Great Lakes Pilotage Rates-2017 Annual Review

Federal Register, Volume 81 Issue 202 (Wednesday, October 19, 2016)

Federal Register Volume 81, Number 202 (Wednesday, October 19, 2016)

Proposed Rules

Pages 72011-72034

From the Federal Register Online via the Government Publishing Office www.gpo.gov

FR Doc No: 2016-25254

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DEPARTMENT OF HOMELAND SECURITY

Coast Guard

46 CFR Parts 401, 403, and 404

USCG-2016-0268

RIN 1625-AC34

Great Lakes Pilotage Rates--2017 Annual Review

AGENCY: Coast Guard, DHS.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Coast Guard proposes new base pilotage rates and surcharges using the methodology instituted in 2016. The changes would take effect 30 days after publication of a final rule. Rates for pilotage services on the Great Lakes were last revised in March 2016 and, by law, must be reviewed annually.

DATES: Comments and related material must be submitted to the online docket via www.regulations.gov on or before December 19, 2016. Requests for a public meeting must be submitted by November 18, 2016.

ADDRESSES: You may submit comments identified by docket number USCG-

2016-0268 using the Federal eRulemaking Portal at http://www.regulations.gov. See the ``Public Participation and Request for Comments'' portion of the SUPPLEMENTARY INFORMATION section for further instructions on submitting comments.

FOR FURTHER INFORMATION CONTACT: For information about this document, call or email Mr. Todd Haviland, Director, Great Lakes Pilotage, Commandant (CG-WWM-2), Coast Guard; telephone 202-372-2037, email Todd.A.Haviland@uscg.mil, or fax 202-372-1914.

SUPPLEMENTARY INFORMATION:

Table of Contents for Preamble

I. Public Participation and Request for Comments

II. Abbreviations

III. Basis and Purpose

IV. Background

V. Discussion of Proposed Rate Changes

  1. District One

  2. District Two

  3. District Three

  4. Other Changes Affecting Ratemaking

  5. Surcharges

    VI. Regulatory Analyses

  6. Regulatory Planning and Review

    Page 72012

  7. Small Entities

  8. Assistance for Small Entities

  9. Collection of Information

  10. Federalism

  11. Unfunded Mandates Reform Act

  12. Taking of Private Property

  13. Civil Justice Reform

    I. Protection of Children

  14. Indian Tribal Governments

  15. Energy Effects

    L. Technical Standards

  16. Environment

    I. Public Participation and Request for Comments

    We view public participation as essential to effective rulemaking, and will consider all comments and material received during the comment period. Your comment can help shape the outcome of this rulemaking. If you submit a comment, please include the docket number for this rulemaking, indicate the specific section of this document to which each comment applies, and provide a reason for each suggestion or recommendation.

    We encourage you to submit comments through the Federal eRulemaking Portal at http://www.regulations.gov. If your material cannot be submitted using http://www.regulations.gov, contact the person in the FOR FURTHER INFORMATION CONTACT section of this document for alternate instructions. Documents mentioned in this notice, and all public comments, are in our online docket at http://www.regulations.gov and can be viewed by following that Web site's instructions. Additionally, if you go to the online docket and sign up for email alerts, you will be notified when comments are posted or a final rule is published.

    We accept anonymous comments. All comments received will be posted without change to http://www.regulations.gov and will include any personal information you have provided. For more about privacy and the docket, you may review a Privacy Act notice regarding the Federal Docket Management System in the March 24, 2005, issue of the Federal Register (70 FR 15086).

    We are not planning to hold a public meeting but will consider doing so if public comments indicate a meeting would be helpful. We would issue a separate Federal Register notice to announce the date, time, and location of such a meeting.

    II. Abbreviations

    APA American Pilots Association

    BLS Bureau of Labor Statistics

    CAD Canadian dollars

    CFR Code of Federal Regulations

    CPA Certified public accountant

    GLPA Great Lakes Pilotage Authority (Canadian)

    GLPMS Great Lakes Pilotage Management System

    NAICS North American Industry Classification System

    NPRM Notice of proposed rulemaking

    NTSB National Transportation Safety Board

    OMB Office of Management and Budget

    RA Regulatory analysis

    SBA Small Business Administration

    Sec. Section symbol

    SLSMC Saint Lawrence Seaway Management Corporation

    U.S.C. United States Code

    USD United States dollars

    III. Basis and Purpose

    The legal basis of this rulemaking is the Great Lakes Pilotage Act of 1960 (``the Act''),\1\ which requires U.S. vessels operating ``on register'' \2\ 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 system.\3\ For the U.S. registered Great Lakes pilots (``pilots''), 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.'' \4\ The Act requires that rates be established or reviewed and adjusted each year, not later than March 1. The Act requires that base rates 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. The Secretary's duties and authority under the Act have been delegated to the Coast Guard.\5\

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    \1\ Public Law 86-555, 74 Stat. 259, as amended; currently codified as 46 U.S.C. Chapter 93.

    \2\ ``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.

    \3\ 46 U.S.C. 9302(a)(1).

    \4\ 46 U.S.C. 9303(f).

    \5\ DHS Delegation No. 0170.1, para. II (92.f).

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    The purpose of this notice of proposed rulemaking (NPRM) is to propose new base pilotage rates and surcharges for training and propose new methodology in projecting pilotage rates. This includes proposals to adjust the surcharge provision to stop collecting funds once the assigned value has been recovered for the season; modify the regulations to review pilot compensation once every 10 years, with cost-of-living adjustments added annually between reviews; rename Return on Investment as Working Capital Fund to better clarify the intent of this step; and move the audit deadline from April to January of each year in order to capture expenses in the rate sooner and to eliminate 1 year from the current 3-year lag in expenses being recognized in the rate. The new methodology in proposing rates changes pilot demand from peak to seasonal.

    In addition to these changes to the ratemaking process, the Coast Guard proposes adding pilots to support a mandatory change point on the Saint Lawrence River between Iroquois Lock and the area of Ogdensburg, NY. We further propose to amend the regulation regarding delays so that cancellation charges can be assessed in an appropriate manner. Finally, we are seeking public comment on how we should proceed with weighting factors.

    IV. Background

    The vessels affected by this NPRM are those engaged in foreign trade upon the U.S. waters of the Great Lakes. United States and Canadian ``lakers,'' which account for most commercial shipping on the Great Lakes, are not affected.\6\

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    \6\ 46 U.S.C. 9302. 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 (``the Director'') to operate a pilotage pool. The Coast Guard does not control the actual compensation that pilots receive. The actual compensation is determined by the district associations, each of which uses 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 Huron, Michigan, and Superior. Area 3 is the Welland Canal, which is serviced exclusively by the Canadian Great Lakes Pilotage Authority (GLPA) and, accordingly, is not included in the United States pilotage rate structure.

    Areas 1, 5, and 7 have been designated by Presidential Proclamation \7\ 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

    Page 72013

    those undesignated areas, pilots must ``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.'' \8\

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    \7\ Presidential Proclamation 3385, Designation of restricted waters under the Great Lakes Pilotage Act of 1960, December 22, 1960.

    \8\ 46 U.S.C. 9302(a)(1)(B).

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    The Coast Guard is required to establish new pilotage rates by March 1 of each year, employing a full ratemaking at least once every 5 years and an annual review and adjustment in the intervening years.\9\ The Coast Guard will continue to review rates annually until we can stabilize the rates and ensure pilotage association revenues are in line with projections.

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    \9\ 46 U.S.C. 9303(f).

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    In 2016, we revised our ratemaking methodology to improve the ratemaking process. Some of the changes proposed in this document further refine the 2016 methodology.

    V. Discussion of Proposed Rate Changes

    We propose new rates, and surcharges under 46 CFR 401.401, for 2017. This section discusses the proposed rates using the ratemaking steps provided in 46 CFR part 404. We reviewed the independent accountant's financial reports for each association's 2014 expenses and revenues. Those reports, which include pilot comments on draft versions and the accountant's response to those comments, appear in the docket.\10\ This year, we have reorganized the layout of this proposed rule to address the ratemaking steps for each pilotage district individually. This is only a formatting change to make the proposed rule easier to follow. We begin with District One, and some explanations in the section on District One will apply to similar changes in the other Districts.

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    \10\ See ``Summary--Independent Accountant's Report on Pilot Association Expenses, with Pilot Association Comments and Accountant's Responses.''

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  17. District One

    Recognize previous year's operating expenses (Sec. 404.101). First, we reviewed and accepted the accountant's final findings on the 2014 audit of association expenses.

    Table 1 shows District One's recognized expenses.

    Table 1--Recognized Expenses for District One

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

    District One

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

    Designated Undesignated

    Reported expenses for 2014 -------------------------------- Total

    St. Lawrence

    River Lake Ontario

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

    Operating Expenses:

    Other Pilotage Costs:

    Pilot subsistence/travel.................................... $302,547 $228,222 $530,769

    Applicant Pilot subsistence/travel.......................... 0 12,996 12,996

    License insurance........................................... 20,231 22,480 42,711

    Applicant Pilot license insurance........................... 0 1,760 1,760

    Payroll taxes............................................... 78,067 64,130 142,197

    Applicant Pilot payroll taxes............................... 0 0 0

    Other....................................................... 479 378 857

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

    Total other pilotage costs.............................. 401,324 329,966 731,290

    Pilot Boat and Dispatch Costs:

    Pilot boat expense.......................................... 130,741 103,173 233,914

    Dispatch expense............................................ 0 0 0

    Payroll taxes............................................... 9,797 7,732 17,529

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

    Total pilot and dispatch costs.......................... 140,538 110,905 251,443

    Administrative Expenses:

    Legal--general counsel...................................... 2,173 1,505 3,678

    Legal--shared counsel (K&L Gates)........................... 8,783 6,932 15,715

    Legal--USCG litigation...................................... 12,794 10,098 22,892

    Insurance................................................... 21,829 17,226 39,055

    Employee benefits........................................... 7,570 5,974 13,544

    Payroll taxes............................................... 5,281 4,167 9,448

    Other taxes................................................. 7,262 5,731 12,993

    Travel...................................................... 648 512 1,160

    Depreciation/auto leasing/other............................. 48,094 31,820 79,914

    Interest.................................................... 13,713 10,821 24,534

    APA Dues.................................................... 12,444 11,996 24,440

    Utilities................................................... 8,916 418 9,334

    Salaries.................................................... 52,121 41,130 93,251

    Accounting/Professional fees................................ 5,142 4,058 9,200

    Pilot Training.............................................. 6,427 5,074 11,501

    Applicant Pilot training.................................... 0 0 0

    Other....................................................... 8,866 6,546 15,412

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

    Total Administrative Expenses........................... 222,063 164,008 386,071

    Total Operating Expenses (Other Costs + Pilot Boats + Admin).... 763,925 604,879 1,368,804

    Proposed Adjustments (Independent CPA):

    Pilot subsistence/travel.................................... -15,712 -12,401 -28,113

    Payroll taxes............................................... -87 -68 -155

    Applicant Pilot payroll taxes............................... 0 2,347 2,347

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

    TOTAL CPA ADJUSTMENTS................................... -15,799 -10,122 -25,921

    Page 72014

    Proposed Adjustments (Director):

    APA Dues.................................................... -1,867 -1,799 -3,666

    2015 Surcharge Adjustment *................................. -92,766 -72,887 -165,653

    Legal--shared counsel (K&L Gates)........................... -8,783 -6,932 -15,715

    Legal--USCG litigation...................................... -12,794 -10,098 -22,892

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

    TOTAL DIRECTOR'S ADJUSTMENTS............................ -116,209 -91,717 -207,926

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

    Total Operating Expenses (OpEx + Adjustments)................... 631,917 503,040 1,134,957

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

    * District One collected $493,682 with an authorized 10% surcharge in 2015. The adjustment represents the

    difference between the collected amount and the authorized amount of $328,029 authorized in the 2015 final

    rule.

