussed previously, we believe the 
current bridge hour standard is not an effective means of establishing 
pilot strength. We plan to continue efforts to develop a new pilot 
strength model based on feedback from the stakeholders and will provide 
it for public comment in a future rulemaking. Another commenter 
questioned the effective date of the rate, saying that the rate should 
go into effect at the start of the season instead of aligning with the 
union contract start date of August 1. Since the AMOU contracts are 
part of the current Appendix A methodology, August 1 continues to be 
the effective date of the rate. We are open to adjusting the effective 
date of the rate in a future rulemaking in coordination with our 
expansive review of the methodology if doing so will enhance the 
delivery of safe, efficient, and reliable service.
    Additionally, five commenters questioned use of our discretion 
under Step 7 of the Appendix A methodology. Two of those commenters, a 
member of industry and a pilot, disagree with our basis for Step 7 
adjustments, citing insufficient support for our justification of 
parity adjustments under the Memorandum of Arrangements/Memorandum of 
Understanding (MOA/MOU) with Canada and Executive Order (E.O.) 13609. 
We disagree. The purpose of the MOA/MOU and E.O. 13609 is to work to 
better align U.S. and Canadian regulatory schemes. We agree that the 
new MOU has a less strict interpretation of parity, seeking comparable 
rates over identical ones. However, we believe that the revenue 
shortfall against projections uncovered in the recently completed 
audits calls for action. Our actions to seek comparable rates are 
undercut by overprojections and the inability of the current billing 
scheme to generate sufficient revenue to operate the pilotage 
associations. The third commenter, also a member of industry, asserts 
that the results of our calculations represent a ``serious flaw'' in 
the methodology. We plan to address the challenges with the current 
methodology in a future rulemaking. We neither believe the calculations 
resulting from the methodology in this rule are representative of 
economic conditions in the Great Lakes region, nor do they represent 
increased efficiencies of the pilot organizations. As such, we continue 
to utilize our Step 7 discretion to adjust them.
    Another commenter stated that the Canadian GLPA is actually raising 
their rates only 1 percent rather than 2.5 percent as stated in the 
NPRM. While we continue to strive for comparability with Canadian 
rates, our greater concern currently is the gap in revenue. Thus, we 
seek to actively close the confirmed revenue gap between pilot 
association collections and Coast Guard projections by increasing the 
rate. The gap highlighted in the revenue audits points to an even 
greater disparity between U.S. and Canadian rates on the Great Lakes 
that must be addressed.
    This leads into a discussion of the final commenter on the 
ratemaking methodology. The remaining commenter highlights the gap 
between revenues projected in the rate and those actually collected by 
the pilot association, as well as the second and third order effects of 
that gap. Based on a review of the recently completed revenue audits, 
we agree with the commenter that the gap between revenue projections in 
the rate and the revenues actually collected by the pilot associations 
presents an untenable situation. The revenue projections in the rate 
for each pilot association directly impact each association's ability 
to provide safe, efficient, and reliable service. Since the actual 
revenues collected by the associations fall well short of our 
projections, we are utilizing our Step 7 discretion to increase the 
rates in all areas by 10 percent. This rate increase will begin to 
address the significant shortfall in pilotage revenue against our 
projections. We believe that the current shortfall in revenue is a 
result of both bridge hour projections and a billing scheme that is not 
properly baselined to collect appropriate revenue. Rate increases to 
address the shortfall will continue to be separate and distinct from 
the temporary surcharges applied in the districts for training and 
investments.

B. AMOU Contracts

    Five commenters-three pilots or pilots' representatives and two 
officials from the AMOU-addressed our use of AMOU contracts to estimate 
average annual compensation for U.S. Registered Pilots in Step 2.A of 
our Appendix A ratemaking methodology. Since the application of these 
contracts is currently the subject of pending litigation, we refrain 
from addressing these comments and will continue to utilize the AMOU 
contract data as we did in the 2013 and 2014 ratemakings.

C. Surcharge

    Eight commenters-seven pilots or pilot associations and one member 
of industry-addressed the proposed surcharges in the NPRM. We received 
a comment from the Lakes Pilots Association, Inc. supporting the 
proposed surcharge for District Two. Commenters from both District One 
and District Three stated that they require two additional pilot 
applicants each above their authorized strength to deal with personnel 
turnover. We agree with both commenters. The pilotage associations are 
facing a wave of retirements, both expected and unexpected, and these 
additional applicant pilots are necessary to ensure the system 
continues to operate smoothly. The long lead time for pilot training 
necessitates that the pilot associations begin training now to address 
current pilot retirements as well as those projected for the next 24 
months. Thus, we are using our surcharge authority to fund applicant 
pilots that exceed the current authorized pilot strength of the 
associations. Based on how three associations plan to compensate the 
applicants and the costs associated with training, we have estimated 
that a 5 percent surcharge is necessary to fund each applicant pilot. 
As you will see in the following discussion, we have established a 10 
percent surcharge for each district in order to accelerate the costs 
associated with training 2 applicant pilots.
    In the case of District One, we agree with the need for two 
applicant pilots above their authorized strength of 11 pilots to ensure 
safe, efficient, and reliable pilotage service. To fund these applicant 
pilots, we will increase their authorized surcharge to 10 percent.
    We also agree with the need for two applicant pilots above their 
authorized strength of 15 pilots to ensure safe, efficient, and 
reliable pilotage service in District Three. Accordingly, we will fund 
two additional applicants above their authorized pilot strength and 
increase their authorized surcharge to 10 percent. As mentioned above, 
in conjunction with stakeholders, we are developing a new pilotage 
strength model that we will provide for public comment in a future 
rulemaking.
    Finally, a member of industry questioned the need for pilot 
training surcharges and the authority to charge for expenses not yet 
incurred. The Coast Guard has the authority to prescribe rates and 
charges pursuant to 46 U.S.C. 9303. Temporary surcharge authority was 
implemented through regulation in the 2014 ratemaking cycle. See 78 FR 
48376. The surcharges include funds for

[[Page 10368]]

professional training, investments in pilotage technology, and the 
costs to train and fund six new applicant pilots across the system. 
These applicants will all be in place for the 2015 shipping season and 
thus, through the temporary surcharge, the Coast Guard is accelerating 
recoupment of these important expenses. We fully support investments in 
professional development and technology to enhance the safety, 
reliability, and efficiency of the system. Further, we believe the 
recruitment, funding, and training of applicant pilots before the 
retirement of current registered pilots is essential to the stability 
of the system and to achieve and maintain acceptable levels of service. 
Any overages in surcharge collection against the actual costs will be 
adjusted in the next year's rate. We discuss surcharges further in Part 
VI after our discussion of other comments.

D. Revenue Audits

    We received three comments on the revenue audits--two from pilots 
and one from industry. Both pilot commenters approved of the revenue 
audits and asked the Coast Guard to adjust for the differences between 
actual and projected revenues. We agree with these comments and have 
adjusted our rate increase to 10 percent across all districts to begin 
aligning actual and projected revenues. Our discussion in Step 7 
provides additional discussion on this topic. It is clear that the 
audits for the 2013 Appendix A rulemaking demonstrate a significant 
shortfall. Since we only have a single data point, we plan to increase 
the base rate to fill this gap over a multi-year period. Ten percent is 
reasonable because this is greater than inflation and begins to align 
the revenues needed to provide safe, efficient, and reliable service 
with the actual revenues that our rulemakings generate. We will also 
work to address this discrepancy in a future rulemaking regarding the 
methodology. We discuss this further in Step 7 of the methodology. The 
industry commenter disapproves of the open-ended nature of the comment 
period, seeking further clarity regarding our plan for use of the 
revenue audits and a better explanation of our use of discretion. We 
disagree. The comment period was set up to allow access by all parties 
to the revenue audits and to provide feedback to the Coast Guard 
regarding their review and incorporation into the ratemaking 
methodology. The revenue audits clearly point to a shortcoming in the 
billing scheme and methodology that significantly reduces actual 
revenue. Failure to act on the revenue audits would ignore the point 
``and other supportable economic factors'' in Step 7 of the 
methodology. While we do not propose a solution for the methodology in 
this rulemaking, we are working to develop new proposals to address the 
significant hindrances of the current methodology. The discretion 
exercised in Step 7 seeks to maintain safe, efficient, and reliable 
pilotage service while we prepare a future rulemaking to address the 
current methodology.

E. Pilot Boats

    We received two comments regarding purchase of new pilot boats. 
District Two submitted information regarding the purchase of a new boat 
for use in Detroit for consideration in the rate. However, based on the 
documents submitted, the pilots have reached an agreement with the 
Canadian GLPA and industry to fund the pilot boat through usage fees, 
not through the rate. As a result, the expenses associated with the new 
pilot boat will not be included in the 2015 rate. Similarly, a pilot 
from the WGLPA believes that infrastructure investment in a new dock 
and new pilot boat near Sault Sainte Marie, MI should be included in 
the rate. We disagree. Like District Two, the letter of intent signed 
between the WGLPA and the Canadian GLPA plans to recoup the cost of 
their infrastructure improvement through levied pilot boat fees, not 
the pilotage rate. We support and encourage the investment of both 
associations in badly needed infrastructure and capital assets but 
cannot allow recoupment of expenses already marked to be paid by 
industry separately.

VI. Summary of the Rule and Discussion of Methodology

A. Summary of the Rule

    We are establishing new base pilotage rates in accordance with the 
methodology outlined in Appendix A to 46 CFR part 404. The new rates 
will be established by March 1, 2015 and become effective August 1, 
2015. Our calculations under Steps 1 through 6 of Appendix A would 
result in an average 12 percent rate decrease. This rate decrease is 
not the result of increased efficiencies in providing pilotage services 
but rather is a result of changes to AMOU contract data.
    Additionally, the recently completed revenue audits demonstrate a 
significant shortfall between revenues projected by the Coast Guard 
using the Appendix A methodology and those actually captured by the 
current billing scheme. This gap, explained further in our Step 7 
discussion, demonstrates that a more significant rate increase is 
necessary to promote a standard safe, efficient, and reliable pilotage 
service by ensuring the pilot associations have sufficient actual 
revenue to continue operations. Therefore, we will continue to exercise 
the discretion outlined in Step 7, increasing rates by 10 percent to 
begin closing the gap between projected revenues and those actually 
collected by the pilot associations. Table 1 shows the percent change 
for the new rates for each area.
    Secondly, we are implementing temporary surcharges for the pilot 
associations to recoup necessary and reasonable training and investment 
expenses incurred or that are expected to be incurred prior to the 
required March 1, 2015 publication of the final rule. Normally, these 
expenses would not be recognized until the 2016 annual ratemaking or 
later. By authorizing the temporary surcharges now, this action will 
accelerate the reimbursement for necessary and reasonable training and 
investment expenses. The surcharge will be authorized for the duration 
of the 2015 shipping season, which begins in March 2015. The value of 
the surcharges is based on the audited revenues of the pilot 
associations and the identified need to train two additional pilot 
applicants per District. This action will merely accelerate the 
recoupment of these expenses. At the conclusion of the 2015 shipping 
season, we would account for the monies generated by the surcharge and 
make adjustments as necessary to the operating expenses for the 
following year.
    In District One, we are implementing a temporary surcharge of 10 
percent to compensate pilots for $28,028.91 that the District One pilot 
association spent on training in 2013 and early 2014, as well as the 
anticipated $300,000 cost to train two new applicant pilots and prepare 
replacements for retiring pilots. We believe this training is necessary 
and reasonable to promote safe, efficient, and reliable pilotage on the 
Great Lakes and support the St. Lawrence Seaway Pilots Association's 
continued commitment to the training and professional development of 
their pilots.
    Additionally, we are implementing a temporary surcharge of 10 
percent in District Two to compensate pilots for $300,000 that the 
District Two pilot association spent training two applicant pilots in 
2014. This is necessary and reasonable to allow the association to 
bring on new pilots in the face of upcoming retirements without 
adjusting the pilotage needs as determined by the ratemaking 
methodology. This surcharge will also accelerate the

[[Page 10369]]

repayment of the association's investment in upgraded technology 
($25,829.80) to enhance the situational awareness of pilots on the 
bridge. We believe this needed technology will assist in the safety, 
efficiency, and reliability of the system.
    Next, we are implementing a temporary surcharge of 10 percent in 
District Three to compensate pilots for $26,950 that the District Three 
pilot association plans to spend on training at the conclusion of the 
2014 shipping season. We believe this training is necessary and 
reasonable for the provision of safe pilotage service. This also 
compensates District Three for the anticipated $300,000 cost of 
training two additional pilot applicants to increase pilot strength and 
advance safe, efficient, and reliable pilotage service in the district.
    All figures in the tables that follow are based on calculations 
performed either by an independent accountant or by the Director's \3\ 
staff. In both cases, those calculations were performed using common 
commercial computer programs. Decimalization and rounding of the 
audited and calculated data affects the display in these tables but 
does not affect the calculations. The calculations are based on the 
actual figures, which are rounded for presentation in the tables.
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    \3\ ``Director'' is the Coast Guard Director, Great Lakes 
Pilotage, which is used throughout this rule.

