Great Lakes Pilotage Rates-2015 Annual Review and Adjustment

As Enacted ( Federal Register)

Cited authorities 16

Cited in

Federal Register, Volume 79 Issue 171 (Thursday, September 4, 2014)

Federal Register Volume 79, Number 171 (Thursday, September 4, 2014)

Proposed Rules

Pages 52602-52624

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

FR Doc No: 2014-21046

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DEPARTMENT OF HOMELAND SECURITY

Coast Guard

46 CFR Part 401

USCG-2014-0481

RIN 1625-AC22

Great Lakes Pilotage Rates--2015 Annual Review and Adjustment

AGENCY: Coast Guard, DHS.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Coast Guard proposes rate adjustments for pilotage services on the Great Lakes, last amended in March 2014. The proposed adjustments would establish new base rates made in accordance with a full ratemaking procedure. Additionally, the Coast Guard proposes to exercise the discretion provided by Step 7 of the Appendix A methodology. The result is an upward adjustment to match the rate increase of the Canadian Great Lakes Pilotage Authority. We also propose temporary surcharges to accelerate recoupment of necessary and reasonable training costs for the pilot associations. This notice of proposed rulemaking promotes the Coast Guard's strategic goal of maritime safety.

DATES: Comments and related material must either be submitted to our online

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docket via http://www.regulations.gov on or before November 3, 2014 or reach the Docket Management Facility by that date.

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

2014-0481 using any one of the following methods:

(1) Federal eRulemaking Portal: http://www.regulations.gov.

(2) Fax: 202-493-2251.

(3) Mail: Docket Management Facility (M-30), U.S. Department of Transportation, West Building Ground Floor, Room W12-140, 1200 New Jersey Avenue SE., Washington, DC 20590-0001.

(4) Hand delivery: Same as mail address above, between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The telephone number is 202-366-9329.

To avoid duplication, please use only one of these four methods. See the ``Public Participation and Request for Comments'' portion of the SUPPLEMENTARY INFORMATION section below for instructions on submitting comments.

FOR FURTHER INFORMATION CONTACT: If you have questions on this proposed rule, 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. If you have questions on viewing or submitting material to the docket, call Ms. Cheryl Collins, Program Manager, Docket Operations, telephone 202-366-9826.

SUPPLEMENTARY INFORMATION:

Table of Contents for Preamble

I. Public Participation and Request for Comments

Submitting Comments
Viewing Comments and Documents
Privacy Act
Public Meeting

II. Abbreviations

III. Basis and Purpose

IV. Background

V. Discussion of Proposed Rule
Summary
Discussion of Methodology

VI. Regulatory Analyses
Regulatory Planning and Review
Small Entities
Assistance for Small Entities
Collection of Information
Federalism
Unfunded Mandates Reform Act
Taking of Private Property
Civil Justice Reform

I. Protection of Children
Indian Tribal Governments
Energy Effects

L. Technical Standards
Environment

I. Public Participation and Request for Comments

We encourage you to participate in this rulemaking by submitting comments and related materials. All comments received will be posted without change to http://www.regulations.gov and will include any personal information you have provided.
Submitting Comments

If you submit a comment, please include the docket number for this rulemaking (USCG-2014-0481), indicate the specific section of this document to which each comment applies, and provide a reason for each suggestion or recommendation. You may submit your comments and material online or by fax, mail, or hand delivery, but please use only one of these means. We recommend that you include your name and a mailing address, an email address, or a phone number in the body of your document so that we can contact you if we have questions regarding your submission.

To submit your comment online, go to http://www.regulations.gov and insert ``USCG-2014-0481'' in the ``Search'' box. Click on ``Submit a Comment'' in the ``Actions'' column. If you submit your comments by mail or hand delivery, submit them in an unbound format, no larger than 8\1/2\ by 11 inches, suitable for copying and electronic filing. If you submit comments by mail and would like to know that they reached the Facility, please enclose a stamped, self-addressed postcard or envelope.