    Project next year's operating expenses, adjusting for inflation or deflation (Sec. 404.102). We based our inflation adjustments on the Bureau of Labor Statistics' (BLS) data from the Consumer Price Index for the Midwest Region of the United States,\11\ and reports from the Federal Reserve.\12\ The adjustments for District One are shown in Table 2.

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    \11\ Available at http://data.bls.gov/timeseries/CUUR0200SA0?data_tool=Xgtable

    \12\ Available at https://www.federalreserve.gov/monetarypolicy/fomcprojtabl20160316.htm

    Table 2--Inflation Adjustment, District One

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    District One

    -------------------------------- Total

    Designated Undesignated

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    Total Operating Expenses (Step 1)............................... $631,917 $503,040 $1,134,957

    2015 Inflation Modification (@-0.5%)............................ -3,160 -2,515 -5,675

    2016 Inflation Modification (@2.2%)............................. 13,833 11,012 24,844

    2017 Inflation Modification (@2.1%)............................. 13,494 10,742 24,237

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

    Adjusted 2017 Operating Expenses............................ 656,084 522,279 1,178,363

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    Determine number of pilots needed (Sec. 404.103). To determine the number of pilots needed for 2017, we reviewed the historic number of annual assignments in each area going back to 2007. Our demand model from the 2016 final rule allows pilots 10 days of recuperative rest each month between mid-April and mid-November, in order to better mitigate long-term fatigue. A U.S. registered pilot may spend several days in various ports in between assignments, which is not considered recuperative rest.

    In 2016, we examined peak staffing primarily through an analysis of the maximum number of trips needed through designated waters at the end of each season. We propose modifying our pilotage demand calculation to focus instead on the pilot work cycle, including elements such as travel, rest, pilot boat time, and other items in addition to time on the bridge of the ship, and the number of assignments we reasonably expect pilots to be able to complete during the 9-month shipping season instead of during peak pilotage demand. The rest standards apply from April 15 through November 15 of each shipping season, which are non-

    peak periods. Thus, of the 270 days of the shipping season,\13\ a pilot would be available for assignment on 200 of those days.\14\ During the opening and closing of the season, however, we expect all of the working pilots to be available. This is critical at the end of the season to prevent a ship from getting stuck in the system due to lock maintenance schedules. We invite comment on these assumptions and how this model might impact operations and the recruitment and retention of pilots.

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    \13\ Nine months per shipping season x 30 days per month.

    \14\ Two-hundred and seventy days per season minus 70 days rest (7 non-peak months x 10 days rest per month).

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    Tables 3 through 7 examine our proposed staffing model. We begin our analysis with the pilot assignment cycle first discussed in the 2016 rulemaking.\15\ The pilot assignment cycle outlines the time needed to perform an assignment from beginning to end. This is shown in Table 3.

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    \15\ 81 FR 11932, Figure 14.

    Table 3--Pilot Assignment Cycle for District One

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    District One

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

    Pilot assignment cycle Area 1 Area 2

    (hours) (hours)

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

    Average Through Transit Time \*\........ 10.8 11.0

    Page 72015

    Travel.................................. 3.2 4.6

    Delay................................... 0.7 0.9

    Admin................................... 0.5 0.5

    Total Assignment........................ 15.2 17.0

    Mandatory Rest.......................... 10 10

    Pilot Cycle (hours/assignment).......... 25.2 27.0

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

    * Updated since 2016 to reflect average through transit time based on

    current speed and other conditions as provided by pilot associations.

    Using this data, we calculate the maximum number of assignments a pilot could conduct each year under perfect conditions with demand evenly distributed throughout the shipping season. This information follows in Table 4.

    Table 4--Calculation of Maximum Assignments for District One

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    District One

    Pilot assignments -------------------------------

    Area 1 Area 2

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

    Seasonal Availability Goal (hours)...... 4,800 4,800

    Pilot Cycle (hours/assignment).......... 25.2 27

    Max Assignments per Pilot............... 190 178

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

    Our model uses this maximum figure to calculate a projected number of assignments for each pilot in the 2017 shipping season. At this time, we can neither track assignments electronically nor track individual pilot cycle times. Additionally, the projected number of assignments per pilot reflects only actual assignments and does not include time the pilot is standing by and waiting for the next assignment. This calculation is detailed in Table 5.

    Table 5--Projected Assignments per Pilot in District One

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    District One

    Assignments per pilot -------------------------------

    Area 1 (hours) Area 2 (hours)

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

    Max Assignments per Pilots.............. 190 178

    Efficiency Adjustment *................. 0.5 0.5

    Projected Assignments per Pilot......... 95 89

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

    * Recommended starting ratio per the 2013 bridge hour study (on page

    23), available in the docket.

    Next, we examine the historic number of assignments over the last nine shipping seasons, by Area, in District One. This will inform our final pilot strength calculation. The number of pilot assignments is detailed in Table 6.

    Table 6--Historic Number of Assignments in District One

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    District One

    Historic number of assignments -------------------------------

    Area 1 Area 2

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

    2007.................................... 708 558

    2008.................................... 632 480

    2009.................................... 361 434

    2010.................................... 518 591

    2011.................................... 500 634

    2012.................................... 479 632

    2013.................................... 490 598

    2014.................................... 612 637

    2015.................................... 593 589

    Average Assignments..................... 544 573

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

    Finally, using the historic average number of assignments from the last nine shipping seasons (Table 6) and the projected assignments per pilot (Table 5), we are able to calculate the projected need for pilot strength for District One. This calculation is in Table 7. In all districts, when the calculation results in a fraction of a pilot, we round pilot

    Page 72016

    numbers up to the nearest whole pilot. We do this to avoid shortening our demand calculation and also to compensate for the role of the district presidents as both working pilots and representatives of their associations. We believe the rounding is justified to meet the needs of the staffing model and also to ensure the presidents of the pilot associations are able to effectively engage in meetings and communications with stakeholders throughout the Great Lakes region and the Coast Guard.

    Table 7--Projected Pilots Needed in District One

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    District One

    Pilots needed -------------------------------

    Area 1 (hours) Area 2 (hours)

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

    Historic Average Assignments............ 544 573

    Projected Assignments per Pilot......... 95 89

    Projected Pilots Needed (unrounded)..... 5.71 6.44

    Projected Pilots Needed (rounded)....... 6 7

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

    Based on these tables, District One has a projected pilot need of 13 pilots for the 2017 season.

    Proposed Mandatory Change Point Affecting Pilot Need

    However, we also propose to add a mandatory change point in the vicinity of Iroquois Lock. In the 2016 NPRM, we proposed making Iroquois Lock a mandatory change point to enhance safety by mitigating fatigue on long pilotage runs. 80 FR 54487. However, we did not implement that proposal because the GLPA and Saint Lawrence Seaway Pilots Association informed us that they needed additional time to recruit, hire, and train additional pilots to implement this change. We propose adding the language, ``The Saint Lawrence River between Iroquois Lock and the area of Ogdensburg, NY, at the opening of the 2017 shipping season,'' to the list of mandatory change points in section 401.450. The transit between Snell Lock and Cape Vincent takes about 11 hours under ideal circumstances. We want to limit a U.S. registered pilot's assignment to 8 hours in designated waters in order to mitigate fatigue. Establishing this mandatory change point allows us to accomplish this goal.

    Establishing this change point will increase the number of assignments and pilots needed in Area 1. Currently, about 40 percent of the assignments change at Iroquois Lock due to the night relief working rules or a slow moving vessel. We have historically counted this as one assignment even though two pilots are used to complete this assignment. For the purposes of calculating the number of additional assignments, we assume that 40 percent of trips currently switch pilots, while 60 percent will require a new pilot assignment. The historical average number of pilot assignments in District One, Area 1, is 544 per year (Table 6). If 60 percent of these will require an additional pilot assignment due to the new change point, 326 additional pilot assignments will be needed.\16\ From Table 5, pilots in this area average 95 assignments per season, resulting in the need for an additional 3.4 pilots to cover the additional assignments. Again, we round the calculated number of pilots needed to the next whole pilot to help ensure an adequate supply of pilots available for assignment.

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    \16\ We calculated 544 average assignments per year x .6 will require a new pilot assignment.

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    Based on these calculations, we propose four additional pilots to handle the increased number of assignments. The Saint Lawrence Seaway Pilots Association has communicated that it will have the necessary number of pilots trained at the beginning of the 2017 season. Therefore, we are proposing the addition of these pilots in the 2017 rulemaking, resulting in a total number of 17 pilots needed for District One (13 from Table 7 to handle existing demand, plus 4 to account for the Iroquois Lock change point).

    We have coordinated with the Saint Lawrence Seaway Management Corporation (SLSMC), the Great Lakes Pilots Authority, and the Saint Lawrence Seaway Pilots Association, and concluded that the addition of the change point will not require capital expenses. The SLSMC will continue to allow the U.S. and Canadian registered pilots to use the Iroquois Lock for pilot changes. This avoids the need to purchase a new pilot boat and dock, as well as additional labor for support staff. If this changes, we will require District One to provide a plan for procuring a new pilot boat, dock, and additional support staff needed for this new change point, so that these costs can be included in a ratemaking.

    We understand that District One plans to have all applicant pilots trained and working for the 2017 season. Therefore, Table 8 shows zero applicants, and consequently, no applicant surcharge for District One.