     Table 1--Summary of Rate Adjustments Based on Step 7 Discretion
------------------------------------------------------------------------
                                                        Then the percent
         If pilotage service is required in:            change over the
                                                        current rate is:
------------------------------------------------------------------------
Area 1 (Designated waters)...........................                 10
Area 2 (Undesignated waters).........................                 10
Area 4 (Undesignated waters).........................                 10
Area 5 (Designated waters)...........................                 10
Area 6 (Undesignated waters).........................                 10
Area 7 (Designated waters)...........................                 10
Area 8 (Undesignated waters).........................                 10
------------------------------------------------------------------------

B. Discussion of the Methodology

    The Appendix A methodology provides seven steps, with sub-steps, 
for calculating rate adjustments. The following discussion describes 
those steps and sub-steps, and includes tables showing how we have 
applied them to the 2012 financial information supplied by the pilots 
association.
    Step 1: Projection of Operating Expenses. In this step, we project 
the amount of vessel traffic annually. Based on that projection, we 
forecast the amount of necessary and reasonable operating expenses that 
pilotage rates should recover.
    Step 1.A: Submission of Financial Information. This sub-step 
requires each pilot association to provide us with detailed financial 
information in accordance with 46 CFR part 403. The associations 
complied with this requirement, supplying 2012 financial information in 
2013. This is the most current and complete data set we have available.
    Step 1.B: Determination of Recognizable Expenses. This sub-step 
requires us to determine which reported association expenses will be 
recognized for ratemaking purposes, using the guidelines shown in 46 
CFR 404.5. We contracted with an independent accountant to review the 
reported expenses and submit findings recommending which reported 
expenses should be recognized. The accountant also reviewed which 
reported expenses should be adjusted prior to recognition or disallowed 
for ratemaking purposes. The accountant's preliminary findings were 
sent to the pilot associations, they reviewed and commented on those 
findings, and the accountant then finalized the findings. The Director 
reviewed and accepted the final findings, resulting in the 
determination of recognizable expenses. The preliminary findings, the 
associations' comments on those findings, and the final findings are 
all discussed in the ``Summary--Independent Accountant's Report on 
Pilot Association Expenses, with Pilot Association Comments and 
Accountant's Responses,'' which appears in the docket. Tables 2 through 
4 show each association's recognized expenses.

                                  Table 2--Recognized Expenses for District One
----------------------------------------------------------------------------------------------------------------
                                                                      Area 1          Area 2
                                                                 --------------------------------
                   Reported expenses for 2012                      St. Lawrence                        Total
                                                                       River       Lake Ontario
----------------------------------------------------------------------------------------------------------------
Operating Expenses:
Other Pilotage Costs:
    Pilot subsistence/Travel....................................        $227,199        $137,315        $364,514
    License insurance...........................................               0               0               0
    Payroll taxes...............................................          62,038          48,452         110,490
    Other.......................................................             596             549           1,145
                                                                 -----------------------------------------------
        Total Other Pilotage Costs..............................         289,833         186,316         476,149
Pilot Boat and Dispatch Costs:
    Pilot boat expense..........................................         108,539          95,405         203,944
    Dispatch expense............................................               0               0               0
    Payroll taxes...............................................          13,429          11,804          25,233
                                                                 -----------------------------------------------

[[Page 10370]]

 
        Total Pilot and Dispatch Costs..........................         121,968         107,209         229,177
Administrative Expenses:
    Legal--general counsel......................................           1,369           1,281           2,650
    Legal--lobbying.............................................           3,957           3,478           7,435
    Insurance...................................................          21,907          18,998          40,905
    Employee benefits...........................................          21,281          18,509          39,790
    Payroll taxes...............................................               0               0               0
    Other taxes.................................................          18,491          15,801          34,292
    Travel......................................................             473             416             889
    Depreciation/Auto leasing/Other.............................          38,346          33,705          72,051
    Interest....................................................          15,484          13,610          29,094
    Dues and subscriptions......................................          13,740          10,240          23,980
    Utilities...................................................           4,549           3,897           8,446
    Salaries....................................................          48,837          42,927          91,764
    Accounting/Professional fees................................           4,683           4,317           9,000
    Pilot Training..............................................          26,353          21,961          48,314
    Other.......................................................          10,689           8,974          19,663
                                                                 -----------------------------------------------
        Total Administrative Expenses...........................         230,159         198,114         428,273
                                                                 -----------------------------------------------
Total Operating Expenses                                                 641,960         491,639       1,133,599
Adjustments (Independent certified public accountant (CPA)):
    Pilotage subsistence/Travel.................................           (887)           (779)         (1,666)
    Payroll taxes...............................................        (13,719)        (12,058)        (25,777)
    Dues and subscriptions......................................        (13,740)        (10,240)        (23,980)
                                                                 -----------------------------------------------
        TOTAL CPA ADJUSTMENTS...................................        (28,346)        (23,077)        (51,423)
Adjustments (Director):
    American Pilots Association (APA) Dues......................          11,679           8,704          20,383
    Pilot Training (surcharge)..................................        (26,353)        (21,961)        (48,314)
    Legal--lobbying.............................................         (3,957)         (3,478)         (7,435)
                                                                 -----------------------------------------------
        TOTAL DIRECTOR ADJUSTMENTS..............................        (18,631)        (16,735)        (35,366)
                                                                 -----------------------------------------------
        Total Operating Expenses................................         594,983         451,827       1,046,810
----------------------------------------------------------------------------------------------------------------
Note: Numbers may not total due to rounding.


                                  Table 3--Recognized Expenses for District Two
----------------------------------------------------------------------------------------------------------------
                                                                      Area 4          Area 5
                                                                 --------------------------------
                   Reported Expenses for 2012                                        Southeast         Total
                                                                     Lake Erie     Shoal to Port
                                                                                     Huron, MI
----------------------------------------------------------------------------------------------------------------
Operating Expenses:
Other Pilotage Costs:
    Pilot subsistence/Travel....................................          86,947         130,421         217,368
    License insurance...........................................           6,168           9,252          15,420
    Payroll taxes...............................................          42,218          63,328         105,546
    Other.......................................................          23,888          35,833          59,721
                                                                 -----------------------------------------------
        Total Other Pilotage Costs..............................         159,221         238,834         398,055
Pilot Boat and Dispatch Costs:
    Pilot boat expense..........................................         131,285         196,930         328,215
    Dispatch expense............................................           6,600           9,900          16,500
    Employee Benefits...........................................          48,310          72,465         120,775
    Payroll taxes...............................................           7,412          11,119          18,531
                                                                 -----------------------------------------------
        Total Pilot and Dispatch Costs..........................         193,607         290,414         484,021
Administrative Expenses:
    Legal--general counsel......................................           2,054           3,082           5,136
    Legal--lobbying.............................................           2,704           4,055           6,759
    Legal--litigation...........................................           6,488           9,733          16,221
    Office rent.................................................          26,275          39,413          65,688
    Insurance...................................................          10,682          16,024          26,706
    Employee benefits...........................................          16,452          24,678          41,130
    Payroll taxes...............................................           4,143           6,216          10,359
    Other taxes.................................................          12,546          18,819          31,365

[[Page 10371]]

 
    Depreciation/Auto leasing/Other.............................           9,074          13,610          22,684
    Interest....................................................           2,989           4,483           7,472
    Utilities...................................................          13,917          20,876          34,793
    Salaries....................................................          36,252          54,377          90,629
    Accounting/Professional fees................................          11,764          17,646          29,410
    Pilot Training..............................................               0               0               0
    Other.......................................................           9,405          14,108          23,513
                                                                 -----------------------------------------------
        Total Administrative Expenses...........................         164,745         247,120         411,865
                                                                 -----------------------------------------------
        Total Operating Expenses................................         517,573         776,368       1,293,941
Adjustments (Independent CPA):
    Pilot subsistence/Travel....................................         (1,982)         (2,974)         (4,956)
    Employee benefits...........................................         (3,585)         (5,378)         (8,963)
        TOTAL CPA ADJUSTMENTS...................................         (5,567)         (8,352)        (13,919)
                                                                 -----------------------------------------------
Adjustments (Director):
    Federal Tax Allowance.......................................         (5,200)         (7,800)        (13,000)
    APA Dues....................................................           7,344          11,016          18,360
    Legal--lobbying.............................................         (2,704)         (4,055)         (6,759)
    Legal--litigation...........................................         (6,488)         (9,733)        (16,221)
                                                                 -----------------------------------------------
        TOTAL DIRECTOR ADJUSTMENTS..............................         (7,048)        (10,572)        (17,620)
                                                                 -----------------------------------------------
        Total Operating Expenses................................         504,958         757,444       1,262,402
----------------------------------------------------------------------------------------------------------------
Note: Numbers may not total due to rounding.


                                 Table 4--Recognized expenses for District Three
----------------------------------------------------------------------------------------------------------------
                                                      Area 6          Area 7          Area 8
                                                 ------------------------------------------------
           Reported expenses for 2012               Lakes Huron     St. Mary's                         Total
                                                   and Michigan        River       Lake Superior
----------------------------------------------------------------------------------------------------------------
Operating Expenses:
Other Pilotage Costs:
    Pilot subsistence/Travel....................        $180,316         $77,278        $110,398        $367,992
    License insurance...........................           8,859           3,797           5,424          18,080
    Payroll taxes...............................               0               0               0               0
    Other.......................................           2,875           1,232           1,760           5,867
                                                 ---------------------------------------------------------------
        Total Other Pilotage Costs..............         192,050          82,307         117,582         391,939
Pilot Boat and Dispatch Costs:
    Pilot boat expense..........................         261,937         112,259         160,370         534,566
    Dispatch expense............................          81,958          35,125          50,178         167,261
    Payroll taxes...............................           8,203           3,515           5,022          16,740
                                                 ---------------------------------------------------------------
        Total Pilot Boat and Dispatch Costs.....         352,098         150,899         215,570         718,567
Administrative Expenses:
    Legal--lobbying.............................           4,304           1,845           2,635           8,784
    Office rent.................................           4,851           2,079           2,970           9,900
    Insurance...................................           6,469           2,773           3,961          13,203
    Employee benefits...........................          77,348          33,149          47,356         157,854
    Payroll taxes...............................           5,404           2,316           3,309          11,029
    Other taxes.................................             941             403             576           1,920
    Depreciation/Auto leasing...................          17,462           7,484          10,691          35,637
    Interest....................................           2,692           1,154           1,648           5,494
    Utilities...................................          20,950           8,979          12,827          42,756
    Salaries....................................          54,003          23,144          33,063         110,210
    Accounting/Professional fees................          13,157           5,639           8,055          26,851
    Pilot Training..............................               0               0               0               0
    Other.......................................           4,657           1,996           2,851           9,504
                                                 ---------------------------------------------------------------
        Total Administrative Expenses...........         212,238          90,961         129,942         433,141
                                                 ---------------------------------------------------------------
        Total Operating Expenses................         756,386         324,167         463,094       1,543,647
Adjustments (Independent CPA):
    Pilot subsistence/travel....................         (5,303)         (2,273)         (3,247)        (10,823)

[[Page 10372]]

 
    Payroll taxes...............................          44,613          19,120          27,314          91,046
    Other taxes.................................         (1,761)           (755)         (1,078)         (3,594)
    Other.......................................           (637)           (273)           (390)         (1,300)
                                                 ---------------------------------------------------------------
        TOTAL CPA ADJUSTMENTS...................          36,912          15,819          22,599          75,329
Adjustments (Director):
    APA dues....................................          11,695           5,012           7,160          23,868
    Legal--lobbying.............................         (4,304)         (1,845)         (2,635)         (8,784)
                                                 ---------------------------------------------------------------
        TOTAL DIRECTOR ADJUSTMENTS..............           7,391           3,167           4,525          15,084
                                                 ---------------------------------------------------------------
        Total Operating Expenses................         800,689         343,153         490,218       1,634,060
----------------------------------------------------------------------------------------------------------------
Note: Numbers may not total due to rounding.

    Step 1.C: Adjustment for Inflation or Deflation. In this sub-step, 
we project rates of inflation or deflation for the succeeding 
navigation season. Because we used 2012 financial information, the 
``succeeding navigation season'' for this ratemaking is 2013. We based 
our inflation adjustment of 1.4 percent on the 2013 change in the 
Consumer Price Index (CPI) for the Midwest Region of the United States, 
which can be found at http://www.bls.gov/xg_shells/ro5xg01.htm. This 
adjustment appears in Tables 5 through 7.
    The Coast Guard is aware that the current annual adjustment for 
inflation does not account for the value of money over time. We are 
working on a solution to allow for a better approximation of actual 
costs.