We will consider all comments and material received during the comment period and may change this notice of proposed rulemaking (NPRM) based on your comments.
Viewing Comments and Documents

To view comments, as well as documents mentioned in this preamble as being available in the docket, go to http://www.regulations.gov and insert ``USCG-2014-0481'' in the ``Search'' box. Click ``Search.'' Click the ``Open Docket Folder'' in the ``Actions'' column. If you do not have access to the Internet, you may view the docket online by visiting the Docket Management Facility in Room W12-140 on the ground floor of the Department of Transportation West Building, 1200 New Jersey Avenue SE., Washington, DC 20590, between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. We have an agreement with the Department of Transportation to use the Docket Management Facility.
Privacy Act

Anyone can search the electronic form of comments received into any of our dockets by the name of the individual submitting the comment (or signing the comment, if submitted on behalf of an association, business, labor union, etc.). You may review a Privacy Act notice regarding our public dockets in the January 17, 2008 issue of the Federal Register (73 FR 3316).
Public Meeting

We do not now plan to hold a public meeting, but you may submit a request for one to the docket using one of the methods specified under ADDRESSES. In your request, explain why you believe a public meeting would be beneficial. If we decide to hold a public meeting, we will announce its time and place in a later notice in the Federal Register.

II. Abbreviations

AMOU American Maritime Officers Union

APA American Pilots Association

CFR Code of Federal Regulations

CPA Certified public accountant

CPI Consumer Price Index

E.O. Executive Order

FR Federal Register

MISLE Marine Information for Safety and Law Enforcement

MOA Memorandum of Arrangements

MOU Memorandum of Understanding

NAICS North American Industry Classification System

NPRM Notice of proposed rulemaking

OMB Office of Management and Budget

ROI Return on investment

Sec. Section symbol

U.S.C. United States Code

III. Basis and Purpose

The basis of this NPRM is the Great Lakes Pilotage Act of 1960 (``the Act'') (46 U.S.C. Chapter 93), which requires U.S. vessels operating ``on register'' \1\ and foreign vessels to use U.S. or Canadian registered pilots while transiting the U.S. waters of the St. Lawrence Seaway and the Great Lakes system. 46 U.S.C. 9302(a)(1). The Act requires the Secretary to ``prescribe by regulation rates and charges for pilotage services, giving consideration to the public interest and the costs of providing the services.'' 46 U.S.C. 9303(f). Rates must be established or reviewed and adjusted each year, not later than March 1. Base rates must be

Page 52604

established by a full ratemaking at least once every 5 years, and in years when base rates are not established, they must be reviewed and, if necessary, adjusted. Id. The Secretary's duties and authority under the Act have been delegated to the Coast Guard. Department of Homeland Security Delegation No. 0170.1, paragraph (92)(f). Coast Guard regulations implementing the Act appear in parts 401 through 404 of Title 46, Code of Federal Regulations (CFR). Procedures for use in establishing base rates appear in 46 CFR part 404, Appendix A, and procedures for annual review and adjustment of existing base rates appear in 46 CFR part 404, Appendix C.

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\1\ ``On register'' means that the vessel's certificate of documentation has been endorsed with a registry endorsement, and therefore, may be employed in foreign trade or trade with Guam, American Samoa, Wake, Midway, or Kingman Reef. 46 U.S.C. 12105, 46 CFR 67.17.

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The purpose of this NPRM is to establish new base pilotage rates, using the methodology found in 46 CFR part 404, Appendix A.

IV. Background

The vessels affected by this NPRM are those engaged in foreign trade upon the U.S. waters of the Great Lakes. United States and Canadian ``lakers,'' \2\ which account for most commercial shipping on the Great Lakes, are not affected. 46 U.S.C. 9302.

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\2\ A ``laker'' is a commercial cargo vessel especially designed for and generally limited to use on the Great Lakes.

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The U.S. waters of the Great Lakes and the St. Lawrence Seaway are divided into three pilotage districts. Pilotage in each district is provided by an association certified by the Coast Guard Director of Great Lakes Pilotage to operate a pilotage pool. It is important to note that we do not control the actual compensation that pilots receive. The actual compensation is determined by each of the three district associations, which use different compensation practices.

District One, consisting of Areas 1 and 2, includes all U.S. waters of the St. Lawrence River and Lake Ontario. District Two, consisting of Areas 4 and 5, includes all U.S. waters of Lake Erie, the Detroit River, Lake St. Clair, and the St. Clair River. District Three, consisting of Areas 6, 7, and 8, includes all U.S. waters of the St. Mary's River, Sault Ste. Marie Locks, and Lakes Michigan, Huron, and Superior. Area 3 is the Welland Canal, which is serviced exclusively by the Canadian Great Lakes Pilotage Authority and, accordingly, is not included in the United States rate structure. Areas 1, 5, and 7 have been designated by Presidential Proclamation, pursuant to the Act, to be waters in which pilots must, at all times, be fully engaged in the navigation of vessels in their charge. Areas 2, 4, 6, and 8 have not been so designated because they are open bodies of water. While working in those undesignated areas, pilots must only ``be on board and available to direct the navigation of the vessel at the discretion of and subject to the customary authority of the master.'' 46 U.S.C. 9302(a)(1)(B).