    Table 8--Pilots Needed; Pilots Projected To Be Working

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    District One

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

    Needed pilots, period for which 2017 rates are in effect 17

    Working pilots projected for 2017....................... 17

    Applicant pilots for 2017............................... 0

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

    Determine target pilot compensation (Sec. 404.104). In the 2016 ratemaking, we attempted to align the compensation of U.S. registered pilots with the Canadian registered pilots of the GLPA and set a target compensation of $326,114. We are proposing to freeze target compensation for 2017 at the 2016 levels for the following reasons. First, the methodology used to align target compensation in the 2016 ratemaking used the foreign exchange rate between the Canadian and U.S. dollar to convert Canadian compensation to United States compensation. The exchange rate has changed substantially from 1.149CAD:1USD in 2014 to 1.329CAD:1USD in 2015.\17\ This is a change of nearly 20 percent. The volatility in exchange rates is dependent on factors external to the ratemaking, and we do not believe it is in the public interest to lower target pilot compensation by nearly 20 percent based on foreign exchange. Second, the system needs target pilot compensation stability in order to achieve and maintain workforce stability. Finally, the most challenging portion of this analysis is the conversion of Canadian benefits into roughly equivalent United States benefits. For example, the U.S. registered pilots invest their own money

    Page 72017

    to own and operate the pilot associations, whereas the Canadian registered pilots do not. The Canadian registered pilots have a defined, government-backed pension, guaranteed time off, sick days, personal days, and medical benefits that require no out-of-pocket expenses. Our discussions with stakeholders, including the Canadian government, pilots, and industry, have highlighted the challenges of comparing benefits across international boundaries. We are not convinced that a single conversion from Canadian currency to United States currency properly accounts for the level of benefits provided to the Canadian registered pilots. We believe the most appropriate solution is to launch an independent, third-party study to examine pilot compensation and recommend a total compensation number. The Coast Guard is in the early stages of pursuing this study.

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    \17\ See https://www.irs.gov/individuals/international-taxpayers/yearly-average-currency-exchange-rates.

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    While we await the results of an independent third-party study, we propose maintaining the 2016 level for target pilot compensation for this ratemaking. The calculations of target pilot compensation for District One are displayed in Table 9.

    Table 9--District One Target Pilot Compensation

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    District One

    -------------------------------- Total

    Designated Undesignated

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

    Target Pilot Compensation....................................... $326,114 $326,114 $326,114

    Number of Pilots (Step 3)....................................... 10 7 17

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

    Total Target Pilot Compensation............................. $3,261,142 $2,282,799 $5,543,941

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    Determine working capital fund (proposed Sec. 404.105). We propose changing the term for this step from ``Project return on investment'' to ``Determine working capital fund'' based on several discussions with the shippers, ports, and agents. We agree with the shippers, ports, and agents that this is more than a return on the monies the pilots have invested in their infrastructure. The intent of this step is to provide the pilots with working capital for future expenses associated with capital improvements, technology investments, and future training needs, with the goal of eliminating the need for surcharges. Even though we propose changing the name of this step, we do not propose changing the calculation.

    We calculate the working capital fund by multiplying the 2014 average rate of return for new issues of high-grade corporate securities and Total Expenses (Adjusted Operating Expenses from Step 2 plus Total Target Pilot Compensation from Step 4). We use the Moody's AAA bond rate information to determine the average annual rate of return for new issues of high-grade corporate securities. The 2014 average annual rate of return for new issues of high-grade corporate securities was 4.16 percent.\18\ The working capital fund calculation is shown in Table 10.

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    \18\ Based on Moody's AAA corporate bonds, which can be found at: http://research.stlouisfed.org/fred2/series/AAA/downloaddata?cid=119.

    Table 10--District One Working Capital Fund Calculation

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    District One

    -------------------------------- Total

    Designated Undesignated

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

    Adjusted Operating Expenses (Step 2)............................ $656,084 $522,279 $1,178,363

    Total Target Pilot Compensation (Step 4)........................ 3,261,142 2,282,799 5,543,941

    Total 2017 Expenses............................................. 3,917,226 2,805,078 6,722,304

    Working Capital Fund (4.16%).................................... 162,957 116,691 279,648

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

    Project needed revenue for next year (proposed Sec. 404.106). Table 11 shows District One's needed revenue, which is determined by adding the proposed Sec. 404.102 operating expense, the proposed Sec. 404.104 total target compensation, and the proposed Sec. 404.105 working capital fund.

    Table 11--Revenue Needed

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    District One

    -------------------------------- Total

    Designated Undesignated

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

    Adjusted Operating Expenses (Step 2)............................ $656,084 $522,279 $1,178,363

    Total Target Pilot Compensation (Step 4)........................ 3,261,142 2,282,799 5,543,941

    Working Capital Fund (Step 5)................................... 162,957 116,691 279,648

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

    Total Revenue Needed........................................ 4,080,183 2,921,770 7,001,952

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    Make initial base rate calculations (proposed Sec. 404.107). To make our initial base rate calculations, we first establish a multi-

    year base period from which we can draw available and reliable data on actual pilot hours

    Page 72018

    worked in each district's designated and undesignated waters. For the 2017 rates, we propose using data covering 2007 through 2015. Table 12 shows calculations of the average number of bridge hours over the last 9 shipping seasons.

    Table 12--Hours Worked, 2007 Through 2015, District One

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    District One

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

    Designated Undesignated

    (hours) (hours)

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

    2015.................................... 5,743 6,667

    2014.................................... 6,810 6,853

    2013.................................... 5,864 5,529

    2012.................................... 4,771 5,121

    2011.................................... 5,045 5,377

    2010.................................... 4,839 5,649

    2009.................................... 3,511 3,947

    2008.................................... 5,829 5,298

    2007.................................... 6,099 5,929

    Average................................. 5,390 5,597

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

    We are monitoring bridge hours and revenue projections for the season, and there is a great deal of variation in the system. Through the end of May 2016, projected bridge hours for the entire shipping season were up 45 percent in District One compared to the 9-year average, while revenue projection for the same period was only up 15 percent compared to our projected revenue needed. This suggested that the District One rate continued to under-generate needed revenue. However, by the end of July 2016, projected bridge hours for the entire shipping season were up 8.2 percent as compared to the 9-year average, and revenue projection was up 16 percent as compared to projected revenue needed, which suggests slight over-generation of revenue. We will continue to monitor traffic and revenue projections throughout the shipping season to see if any additional changes are needed.

    Table 13 calculates new rates by dividing each association's projected needed revenue, from Sec. 404.106, by the average hours shown in Table 12 and rounding to the nearest whole number.

    Table 13--Rate Calculations

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

    District One

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

    Designated Undesignated

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

    Revenue Needed (Step 6)................. $4,080,183 $2,921,770

    Average time on task 2007-2015.......... 5,390 5,597

    Hourly Rate............................. $757 $522

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

    We now examine the calculations of the other two pilotage districts for 2017.

  18. District Two

    Recognize previous year's operating expenses (Sec. 404.101). We reviewed and accepted the accountant's final findings on the 2014 audits of association expenses.

    Table 14 shows District Two's recognized expenses.

    Table 14--Recognized Expenses for District Two

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

    District Two

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

    Undesignated Designated

    Reported expenses for 2014 -------------------------------- Total

    SES to Port

    Lake Erie Huron

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

    Operating Expenses:

    Other Pilotage Costs:

    Pilot subsistence/travel.................................... $148,424 $222,635 $371,059

    Applicant Pilot subsistence/travel.......................... 9,440 14,160 23,600

    License insurance........................................... 52,888 79,333 132,221

    Applicant Pilot license insurance........................... 5,738 8,608 14,346

    Payroll taxes............................................... 76,903 115,354 192,257

    Applicant Pilot payroll taxes............................... 8,344 12,516 20,860

    Other....................................................... 1,053 1,579 2,632

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

    Total other pilotage costs.............................. 302,790 454,185 756,975

    Pilot Boat and Dispatch Costs:

    Pilot boat expense.......................................... 173,145 259,718 432,863

    Dispatch expense............................................ 10,080 15,120 25,200

    Employee benefits........................................... 72,662 108,992 181,654

    Payroll taxes............................................... 8,472 12,707 21,179

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

    Total pilot and dispatch costs.......................... 264,358 396,538 660,896

    Administrative Expenses:

    Legal--general counsel...................................... 2,680 4,020 6,700

    Legal--shared counsel (K&L Gates)........................... 4,984 7,476 12,461

    Legal--USCG litigation...................................... 8,371 12,557 20,928

    Office rent................................................. 26,275 39,413 65,688

    Insurance................................................... 9,909 14,863 24,772

    Employee benefits........................................... 23,002 34,504 57,506

    Payroll taxes............................................... 5,001 7,501 12,502

    Page 72019

    Other taxes................................................. 21,179 31,769 52,948

    Depreciation/auto leasing/other............................. 17,784 26,677 44,461

    Interest.................................................... 3,298 4,948 8,246

    APA Dues.................................................... 8,664 12,996 21,660

    Utilities................................................... 15,429 23,144 38,573

    Salaries.................................................... 46,008 69,013 115,021

    Accounting/Professional fees................................ 9,410 14,115 23,525

    Pilot Training.............................................. 0 0 0

    Other....................................................... 11,343 17,012 28,355

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

    Total Administrative Expenses........................... 213,339 320,007 533,346

    Total Operating Expenses (Other Costs + Pilot Boats + Admin).... 780,488 1,170,729 1,951,217

    Proposed Adjustments (Independent CPA):

    Depreciation/auto leasing/other............................. 3,322 4,982 8,304

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

    TOTAL CPA ADJUSTMENTS................................... 3,322 4,982 8,304

    Proposed Adjustments (Director):

    APA Dues.................................................... -1,300 -1,949 -3,249

    2015 Surcharge Adjustment*.................................. -85,782 -128,672 -214,454

    Legal--shared counsel (K&L Gates)........................... -4,984 -7,476 -12,461

    Legal--USCG litigation...................................... -8,371 -12,557 -20,928

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

    TOTAL DIRECTOR'S ADJUSTMENTS............................ -100,436 -150,655 -251,092

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

    Total Operating Expenses (OpEx + Adjustments)................... 683,374 1,025,056 1,708,429

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

    * District Two collected $540,284 with an authorized 10% surcharge in 2015. The adjustment represents the

    difference between the collected amount and the $325,830 authorized in the 2015 final rule.

    Project next year's operating expenses, adjusting for inflation or deflation (Sec. 404.102). We based our inflation adjustments on BLS data from the Consumer Price Index for the Midwest Region of the United States,\19\ and reports from the Federal Reserve.\20\ The adjustments for District Two are shown in Table 15.

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

    \19\ Available at http://data.bls.gov/timeseries/CUUR0200SA0?data_tool=Xgtable.

    \20\ Available at https://www.federalreserve.gov/monetarypolicy/fomcprojtabl20160316.htm.

    Table 15--Inflation Adjustment, District Two

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

    District Two

    -------------------------------- Total

    Undesignated Designated

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

    Total Operating Expenses (Step 1)............................... $683,374 $1,025,056 $1,708,429

    2015 Inflation Modification (@-0.5%)............................ -3,417 -5,125 -8,542

    2016 Inflation Modification (@2.2%)............................. 14,959 22,438 37,398

    2017 Inflation Modification (@2.1%)............................. 14,593 21,890 36,483

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

    Adjusted 2017 Operating Expenses................................ 709,509 1,064,259 1,773,767

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

    Determine number of pilots needed (Sec. 404.103). To determine the number of pilots needed for 2017 in District Two, we followed the same steps discussed earlier in this proposed rule for District One. The resulting calculations follow in Tables 16 through 20.