                                   Table 5--Inflation Adjustment, District One
----------------------------------------------------------------------------------------------------------------
                                                       Area 1                 Area 2
                                                 ------------------     ------------------
         Reported expenses for 2012                 St. Lawrence                                      Total
                                                        River              Lake Ontario
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses:..................  ...          $594,983  ...          $451,827  ...        $1,046,810
2013 change in the CPI for the Midwest        x               .014   x               .014   x               .014
 Region of the United States...............
Inflation Adjustment.......................   =             $8,330   =             $6,326   =            $14,655
----------------------------------------------------------------------------------------------------------------


                                   Table 6--Inflation Adjustment, District Two
----------------------------------------------------------------------------------------------------------------
                                                       Area 4                 Area 5
                                                 ------------------     ------------------
         Reported expenses for 2012                                       Southeast Shoal             Total
                                                      Lake Erie           to Port Huron,
                                                                                MI
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses...................  ...          $504,958  ...          $757,444  ...        $1,262,402
2013 change in the CPI for the Midwest        x               .014   x               .014   x               .014
 Region of the United States...............
Inflation Adjustment.......................   =             $7,069   =            $10,604   =            $17,674
----------------------------------------------------------------------------------------------------------------


                                                      Table 7--Inflation adjustment, District Three
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        Area 6                 Area 7                 Area 8
                                                                  ------------------     ------------------     ------------------
                 Reported expenses for 2012                         Lakes Huron and                                                           Total
                                                                       Michigan           St. Mary's River         Lake Superior
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses....................................  ...          $800,689  ...          $343,153  ...          $490,218  ...        $1,634,060
2013 change in the CPI for the Midwest Region of the United    x               .014   x               .014   x               .014   x               .014
 States.....................................................
Inflation Adjustment........................................   =            $11,210   =             $4,804   =             $6,863   =            $22,877
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Step 1.D: Projection of Operating Expenses. In this final sub-step 
of Step 1, we project the operating expenses for each pilotage area on 
the basis of the preceding sub-steps and any other foreseeable 
circumstances that could affect the accuracy of the projection.
    For District One, the projected operating expenses are based on the 
calculations from Steps 1.A through 1.C. Table 8 shows these 
projections.

[[Page 10373]]



                               Table 8--Projected Operating Expenses, District One
----------------------------------------------------------------------------------------------------------------
                                                       Area 1                 Area 2
                                                 ------------------     ------------------
         Reported expenses for 2012                 St. Lawrence                                      Total
                                                        River              Lake Ontario
----------------------------------------------------------------------------------------------------------------
Total operating expenses...................  ...          $594,983  ...          $451,827  ...        $1,046,810
Inflation adjustment 1.4%..................   +             $8,330   +             $6,326   +            $14,655
Total projected expenses for 2015 pilotage    =           $603,313   =           $458,153   =         $1,061,465
 season....................................
----------------------------------------------------------------------------------------------------------------
Note: Numbers may not total due to rounding.

    In District Two the projected operating expenses are based on the 
calculations from Steps 1.A through 1.C. Table 9 shows these 
projections.

                               Table 9--Projected Operating Expenses, District Two
----------------------------------------------------------------------------------------------------------------
                                                      Area 4                  Area 5
                                                 ----------------     ----------------------
         Reported expenses for 2012                                     Southeast Shoal to             Total
                                                     Lake Erie            Port Huron, MI
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses...................  ...        $504,958  ...              $757,444  ...      $1,262,402
Inflation adjustment 1.4%..................   +            7,069   +                 10,604   +           17,674
Total projected expenses for 2015 pilotage    =          512,027   =                768,048   =        1,280,076
 season....................................
----------------------------------------------------------------------------------------------------------------

    In District Three, projected operating expenses are based on the 
calculations from Steps 1.A through 1.C. Table 10 shows these 
projections.

                                                 Table 10--Projected Operating Expenses, District Three
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        Area 6                  Area 7                  Area 8
                                                                 -------------------     -------------------     -------------------
                 Reported expenses for 2012                        Lakes Huron and                                                             Total
                                                                       Michigan            St. Mary's River         Lake Superior
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total Expenses.............................................  ...           $800,689  ...           $343,153  ...           $490,218  ...      $1,634,060
Inflation adjustment 1.4%..................................   +              11,210   +               4,804   +               6,863   +           22,877
Total projected expenses for 2015 pilotage season..........   =             811,899   =             347,957   =             497,081   =        1,656,937
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Step 2: Projection of Target Pilot Compensation. In Step 2, we 
project the annual amount of target pilot compensation that pilotage 
rates should provide in each area. These projections are based on our 
latest information on the conditions that will prevail in 2015.
    Step 2.A: Determination of Target Rate of Compensation. Target 
pilot compensation for pilots in undesignated waters approximates the 
average annual compensation for first mates on U.S. Great Lakes 
vessels. Compensation is determined based on the most current union 
contracts and includes wages and benefits received by first mates. We 
calculate target pilot compensation on designated waters by multiplying 
the average first mates' wages by 150 percent and then adding the 
average first mates' benefits.
    We rely upon union contract data provided by the AMOU, which has 
agreements with three U.S. companies engaged in Great Lakes shipping. 
We derive the data from two separate AMOU contracts--we refer to them 
as Agreements A and B--and apportion the compensation provided by each 
agreement according to the percentage of tonnage represented by 
companies under each agreement. Agreement A applies to vessels operated 
by Key Lakes, Inc., and Agreement B applies to vessels operated by 
American Steamship Co. and Mittal Steel USA, Inc.
    Agreements A and B both expire on July 31, 2016. The AMOU has set 
the daily aggregate rate, including the daily wage rate, vacation pay, 
pension plan contributions, and medical plan contributions effective 
August 1, 2015, as follows: (1) In undesignated waters, $632.12 for 
Agreement A and $624.34 for Agreement B; and (2) In designated waters, 
$870.05 for Agreement A and $856.42 for Agreement B.
    Because we are interested in annual compensation, we must convert 
these daily rates. We use a 270-day multiplier which reflects an 
average 30-day month, over the 9 months of the average shipping season. 
Table 11 shows our calculations using the 270-day multiplier.

          Table 11--Projected Annual Aggregate Rate Components
------------------------------------------------------------------------
 
------------------------------------------------------------------------
    Aggregate Rate-Wages and Vacation, Pension, and Medical Benefits
------------------------------------------------------------------------
              Pilots on undesignated waters
------------------------------------------------------------------------
Agreement A:
    $632.12 daily rate x 270 days.......................     $170,672.40

[[Page 10374]]

 
Agreement B:
    $624.34 daily rate x 270 days.......................      168,571.80
------------------------------------------------------------------------
                       Pilots on designated waters
------------------------------------------------------------------------
Agreement A:
    $870.05 daily rate x 270 days.......................      234,913.50
Agreement B:
    $856.42 daily rate x 270 days.......................      231,233.40
------------------------------------------------------------------------

    We apportion the compensation provided by each agreement according 
to the percentage of tonnage represented by companies under each 
agreement. Agreement A applies to vessels operated by Key Lakes, Inc., 
representing approximately 30 percent of tonnage, and Agreement B 
applies to vessels operated by American Steamship Co. and Mittal Steel 
USA, Inc., representing approximately 70 percent of tonnage. Table 12 
provides details.

                               Table 12--Shipping Tonnage Apportioned by Contract
----------------------------------------------------------------------------------------------------------------
                 Company                              Agreement A                         Agreement B
----------------------------------------------------------------------------------------------------------------
American Steamship Company..............  ..................................                             815,600
Mittal Steel USA, Inc...................  ..................................                              38,826
Key Lakes, Inc..........................                             361,385  ..................................
Total tonnage, each agreement...........                             361,385                             854,426
Percent tonnage, each agreement.........      361,385 / 1,215,811 = 29.7238%      854,426 / 1,215,811 = 70.2762%
----------------------------------------------------------------------------------------------------------------

    We use the percentages from Table 12 to apportion the projected 
compensation from Table 11. This gives us a single tonnage-weighted set 
of figures. Table 13 shows our calculations.

         Table 13--Tonnage-Weighted Wage and Benefit Components
------------------------------------------------------------------------
                                      Undesignated          Designated
                                         waters               waters
------------------------------------------------------------------------
Agreement A:
    Total wages and benefits..  ...     $170,672.40  ...     $234,913.50
    Percent tonnage...........   x         29.7238%   x         29.7238%
                               -----------------------------------------
        Total.................   =          $50,730   =          $69,825
------------------------------------------------------------------------
Agreement B:
    Total wages and benefits..  ...     $168,571.80  ...     $231,233.40
    Percent tonnage...........   x         70.2762%   x         70.2762%
                               -----------------------------------------
        Total.................   =         $118,466   =         $162,502
------------------------------------------------------------------------
Projected Target Rate of
 Compensation:
    Agreement A total weighted  ...         $50,730  ...         $69,825
     average wages and
     benefits.................
    Agreement B total weighted   +         $118,466   +         $162,502
     average wages and
     benefits.................
                               -----------------------------------------
        Total.................   =         $169,196   =         $232,327
------------------------------------------------------------------------

    Step 2.B: Determination of the Number of Pilots Needed. Subject to 
adjustment by the Director to ensure uninterrupted service or for other 
reasonable circumstances, we determine the number of pilots needed for 
ratemaking purposes in each area through dividing projected bridge 
hours for each area by either the 1,000 (designated waters) or 1,800 
(undesignated waters) bridge hours specified in Step 2.B. We round the 
mathematical results and express our determination as a whole number of 
pilots.
    According to 46 CFR part 404, Appendix A, Step 2.B(1), bridge hours 
are the number of hours a pilot is aboard a vessel providing pilotage 
service. For that reason, and as we explained most recently in the 2011 
ratemaking's final rule (76 FR 6351 at 6352 col. 3 (Feb. 4, 2011)), we 
do not include, and never have included, pilot delay, detention, or 
cancellation in calculating bridge hours. Projected bridge hours are 
based on the vessel traffic that pilots are expected to serve. We use 
historical data, input from the pilots and industry, periodicals and 
trade magazines, and information from conferences to project demand for 
pilotage services for the coming year.
    In our 2014 final rule, we determined that 36 pilots would be 
needed for ratemaking purposes. For 2015, we project 36 pilots is still 
the proper number to use for ratemaking purposes. The total pilot 
authorization strength includes five pilots in Area 2, where rounding 
up alone would result in only four pilots. For the same reasons we 
explained at length in the 2008 ratemaking final rule (74 FR 220 at 
221-22 (Jan. 5, 2009)), we have determined that this adjustment is 
essential for

[[Page 10375]]

ensuring uninterrupted pilotage service in Area 2. Table 14 shows the 
bridge hours we project will be needed for each area and our 
calculations to determine the whole number of pilots needed for 
ratemaking purposes.

                                                            Table 14--Number of Pilots Needed
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                             Divided by 1,000
                                                                                                (designated
                           Pilotage area                              Projected 2015         waters) or 1,800         Calculated value    Pilots needed
                                                                       bridge hours            (undesignated           of pilot demand     (total = 36)
                                                                                                  waters)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Area 1 (Designated waters).........................................             5,116   /                1,000   =                5.116                6
Area 2 (Undesignated waters).......................................             5,429   /                1,800   =                3.016                5
Area 4 (Undesignated waters).......................................             5,814   /                1,800   =                3.230                4
Area 5 (Designated waters).........................................             5,052   /                1,000   =                5.052                6
Area 6 (Undesignated waters).......................................             9,611   /                1,800   =                5.339                6
Area 7 (Designated waters).........................................             3,023   /                1,000   =                3.023                4
Area 8 (Undesignated waters).......................................             7,540   /                1,800   =                4.189                5
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Step 2.C: Projection of Target Pilot Compensation. In Table 15, we 
project total target pilot compensation separately for each area by 
multiplying the number of pilots needed in each area, as shown in Table 
14, by the target pilot compensation shown in Table 13.

                            Table 15--Projection of Target Pilot Compensation by Area
----------------------------------------------------------------------------------------------------------------
                                                                            Target rate of          Projected
                   Pilotage area                      Pilots needed             pilot              target pilot
                                                       (total = 36)          compensation          compensation
----------------------------------------------------------------------------------------------------------------
Area 1 (Designated waters).........................                6   x          $232,327   =        $1,393,964
Area 2 (Undesignated waters).......................                5   x           169,196   =           845,981
Area 4 (Undesignated waters).......................                4   x           169,196   =           676,785
Area 5 (Designated waters).........................                6   x           232,327   =         1,393,964
Area 6 (Undesignated waters).......................                6   x           169,196   =         1,015,177
Area 7 (Designated waters).........................                4   x           232,327   =           929,309
Area 8 (Undesignated waters).......................                5   x           169,196   =           845,981
----------------------------------------------------------------------------------------------------------------
Note: Numbers may not total due to rounding.

    Steps 3 and 3.A: Projection of Revenue. In Steps 3 and 3.A., we 
project the revenue that would be received in 2015 if demand for 
pilotage services matches the bridge hours we projected in Table 14, 
and if 2014 pilotage rates are left unchanged. Table 16 shows this 
calculation.