This NPRM is a full ratemaking to establish new base pilotage rates, using the methodology found in 46 CFR part 404, Appendix A (hereafter ``Appendix A''). The last full ratemaking established the current base rates in 2014 (79 FR 12084; Mar. 4, 2014). Among other things, the Appendix A methodology requires us to review detailed pilot association financial information, and we contract with independent accountants to assist in that review. We have now completed our review of the independent accountants' 2012 financial reports. The comments by the pilot associations on those reports and the independent accountants' final findings are discussed in our document entitled ``Summary--Independent Accountant's Report on Pilot Association Expenses, with Pilot Association Comments and Accountant's Responses,'' which appears in the docket.

V. Discussion of Proposed Rule
Summary

We propose establishing new base pilotage rates in accordance with the methodology outlined in Appendix A to 46 CFR part 404. The proposed new rates would be established by March 1, 2015, and effective August 1, 2015. Our calculations under Steps 1 through 6 of Appendix A would result in an average 12 percent rate decrease. This rate decrease is not the result of increased efficiencies in providing pilotage services but rather is a result of changes to American Maritime Officers Union (AMOU) contracts. Therefore, we will continue to exercise the discretion outlined in Step 7, increasing rates by 2.5 percent, and matching the Canadian Great Lakes Pilotage Authority's rate adjustment for 2015. We will provide additional discussion when we explain our Step 7 adjustment of pilot rates. Table 1 shows the proposed percent change for the new rates for each area.

Secondly, we propose temporary surcharges for the pilot associations to recoup necessary and reasonable training expenses incurred or that are expected to be incurred prior to the required March 1, 2015 publication of the 2015 final rule. Normally, these expenses would not be recognized until the 2016 annual ratemaking or later. By authorizing the temporary surcharges now, we propose to accelerate the reimbursement for necessary and reasonable training expenses. The surcharge would be authorized for the duration of the 2015 shipping season which begins in March 2015. This action would merely accelerate the recoupment of these expenses. At the conclusion of the 2015 shipping season, we would account for the monies generated by the surcharge and make adjustments as necessary to the operating expenses for the following year.

In District One we propose a temporary surcharge of 5 percent to compensate pilots for $28,028.91 that the District One pilot association spent on training in 2013 and early 2014, as well as the anticipated $150,000 cost to train a new applicant pilot in the 2014 shipping season to prepare a replacement for a retiring pilot. We believe this training is necessary and reasonable to maintain safe, efficient, and reliable pilotage on the Great Lakes and support the St. Lawrence Seaway Pilots Association's continued commitment to the training and professional development of their pilots.

Additionally, we propose a temporary surcharge of 10 percent in District Two to compensate pilots for $300,000 that the District Two pilot association will spend training two applicant pilots in 2014. This is necessary and reasonable to allow the association to bring on new pilots in the face of upcoming retirements without adjusting the pilotage needs as determined by the ratemaking methodology. This surcharge would also accelerate the repayment of the association's investment in upgraded technology ($25,829.80) to enhance the situational awareness of pilots on the bridge. We believe this needed technology would assist in the safety, efficiency, and reliability of the system.

Next, we propose a temporary surcharge of 1 percent in District Three to compensate pilots for $26,950 that the District Three pilot association plans to spend on training at the conclusion of the 2014 shipping season. We believe this training is necessary and reasonable for the provision of safe pilotage service.

All figures in the tables that follow are based on calculations performed either by an independent accountant or by the Director's \3\ staff. In both cases, those calculations were performed using common commercial computer programs. Decimalization and rounding of the audited and calculated data

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affects the display in these tables but does not affect the calculations. The calculations are based on the actual figures, which are rounded for presentation in the tables.

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\3\ ``Director'' is the Coast Guard Director, Great Lakes Pilotage, which is used throughout this NPRM.