    Table 16--Pilot Assignment Cycle for District Two

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

    District Two

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

    Pilot assignment cycle Area 4 Area 5

    (hours) (hours)

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

    Average Through Transit Time *.......... 17.0 6.5

    Travel.................................. 4.6 3.2

    Delay................................... 0.7 0.4

    Admin................................... 0.5 0.5

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

    Page 72020

    Total Assignment........................ 22.8 10.6

    Mandatory Rest.......................... 10 10

    Pilot Cycle (hours/assignment).......... 32.8 20.6

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

    * Updated since 2016 to reflect average through transit time based on

    current speed and other conditions as provided by pilot associations.

    Table 17--Calculation of Maximum Assignments for District Two

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

    District Two

    Pilot assignments -------------------------------

    Area 4 Area 5

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

    Seasonal Availability Goal (hours)...... 4800 4800

    Pilot Cycle (hours/assignment).......... 32.8 20.6

    Max Assignments per Pilot............... 146 233

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

    Table 18--Projected Assignments per Pilot in District Two

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

    District Two

    Assignments per pilot -------------------------------

    Area 4 Area 5

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

    Max Assignments per Pilots.............. 146 233

    Efficiency Adjustment *................. 0.5 0.5

    Projected Assignments per Pilot......... 73 117

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

    * Recommended starting ratio per the 2013 bridge hour study (on page

    23), available in the docket.

    Table 19--Historic Number of Assignments in District Two

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

    District Two

    Historic number of assignments -------------------------------

    Area 4 Area 5

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

    2007.................................... 510 866

    2008.................................... 444 616

    2009.................................... 290 471

    2010.................................... 460 821

    2011.................................... 331 598

    2012.................................... 351 603

    2013.................................... 404 693

    2014.................................... 624 1043

    2015.................................... 576 946

    Average Assignments..................... 443 740

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

    Table 20--Projected Pilots Needed in District Two

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

    District Two

    Pilots needed -------------------------------

    Area 4 Area 5

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

    Historic Average Assignments............ 443 740

    Projected Assignments per Pilot......... 73 117

    Projected Pilots Needed (unrounded)..... 6.06 6.35

    Projected Pilots Needed (rounded)....... 7 7

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

    Page 72021

    We round the calculated number of total pilots for District Two to the next whole pilot to help ensure that an adequate supply of pilots is available for assignment. Based on these tables, District Two has a projected need for 14 pilots for the 2017 season. At the beginning of the 2017 shipping season, they plan to have 13 working pilots and 2 applicants. We believe the second applicant is necessary to prepare for future retirements, given the extended training periods associated with new pilots. Currently, 4 of the pilots in District Two are over 62 years of age. These 4 pilots represent nearly 30 percent of the pilot strength in this association. Waiting until these pilots retire to replace them will result in significant delays. Therefore, we propose authorizing a surcharge in 2017, which we discuss in section ``E. Surcharges'' later in this preamble, to fund two applicant pilots in District Two.

    Table 21--Pilots Needed; Pilots Projected To Be Working

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

    District Two

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

    Needed pilots, period for which 2017 rates are in effect 14

    Working pilots projected for 2017....................... 13

    Applicant pilots for 2017............................... 2

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

    Determine target pilot compensation (Sec. 404.104). Similar to our discussion and proposal for District One, for the 2017 NPRM, we propose maintaining the 2016 compensation levels. Thus, target pilot compensation for 2017 would be $326,114. Total target pilot compensation for District Two is calculated in Table 22.

    Table 22--District Two Target Pilot Compensation

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

    District Two

    -------------------------------- Total

    Undesignated Designated

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

    Target Pilot Compensation....................................... $326,114 $326,114 $326,114

    Number of Pilots (Step 3)....................................... 6 7 13

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

    Total Target Pilot Compensation............................. $1,956,685 $2,282,799 $4,239,485

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

    Determine working capital fund (proposed Sec. 404.105). The 2014 average annual rate of return for new issues of high-grade corporate securities was 4.16 percent.\21\ We apply that rate to District Two's projected total operating and compensation expenses (from Sec. Sec. 404.102 and 404.104) to determine the allowed working capital fund for the shipping season, as shown in Table 23.

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

    \21\ Based on Moody's AAA corporate bonds, which can be found at: http://research.stlouisfed.org/fred2/series/AAA/downloaddata?cid=119.

    Table 23--District Two Working Capital Fund Calculation

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

    District Two

    -------------------------------- Total

    Undesignated Designated

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

    Adjusted Operating Expenses (Step 2)............................ $709,509 $1,064,259 $1,773,767

    Total Target Pilot Compensation (Step 4)........................ 1,956,685 2,282,799 4,239,485

    Total 2017 Expenses............................................. 2,666,194 3,347,059 6,013,252

    Working Capital Fund (4.16%).................................... 110,914 139,238 250,151

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

    Project needed revenue for next year (proposed Sec. 404.106). Table 24 shows District Two's needed revenue, determined by adding the proposed Sec. 404.102 operating expense, the proposed Sec. 404.104 total target compensation, and the proposed Sec. 404.105 working capital fund.

    Table 24--Revenue Needed

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

    District Two

    -------------------------------- Total

    Undesignated Designated

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

    Adjusted Operating Expenses (Step 2)............................ $709,509 $1,064,259 $1,773,767

    Total Target Pilot Compensation (Step 4)........................ 1,956,685 2,282,799 4,239,485

    Working Capital Fund (Step 5)................................... 110,914 139,238 250,151

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

    Total Revenue Needed........................................ 2,777,108 3,486,296 6,263,403

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

    Make initial base rate calculations (proposed Sec. 404.107). To make our initial base rate calculations, we first establish a multi-

    year base period from which available and reliable data for actual pilot hours worked in each district's designated and undesignated waters can be drawn. For the 2017 rates, we propose using data covering 2007

    Page 72022

    through 2015. Table 25 calculates the average number of bridge hours over the last 9 shipping seasons.

    Table 25--Hours Worked, 2007 Through 2015, District Two

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

    District Two

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

    Undesignated Designated

    (hours) (hours)

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

    2015.................................... 6,535 5,967

    2014.................................... 7,856 7,001

    2013.................................... 4,603 4,750

    2012.................................... 3,848 3,922

    2011.................................... 3,708 3,680

    2010.................................... 5,565 5,235

    2009.................................... 3,386 3,017

    2008.................................... 4,844 3,956

    2007.................................... 6,223 6,049

    AVERAGE................................. 5,174 4,842

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

    We are monitoring bridge hours and revenue projections for the season, and there is a great deal of variation in the system. Through the end of May 2016, projected bridge hours for the entire shipping season were up 22 percent in District Two compared to the 9-year average, and revenue projection was up 17 percent compared to projected revenue needed. This suggested a robust correlation between traffic and revenue in District Two. However, by the end of July 2016, projected bridge hours were down 3.4 percent as compared to the 9-year average, while revenue projection was up 21 percent compared to projected revenue needed, which suggests over-generation of revenue. We will continue to monitor traffic and revenue projections throughout the shipping season to see if any additional changes are needed.

    Table 26 calculates new rates by dividing District Two's projected needed revenue, from Sec. 404.106, by the average hours shown in Table 25 and rounding to the nearest whole number.

    Table 26--Rate Calculations

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

    District Two

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

    Undesignated Designated

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

    Revenue Needed (Step 6)................. $2,777,108 $3,486,296

    Average time on task 2007-2015.......... 5,174 4,842

    Hourly Rate............................. $537 $720

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

  19. District Three

    Recognize previous year's operating expenses (Sec. 404.101). We reviewed and accepted the accountant's final findings on the 2014 audits of association expenses.

    Table 27 shows District Three's recognized expenses.

    Table 27--Recognized Expenses for District Three

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

    District Three

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

    Undesignated Designated

    Reported Expenses for 2014 -------------------------------- Total

    Lakes Huron,

    Michigan, and St. Mary's

    Superior River

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

    Operating Expenses:

    Other Pilotage Costs:

    Pilot subsistence/travel.................................... $424,935 $141,645 $566,580

    Applicant pilot subsistence/travel.......................... 24,608 8,203 32,810

    License insurance........................................... 14,304 4,768 19,072

    Payroll taxes............................................... 110,567 36,856 147,423

    Applicant pilot payroll taxes............................... 9,082 3,027 12,109

    Other....................................................... 12,268 4,090 16,358

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

    Total other pilotage costs.............................. 595,764 198,589 794,353

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

    Pilot Boat and Dispatch Costs:

    Pilot boat costs............................................ 593,360 197,787 791,147

    Dispatch costs.............................................. 133,787 44,596 178,383

    Payroll taxes............................................... 31,432 10,477 41,909

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

    Page 72023

    Total pilot and dispatch costs.......................... 758,579 252,860 1,011,439

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

    Administrative Expenses:

    Legal--general counsel...................................... 15,386 5,129 20,515

    Legal--shared counsel (K&L Gates)........................... 15,900 5,300 21,201

    Legal--USCG litigation...................................... 23,422 7,807 31,229

    Office rent................................................. 7,425 2,475 9,900

    Insurance................................................... 11,050 3,683 14,733

    Employee benefits........................................... 113,890 37,964 151,854

    Other taxes................................................. 129 43 173

    Depreciation/auto leasing/other............................. 28,802 9,601 38,403

    Interest.................................................... 2,858 953 3,811

    APA Dues.................................................... 20,235 6,745 26,980

    Dues and subscriptions...................................... 3,975 1,325 5,300

    Utilities................................................... 33,083 11,028 44,111

    Salaries.................................................... 95,577 31,859 127,437

    Accounting/Professional fees................................ 27,492 9,164 36,656

    Pilot Training.............................................. 0 0 0

    Other....................................................... 9,318 3,106 12,424

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

    Total Administrative Expenses........................... 408,542 136,182 544,727

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

    Total Operating Expenses (Other Costs + Pilot Boats + Admin).... 1,762,885 587,631 2,350,518

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

    Proposed Adjustments (Independent CPA):

    Pilot subsistence/Travel.................................... -15,595 -5,198 -20,793

    Payroll taxes............................................... 5,949 1,983 7,931

    Pilot boat costs............................................ -62,748 -20,916 -83,664

    Legal--shared counsel (K&L Gates)........................... -1,590 -530 -2,120

    Dues and subscriptions...................................... -3,975 -1,325 -5,300

    Other expenses.............................................. -375 -125 -500

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

    TOTAL CPA ADJUSTMENTS................................... -78,334 -26,111 -104,445

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

    Proposed Adjustments (Director):

    APA Dues.................................................... -3,035 -1,012 -4,047

    Surcharge Adjustment *...................................... -216,734 -72,245 -288,979

    Legal--shared counsel (K&L Gates)........................... -14,310 -4,770 -19,080

    Legal--USCG litigation...................................... -23,422 -7,807 -31,229

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

    TOTAL DIRECTOR'S ADJUSTMENTS............................ -257,502 -85,834 -343,335

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

    Total Operating Expenses (OpEx + Adjustments)................... 1,427,050 475,687 1,903,738

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

    * District Three collected $615,929 with an authorized 10% surcharge in 2015. The adjustment represents the

    difference between the collected amount and the authorized amount of $326,950 authorized in the 2015 final

    rule.