                                     Table 16--Projection of Revenue by Area
----------------------------------------------------------------------------------------------------------------
                                                                                                     Revenue
                  Pilotage area                    Projected 2015          2014 Pilotage         projection  for
                                                    bridge hours               rates                  2015
----------------------------------------------------------------------------------------------------------------
Area 1 (Designated waters)......................             5,116   x            $472.50   =         $2,417,285
Area 2 (Undesignated waters)....................             5,429   x             291.96   =          1,585,032
Area 4 (Undesignated waters)....................             5,814   x             210.40   =          1,223,262
Area 5 (Designated waters)......................             5,052   x             521.64   =          2,635,314
Area 6 (Undesignated waters)....................             9,611   x             204.95   =          1,969,800
Area 7 (Designated waters)......................             3,023   x             495.01   =          1,496,427
Area 8 (Undesignated waters)....................             7,540   x             191.34   =          1,442,677
                                                                                               -----------------
    Total.......................................  ................       ................             12,769,797
----------------------------------------------------------------------------------------------------------------
Note: Numbers may not total due to rounding.

    Step 4: Calculation of Investment Base. In this step, we calculate 
each association's investment base, which is the recognized capital 
investment in the assets employed by the association to support 
pilotage operations. This step uses a formula set out in 46 CFR part 
404, Appendix B. The first part of the formula identifies each 
association's total sources of funds. Tables 17 through 19 follow the 
formula up to that point.

             Table 17--Total Sources of Funds, District One
------------------------------------------------------------------------
                                         Area 1               Area 2
------------------------------------------------------------------------
Recognized Assets:              ...  ..............  ...  ..............
    Total Current Assets......  ...        $532,237  ...        $467,833
    Total Current Liabilities.   -           61,808   -           54,329
    Current Notes Payable.....   +           23,413   +           20,579

[[Page 10376]]

 
    Total Property and           +          445,044   +          391,191
     Equipment (NET)..........
    Land......................   -           11,727   -           10,308
    Total Other Assets........   +                0   +                0
                               -----------------------------------------
        Total Recognized         =          927,159   =          814,966
         Assets...............
------------------------------------------------------------------------
Non-Recognized Assets:          ...  ..............  ...  ..............
    Total Investments and        +            6,452   +            5,672
     Special Funds............
                               -----------------------------------------
        Total Non-Recognized     =            6,452   =            5,672
         Assets...............
------------------------------------------------------------------------
Total Assets:                   ...  ..............  ...  ..............
    Total Recognized Assets...  ...         927,159  ...         814,966
    Total Non-Recognized         +            6,452   +            5,672
     Assets...................
                               -----------------------------------------
        Total Assets..........   =          933,611   =          820,638
------------------------------------------------------------------------
Recognized Sources of Funds:    ...  ..............  ...  ..............
    Total Stockholder Equity..  ...         659,141  ...         579,380
    Long-Term Debt............   +          262,785   +          230,986
    Current Notes Payable.....   +           23,413   +           20,579
    Advances from Affiliated     +                0   +                0
     Companies................
    Long-Term Obligations--      +                0   +                0
     Capital Leases...........
                               -----------------------------------------
        Total Recognized         =          945,339   =          830,945
         Sources..............
------------------------------------------------------------------------
Non-Recognized Sources of       ...  ..............  ...  ..............
 Funds:
    Pension Liability.........  ...               0  ...               0
    Other Non-Current            +                0   +                0
     Liabilities..............
    Deferred Federal Income      +           10,675   +            9,383
     Taxes....................
    Other Deferred Credits....   +                0   +                0
                               -----------------------------------------
        Total Non-Recognized     =           10,675   =            9,383
         Sources..............
------------------------------------------------------------------------
Total Sources of Funds:         ...  ..............  ...  ..............
    Total Recognized Sources..  ...         945,339  ...         830,945
    Total Non-Recognized         +           10,675   +            9,383
     Sources..................
                               -----------------------------------------
        Total Sources of Funds   =          956,014   =          840,328
------------------------------------------------------------------------
Note: Numbers may not total due to rounding.


             Table 18--Total Sources of Funds, District Two
------------------------------------------------------------------------
                                         Area 4               Area 5
------------------------------------------------------------------------
Recognized Assets:              ...  ..............  ...  ..............
    Total Current Assets......  ...         498,456  ...         747,683
    Total Current Liabilities.   -          494,410   -          741,614
    Current Notes Payable.....   +           33,962   +           50,942
    Total Property and           +          436,063   +          654,094
     Equipment (NET)..........
    Land......................   -                0   -                0
    Total Other Assets........   +           60,418   +           90,627
                               -----------------------------------------
        Total Recognized         =          534,488   =          801,733
         Assets...............
------------------------------------------------------------------------
Non-Recognized Assets:          ...  ..............  ...  ..............
    Total Investments and        +                0   +                0
     Special Funds............
                               -----------------------------------------
        Total Non-Recognized     =                0   =                0
         Assets...............
------------------------------------------------------------------------
Total Assets:                   ...  ..............  ...  ..............
    Total Recognized Assets...  ...         534,488  ...         801,733
    Total Non-Recognized         +                0   +                0
     Assets...................
                               -----------------------------------------
        Total Assets..........   =          534,488   =          801,733
------------------------------------------------------------------------
Recognized Sources of Funds:    ...  ..............  ...  ..............
    Total Stockholder Equity..  ...          85,846  ...         128,768
    Long-Term Debt............   +          414,681   +          622,022
    Current Notes Payable.....   +           33,962   +           50,942
    Advances from Affiliated     +                0   +                0
     Companies................

[[Page 10377]]

 
    Long-Term Obligations--      +                0   +                0
     Capital Leases...........
                               -----------------------------------------
        Total Recognized         =          534,488   =          801,733
         Sources..............
------------------------------------------------------------------------
Non-Recognized Sources of       ...  ..............  ...  ..............
 Funds:
    Pension Liability.........  ...               0  ...               0
    Other Non-Current            +                0   +                0
     Liabilities..............
    Deferred Federal Income      +                0   +                0
     Taxes....................
    Other Deferred Credits....   +                0   +                0
                               -----------------------------------------
        Total Non-Recognized     =                0   =                0
         Sources..............
------------------------------------------------------------------------
Total Sources of Funds:         ...  ..............  ...  ..............
    Total Recognized Sources..  ...         534,488  ...         801,733
    Total Non-Recognized         +                0   +                0
     Sources..................
                               -----------------------------------------
        Total Sources of Funds   =          534,488   =          801,733
------------------------------------------------------------------------
Note: Numbers may not total due to rounding.


                                Table 19--Total Sources of Funds, District Three
----------------------------------------------------------------------------------------------------------------
                                                            Area 6               Area 7               Area 8
----------------------------------------------------------------------------------------------------------------
Recognized Assets:                                 ...  ..............  ...  ..............  ...  ..............
    Total Current Assets.........................  ...         656,459  ...         281,340  ...         401,914
    Total Current Liabilities....................   -           82,775   -           35,475   -           50,679
    Current Notes Payable........................   +            7,730   +            3,313   +            4,733
    Total Property and Equipment (NET)...........   +           19,611   +            8,405   +           12,007
    Land.........................................   -                0   -                0   -                0
    Total Other Assets...........................   +              490   +              210   +              300
                                                  --------------------------------------------------------------
        Total Recognized Assets..................   =          601,515   =          257,793   =          368,275
----------------------------------------------------------------------------------------------------------------
Non-Recognized Assets:                             ...  ..............  ...  ..............  ...  ..............
    Total Investments and Special Funds..........   +                0   +                0   +                0
                                                  --------------------------------------------------------------
        Total Non-Recognized Assets..............   =                0   =                0   =                0
----------------------------------------------------------------------------------------------------------------
Total Assets:                                      ...  ..............  ...  ..............  ...  ..............
    Total Recognized Assets......................  ...         601,515  ...         257,793  ...         368,275
    Total Non-Recognized Assets..................   +                0   +                0   +                0
                                                  --------------------------------------------------------------
        Total Assets.............................   =          601,515   =          257,793   =          368,275
----------------------------------------------------------------------------------------------------------------
Recognized Sources of Funds:                       ...  ..............  ...  ..............  ...  ..............
    Total Stockholder Equity.....................  ...         586,300  ...         251,271  ...         358,959
    Long-Term Debt...............................   +            7,485   +            3,208   +            4,583
    Current Notes Payable........................   +            7,730   +            3,313   +            4,733
    Advances from Affiliated Companies...........   +                0   +                0   +                0
    Long-Term Obligations - Capital Leases.......   +                0   +                0   +                0
                                                  --------------------------------------------------------------
        Total Recognized Sources.................   =          601,515   =          257,793   =          368,275
----------------------------------------------------------------------------------------------------------------
Non-Recognized Sources of Funds:                   ...  ..............  ...  ..............  ...  ..............
    Pension Liability............................  ...               0  ...               0  ...               0
    Other Non-Current Liabilities................   +                0   +                0   +                0
    Deferred Federal Income Taxes................   +                0   +                0   +                0
    Other Deferred Credits.......................   +                0   +                0   +                0
                                                  --------------------------------------------------------------
        Total Non-Recognized Sources.............   =                0   =                0   =                0
----------------------------------------------------------------------------------------------------------------
Total Sources of Funds:                            ...  ..............  ...  ..............  ...  ..............
    Total Recognized Sources.....................  ...         601,515  ...         257,792  ...         368,275
    Total Non-Recognized Sources.................   +                0   +                0   +                0
                                                  --------------------------------------------------------------
        Total Sources of Funds...................   =          601,515   =          257,792   =          368,275
----------------------------------------------------------------------------------------------------------------
Note: Numbers may not total due to rounding.


[[Page 10378]]

    Tables 17 through 19 also relate to the second part of the formula 
for calculating the investment base. The second part establishes a 
ratio between recognized sources of funds and total sources of funds. 
Since non-recognized sources of funds (sources we do not recognize as 
required to support pilotage operations) only exist for District One 
for this year's rulemaking, the ratio between recognized sources of 
funds and total sources of funds is 1:1 (or a multiplier of 1) for 
Districts Two and Three. District One has a multiplier of 0.99. Table 
20 applies the multiplier of 0.99 and 1 as necessary and shows the 
investment base for each association. Table 20 also expresses these 
results by area, because area results will be needed in subsequent 
steps.

                                                     Table 20--Investment Base by Area and District
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Total      Recognized                    Multiplier (ratio    Investment
                              District                                Area    recognized   sources of   Total sources     of recognized to     base ($)
                                                                              assets ($)   funds ($)     of funds ($)      total sources)        \1\
--------------------------------------------------------------------------------------------------------------------------------------------------------
One................................................................       1      927,159      945,339          956,014                 0.99      916,806
                                                                          2      814,966      830,945          840,328                 0.99      805,866
                                                                    ------------------------------------------------------------------------------------
    Total..........................................................  ......  ...........  ...........  ...............  ...................    1,722,672
--------------------------------------------------------------------------------------------------------------------------------------------------------
Two \2\............................................................       4      534,488      534,488          534,488                    1      534,488
                                                                          5      801,733      801,733          801,733                    1      801,733
                                                                    ------------------------------------------------------------------------------------
    Total..........................................................  ......  ...........  ...........  ...............  ...................    1,336,221
--------------------------------------------------------------------------------------------------------------------------------------------------------
Three..............................................................       6      601,515      601,515          601,515                    1      601,515
                                                                          7      257,793      257,792          257,792                    1      257,793
                                                                          8      368,275      368,275          368,275                    1      368,275
                                                                    ------------------------------------------------------------------------------------
    Total..........................................................  ......  ...........  ...........  ...............  ...................    1,227,581
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ ``Investment base'' = ``Total recognized assets'' x ``Multiplier (ratio of recognized to total sources)''.
\2\ The pilot associations that provide pilotage services in Districts One and Three operate as partnerships. The pilot association that provides
  pilotage service for District Two operates as a corporation.
Note: Numbers may not total due to rounding.

    Step 5: Determination of Target Rate of Return. We determine a 
market-equivalent return on investment (ROI) that will be allowed for 
the recognized net capital invested in each association by its members. 
We do not recognize capital that is unnecessary or unreasonable for 
providing pilotage services. There are no non-recognized investments in 
this year's calculations. The allowed ROI is based on the preceding 
year's average annual rate of return for new issues of high-grade 
corporate securities. For 2013, the preceding year, the allowed ROI was 
4.24 percent, based on the average rate of return for that year on 
Moody's AAA corporate bonds, which can be found at http://research.stlouisfed.org/fred2/series/AAA/downloaddata?cid=119.
    Step 6: Adjustment Determination. The first part of the adjustment 
determination requires an initial calculation, applying a formula 
described in Appendix A. The formula uses the results from Steps 1, 2, 
3, and 4 to project the ROI that can be expected in each area if no 
further adjustments are made. This calculation is shown in Tables 21 
through 23.