Table 1--Summary of Rate Adjustments Based on Step 7 Discretion

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Then the percent

If pilotage service is required in: change over the

current rate is:

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Area 1 (Designated waters)......................... 2.50

Area 2 (Undesignated waters)....................... 2.50

Area 4 (Undesignated waters)....................... 2.50

Area 5 (Designated waters)......................... 2.50

Area 6 (Undesignated waters)....................... 2.50

Area 7 (Designated waters)......................... 2.50

Area 8 (Undesignated waters)....................... 2.50

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Discussion of Methodology

The Appendix A methodology provides seven steps, with sub-steps, for calculating rate adjustments. The following discussion describes those steps and sub-steps, and includes tables showing how we have applied them to the 2012 financial information supplied by the pilots association.

Step 1: Projection of Operating Expenses. In this step, we project the amount of vessel traffic annually. Based on that projection, we forecast the amount of necessary and reasonable operating expenses that pilotage rates should recover.

Step 1.A: Submission of Financial Information. This sub-step requires each pilot association to provide us with detailed financial information in accordance with 46 CFR part 403. The associations complied with this requirement, supplying 2012 financial information in 2013. This is the most current and complete data set we have available.

Step 1.B: Determination of Recognizable Expenses. This sub-step requires us to determine which reported association expenses will be recognized for ratemaking purposes, using the guidelines shown in 46 CFR 404.5. We contracted with an independent accountant to review the reported expenses and submit findings recommending which reported expenses should be recognized. The accountant also reviewed which reported expenses should be adjusted prior to recognition or disallowed for ratemaking purposes. The accountant's preliminary findings were sent to the pilot associations, they reviewed and commented on those findings, and the accountant then finalized the findings. The Director reviewed and accepted the final findings, resulting in the determination of recognizable expenses. The preliminary findings, the associations' comments on those findings, and the final findings are all discussed in the ``Summary--Independent Accountant's Report on Pilot Association Expenses, with Pilot Association Comments and Accountant's Responses,'' which appears in the docket. Tables 2 through 4 show each association's recognized expenses.

Table 2--Recognized Expenses for District One

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Area 1 Area 2

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Reported Expenses for 2012 St. Lawrence Total

River Lake Ontario

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Operating Expenses:

Other Pilotage Costs:

Pilot subsistence/Travel.............................. $227,199 $137,315 $364,514

License insurance..................................... 0 0 0

Payroll taxes......................................... 62,038 48,452 110,490

Other................................................. 596 549 1,145

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Total Other Pilotage Costs........................ 289,833 186,316 476,149

Pilot Boat and Dispatch Costs:

Pilot boat expense.................................... 108,539 95,405 203,944

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

Payroll taxes......................................... 13,429 11,804 25,233

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Total Pilot and Dispatch Costs.................... 121,968 107,209 229,177

Administrative Expenses:

Legal--general counsel................................ 1,369 1,281 2,650

Legal--lobbying....................................... 3,957 3,478 7,435

Insurance............................................. 21,907 18,998 40,905

Employee benefits..................................... 21,281 18,509 39,790

Payroll taxes......................................... 0 0 0

Other taxes........................................... 18,491 15,801 34,292

Travel................................................ 473 416 889

Depreciation/Auto leasing/Other....................... 38,346 33,705 72,051

Interest.............................................. 15,484 13,610 29,094

Dues and subscriptions................................ 13,740 10,240 23,980

Utilities............................................. 4,549 3,897 8,446

Salaries.............................................. 48,837 42,927 91,764

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Accounting/Professional fees.......................... 4,683 4,317 9,000

Pilot Training........................................ 26,353 21,961 48,314

Other................................................. 10,689 8,974 19,663

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Total Administrative Expenses..................... 230,159 198,114 428,273

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Total Operating Expenses.......................... 641,960 491,639 1,133,599

Proposed Adjustments (Independent certified public

accountant (CPA)):

Pilotage subsistence/Travel........................... (887) (779) (1,666)

Payroll taxes......................................... (13,719) (12,058) (25,777)

Dues and subscriptions................................ (13,740) (10,240) (23,980)

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TOTAL CPA ADJUSTMENTS............................. (28,346) (23,077) (51,423)

Proposed Adjustments (Director):

APA Dues.............................................. 11,679 8,704 20,383

Pilot Training (surcharge)............................ (26,353) (21,961) (48,314)

Legal--lobbying....................................... (3,957) (3,478) (7,435)

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TOTAL DIRECTOR ADJUSTMENTS........................ (18,631) (16,735) (35,366)

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Total Operating Expenses.......................... 594,983 451,827 1,046,810

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Note: Numbers may not total due to rounding.