    Project next year's operating expenses, adjusting for inflation or deflation (Sec. 404.102). We based our inflation adjustments on BLS data from the Consumer Price Index for the Midwest Region of the United States,\22\ and reports from the Federal Reserve.\23\ The adjustments for District Three are shown in Table 28.

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

    \22\ Available at http://data.bls.gov/timeseries/CUUR0200SA0?data_tool=Xgtable.

    \23\ Available at https://www.federalreserve.gov/monetarypolicy/fomcprojtabl20160316.htm.

    Table 28--Inflation Adjustment, District Three

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

    District Three

    -------------------------------- Total

    Undesignated Designated

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

    Total Operating Expenses (Step 1)............................... $1,427,050 $475,687 $1,902,738

    2015 Inflation Modification (@-0.5%)............................ -7,135 -2,378 -9,514

    2016 Inflation Modification (@2.2%)............................. 31,238 10,413 41,651

    2017 Inflation Modification (@2.1%)............................. 30,474 10,158 40,632

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

    Page 72024

    Adjusted 2017 Operating Expenses............................ 1,481,627 493,879 1,975,506

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

    Determine number of pilots needed (Sec. 404.103). To determine the number of pilots needed for 2017 in District Three, we followed the same steps discussed earlier in this proposed rule for Districts One and Two. The resulting calculations follow in Tables 29 through 33.

    Table 29--Pilot Assignment Cycle for District Three

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

    District Three

    Pilot assignment cycle -----------------------------------------------

    Area 6 (hours) Area 7 (hours) Area 8 (hours)

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

    Average Through Transit Time *.................................. 22.5 7.1 21.6

    Travel.......................................................... 2.4 3.6 3.7

    Delay........................................................... 1 0.3 3.3

    Admin........................................................... 0.5 0.5 0.5

    Total Assignment................................................ 26.4 11.5 29.1

    Mandatory Rest.................................................. 10 10 10

    Pilot Cycle (hours/assignment).................................. 36.4 21.5 39.1

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

    * Although transit times in Districts One and Two have been updated based on actual conditions, no similar

    change was required to reflect transit times in District Three.

    Table 30--Calculation of Maximum Assignments for District Three

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

    District Three

    Pilot assignments -----------------------------------------------

    Area 6 Area 7 Area 8

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

    Seasonal Availability Goal (hours).............................. 4,800 4,800 4,800

    Pilot Cycle (hours/assignment).................................. 36.4 21.5 39.1

    Max Assignments per Pilot....................................... 132 223 123

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

    Table 31--Projected Assignments per Pilot in District Three

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

    District Three

    Assignments per pilot -----------------------------------------------

    Area 6 Area 7 Area 8

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

    Max Assignments per Pilots...................................... 132 223 123

    Efficiency Adjustment *......................................... 0.5 0.5 0.5

    Projected Assignments per Pilot................................. 66 112 61

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

    * Recommended starting ratio per the 2013 bridge hour study (on page 23), available in the docket.

    Table 32--Historic Number of Assignments in District Three

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

    District Three

    Historic number of assignments -----------------------------------------------

    Area 6 Area 7 Area 8

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

    2007............................................................ 681 794 478

    2008............................................................ 423 309 252

    2009............................................................ 352 231 275

    2010............................................................ 547 352 338

    2011............................................................ 460 228 223

    2012............................................................ 436 267 243

    2013............................................................ 464 315 322

    2014............................................................ 729 426 575

    2015............................................................ 644 412 421

    Average Assignments............................................. 526 370 347

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

    Page 72025

    Table 33--Projected Pilots Needed in District Three

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

    District Three

    Pilots needed -----------------------------------------------

    Area 6 Area 7 Area 8

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

    Historic Average Assignments.................................... 526 370 347

    Projected Assignments per Pilot................................. 66 112 61

    Projected Pilots Needed (unrounded)............................. 7.98 3.32 5.66

    Projected Pilots Needed (rounded)............................... 8 4 6

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

    We round the calculated number of pilots needed by Area to the next whole pilot to help ensure an adequate supply of pilots are available for assignments. Based on these tables, District Three has a projected pilot need of 18 pilots for the 2017 season. However, at the beginning of the 2017 shipping season, they plan to have 15 working and registered pilots supplemented by 7 applicants. We believe the applicants are necessary to prepare for future retirements given the extended training periods associated with new pilots. Currently, 6 of the pilots who are trained or registered in District Three are over 61 years of age. These 6 pilots represent 30 percent of the current pilot strength for District Three, which is already less than the 18 pilots projected to be needed in 2017. If we wait until these pilots retire to begin replacing them, the system will experience significant delays due to a lack of available pilots. Therefore, we propose authorizing a surcharge, which we discuss in section E, below, to fund seven applicant pilots in District Three.

    Table 34--Pilots Needed; Pilots Projected To Be Working

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

    District Three

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

    Needed pilots, period for which 2017 rates are in effect 18

    Working pilots projected for 2017....................... 15

    Applicant pilots for 2017............................... 7

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

    Determine target pilot compensation (Sec. 404.104). Similar to our discussion and proposal for Districts One and Two, we propose maintaining the 2016 compensation levels. Thus, target pilot compensation for 2017 would be $326,114. Total target pilot compensation for District Three is calculated in Table 35.

    Table 35--District Three Target Pilot Compensation

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

    District Three

    -------------------------------- Total

    Undesignated Designated

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

    Target Pilot Compensation....................................... $326,114 $326,114 $326,114

    Number of Pilots (Step 3)....................................... 11 4 15

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

    Total Target Pilot Compensation............................. $3,587,256 $1,304,457 $4,891,713

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

    Determine working capital fund (proposed Sec. 404.105). The 2014 average annual rate of return for new issues of high-grade corporate securities was 4.16 percent.\24\ We apply that rate to District Three's projected total operating and compensation expenses (from Sec. Sec. 404.102 and 404.104) to determine the allowed working capital fund for the shipping season, as shown in Table 36.

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

    \24\ Based on Moody's AAA corporate bonds, which can be found at: http://research.stlouisfed.org/fred2/series/AAA/downloaddata?cid=119.

    Table 36--District Three Working Capital Fund Calculation

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

    District Three

    -------------------------------- Total

    Undesignated Designated

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

    Adjusted Operating Expenses (Step 2)............................ $1,481,627 $493,879 $1,975,506

    Total Target Pilot Compensation (Step 4)........................ 3,587,256 1,304,457 4,891,713

    Total 2016 Expenses............................................. 5,068,883 1,798,336 6,867,219

    Working Capital Fund (4.16%).................................... 210,866 74,811 285,676

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

    Project needed revenue for next year (proposed Sec. 404.106). Table 37 shows District Three's needed revenue, which is determined by adding the proposed Sec. 404.102 operating expense, the proposed Sec. 404.104 total target compensation, and the proposed Sec. 404.105 working capital fund.

    Page 72026

    Table 37--Revenue Needed

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

    District Three

    -------------------------------- Total

    Undesignated Designated

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

    Adjusted Operating Expenses (Step 2)............................ $1,481,627 $493,879 $1,975,506

    Total Target Pilot Compensation (Step 4)........................ 3,587,256 1,304,457 4,891,713

    Working Capital Fund (Step 5)................................... 210,866 74,811 285,676

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

    Total Revenue Needed........................................ 5,279,748 1,873,147 7,152,895

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

    Make initial base rate calculations (proposed Sec. 404.107). To make our initial base rate calculations, we first establish a multi-

    year base period from which available and reliable data for actual pilot hours worked in each district's designated and undesignated waters can be drawn. For the 2017 rates, we propose using data covering 2007 through 2015. Table 38 calculates the average number of bridge hours over the last nine shipping seasons.

    Table 38--Hours Worked, 2007 Through 2015, District Three

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

    District Three

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

    Undesignated Designated

    (hours) (hours)

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

    2015.................................... 22,824 2,696

    2014.................................... 25,833 3,835

    2013.................................... 17,115 2,631

    2012.................................... 15,906 2,163

    2011.................................... 16,012 1,678

    2010.................................... 20,211 2,461

    2009.................................... 12,520 1,820

    2008.................................... 14,287 2,286

    2007.................................... 24,811 5,944

    Average................................. 18,835 2,835

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

    We are monitoring bridge hours and revenue projections for the season, and there is a great deal of variation in the system. Through the end of May 2016, projected bridge hours for the entire shipping season were down 10 percent in District Three as compared to the 9-year average, while revenue projection through May 2016 was up 9 percent compared to projected revenue needed. This suggested that the District Three rate was over-generating revenue. However, by the end of July 2016, projected bridge hours were up 23 percent as compared to the 9-

    year average, and revenue projection was up 19 percent as compared to projected revenue needed, which suggested a more robust correlation between traffic and revenue in District Three. We continue to monitor projections so that we can make changes if needed. In particular, we are considering removing the maximum ratio between designated and undesignated charges, which we established last year in Sec. 404.107(b), if it appears to be artificially raising undesignated rates and lowering designated rates.

    Table 39 calculates new rates by dividing District Three's projected needed revenue, from Sec. 404.106, by the average hours shown in Table 38 and rounding to the nearest whole number.

    Table 39--Rate Calculations

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

    District Three

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

    Undesignated Designated

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

    Revenue Needed (Step 6)................. $5,279,748 $1,873,147

    Average time on task 2007-2015.......... 18,835 2,835

    Hourly Rate............................. $280 $661

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

  20. Other Changes Affecting Ratemaking

    Review and finalize rates (Sec. 404.108). In addition to the changes described earlier, we propose five additional changes for 2017 that will equally impact the pilot associations. First, we propose adding a requirement to the surcharge regulation in Sec. 401.401. We propose that once a pilot association collects the amount of money allowable for recoupment, which is designated by the final rule, the pilot association's authorization to collect a surcharge for the remainder of that shipping season will terminate. This proposed change will prevent excess amounts from being recouped and should eliminate the need to make adjustments to the operating expenses for the following year. Turning to surcharges for 2017, we find that allowing associations to recoup necessary and reasonable training expenses, both to help achieve a full complement of needed pilots and to ensure skill maintenance and development for current pilots, will facilitate safe, efficient, and reliable pilotage, and is good cause for imposing a necessary and reasonable temporary

    Page 72027

    surcharge, as authorized by 46 CFR 401.401.

    In addition, we propose amending the cancellation charge provision in Sec. 401.420(b) to ensure that it explicitly states that the minimum charge for a cancellation is 4 hours plus necessary and reasonable travel expenses for travel that occurs. Based on the feedback we received from the pilot associations, we believe the current language is not specific enough and will continue to cause confusion, as indicated by inquiries from both pilot associations and shipping agents. We view this charge as necessary to emphasize that pilots are a limited resource and encourage their efficient use. We are also removing ``after that pilot has begun travelling to the designated pickup place'' from Sec. 401.420(b) to eliminate any confusion about the 4-hour minimum charge.