             Table 21--Projected ROI, Areas in District One
------------------------------------------------------------------------
                                         Area 1               Area 2
------------------------------------------------------------------------
Revenue (from Step 3).........  ...      $2,417,285  ...      $1,585,032
Operating Expenses (from Step    -         $603,313   -         $458,153
 1)...........................
Pilot Compensation (from Step    -       $1,393,964   -         $845,981
 2)...........................
Operating Profit/(Loss).......   =         $420,009   =         $280,899
Interest Expense (from audits)   -          $15,484   -          $13,610
Earnings Before Tax...........   =         $404,525   =         $267,289
Federal Tax Allowance.........   -               $0   -               $0
Net Income....................   =         $404,525   =         $267,289
Return Element (Net Income +    ...        $420,009  ...        $280,899
 Interest)....................
Investment Base (from Step 4).   /         $916,806   /         $805,866
Projected Return on Investment   =             0.46   =             0.35
------------------------------------------------------------------------


             Table 22--Projected ROI, Areas in District Two
------------------------------------------------------------------------
                                         Area 4               Area 5
------------------------------------------------------------------------
Revenue (from Step 3).........  ...      $1,223,262  ...      $2,635,314
Operating Expenses (from Step    -         $512,027   -         $768,048
 1)...........................
Pilot Compensation (from Step    -         $676,785   -       $1,393,964
 2)...........................
Operating Profit/(Loss).......   =          $34,450   =         $473,302
Interest Expense (from audits)   -           $2,989   -           $4,483
Earnings Before Tax...........   =          $31,461   =         $468,819

[[Page 10379]]

 
Federal Tax Allowance.........   -           $5,200   -           $7,800
Net Income....................   =          $26,261   =         $461,019
Return Element (Net Income +    ...         $29,250  ...        $465,502
 Interest)....................
Investment Base (from Step 4).   /         $534,488   /         $801,733
Projected Return on Investment   =             0.05   =             0.58
------------------------------------------------------------------------


                                Table 23--Projected ROI, Areas in District Three
----------------------------------------------------------------------------------------------------------------
                                                            Area 6               Area 7               Area 8
----------------------------------------------------------------------------------------------------------------
Revenue (from Step 3)............................  ...      $1,969,800  ...      $1,496,427  ...      $1,442,677
Operating Expenses (from Step 1).................   -         $811,899   -         $347,957   -         $497,081
Pilot Compensation (from Step 2).................   -       $1,015,177   -         $929,309   -         $845,981
Operating Profit/(Loss)..........................   =         $142,724   =         $219,161   =          $99,615
Interest Expense (from audits)...................   -           $2,692   -           $1,154   -           $1,648
Earnings Before Tax..............................   =         $140,032   =         $218,007   =          $97,967
Federal Tax Allowance............................   -               $0   -               $0   -               $0
Net Income.......................................   =         $140,032   =         $218,007   =          $97,967
Return Element (Net Income + Interest)...........  ...        $142,724  ...        $219,161  ...         $99,615
Investment Base (from Step 4)....................   /         $601,515   /         $257,793   /         $368,275
Projected Return on Investment...................   =             0.24   =             0.85   =             0.27
----------------------------------------------------------------------------------------------------------------

    The second part required for Step 6 compares the results of Tables 
21 through 23 with the target ROI (4.24 percent) we obtained in Step 5 
to determine if an adjustment to the base pilotage rate is necessary. 
Table 24 shows this comparison for each area.

                                            Table 24--Comparison of projected ROI and Target ROI, by Area\1\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                              Area 1          Area 2          Area 4          Area 5          Area 6          Area 7          Area 8
                                         ---------------------------------------------------------------------------------------------------------------
                                                                                             Southeast
                                           St. Lawrence    Lake Ontario      Lake Erie     Shoal to Port    Lakes Huron     St. Mary's     Lake Superior
                                               River                                         Huron, MI     and Michigan        River
--------------------------------------------------------------------------------------------------------------------------------------------------------
Projected return on investment..........          0.4581          0.3486          0.0547          0.5806          0.2373          0.8501          0.2705
Target return on investment.............          0.0424          0.0424          0.0424          0.0424          0.0424          0.0424          0.0424
Difference in return on investment......          0.4157          0.3062          0.0123          0.5382          0.1949          0.8077          0.2281
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Note: Decimalization and rounding of the target ROI affects the display in this table but does not affect our calculations, which are based on the
  actual figure.

    Because Table 24 shows a significant difference between the 
projected and target ROIs, an adjustment to the base pilotage rates is 
necessary. Step 6 now requires us to determine the pilotage revenues 
that are needed to make the target return on investment equal to the 
projected return on investment. This calculation is shown in Table 25. 
It adjusts the investment base we used in Step 4, multiplying it by the 
target ROI from Step 5, and applies the result to the operating 
expenses and target pilot compensation determined in Steps 1 and 2.

                                                 Table 25--Revenue Needed To Recover Target ROI, by Area
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                          Investment base
                                               Operating            Target pilot          (Step 4) x 4.24%          Federal tax
              Pilotage area                 expenses  (Step         compensation          (Target ROI Step           allowance           Revenue needed
                                                  1)                  (Step 2)                   5)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Area 1 (Designated waters)...............          $603,313   +          1,393,964   +              38,873   +                  0   =          2,036,149
Area 2 (Undesignated waters).............          $458,153   +            845,981   +              34,169   +                  0   =          1,338,302
Area 4 (Undesignated waters).............          $512,027   +            676,785   +              22,662   +              5,200   =          1,216,674
Area 5 (Designated waters)...............          $768,048   +          1,393,964   +              33,993   +              7,800   =          2,203,805
Area 6 (Undesignated waters).............          $811,899   +          1,015,177   +              25,504   +                  0   =          1,852,580

[[Page 10380]]

 
Area 7 (Designated waters)...............          $347,957   +            929,309   +              10,930   +                  0   =          1,288,197
Area 8 (Undesignated waters).............          $497,081   +            845,981   +              15,615   +                  0   =          1,358,677
                                          --------------------------------------------------------------------------------------------------------------
    Total................................        $3,998,479   +          7,101,160   +             181,747   +             13,000   =         11,294,385
--------------------------------------------------------------------------------------------------------------------------------------------------------

The ``Revenue Needed'' column of Table 25 is less than the revenue we 
projected in Table 16.

    Step 7: Adjustment of Pilotage Rates. Finally, we calculate rate 
adjustments by dividing the Step 6 revenue needed (Table 25) by the 
Step 3 revenue projection (Table 16), to give us a rate multiplier for 
each area. These rate adjustments are subject to adjustment based on 
the requirements of agreements between the United States and Canada and 
adjustment for other supportable circumstances. Tables 26 through 28 
show these calculations.

                                Table 26--Rate Multiplier, Areas in District One
----------------------------------------------------------------------------------------------------------------
                                                                            Area 1                  Area 2
                                                                       ----------------     --------------------
                      Ratemaking projections                             St. Lawrence
                                                                             River               Lake Ontario
----------------------------------------------------------------------------------------------------------------
Revenue Needed (from Step 6).....................................  ...      $2,036,149  ...           $1,338,302
Revenue (from Step 3)............................................   /       $2,417,285   /            $1,585,032
Rate Multiplier..................................................   =           0.8423   =                0.8443
----------------------------------------------------------------------------------------------------------------


                                Table 27--Rate Multiplier, Areas in District Two
----------------------------------------------------------------------------------------------------------------
                                                                            Area 4                  Area 5
                                                                       ----------------     --------------------
                      Ratemaking projections                                                  Southeast Shoal to
                                                                           Lake Erie            Port Huron, MI
----------------------------------------------------------------------------------------------------------------
Revenue Needed (from Step 6).....................................  ...      $1,216,674  ...           $2,203,805
Revenue (from Step 3)............................................   /       $1,223,262   /            $2,635,314
Rate Multiplier..................................................   =           0.9946   =                0.8363
----------------------------------------------------------------------------------------------------------------


                               Table 28--Rate Multiplier, Areas in District Three
----------------------------------------------------------------------------------------------------------------
                                                    Area 6                  Area 7                   Area 8
                                             -------------------     --------------------     ------------------
         Ratemaking projections                Lakes Huron and
                                                   Michigan            St. Mary's River          Lake Superior
----------------------------------------------------------------------------------------------------------------
Revenue Needed (from Step 6)...........  ...         $1,825,580  ...          $1,288,197  ...         $1,358,677
Revenue (from Step 3)..................   /          $1,969,800   /           $1,496,427   /          $1,442,677
Rate Multiplier........................   =              0.9405   =               0.8608   =              0.9418
----------------------------------------------------------------------------------------------------------------
Note: Numbers may not total due to rounding.

    We calculate a rate multiplier for adjusting the basic rates and 
charges described in 46 CFR 401.420 and 401.428, and it is applicable 
in all areas. We divide total revenue needed (Step 6, Table 25) by 
total projected revenue (Steps 3 and 3.A, Table 16). Table 29 shows 
this calculation.

 Table 29--Rate Multiplier for Basic Rates and Charges in 46 CFR 401.420
                               and 401.428
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Ratemaking Projections:
    Total Revenue Needed (from Step 6).............  ...     $11,294,385
    Total revenue (from Step 3)....................   /      $12,769,797
Rate Multiplier....................................   =            0.884
------------------------------------------------------------------------

    Using this table, we calculate rates for cancellation, delay, or 
interruption in rendering services (46 CFR 401.420) and basic rates and 
charges for carrying a U.S. pilot beyond the normal change point, or 
for boarding at other than the normal boarding point (46 CFR 401.428). 
The result is a decrease by 11.55 percent in all areas.
    Without further action, the existing rates we established in our 
2014 final rule would then be multiplied by the rate multipliers from 
Tables 29 through 31 to calculate the area by area rate changes for 
2015. The resulting 2015 rates across the Great Lakes, on average, 
would then decrease by approximately 12 percent from the 2014 rates. 
This decrease is not due to increased

[[Page 10381]]

efficiencies in pilotage services but rather a result of adjustments to 
AMOU contract data.
    We decline to impose this decrease because recently completed 
independent audits of pilot association revenues detail a significant 
gap between revenues projected by the Coast Guard and those actually 
collected by the pilot associations. Implementing a rate decrease would 
further widen this disparity and adversely impact the provision of 
safe, efficient, and reliable pilotage service on the Great Lakes. In 
light of the revenue studies, our initial proposal in the NPRM to raise 
rates 2.5 percent in order to gain parity with the Canadian GLPA now 
appears insufficient to ensure the funding of safe, efficient, and 
reliable pilotage service. In 46 U.S.C. 9303(f), the statute states 
``The Secretary shall prescribe by regulation rates and charges for 
pilotage services, giving consideration to the public interest and the 
costs of providing the services.'' We believe the public interest is 
best served through promotion of safe, efficient, and reliable pilotage 
service. Sufficient revenue to fund safe, efficient, and reliable 
pilotage operations are considered integral to the public interest. 
Table 30 demonstrates the results of the revenue audits compared to our 
projections.

                                              Table 30--Revenue Gap
----------------------------------------------------------------------------------------------------------------
                                                                         Actual revenue       Revenue shortfall
                   District                          Ratemaking          revenue audits      (projections  minus
                                                 projections  (2015)         (2013)                actual)
----------------------------------------------------------------------------------------------------------------
1.............................................            $4,002,317            $3,406,164              $596,153
2.............................................             3,858,576             3,169,377               689,199
3.............................................             4,908,904             4,323,965               584,939
----------------------------------------------------------------------------------------------------------------

    Further, the gap captured in Table 30 actually underestimates the 
revenue gap because the projections of the current rulemaking rely on 
the alterations of proprietary union contracts. Table 31 illustrates 
the average U.S. Registered Pilot compensation, assuming all revenue 
remaining after expenses is distributed as compensation.

                                  Table 31--2013 Average Actual Compensation *
----------------------------------------------------------------------------------------------------------------
                                                                    Total                          Approximate
           District               Revenues        Expenses      available for      Number  of      compensation
                                                                 compensation      pilots **        per pilot
----------------------------------------------------------------------------------------------------------------
1............................      $3,406,164      $1,272,365       $2,133,799               11         $193,982
2............................       3,169,377       1,461,438        1,707,939               10          170,794
3............................       4,323,965       1,778,118        2,545,847               17          149,756
                              ----------------------------------------------------------------------------------
    Total....................      10,899,506       4,511,921        6,387,585               38          168,094
----------------------------------------------------------------------------------------------------------------
* The Coast Guard does not establish pay procedures for the pilot associations, rather we set a target rate of
  compensation for general compensation calculation.
** The District Three Association actually employed 13 pilots during this timeframe; their approximate
  compensation per pilot is higher than this table depicts. Seventeen pilots were authorized in the rate.

    These figures demonstrate the significant shortfall in pilot 
compensation compared to an estimated present value of 2011 
compensation (the last figures are not in dispute) of approximately 
$260,000. We believe $260,000 is a fair estimate of what pilot 
compensation should be based on uncontested figures from previous AMOU 
contracts. The gap of almost $90,000 between approximate actual 
compensation and our estimates of where pilot compensation should stand 
place the pilot associations in an untenable position. We believe it is 
imperative to act quickly to raise the revenue needed to sustain pilot 
association operations and compensate pilots in a fair and reasonable 
manner. This gap also highlights a significant discrepancy in the 
actual salaries of U.S. Registered Pilots compared to the Canadian 
Registered Pilots of the GLPA, estimated to be approximately ($US) 
250,000. We must work quickly to rebaseline the billing scheme and 
raise the revenue necessary to continue to sustain safe, efficient, and 
reliable pilotage service on the Great Lakes. We believe the shortfalls 
in revenue are caused by an overprojection of bridge hours and to a 
larger extent, an inadequate billing scheme. To this end, we will 
adjust our proposal to raise rates in all areas by 10 percent in a 
concerted effort to begin closing the established gap between 
compensation of U.S. and Canadian Registered Pilots, as well as the gap 
between actual salaries and previous estimates. This percentage 
increase is high enough above inflation to begin closing the revenue 
gap without being unduly burdensome to industry. We believe sustained, 
steady rate increases to close the gap are more responsible than a one-
time action. This replaces our initial projections of a 2.5 percent 
increase in all areas. We will seek to address the underlying 
methodology challenges in a future rulemaking.
    Therefore, we rely on the discretionary authority we have under 
Step 7 to further adjust rates and begin closing the gap between 
revenues projected by the Coast Guard and those collected by the pilot 
associations. Table 32 compares the impact, area by area, that an 
average decrease of 12 percent would have, relative to the impact each 
area would experience if United States rates increase.

[[Page 10382]]



                                Table 32--Impact of Exercising Step 7 Discretion
----------------------------------------------------------------------------------------------------------------
                                                                 Percent change in rate   Percent change in rate
                             Area                               without exercising Step  with exercise of Step 7
                                                                      7 discretion              discretion
----------------------------------------------------------------------------------------------------------------
Area 1 (Designated waters)....................................                   -15.77                       10
Area 2 (Undesignated waters)..................................                   -15.57                       10
Area 4 (Undesignated waters)..................................                    -0.54                       10
Area 5 (Designated waters)....................................                   -16.37                       10
Area 6 (Undesignated waters)..................................                    -5.95                       10
Area 7 (Designated waters)....................................                   -13.92                       10
Area 8 (Undesignated waters)..................................                    -5.82                       10
----------------------------------------------------------------------------------------------------------------

    The following tables reflect our rate adjustments of 10 percent 
across all areas.
    Tables 33 through 35 show these calculations.

                          Table 33--Adjustment of Pilotage Rates, Areas in District One
----------------------------------------------------------------------------------------------------------------
                                                                         Rate
                                             2014 Rate                multiplier          Adjusted rate for 2015
----------------------------------------------------------------------------------------------------------------
Area 1
St. Lawrence River
    Basic Pilotage..................     $19.22/km, $34.02/mi   x              1.1   =      $21.14/km, $37.42/mi
    Each lock Transited.............                     $426   x              1.1   =                      $469
    Harbor movage...................                    1,395   x              1.1   =                     1,535
    Minimum basic rate, St. Lawrence                      931   x              1.1   =                     1,024
     River..........................
    Maximum rate, through trip......                    4,084   x              1.1   =                     4,492
Area 2
Lake Ontario
    6-hour period...................                      872   x              1.1   =                       959
    Docking or Undocking............                      832   x              1.1   =                       915
----------------------------------------------------------------------------------------------------------------
Note: Numbers may not total due to rounding.

    In addition to the rate charges in Table 33, as we explain in the 
Summary section of Part VI of this preamble, we are authorizing 
District One to implement a temporary supplemental 10 percent charge on 
each source form (the ``bill'' for pilotage service) for the duration 
of the 2015 shipping season, which begins in March 2015. District One 
will be required to provide us with monthly status reports once this 
surcharge becomes effective for the duration of the 2015 shipping 
season. We will exclude these expenses from future rates and any 
surcharge surplus/deficit from the 2014 season would impact the final 
authorized surcharge for the 2015 season.

                          Table 34--Adjustment of Pilotage Rates, Areas in District Two
----------------------------------------------------------------------------------------------------------------
                                                                                  Rate             Adjusted rate
                                                           2014 Rate           multiplier            for 2015
----------------------------------------------------------------------------------------------------------------
Area 4
Lake Erie
    6-hour period.....................................            $849   x              1.1   =             $934
    Docking or undocking..............................             653   x              1.1   =              718
    Any point on Niagara River below Black Rock Lock..           1,667   x              1.1   =            1,834
Area 5
Southeast Shoal to Port Huron, MI between any point on
 or in
    Toledo or any point on Lake Erie W. of Southeast             1,417   x              1.1   =            1,559
     Shoal............................................
    Toledo or any point on Lake Erie W. of Southeast             2,397   x              1.1   =            2,637
     Shoal & Southeast Shoal..........................
    Toledo or any point on Lake Erie W. of Southeast             3,113   x              1.1   =            3,424
     Shoal & Detroit River............................
    Toledo or any point on Lake Erie W. of Southeast             2,397   x              1.1   =            2,637
     Shoal & Detroit Pilot Boat.......................
    Port Huron Change Point & Southeast Shoal (when              4,176   x              1.1   =            4,594
     pilots are not changed at the Detroit Pilot Boat)
    Port Huron Change Point & Toledo or any point on             4,837   x              1.1   =            5,321
     Lake Erie W. of Southeast Shoal (when pilots are
     not changed at the Detroit Pilot Boat)...........
    Port Huron Change Point & Detroit River...........           3,137   x              1.1   =            3,451
    Port Huron Change Point & Detroit Pilot Boat......           2,441   x              1.1   =            2,685
    Port Huron Change Point & St. Clair River.........           1,735   x              1.1   =            1,909
    St. Clair River...................................           1,417   x              1.1   =            1,559
    St. Clair River & Southeast Shoal (when pilots are           4,176   x              1.1   =            4,594
     not changed at the Detroit Pilot Boat)...........
    St. Clair River & Detroit River/Detroit Pilot Boat           3,137   x              1.1   =            3,451
    Detroit, Windsor, or Detroit River................           1,417   x              1.1   =            1,559
    Detroit, Windsor, or Detroit River & Southeast               2,397   x              1.1   =            2,637
     Shoal............................................

[[Page 10383]]

 
    Detroit, Windsor, or Detroit River & Toledo or any           3,113   x              1.1   =            3,424
     point on Lake Erie W. of Southeast Shoal.........
    Detroit, Windsor, or Detroit River & St. Clair               3,137   x              1.1   =            3,451
     River............................................
    Detroit Pilot Boat & Southeast Shoal..............           1,735   x              1.1   =            1,909
    Detroit Pilot Boat & Toledo or any point on Lake             2,397   x              1.1   =            2,637
     Erie W. of Southeast Shoal.......................
    Detroit Pilot Boat & St. Clair River..............           3,137   x              1.1   =            3,451
----------------------------------------------------------------------------------------------------------------
Note: Numbers may not total due to rounding.

    In addition to the rate charges in Table 34, and for the reasons we 
discussed in the Summary section of Part VI of this preamble, we are 
authorizing District Two to implement a temporary supplemental 10 
percent charge on each source form for the duration of the 2015 
shipping season, which begins in March 2015. District Two will be 
required to provide us with monthly status reports once this surcharge 
becomes effective for the duration of the 2015 shipping season. We will 
exclude these expenses from future rates.

                         Table 35--Adjustment of Pilotage Rates, Areas in District Three
----------------------------------------------------------------------------------------------------------------
                                                                                  Rate             Adjusted rate
                                                           2014 Rate           multiplier            for 2015
----------------------------------------------------------------------------------------------------------------
Area 6
Lakes Huron and Michigan
    6-hour Period.....................................            $708   x              1.1   =             $779
    Docking or undocking..............................             672   x              1.1   =              739
Area 7
St. Mary's River between any point on or in
    Gros Cap & De Tour................................           2,648   x              1.1   =            2,913
    Algoma Steel Corp. Wharf, Sault Ste. Marie, Ont. &           2,648   x              1.1   =            2,913
     De Tour..........................................
    Algoma Steel Corp. Wharf, Sault Ste. Marie, Ont. &             997   x              1.1   =            1,097
     Gros Cap.........................................
    Any point in Sault Ste. Marie, Ont., except the              2,219   x              1.1   =            2,441
     Algoma Steel Corp. Wharf & De Tour...............
    Any point in Sault Ste. Marie, Ont., except the                997   x              1.1   =            1,097
     Algoma Steel Corp. Wharf & Gros Cap..............
    Sault Ste. Marie, MI & De Tour....................           2,219   x              1.1   =            2,441
    Sault Ste. Marie, MI & Gros Cap...................             997   x              1.1   =            1,097
    Harbor movage.....................................             997   x              1.1   =            1,097
Area 8
Lake Superior
    6-hour period.....................................             601   x              1.1   =              661
    Docking or undocking..............................             571   x              1.1   =              628
----------------------------------------------------------------------------------------------------------------
Note: Numbers may not total due to rounding.

    In addition to the rate charges in Table 35, and for the reasons we 
discussed in the Summary section of Part VI of this preamble, we are 
authorizing District Three to implement a temporary supplemental 10 
percent charge on each source form for the duration of the 2015 
shipping season, which begins in March 2015. District Three will be 
required to provide us with monthly status reports once this surcharge 
becomes effective for the duration of the 2015 shipping season. We will 
exclude these expenses from future rates.

VII. Regulatory Analyses

    We developed this rule after considering numerous statutes and 
E.O.s related to rulemaking. Below we summarize our analyses based on 
these statutes or E.O.s.

A. Regulatory Planning and Review

    Executive Orders 12866, Regulatory Planning and Review, and 13563, 
Improving Regulation and Regulatory Review, direct agencies to assess 
the costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, of reducing costs, of harmonizing rules, and of promoting 
flexibility.
    This rule is not a significant regulatory action under section 3(f) 
of E.O. 12866 as supplemented by E.O. 13563, and does not require an 
assessment of potential costs and benefits under section 6(a)(3) of 
E.O. 12866. The Office of Management and Budget (OMB) has not reviewed 
it under E.O. 12866. Nonetheless, we developed an analysis of the costs 
and benefits of the rule to ascertain its probable impacts on industry.
    The Coast Guard is required to review and adjust pilotage rates on 
the Great Lakes annually. See Parts III and IV of this preamble for 
detailed discussions of the Coast Guard's legal basis and purpose for 
this rulemaking and for background information on Great Lakes pilotage 
ratemaking. Based on our annual review for this rulemaking, we are 
adjusting the pilotage rates for the 2015 shipping season to generate 
sufficient revenue to cover allowable expenses, and to target pilot 
compensation and returns on pilot associations' investments. The rate 
adjustments in this rule will, if codified, lead to an increase in the 
cost per unit

[[Page 10384]]

of service to shippers in all three districts, and result in an 
estimated annual cost increase to shippers of approximately $1,276,980 
across all three districts over 2014 rates--an increase of 10 percent.
    In addition to the increase in payments that will be incurred by 
shippers in all three districts from the previous year as a result of 
the discretionary rate adjustments, we are authorizing temporary, 
supplemental surcharges to traffic across all three districts in order 
for the pilotage associations to recover training expenses and 
technology improvements that were incurred throughout the 2013 and 2014 
shipping seasons. These temporary surcharges will be authorized for the 
duration of the 2015 shipping season, which begins in March. The 
additional revenue due to the temporary surcharges was calculated by 
multiplying the surcharge percentage by the projected revenue needed in 
2015 for each district (Table 37). We estimate that these temporary 
surcharges will generate a combined $1,404,678 in revenue for the 
pilotage associations across all three districts. In District One, the 
10 percent surcharge is expected to generate an additional $440,255 in 
revenue. In District Two, the 10 percent surcharge is expected to 
generate $424,443 in additional revenue. In District Three, the 10 
percent surcharge is expected to generate an additional $539,979 in 
revenue. At the end of the 2015 shipping season, we will account for 
the monies the surcharges generate and make adjustments (debits/
credits) to the operating expenses for the following year.
    Therefore, after accounting for the implementation of the temporary 
surcharges on traffic across all three districts, the payments made by 
shippers during the 2015 shipping season are estimated to be 
approximately $2,681,657 more than the payments that were made in 
2014.\4\
---------------------------------------------------------------------------

    \4\ Total payments across all three districts are equal to the 
increase in payments incurred by shippers as a result of the rate 
changes plus the temporary surcharges applied to traffic in 
Districts One, Two, and Three.
---------------------------------------------------------------------------