    To expedite the recoupment of expenses, we also propose to adjust Sec. 403.300(c) to require submission of an unqualified audit prepared in accordance with generally accepted accounting principles and all accompanying notes by January 31st of each year. This would require the pilot associations to complete their financial statements by January 24th in order to meet the January 31st deadline. Existing Sec. 403.300(c) requires submission of an unqualified audit by April 1 of each year. Our goal is to allow our independent auditors to begin work much sooner and complete work on the third party audit in time for it to be used for the publication of the proposed rule that summer. This timeline would remove 1 year from the current 3-year gap between the actual expenses and their recoupment in the rate. We request comments regarding the feasibility of completing the required audits by January 31, and if it is not feasible, an explanation as to why and what other date would be appropriate.

    We also propose the addition of new language in Sec. 404.104 that would allow the Director to set compensation for a 10-year period to a compensation benchmark. The compensation benchmark would be based on the most relevant available non-proprietary information such as wage and benefit information from other pilotage groups. In the years in which a compensation benchmark is not set, target pilot compensation will be adjusted for inflation by using the CPI for the Midwest region or by a pre-determined amount that would be published prior to use. We believe this will promote target compensation stability and rate predictability.

    The proposed changes to Sec. Sec. 403.300(c) and 404.104 should assist the pilot associations with recruitment and retention and help the various stakeholders forecast budgets and pricing. These changes would apply only to the calculation of target pilot compensation; we do not propose any changes to the formula in which we use target pilot compensation to calculate the rate.

    Finally, we seek public comment on how we should handle weighting factors in 46 CFR 401.400, which outlines the calculations for determining the weighting factors for a vessel subject to compulsory pilotage. This calculation determines which multiplication factor will be applied to the pilotage fees. We are not proposing any action in this proposed rule because we do not have sufficient data to make an informed decision.

    The first option is to maintain the status quo. This would maintain the current weighting factors and continue to leave them out of the ratemaking calculation.

    The second option for weighting factors is to remove them completely from the regulations and charge every vessel equally for pilotage service. This aligns with the current compensation model that a pilot should be compensated equally for their expertise across all areas of the Great Lakes. The ship's dimensions do not impact the experience and skill level of the pilot providing the service.

    The third option is to incorporate weighting factors into the rulemaking through an additional step that examines and projects their impact on the revenues of the pilot associations. This might enable us to better forecast revenue, but it would add another variable to the projections in the rate methodology.

    We request public comment specifically on which of these three options should be implemented for future ratemakings; in your comment, please explain why the option should be implemented.

  21. Surcharges

    Turning to surcharges for 2017, we find that allowing associations to recoup necessary and reasonable training expenses, both to help achieve a full complement of needed pilots and to ensure skill maintenance and development for current pilots, will facilitate safe, efficient, and reliable pilotage, and is good cause for imposing a necessary and reasonable temporary surcharge, as authorized by 46 CFR 401.401. For 2017, we anticipate that there will be two applicant pilots in District Two, and seven applicant pilots in District Three. Based on historic pilot costs, the stipend, per diem, and training costs for each applicant pilot are approximately $150,000 per shipping season. Thus, we estimate that the training expenses that each association will incur will be approximately $300,000 in District Two and $1,050,000 in District Three. Table 40 derives the proposed percentage surcharge for each district by comparing this estimate to each district's projected needed revenue.

    Table 40--Surcharge Calculation by District

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

    District One District Two District Three

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

    Projected Needed Revenue (Sec. 404.106)....................... $7,001,952 $6,263,403 $7,152,895

    Anticipated Training Expenses................................... $0 $300,000 $1,050,000

    Surcharge Needed *.............................................. 0% 5% 15%

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

    * All surcharge calculations are rounded up to the nearest whole percentage.

    These surcharges would only be collected until the target amount is reached. This should eliminate the need to make adjustments to the operating expenses for the following year. We will ensure that these expenses are not included in future rulemakings in order to avoid double billing.

    VI. Regulatory Analyses

    We developed this proposed rule after considering numerous statutes and Executive orders related to rulemaking. Below we summarize our analyses based on these statutes or Executive orders.

  22. Regulatory Planning and Review

    Executive Orders 13563 and 12866 direct agencies to assess the costs and

    Page 72028

    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 effects, 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 proposed rule has not been designated a ``significant regulatory action'' under section 3(f) of Executive Order 12866. Accordingly, this proposed rule has not been reviewed by the Office of Management and Budget (OMB).

    We developed an analysis of the costs and benefits of the proposed rule to ascertain its probable impacts on industry. We consider all estimates and analysis in this Regulatory Analysis (RA) to be subject to change in consideration of public comments.

    Table 41 summarizes the regulatory changes that are expected to have no costs, and any qualitative benefits associated with them. The table also includes proposed changes that affect portions of the methodology for calculating the proposed base pilotage rates. While these proposed changes affect the calculation of the rate, the costs of these changes are captured in the changes to the total revenue as a result of the proposed rate change (summarized in Table 42).

    Table 41--Regulatory Changes With No Cost or Costs Captured in the Proposed Rate Change

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

    Proposed changes Description Basis for no costs Benefits

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

    Mandatory change point on the Propose a mandatory The addition of the Staffing additional

    Saint Lawrence River between change point on the change point will not pilots will help meet

    Iroquois Lock and the area of Saint Lawrence River require capital the increased demand

    Ogdensburg, NY. between Iroquois Lock expenses. The only cost for pilots to handle

    and the area of is for the new pilots, the additional

    Ogdensburg, NY that who are accounted for assignments anticipated

    would become effective in the base pilotage to be caused by the new

    at the beginning of the rates and training change point.

    2017 shipping season. surcharges (Table 43). Additional pilots due

    to this change point

    should also serve to

    mitigate any potential

    delays and any

    potential fatigue that

    would occur from high

    pilotage demand without

    them.

    Demand model..................... Determine pilot demand Pilot staffing costs are More accurate estimate

    using seasonal demand accounted for in the of the number of

    instead of peak demand. base pilotage rates assignments we

    (Table 43). reasonably expect

    pilots to be able to

    complete during the 9-

    month shipping season

    instead of during peak

    pilotage demand.

    Cancellation charges............. Propose amending the Clarification of --Clarifies the current

    cancellation charge existing text and language to eliminate

    provision in Sec. current practice. any potential confusion

    401.120(b) to ensure it on the minimum charge

    explicitly states that for cancellations.

    the minimum charge for a --Clarification of the

    cancellation is 4 hours minimum charge ensures

    plus necessary and the recognition of

    reasonable travel pilots as a limited

    expenses for that travel resource and encourages

    that occurs. efficient use.

    Surcharge provision.............. Propose adding a Ensures the goal Prevents excess amounts

    requirement to the surcharge amount built from being recouped

    surcharge regulation in into the year's from industry via the

    Sec. 401.401 to stop rulemaking will not be following year's rule.

    collecting funds once surpassed, and prevents

    the assigned value has additional costs on

    been recovered for the industry.

    season.

    Audit deadline................... Propose to adjust Sec. Adjusts the deadline for Allows independent

    403.300(c) to move the audit submission, but auditors to begin work

    audit deadline from does not add additional sooner and complete the

    April 1 to January 31 of work. audit in time for the

    each year. proposed rule. This

    would eliminate 1 year

    from the current 3-year

    lag in expenses being

    recognized in the rate.

    Rename Return on Investment...... Propose renaming Return Clarifies the intent of Clarifies the intent of

    on Investment as Working the fund but does not this fund.

    Capital Fund. change the method of

    calculation. Costs are

    included in the total

    revenues.

    Set Pilot compensation for a 10- Propose the addition of Pilot staffing costs are Promotes target

    year period. new language in Sec. accounted for in the compensation stability

    404.104 that would allow base pilotage rates. and rate

    the Director to set predictability.

    compensation for a 10-

    year period to a

    compensation benchmark.

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

    The following table summarizes the affected population, costs, and benefits of the regulatory requirements that are expected to have costs associated with them.

    Page 72029

    Table 42--Regulatory Economic Impacts of Rate Change

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

    Proposed change Description Affected population Costs Benefits

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

    Rate Changes................. Under the Great Lakes Owners and operators $2,664,574 --New rates cover an

    Pilotage Act of of 230 vessels association's

    1960, the Coast journeying the necessary and

    Guard is required to Great Lakes system reasonable

    review and adjust annually. operating expenses.

    base pilotage rates --Provides fair

    annually. compensation,

    adequate training,

    and sufficient rest

    periods for pilots.

    --Ensures the

    association makes

    enough money to

    fund future

    improvements.

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

    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 proposed rulemaking, we are adjusting the pilotage rates for the 2017 shipping season to generate for each district sufficient revenues to reimburse its necessary and reasonable operating expenses, fairly compensate trained and rested pilots, and provide an appropriate working capital fund to use for improvements. The rate changes in this proposed rule would, if codified, lead to an increase in the cost per unit of service to shippers in all three districts, and result in an estimated annual cost increase to shippers.

    In addition to the increase in payments that would be incurred by shippers in all three districts from the previous year as a result of the proposed rate changes, we propose authorizing a temporary surcharge to allow the pilotage associations to recover training expenses that would be incurred in 2017. For 2017, we anticipate that there will be no applicant pilots in District One, two applicant pilots in District Two, and seven applicant pilots in District Three. With a training cost of $150,000 per pilot, we estimate that Districts Two and Three will incur $300,000 and $1,050,000 in training expenses, respectively. These temporary surcharges would generate a combined $1,350,000 in revenue for the pilotage associations. Therefore, after accounting for the implementation of the temporary surcharges across all three districts, the payments made by shippers during the 2017 shipping season are estimated to be approximately $2,664,574 more than the payments that were estimated in 2016 (Table 43).\25\

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

    \25\ 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 draft regulatory analysis follows.

    The purpose of this rulemaking is to propose new base pilotage rates and surcharges for training. The last full ratemaking was concluded in 2016.

    Affected Population

    The shippers affected by these rate changes are those owners and operators of domestic vessels operating on register (employed in foreign trade) and owners and operators of foreign vessels on routes 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. United States-flagged vessels not operating on register and Canadian ``lakers,'' which account for most commercial shipping on the Great Lakes, are not required to have pilots by 46 U.S.C. 9302. However, these U.S.- and Canadian-flagged lakers may voluntarily choose to have a pilot.

    We used 2013-2015 billing information from the GLPMS to estimate the average annual number of vessels affected by the rate adjustment. The GLPMS tracks data related to managing and coordinating the dispatch of pilots on the Great Lakes and billing in accordance with the services. Using that period, we found that a total of 407 unique vessels used pilotage services over the years 2013 through 2015. These vessels had a pilot dispatched to the vessel and billing information was recorded in the GLPMS. The number of invoices per vessel ranged from a minimum of 1 invoice per year to a maximum of 65 invoices per year. Of these vessels, 383 were foreign-flagged vessels and 24 were U.S.-flagged. The U.S.-flagged vessels are not required to have a pilot per 46 U.S.C. 9302, but they can voluntarily choose to have a pilot. U.S.-flagged vessels may opt to have a pilot for varying reasons such as unfamiliarity with designated waters and ports, or for insurance purposes.

    Vessel traffic is affected by numerous factors and varies from year to year. Therefore, rather than the total number of vessels over the time period, an average of the unique vessels using pilotage services from 2013 through 2015 is the best representation of vessels estimated to be affected by this rule's proposed rate. From the years 2013-2015, an average of 230 vessels used pilotage services annually.\26\ On average, 219 of these vessels are foreign-flagged vessels and 11 are U.S.-flagged vessels that voluntarily opt into the pilotage service.

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

    \26\ Some vessels entered the Great Lakes multiple years, affecting the average number of unique vessels utilizing pilotage services in any given year.

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

    Costs

    The rate changes resulting from the new methodology would generate costs on industry in the form of higher payments for shippers. We calculate the cost in two ways in this RA, as the total cost to shippers and as a percentage of vessel operating costs.

    Total Cost to Shippers

    We estimate the effect of the rate changes on shippers by comparing the total projected revenues needed to cover costs in 2016 with the total projected revenues to cover costs in 2017, including any temporary surcharges authorized by the Coast Guard. The Coast Guard sets pilotage rates so that the pilot associations receive enough revenue to cover their necessary and reasonable expenses. The shippers pay these rates when they have a pilot as required by 46 U.S.C. 9302. Therefore, the aggregate payments of the shippers to the pilot associations are equal to the projected necessary revenues for the pilot associations. The revenues each year represent the total costs that shippers must pay for pilotage services, and the change in the revenues from the previous year is the additional cost to shippers from this proposed rulemaking.

    Page 72030

    The effect of the rate changes on shippers is estimated from the District pilotage projected revenues and the proposed surcharges described in Section V of this preamble. We estimate that for the 2017 shipping season, the projected revenue needed for all three Districts is $20,418,252. Temporary surcharges on traffic in District Two and District Three would be applied for the duration of the 2017 season in order for the pilotage associations to recover training expenses incurred for applicant pilots. We estimate that the pilotage associations require an additional $300,000 and $1,050,000 in revenue for applicant training expenses in Districts Two and Three, respectively. This is an additional cost to shippers of $1,350,000 during the 2017 shipping season. Adding the projected revenue to the proposed surcharges, we estimate the pilotage associations' total projected needed revenue for 2017 would be $21,768,252. The 2017 projected revenues for the districts are from Tables 11, 24, and 37 of this preamble. To estimate the additional cost to shippers from this proposed rule, we compare the 2017 total projected revenues to the 2016 projected revenues. Because the Coast Guard must review and prescribe rates for the Great Lakes Pilotage annually, the effects are estimated as a single year cost rather than annualized over a 10-year period. In the 2016 rulemaking,\27\ we estimated the total projected revenue needed for 2016, including surcharges, is $19,103,678. This is the best approximation of 2016 revenues as, at the time of this publication, we do not have enough audited data available for the 2016 shipping season to revise these projections. Table 43 shows the revenue projections for 2016 and 2017 and details the additional cost increases to shippers by area and district as a result of the rate changes and temporary surcharges on traffic in Districts One, Two, and Three.

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

    \27\ 2016 projected revenues are from the 2016 rulemaking, 81 FR 11937, Figures 31 and 32.

    Table 43--Effect of the Proposed Rule by Area and District

    $U.S.; Non-discounted

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

    Total 2016 Total 2017 Additional

    Area Revenue needed 2016 Temporary Projected Revenue needed 2017 Temporary Projected costs of this

    in 2016 surcharge revenue in 2017 surcharge revenue proposed rule

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

    Total, District One..................... $5,354,945 $450,000 $5,804,945 $7,001,953 $0 $7,001,953 $1,197,008

    Total, District Two..................... 5,629,641 300,000 5,929,641 6,263,404 300,000 6,563,404 633,763

    Total, District Three................... 6,469,092 900,000 7,369,092 7,152,895 1,050,000 8,202,895 833,803

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

    System Total........................ 17,453,678 1,650,000 19,103,678 20,418,252 1,350,000 21,768,252 2,664,574

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

    * Values may not sum due to rounding.

    The resulting difference between the projected revenue in 2016 and the projected revenue in 2017 is the annual change in payments from shippers to pilots as a result of the rate change imposed by this proposed rule. The effect of the rate change in this proposed rule on shippers varies by area and district. The rate changes, after taking into account the increase in pilotage rates and the addition of temporary surcharges, would lead to affected shippers operating in District One, District Two, and District Three experiencing an increase in payments of $1,197,008, $633,763, and $833,803, respectively, from the previous year. The overall adjustment in payments would be an increase in payments by shippers of approximately $2,664,574 across all three districts (a 14 percent increase over 2016). Because the Coast Guard must review and prescribe rates for Great Lakes Pilotage annually, the effects are estimated as single year costs rather than annualized over a 10-year period.

    Table 44 shows the difference in revenue by component from 2016 to 2017.\28\ Although per pilot compensation is unchanged from the 2016 final rule, the majority of the increase in revenue is due to the addition of 8 pilots that were authorized in the 2016 rule. These eight pilots are currently training this year and will become full-time working pilots at the beginning of the 2017 shipping season. These pilots will be compensated at the target compensation established in the 2016 final rule ($326,114 per pilot). The addition of these pilots to full working status accounts for $2,608,913 of the increase. The remaining amount is attributed to inflation of operating expenses, working capital fund, and differences in the surcharges from 2016.

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

    \28\ The 2016 projected revenues are from the 2016 rulemaking, 81 FR 11934, Figures 24 and 28. The 2017 projected revenues are from Tables 11, 24, 37, and 40 of this NPRM.

    Table 44--Difference in Revenue by Component

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

    Difference (2017

    Revenue component Revenue needed Revenue needed revenue -2016

    in 2016 in 2017 revenue)

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

    Adjusted Operating Expenses.................................. $4,677,518 $4,927,636 $250,118

    Total Target Pilot Compensation.............................. 12,066,226 14,675,139 2,608,913

    Working Capital Fund......................................... 709,934 815,475 105,541

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

    Total Revenue Needed, without Surcharge.................. 17,453,678 20,418,250 2,964,572

    Surcharge.................................................... 1,650,000 1,350,000 -300,000

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

    Total Revenue Needed, with Surcharge..................... 19,103,678 21,768,252 2,664,574

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

    * Values may not sum due to rounding.

    Page 72031

    Pilotage Rates as a Percentage of Vessel Operating Costs

    To estimate the impact of U.S. pilotage costs on the foreign vessels affected by the rate adjustment, we looked at the pilotage costs as a percentage of a vessel's costs for an entire voyage. The part of the trip on the Great Lakes using a pilot is only a portion of the whole trip. The affected vessels are often traveling from a foreign port, and the days without a pilot on the total trip often exceed the days a pilot is needed.

    To estimate this impact, we used 2013-2015 vessel arrival data from the Coast Guard's Ship Arrival Notification System and pilotage billing data from the GLPMS. A random sample of 50 arrivals was taken from GLPMS data. To estimate the impact of pilotage costs on the costs of an entire trip, we estimated the length of each one way trip. We used the vessel name and the date of the arrival to find the last port of call before entering the Great Lakes system. The date of the departure from this port was used as the start date of the trip. To find the end date of the trip we used GLPMS data to find all the pilotage charges associated with this vessel during this trip in the Great Lakes system. The end date of the one way trip was taken as the last pilotage charge before beginning the trip to exit the system. We estimated the total operating cost by multiplying the number of days for each by the 2015 average daily operating cost and added this to the total pilotage costs from GLPMS for each trip. In 2015 the average daily operating costs (excluding fixed costs) for Great Lakes bulkers and tankers ranged roughly from $5,191 to $7,879.\29\ The total pilotage charges for each trip were updated to the 2016 rates using the average rate increases in the Great Lakes Pilotage Rates 2013-2016 Annual Review and Adjustments final rules.\30\ The total updated pilotage charges for each trip were then divided by the total operating cost of the trip. We found that for a vessel's one-way trips, the U.S. pilotage costs could account for approximately 16.99 percent \31\ of the total operating costs for a foreign vessel's voyage using 2016 rates.

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

    \29\ ``Ship operating costs: Current and future trends,'' Richard Grenier, Moore Stephens LLP, December 2015. The 2015 weighted average operating cost is estimated at $5,191 for a handysize bulker, $5,771 for a handymax bulker, and $7,879 for a product tanker. These costs include only the costs of operating and do not include any fixed costs of the vessels (such as amortization of vessel construction costs). The operating costs include crew wages, provisions, other crew costs, lubricating oils and store costs, spares, repair and maintenance, P&I insurance, marine insurance, registration costs, management fees, and sundry expenses.

    \30\ The average percentage changes in the rates for 2013-2016, were 1.87%, 2.5%, 10%, and 12%, respectively.

    \31\ For the random sample of 50 arrivals, the average of the pilotage costs as a percentage of the total operating costs was 16.9%. The percentages ranged from a low of 3.2% to a high of 35.2%.

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

    We also estimated the impact of the rate increase in this proposed rule. We took the same 50 trips and updated the pilotage costs to the proposed 2017 rates (average increase of 17 percent). With this proposed rule's rates for 2017, pilotage costs are estimated to account for 19.11 percent of total operating costs, or a 2.2 percentage point increase \32\ over the current cost. The total operating costs do not include the fixed costs of the vessels. If these costs are included in the total costs, the pilotage rates as a percentage of total costs would be lower.

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

    \32\ 19.1% of total operating costs in 2017--16.9% of total operating costs in 2016 = 2.2% incremental increase of pilotage costs as a percentage of total operating costs.

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

    Benefits

    This proposed rule would 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. The rate changes would promote safe, efficient, and reliable pilotage service on the Great Lakes by ensuring rates cover an association's operating expenses; provide fair pilot compensation, adequate training, and sufficient rest periods for pilots; and ensures the association makes enough money to fund future improvements. The rate changes will also help recruit and retain pilots, which will ensure a sufficient number of pilots to meet peak shipping demand, which would help reduce delays caused by pilot shortages.

    The proposed amendment of the cancellation charge in Sec. 401.120(b) would prevent confusion and help ensure that it explicitly states that the minimum charge for a cancellation is 4 hours. The proposed limitation to the surcharge regulation in Sec. 401.401 would prevent excess amounts from being recouped via the following year's rule. The proposed adjustment to Sec. 403.300(c) to require submission of an unqualified audit by January 31st of each year would allow our independent auditors to begin work much sooner and complete work on the third party audit in time to be used for the publication of the proposed rule that summer. This timeline would remove 1 year from the current 3-year gap between the actual expenses and their recoupment in the rate. The proposed changes to Sec. 404.104 will promote target compensation stability and rate predictability. The proposed changes to Sec. Sec. 403.300(c) and 404.104 should assist the pilot associations with recruitment and retention and help the various stakeholders forecast budgets and pricing.