    A regulatory assessment follows.
    The final rule applies the 46 CFR part 404, Appendix A, full 
ratemaking methodology, including the exercise of our discretion to 
increase Great Lakes pilotage rates, on average, approximately 10 
percent overall from the current rates set in the 2014 final rule. The 
Appendix A methodology is discussed and applied in detail in Part VI of 
this preamble. Among other factors described in Part VI, it reflects 
audited 2012 financial data from the pilotage associations (the most 
recent year available for auditing), projected association expenses, 
and regional inflation or deflation. The last full Appendix A 
ratemaking was concluded in 2014 and used financial data from the 2011 
base accounting year. The last annual rate review, conducted under 46 
CFR part 404, Appendix C, was completed early in 2011.
    The shippers affected by these rate adjustments are those owners 
and operators of domestic vessels operating on register (employed in 
foreign trade) and owners and operators of foreign vessels on a route 
within the Great Lakes system. These owners and operators must have 
pilots or pilotage service as required by 46 U.S. C. 9302. There is no 
minimum tonnage limit or exemption for these vessels. The statute 
applies only to commercial vessels and not to recreational vessels.
    Owners and operators of other vessels that are not affected by this 
final rule, such as recreational boats and vessels operating only 
within the Great Lakes system, may elect to purchase pilotage services. 
However, this election is voluntary and does not affect our calculation 
of the rate and is not a part of our estimated national cost to 
shippers.
    We used 2011-2013 vessel arrival data from the Coast Guard's Marine 
Information for Safety and Law Enforcement (MISLE) system to estimate 
the average annual number of vessels affected by the rate adjustment. 
Using that period, we found that approximately 114 different vessels 
journeyed into the Great Lakes system annually. These vessels entered 
the Great Lakes by transiting at least one of the three pilotage 
districts before leaving the Great Lakes system. These vessels often 
made more than one distinct stop, docking, loading, and unloading at 
facilities in Great Lakes ports. Of the total trips for the 114 
vessels, there were approximately 353 annual U.S. port arrivals before 
the vessels left the Great Lakes system, based on 2011-2013 vessel data 
from MISLE.
    The impact of the rate adjustment to shippers is estimated from the 
District pilotage revenues. These revenues represent the costs that 
shippers must pay for pilotage services. The Coast Guard sets rates so 
that revenues equal the estimated cost of pilotage for these services.
    We estimate the additional impact (cost increases or cost 
decreases) of the rate adjustment in this rule to be the difference 
between the total projected revenue needed to cover costs in 2014, 
based on the 2014 rate adjustment, and the total projected revenue 
needed to cover costs in 2015, as set forth in this rule, plus any 
temporary surcharges authorized by the Coast Guard. Table 36 details 
projected revenue needed to cover costs in 2015 after making the 
discretionary adjustment to pilotage rates as discussed in Step 7 of 
Part V of this preamble. Table 37 summarizes the derivation for 
calculating the revenue expected to be generated as a result of the 
temporary surcharges applied to traffic in all three districts as 
discussed in Step 7 of Part V of this preamble. Table 38 details the 
additional cost increases to shippers by area and district as a result 
of the rate adjustments and temporary surcharges on traffic in 
Districts One, Two, and Three.
---------------------------------------------------------------------------

    \5\ 2014 Pilotage Rates are described in Table 16 of this rule.
    \6\ The estimated rate changes are described in Table 32 of this 
rule.
    \7\ 2015 Pilotage Rates--2014 Pilotage Rates x Rate Change.
    \8\ Projected 2015 Bridge Hours are described in Table 14 of 
this rule.
    \9\ Projected Revenue Needed in 2015--2015 Pilotage Rates x 
Projected 2015 Bridge Hours.

                                 Table 36--Rate Adjustment by Area and District
                                             [$U.S.; Non-discounted]
----------------------------------------------------------------------------------------------------------------
                                                                                                     Projected
                                   2014 Pilotage    Rate change    2015 Pilotage  Projected 2015      revenue
                                     rates \5\          \6\          rates \7\     bridge hours   needed in 2015
                                                                                        \8\             \9\
----------------------------------------------------------------------------------------------------------------
Area 1..........................         $472.50            1.10         $519.74           5,116      $2,659,014
Area 2..........................          291.96            1.10          321.15           5,429       1,743,536
                                 -------------------------------------------------------------------------------

[[Page 10385]]

 
    Total, District One.........  ..............  ..............  ..............  ..............       4,402,549
Area 4..........................          210.40            1.10          231.44           5,814       1,345,588
Area 5..........................          521.64            1.10          573.80           5,052       2,898,845
                                 -------------------------------------------------------------------------------
    Total, District Two.........  ..............  ..............  ..............  ..............       4,244,433
Area 6..........................          204.95            1.10          225.45           9,611       2,166,780
Area 7..........................          495.01            1.10          544.52           3,023       1,646,070
Area 8..........................          191.34            1.10          210.47           7,540       1,586,945
                                 -------------------------------------------------------------------------------
    Total, District Three.......  ..............  ..............  ..............  ..............       5,399,795
----------------------------------------------------------------------------------------------------------------
* Some values may not total due to rounding.


                                                       Table 37--Derivation of Temporary Surcharge
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                              Area 1          Area 2          Area 4          Area 5          Area 6          Area 7          Area 8
--------------------------------------------------------------------------------------------------------------------------------------------------------
Projected Revenue Needed in 2015........      $2,659,014      $1,743,536      $1,345,588      $2,898,845      $2,166,780      $1,646,070      $1,586,945
Surcharge Rate..........................             10%             10%             10%             10%             10%             10%             10%
Surcharge Raised........................        $265,901        $174,354        $134,559        $289,885        $216,678        $167,607        $158,694
                                         ---------------------------------------------------------------------------------------------------------------
    Total Surcharge.....................             $440,255
                                                     $424,443
                                                             $539,979
--------------------------------------------------------------------------------------------------------------------------------------------------------


                                Table 38--Impact of the Rule by Area and District
                                             [$U.S.; Non-discounted]
----------------------------------------------------------------------------------------------------------------
                                                                                                  Total costs or
                                                                                                    savings of
                                                                                                    this final
                                     Projected       Projected                      Additional         rule
                                      revenue         revenue        Temporary      revenue or      (additional
                                    needed  in      needed  in       surcharge      costs 2015      revenue  or
                                     2014 \10\       2015 \11\                      (2015-2014)        costs
                                                                                                  2015+temporary
                                                                                                     surcharge)
----------------------------------------------------------------------------------------------------------------
Area 1..........................      $2,417,285      $2,659,014        $265,901        $241,729        $507,630
Area 2..........................       1,585,032       1,743,536         174,354         158,503         332,857
                                 -------------------------------------------------------------------------------
    Total, District One.........       4,002,318       4,402,549         440,255         400,232         840,487
Area 4..........................       1,223,262       1,345,588         134,559         122,326         256,885
Area 5..........................       2,635,314       2,898,845         289,885         263,531         553,416
                                 -------------------------------------------------------------------------------
    Total, District Two.........       3,858,576       4,244,433         424,443         385,858         810,301
Area 6..........................       1,969,800       2,166,780         216,678         196,980         413,658
Area 7..........................       1,496,427       1,646,070         164,607         149,643         314,250
Area 8..........................       1,442,677       1,586,945         158,694         144,268         302,962
                                 -------------------------------------------------------------------------------
    Total, District Three.......       4,908,904       5,399,795         539,979         490,890       1,030,870
    System Total................      12,769,797      14,046,777       1,404,678       1,276,980       2,681,657
----------------------------------------------------------------------------------------------------------------
* Some values may not total due to rounding.

    After applying the discretionary rate change in this rule, the 
resulting difference between the projected revenue in 2014 and the 
projected revenue in 2015 is the annual change in payments from 
shippers to pilots after accounting for market conditions (i.e., a 
decrease in demand for pilotage services) and the change to pilotage 
rates as a result of this final rule. This figure is equivalent to the 
total additional payments or reduction in payments from the previous 
year that shippers will incur for pilotage services from this rule.
---------------------------------------------------------------------------

    \10\ Projected revenue needed in 2014 is described in Table 16 
of this rule.
    \11\ Projected revenue needed in 2015 is described in Table 36 
of this rule.
---------------------------------------------------------------------------

    The impact of the discretionary rate adjustment on shippers varies 
by area and district in this final rule. The discretionary rate 
adjustments will lead to affected shippers operating in District One, 
District Two, and District Three experiencing an increase in payments 
of $400,232, $385,858, and $490,890, respectively, from the previous 
year.
    In addition to the rate adjustments, temporary surcharges on 
traffic in District One, District Two, and District Three will be 
applied for the duration of the 2015 season in order for the pilotage 
associations to recover training expenses and technology investments 
incurred during the 2013 and 2014

[[Page 10386]]

shipping seasons. We estimate that these surcharges will generate an 
additional $440,255, $424,443, and $539,979 in revenue for the pilotage 
associations in District One, District Two, and District Three, 
respectively. At the end of the 2015 shipping season, we will account 
for the monies the surcharges generate and make adjustments (debits/
credits) to the operating expenses for the following year.\12\
---------------------------------------------------------------------------

    \12\ Our projections indicate in the 2016 rulemaking we will 
apply a surcharge of $112,226 for District One shippers at the end 
of the 2015 season in order to account for the difference between 
the total surcharges collected ($440,255) and the actual expenses 
incurred by the District One pilot association ($328,029 for 
training expenses), District Two shippers $98,614 (calculation: 
$424,443 (total surcharges collected) minus $300,000 to train two 
applicant pilots and ($25,829.80 for technology improvements)), and 
District Three shippers $213,029 (calculation: $539,979 (total 
surcharges collected) minus $326,950 (actual training expenses 
incurred)).
---------------------------------------------------------------------------

    To calculate an exact cost or savings per vessel is difficult 
because of the variation in vessel types, routes, port arrivals, 
commodity carriage, time of season, conditions during navigation, and 
preferences for the extent of pilotage services on designated and 
undesignated portions of the Great Lakes system. Some owners and 
operators will pay more and some would pay less, depending on the 
distance travelled and the number of port arrivals by their vessels. 
However, the increase in costs reported earlier in this rule does 
capture the adjustment in payments that shippers will experience from 
the previous year. The overall adjustment in payments, after taking 
into account the increase in pilotage rates and the addition of 
temporary surcharges will be an increase in payments by shippers of 
approximately $2,681,657 across all three districts.
    This rule will allow the Coast Guard to meet the requirements in 46 
U.S. C. 9303 to review the rates for pilotage services on the Great 
Lakes, thus ensuring proper pilot compensation.
    Alternatively, if we imposed the new rates based on the new 
contract data from AMOU, instead of using the discretionary rate 
adjustment described in Step 7, there would be an approximately 12 
percent decrease in rates across the system. Instead of shippers 
experiencing an increase in payments of approximately $1,276,980 \13\ 
from the previous year, as a result of the rate adjustments, shippers 
would instead experience a reduction in payments of approximately 
$1,475,412.\14\ Table 39 details projected revenue needed to cover 
costs in 2015 if the discretionary adjustment to pilotage rates as 
discussed in Step 7 of Part V of this preamble is not made. Table 40 
details the additional costs or savings by area and district as a 
result of this alternative proposal.
---------------------------------------------------------------------------

    \13\ This figure is the total costs or savings of the final rule 
minus the surcharges.
    \14\ This figure does not include the additional payments 
incurred by shippers as a result of the temporary surcharges applied 
to traffic in all three districts. The figure is equal to the total 
additional costs or savings of this final rule minus the temporary 
surcharges (see Table 40).
    \15\ The estimated rate changes are described in Table 32 of 
this final rule.

                           Table 39--Alternative Rate Adjustment by Area and District
                                             [$U.S.; Non-discounted]
----------------------------------------------------------------------------------------------------------------
                                2014 Pilotage    Rate change    2015 Pilotage  Projected 2015  Projected revenue
                                    rates           \15\            rates       bridge hours     needed in 2015
----------------------------------------------------------------------------------------------------------------
Area 1.......................         $472.50          0.8423         $398.00           5,116         $2,036,149
Area 2.......................          291.96          0.8443          246.51           5,429          1,338,302
                              ----------------------------------------------------------------------------------
    Total, District One......  ..............  ..............  ..............  ..............          3,374,451
Area 4.......................          210.40          0.9946          209.27           5,814          1,216,674
Area 5.......................          521.64          0.8363          436.22           5,052          2,203,805
                              ----------------------------------------------------------------------------------
    Total, District Two......  ..............  ..............  ..............  ..............          3,420,480
Area 6.......................          204.95          0.9405          192.76           9,611          1,852,580
Area 7.......................          495.01          0.8608          426.13           3,023          1,288,197
Area 8.......................          191.34          0.9418          180.20           7,540          1,358,677
                              ----------------------------------------------------------------------------------
    Total, District Three....  ..............  ..............  ..............  ..............          4,499,454
    System Total.............  ..............  ..............  ..............  ..............         11,294,385
----------------------------------------------------------------------------------------------------------------
\*\ Some values may not total due to rounding.