  23. Small Entities

    Under the Regulatory Flexibility Act, 5 U.S.C. 601-612, we have considered whether this proposed rule would have a significant economic effect 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.

    For the proposed rule, we reviewed recent company size and ownership data for the vessels identified in GLPMS and we reviewed business revenue and size data provided by publicly available sources such as MANTA \33\ and ReferenceUSA.\34\ As described in Section VI.A of this preamble, Regulatory Planning and Review, we found that a total of 407 unique vessels used pilotage services over the years 2013-2015. These vessels are owned by 119 entities. We found that of the 119 entities that own or operate vessels engaged in trade on the Great Lakes affected by this proposed rule, 104 are foreign entities that operate primarily outside of the United States. The remaining 15 entities are U.S. entities. We compared the revenue and employee data found in the company search to the Small Business Administration's (SBA) Table of Small Business Size Standards \35\ to determine how many of these companies are small entities. Table 45 shows the NAICS codes of the U.S. entities and the small entity standard size established by the Small Business Administration.

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

    \33\ See http://www.manta.com/.

    \34\ See http://resource.referenceusa.com/.

    \35\ Source: https://www.sba.gov/contracting/getting-started-contractor/make-sure-you-meet-sba-size-standards/table-small-business-size-standards. SBA has established a Table of Small Business Size Standards, which is matched to NAICS industries. A size standard, which is usually stated in number of employees or average annual receipts (``revenues''), represents the largest size that a business (including its subsidiaries and affiliates) may be considered in order to remain classified as a small business for SBA and Federal contracting programs.

    Page 72032

    Table 45--NAICS Codes and Small Entities Size Standards

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

    NAICS Description Small business size standard

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

    238910.................................. Site Preparation Contractors.... $15 million.

    441222.................................. Boat Dealers.................... $32.5 million.

    483113.................................. Coastal & Great Lakes Freight 750 employees.

    Transportation.

    483211.................................. Inland Water Freight 750 employees.

    Transportation.

    483212.................................. Inland Water Passenger 500 employees.

    Transportation.

    487210.................................. Scenic & Sightseeing $7.5 million.

    Transportation, Water.

    488320.................................. Marine Cargo Handling........... $38.5 million.

    488330.................................. Navigational Services to $38.5 million.

    Shipping.

    488510.................................. Freight Transportation $15 million.

    Arrangement.

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

    The entities all exceed the SBA's small business standards for small businesses. Further, these U.S. entities operate U.S.-flagged vessels and are not required to have pilots as required by 46 U.S.C. 9302.

    In addition to the owners and operators of vessels affected by this proposed rule, there are three U.S. entities affected by the proposed 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 effect to these entities from this proposed rule because all associations receive enough revenue to balance the projected expenses associated with the projected number of bridge hours and pilots.

    We did not find any small not-for-profit organizations that are independently owned and operated and are not dominant in their fields. We did not find any small governmental jurisdictions with populations of fewer than 50,000 people. Based on this analysis, we found this proposed rulemaking, if promulgated, would not affect a substantial number of small entities.

    Therefore, the Coast Guard certifies under 5 U.S.C. 605(b) that this proposed rule would not have a significant economic impact on a substantial number of small entities. If you think that your business, organization, or governmental jurisdiction qualifies as a small entity and that this proposed rule would have a significant economic impact on it, please submit a comment to the Docket Management Facility at the address under ADDRESSES. In your comment, explain why you think it qualifies, as well as how and to what degree this proposed rule would economically affect it.

  24. Assistance for Small Entities

    Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996, Public Law 104-121, we want to assist small entities in understanding this proposed rule so that they can better evaluate its effects on them and participate in the rulemaking. If the proposed rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please consult Mr. Todd Haviland, Director, Great Lakes Pilotage, Commandant (CG-WWM-2), Coast Guard; telephone 202-372-2037, email Todd.A.Haviland@uscg.mil, or fax 202-372-

    1914. 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).

  25. Collection of Information

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

  26. Federalism

    A rule has implications for federalism under Executive Order 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 proposed rule under that order and have determined that it is consistent with the fundamental federalism principles and preemption requirements described in Executive Order 13132. Our analysis follows.

    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, the rule is consistent with the principles of federalism and preemption requirements in Executive Order 13132.

    While it is well settled that States may not regulate in categories in which Congress intended the Coast Guard to be the sole source of a vessel's obligations, the Coast Guard recognizes the key role that State and local governments may have in making regulatory determinations. Additionally, for rules with implications and preemptive effect, Executive Order 13132 specifically directs agencies to consult with State and local governments during the rulemaking process. If you believe this rule has implications for federalism under Executive Order 13132, please contact the person listed in the FOR FURTHER INFORMATION section of this preamble.

  27. 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 that may result in the expenditure by a

    Page 72033

    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 proposed rule would not result in such an expenditure, we discuss the effects of this proposed rule elsewhere in this preamble.

  28. Taking of Private Property

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

  29. Civil Justice Reform

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

    I. Protection of Children

    We have analyzed this proposed rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. This proposed 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.

  30. Indian Tribal Governments

    This proposed rule does not have tribal implications under Executive Order 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.

  31. Energy Effects

    We have analyzed this proposed rule under Executive Order 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 Executive Order because it is not a ``significant regulatory action'' under Executive Order 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 Executive Order 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 proposed rule does not use technical standards. Therefore, we did not consider the use of voluntary consensus standards.

  32. Environment

    We have analyzed this proposed 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 made a preliminary determination 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 preliminary environmental analysis checklist supporting this determination is available in the docket where indicated under the ``Public Participation and Request for Comments'' section of this preamble. This proposed rule is categorically excluded under section 2.B.2, and figure 2-1, paragraph 34(a) of the Instruction. Paragraph 34(a) pertains to minor regulatory changes that are editorial or procedural in nature. This proposed rule adjusts rates in accordance with applicable statutory and regulatory mandates. We seek any comments or information that may lead to the discovery of a significant environmental impact from this proposed rule.

    List of Subjects

    46 CFR Part 401

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

    46 CFR Part 403

    Great Lakes, Navigation (water), Reporting and recordkeeping requirements, Seamen, Uniform System of Accounts.

    46 CFR Part 404

    Great Lakes, Navigation (water), Seamen.

    For the reasons discussed in the preamble, the Coast Guard proposes to amend 46 CFR parts 401, 403, and 404 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. 2103, 2104(a), 6101, 7701, 8105, 9303, 9304; Department of Homeland Security Delegation No. 0170.1(II)(92.a), (92.d), (92.e), (92.f).

    0

    2. Revise Sec. 401.401 to read as follows:

    Sec. 401.401 Surcharges.

    To facilitate safe, efficient, and reliable pilotage, and for good cause, the Director may authorize surcharges on any rate or charge authorized by this subpart. Surcharges must be proposed for prior public comment and may not be authorized for more than 1 year. Once the approved amount has been received, the pilot association is not authorized to collect any additional funds under the surcharge authority and must cease such collections for the remainder of that shipping season.

    0

    3. Revise Sec. 401.405(a) to read as follows:

    Sec. 401.405 Pilotage rates and charges.

    (a) The hourly rate for pilotage service on--

    (1) The St. Lawrence River is $757;

    (2) Lake Ontario is $522;

    (3) Lake Erie is $537;

    (4) The navigable waters from Southeast Shoal to Port Huron, MI is $720;

    (5) Lakes Huron, Michigan, and Superior is $280; and

    (6) The St. Mary's River is $661.

    * * * * *

    0

    4. Revise Sec. 401.420(b) to read as follows:

    Sec. 401.420 Cancellation, delay, or interruption in rendition of services.

    * * * * *

    (b) When an order for a U.S. pilot's service is cancelled, the vessel can be charged for the pilot's reasonable travel expenses for travel that occurred to and from the pilot's base, and the greater of--

    (1) Four hours; or

    (2) The time of cancellation and the time of the pilot's scheduled arrival, or the pilot's reporting for duty as ordered, whichever is later.

    * * * * *

    Page 72034

    0

    5. Amend Sec. 401.450 as follows:

    0

    1. Redesignate paragraphs (b) through (j) as paragraphs (c) through (k), respectively; and

      0

    2. Add new paragraph (b) to read as follows:

      Sec. 401.450 Pilotage change points.

      * * * * *

      (b) The Saint Lawrence River between Iroquois Lock and the area of Ogdensburg, NY beginning January 31, 2017;

      * * * * *

      PART 403--GREAT LAKES PILOTAGE UNIFORM ACCOUNTING SYSTEM

      0

      6. The authority citation for part 403 continues to read as follows:

      Authority: 46 U.S.C. 2103, 2104(a), 9303, 9304; Department of Homeland Security Delegation No. 0170.1(II)(92.a), (92.f).

      0

      7. Revise Sec. 403.300(c) to read as follows:

      Sec. 403.300 Financial reporting requirements.

      * * * * *

      (c) By January 24 of each year, each association must obtain an unqualified audit report for the preceding year that is audited and prepared in accordance with generally accepted accounting principles by an independent certified public accountant. Each association must electronically submit that report with any associated settlement statements and all accompanying notes to the Director by January 31.

      PART 404--GREAT LAKES PILOTAGE RATEMAKING

      0

      8. The authority citation for part 404 continues to read as follows:

      Authority: 46 U.S.C. 2103, 2104(a), 9303, 9304; Department of Homeland Security Delegation No. 0170.1(II)(92.a), (92.f).

      0

      9. Amend Sec. 404.103 as follows:

      0

    3. In paragraph (a), following the words ``dividing each area's'' remove the word ``peak'' and add, in its place, the word ``seasonal''; and

      0

    4. Revise paragraph (b) to read as follows:

      Sec. 404.103 Ratemaking step 3: Determine number of pilots needed.

      * * * * *

      (b) Pilotage demand and the base seasonal work standard are based on available and reliable data, as so deemed by the Director, for a multi-year base period. The multi-year period is the 10 most recent full shipping seasons, and the data source is a system approved under 46 CFR 403.300. Where such data are not available or reliable, the Director also may use data, from additional past full shipping seasons or other sources, that the Director determines to be available and reliable.

      * * * * *

      0

      10. Revise Sec. 404.104 to read as follows:

      Sec. 404.104 Ratemaking step 4: Determine target pilot compensation benchmark.

      At least once every 10 years, the Director will set a base target pilot compensation benchmark using the most relevant available non-

      proprietary information. In years in which a base compensation benchmark is not set, target pilot compensation will be adjusted for inflation using the CPI for the Midwest region or a published predetermined amount. The Director determines each pilotage association's total target pilot compensation by multiplying individual target pilot compensation by the number of pilots projected under Sec. 404.103(d).

      Sec. 404.105 Amended

      0

      11. In Sec. 404.105, remove the words ``return on investment'' and add, in their place, the words ``working capital fund.''

      Dated: October 13, 2016.

      Michael D. Emerson,

      Director, Marine Transportation Systems, U.S. Coast Guard.

      FR Doc. 2016-25254 Filed 10-18-16; 8:45 am

      BILLING CODE 9110-04-P

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