                          Table 40--Alternative Impact of the Rule by Area and District
                                             [$U.S.; Non-discounted]
----------------------------------------------------------------------------------------------------------------
                                             Projected         Projected                        Additional costs
                                          revenue needed    revenue needed       Temporary       or savings of
                                              in 2014           in 2015          surcharge         this rule
----------------------------------------------------------------------------------------------------------------
Area 1.................................        $2,417,285        $2,036,149          $203,615         ($177,521)
Area 2.................................         1,585,032         1,338,302           133,830          (112,900)
                                        ------------------------------------------------------------------------
    Total, District One................         4,002,318         3,374,451           337,445          (290,421)
Area 4.................................         1,223,262         1,216,674           121,667           115,080
Area 5.................................         2,635,314         2,203,805           220,381          (211,128)
                                        ------------------------------------------------------------------------
    Total, District Two................         3,858,576         3,420,480           342,048           (96,048)
Area 6.................................         1,969,800         1,852,580           185,258            68,038
Area 7.................................         1,496,427         1,288,197           128,820           (79,411)
Area 8.................................         1,442,677         1,358,677           135,868            51,868
                                        ------------------------------------------------------------------------

[[Page 10387]]

 
    Total, District Three..............         4,908,904         4,499,454           449,945            40,495
                                        ------------------------------------------------------------------------
    System Total.......................        12,769,797        11,294,385         1,129,439          (345,974)
----------------------------------------------------------------------------------------------------------------
\*\ Some values may not total due to rounding.

    We reject this alternative, however, because independent audits of 
pilot association revenues details a nearly $2 million gap between 
Coast Guard revenue projections and the amount of revenues actually 
collected. A rate decrease would only further widen this disparity, and 
would also jeopardize the ability of pilotage associations to provide 
safe, efficient, and reliable pilotage service. A rate increase of 10 
percent in all areas will lessen the gap between revenues projected by 
the Coast Guard and those collected by pilot associations, and the gap 
between the actual salaries of U.S. Registered Pilots and Canadian 
Registered Pilots of the GLPA. See our discussion of Step 7 in Part VI 
of this preamble for further explanation.

B. Small Entities

    Under the Regulatory Flexibility Act, 5 U.S.C. 601-612, we have 
considered whether this 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 
people.
    We expect that entities affected by the final rule will be 
classified under the North American Industry Classification System 
(NAICS) code subsector 483-Water Transportation, which includes the 
following 6-digit NAICS codes for freight transportation: 483111--Deep 
Sea Freight Transportation, 483113--Coastal and Great Lakes Freight 
Transportation, and 483211--Inland Water Freight Transportation. 
According to the Small Business Administration's definition, a U.S. 
company with these NAICS codes and employing less than 500 employees is 
considered a small entity.
    For the final rule, we reviewed recent company size and ownership 
data for the period 2011 through 2013 in the Coast Guard's MISLE 
database, and we reviewed business revenue and size data provided by 
publicly available sources such as MANTA and Reference USA. We found 
that large, foreign-owned shipping conglomerates or their subsidiaries 
owned or operated all vessels engaged in foreign trade on the Great 
Lakes. We assume that new industry entrants would be comparable in 
ownership and size to these shippers.
    There are three U.S. entities affected by this rule that receive 
revenue from pilotage services. These are the three pilot associations 
that provide and manage pilotage services within the Great Lakes 
districts. Two of the associations operate as partnerships and one 
operates as a corporation. These associations are designated with the 
same NAICS industry classification and small-entity size standards 
described above, but they have fewer than 500 employees; combined, they 
have approximately 65 total employees. We expect no adverse impact to 
these entities from this rule because through this rulemaking, all the 
pilot associations are provided with additional revenue to offset some 
of the projected expenses associated with the projected number of 
bridge hours and pilots, and to keep them on par with their Canadian 
counterparts.
    Therefore, the Coast Guard certifies under 5 U.S.C. 605(b) that 
this rule would not have a significant economic impact on a substantial 
number of small entities.

C. Assistance for Small Entities

    Under section 213(a) of the Small Business Regulatory Enforcement 
Fairness Act of 1996 (Pub. L. 104-121), we offered to assist small 
entities in understanding this rule so that they can better evaluate 
its effects on them and participate in the rulemaking. The Coast Guard 
will not retaliate against small entities that question or complain 
about this rule or any policy or action of the Coast Guard.
    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).

D. Collection of Information

    This rule calls for no new collection of information under the 
Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). This rule does 
not change the burden in the collection currently approved by the OMB 
under OMB Control Number 1625-0086, Great Lakes Pilotage Methodology.

E. Federalism

    A rule has implications for federalism under E.O. 13132, 
Federalism, if it has a substantial direct effect on the States, on the 
relationship between the national government and the States, or on the 
distribution of power and responsibilities among the various levels of 
government. We have analyzed this rule under that order and have 
determined that it is consistent with the fundamental federalism 
principles and preemption requirements described in E.O. 13132. Our 
analysis is explained below.
    Congress directed the Coast Guard to establish ``rates and charges 
for pilotage services.'' 46 U.S.C. 9303(f). This regulation is issued 
pursuant to that statute and is preemptive of state law as specified in 
46 U.S.C. 9306. Under 46 U.S.C. 9306, a ``State or political 
subdivision of a State may not regulate or impose any requirement on 
pilotage on the Great Lakes.'' As a result, States or local governments 
are expressly prohibited from regulating within this category. 
Therefore, this rule is consistent with the principles of federalism 
and preemption requirements in E.O. 13132.

F. 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 discretionary 
regulatory actions. In particular, the Act addresses actions

[[Page 10388]]

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 
(adjusted for inflation) or more in any one year. Though this rule 
would not result in such expenditure, we discuss the effects of this 
rule elsewhere in this preamble.

G. Taking of Private Property

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

H. Civil Justice Reform

    This rule meets applicable standards in sections 3(a) and 3(b)(2) 
of E.O. 12988, Civil Justice Reform, to minimize litigation, eliminate 
ambiguity, and reduce burden.

I. Protection of Children

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

J. Indian Tribal Governments

    This rule does not have tribal implications under E.O. 13175, 
Consultation and Coordination with Indian Tribal Governments, because 
it would not have a substantial direct effect on one or more Indian 
tribes, on the relationship between the Federal Government and Indian 
tribes, or on the distribution of power and responsibilities between 
the Federal Government and Indian tribes.

K. Energy Effects

    We have analyzed this rule under E.O. 13211, Actions Concerning 
Regulations That Significantly Affect Energy Supply, Distribution, or 
Use. We have determined that it is not a ``significant energy action'' 
under that order because it is not a ``significant regulatory action'' 
under E.O. 12866 and is not likely to have a significant adverse effect 
on the supply, distribution, or use of energy. The Administrator of the 
Office of Information and Regulatory Affairs has not designated it as a 
significant energy action. Therefore, it does not require a Statement 
of Energy Effects under E.O. 13211.

L. Technical Standards

    The National Technology Transfer and Advancement Act (15 U.S.C. 
272, note) directs agencies to use voluntary consensus standards in 
their regulatory activities unless the agency provides Congress, 
through the OMB, with an explanation of why using these standards would 
be inconsistent with applicable law or otherwise impractical. Voluntary 
consensus standards are technical standards (e.g., specifications of 
materials, performance, design, or operation; test methods; sampling 
procedures; and related management systems practices) that are 
developed or adopted by voluntary consensus standards bodies. This rule 
does not use technical standards. Therefore, we did not consider the 
use of voluntary consensus standards.

M. Environment

    We have analyzed this rule under Department of Homeland Security 
Management Directive 023-01 and Commandant Instruction M16475.lD, which 
guide the Coast Guard in complying with the National Environmental 
Policy Act of 1969 (42 U.S.C. 4321-4370f), and have concluded that this 
action is one of a category of actions that do not individually or 
cumulatively have a significant effect on the human environment. A 
final environmental analysis checklist supporting this determination is 
available in the docket where indicated under the ADDRESSES section of 
this preamble. This final rule involves regulations that are editorial 
or procedural and fall under section 2.B.2, figure 2-1, paragraph 
(34)(a) of the Instruction.

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 amends 
46 CFR part 401 as follows:

Title 46--Shipping

PART 401--GREAT LAKES PILOTAGE REGULATIONS

0
1. The authority citation for part 401 continues to read as follows:

    Authority:  46 U.S.C. 2104(a), 6101, 7701, 8105, 9303, 9304; 
Department of Homeland Security Delegation No. 0170.1; 46 CFR 
401.105 also issued under the authority of 44 U.S.C. 3507.


0
2. In Sec.  401.405, revise paragraphs (a) and (b), including the 
footnote to Table (a), 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............................  $21.13 per kilometer or
                                             $37.42 per mile.\1\
Each Lock Transited.......................  $469.\1\
Harbor Movage.............................  $1,535.\1\
------------------------------------------------------------------------
\1\ The minimum basic rate for assignment of a pilot in the St. Lawrence
  River is $1,024, and the maximum basic rate for a through trip is
  $4,492.

    (b) Area 2 (Undesignated Waters):

------------------------------------------------------------------------
                        Service                           Lake Ontario
------------------------------------------------------------------------
6-hour Period.........................................              $959
Docking or Undocking..................................               915
------------------------------------------------------------------------


0
3. In Sec.  401.407, revise paragraphs (a) and (b), including the 
footnote to Table (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
               Service                  of  Southeast        Buffalo
                                           Shoal)
------------------------------------------------------------------------
6-hour Period.......................              $934              $934
Docking or Undocking................               718               718
Any point on the Niagara River below               N/A             1,834
 the Black Rock Lock................
------------------------------------------------------------------------

    (b) Area 5 (Designated Waters):

[[Page 10389]]



----------------------------------------------------------------------------------------------------------------
                                                   Toledo or any
                                                   point on Lake
       Any point on or in            Southeast     Erie west of    Detroit River   Detroit Pilot     St. Clair
                                       Shoal         Southeast                         Boat            River
                                                       Shoal
----------------------------------------------------------------------------------------------------------------
Toledo or any port on Lake Erie           $2,637          $1,559          $3,424          $2,637             N/A
 west of Southeast Shoal........
Port Huron Change Point.........       \1\ 4,594       \1\ 5,321           3,451           2,685           1,909
St. Clair River.................       \1\ 4,594             N/A           3,451           3,451           1,559
Detroit or Windsor or the                  2,637           3,424           1,559             N/A           3,451
 Detroit River..................
Detroit Pilot Boat..............           1,909           2,637             N/A             N/A           3,451
----------------------------------------------------------------------------------------------------------------
\1\ When pilots are not changed at the Detroit Pilot Boat.


0
4. In Sec.  401.410, revise paragraphs (a), (b), and (c) to read as 
follows:


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

* * * * *
    (a) Area 6 (Undesignated Waters):

------------------------------------------------------------------------
                                                         Lakes Huron and
                        Service                             Michigan
------------------------------------------------------------------------
6-hour Period.........................................              $779
Docking or Undocking..................................               739
------------------------------------------------------------------------

    (b) Area 7 (Designated Waters):

----------------------------------------------------------------------------------------------------------------
                              Area                                    De tour        Gros cap       Any harbor
----------------------------------------------------------------------------------------------------------------
Gros Cap........................................................          $2,913             N/A             N/A
Algoma Steel Corporation Wharf at Sault Ste. Marie, Ontario.....           2,913          $1,097             N/A
Any point in Sault Ste. Marie, Ontario, except the Algoma Steel            2,441           1,097             N/A
 Corporation Wharf..............................................
Sault Ste. Marie, MI............................................           2,441           1,097             N/A
Harbor Movage...................................................             N/A             N/A          $1,097
----------------------------------------------------------------------------------------------------------------

    (c) Area 8 (Undesignated Waters):

------------------------------------------------------------------------
                        Service                           Lake Superior
------------------------------------------------------------------------
6-hour Period.........................................              $661
Docking or Undocking..................................               628
------------------------------------------------------------------------

Sec.  401.420  [Amended]

0
5. Amend Sec.  401.420 as follows:
0
a. In paragraph (a), remove the text ``$129'' and add, in its place, 
the text ``$142''; and remove the text ``$2,021'' and add, in its 
place, the text ``$2,223'';
0
b. In paragraph (b), remove the text ``$129'' and add, in its place, 
the text ``$142''; and remove the text ``$2,021'' and add, in its 
place, the text ``$2,223''; and
0
c. In paragraph (c)(1), remove the text ``$763'' and add, in its place, 
the text ``$839''; in paragraph (c)(3), remove the text ``$129'' and 
add, in its place, the text ``$142''; and remove the text ``$2,021'' 
and add, in its place, the text ``$2,223''.

Sec.  401.428  [Amended]

0
6. In Sec.  401.428, remove the text ``$763'' and add, in its place, 
the text ``$839''.

    Dated: February 23, 2015.
Gary C. Rasicot,
Director, Marine Transportation Systems, U.S. Coast Guard.
[FR Doc. 2015-04036 Filed 2-25-15; 8:45 am]
BILLING CODE 9110-04-P