Table 3--Recognized Expenses for District Two

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Area 4 Area 5

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Reported Expenses for 2012 Southeast Shoal Total

Lake Erie to Port Huron,

MI

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Operating Expenses:

Other Pilotage Costs:

Pilot subsistence/Travel.............................. $86,947 $130,421 $217,368

License insurance..................................... 6,168 9,252 15,420

Payroll taxes......................................... 42,218 63,328 105,546

Other................................................. 23,888 35,833 59,721

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Total Other Pilotage Costs........................ 159,221 238,834 398,055

Pilot Boat and Dispatch Costs:

Pilot boat expense.................................... 131,285 196,930 328,215

Dispatch expense...................................... 6,600 9,900 16,500

Employee Benefits..................................... 48,310 72,465 120,775

Payroll taxes......................................... 7,412 11,119 18,531

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Total Pilot and Dispatch Costs.................... 193,607 290,414 484,021

Administrative Expenses:

Legal--general counsel................................ 2,054 3,082 5,136

Legal--lobbying....................................... 2,704 4,055 6,759

Legal--litigation..................................... 6,488 9,733 16,221

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

Insurance............................................. 10,682 16,024 26,706

Employee benefits..................................... 16,452 24,678 41,130

Payroll taxes......................................... 4,143 6,216 10,359

Other taxes........................................... 12,546 18,819 31,365

Depreciation/Auto leasing/Other....................... 9,074 13,610 22,684

Interest.............................................. 2,989 4,483 7,472

Utilities............................................. 13,917 20,876 34,793

Salaries.............................................. 36,252 54,377 90,629

Accounting/Professional fees.......................... 11,764 17,646 29,410

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

Other................................................. 9,405 14,108 23,513

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Total Administrative Expenses..................... 164,745 247,120 411,865

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Total Operating Expenses.......................... 517,573 776,368 1,293,941

Proposed Adjustments (Independent CPA):

Pilot subsistence/Travel.............................. (1,982) (2,974) (4,956)

Employee benefits..................................... (3,585) (5,378) (8,963)

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TOTAL CPA ADJUSTMENTS............................. (5,567) (8,352) (13,919)

Proposed Adjustments (Director):

Federal Tax Allowance................................. (5,200) (7,800) (13,000)

APA Dues.............................................. 7,344 11,016 18,360

Legal--lobbying....................................... (2,704) (4,055) (6,759)

Legal--litigation..................................... (6,488) (9,733) (16,221)

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TOTAL DIRECTOR ADJUSTMENTS........................ (7,048) (10,572) (17,620)

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Total Operating Expenses.......................... 504,958 757,444 1,262,402

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Note: Numbers may not total due to rounding.

Table 4--Recognized Expenses for District Three

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Area 6 Area 7 Area 8

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Reported Expenses for 2012 Lakes Huron and Total

Michigan St. Mary's River Lake Superior

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Operating Expenses:

Other Pilotage Costs:

Pilot subsistence/Travel............ $180,316 $77,278 $110,398 $367,992

License insurance................... 8,859 3,797 5,424 18,080

Payroll taxes....................... 0 0 0 0

Other............................... 2,875 1,232 1,760 5,867

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Total Other Pilotage Costs...... 192,050 82,307 117,582 391,939

Pilot Boat and Dispatch Costs:

Pilot boat expense.................. 261,937 112,259 160,370 534,566

Dispatch expense.................... 81,958 35,125 50,178 167,261

Payroll taxes....................... 8,203 3,515 5,022 16,740

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Total Pilot Boat and Dispatch 352,098 150,899 215,570 718,567

Costs..........................

Administrative Expenses:

Legal--lobbying..................... 4,304 1,845 2,635 8,784

Office rent......................... 4,851 2,079 2,970 9,900

Insurance........................... 6,469 2,773 3,961 13,203

Employee benefits................... 77,348 33,149 47,356 157,854

Payroll taxes....................... 5,404 2,316 3,309 11,029

Other taxes......................... 941 403 576 1,920

Depreciation/Auto leasing........... 17,462 7,484 10,691 35,637

Interest............................ 2,692 1,154 1,648 5,494

Utilities........................... 20,950 8,979 12,827 42,756

Salaries............................ 54,003 23,144 33,063 110,210

Accounting/Professional fees........ 13,157 5,639 8,055 26,851

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

Other............................... 4,657 1,996 2,851 9,504

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Total Administrative Expenses... 212,238 90,961 129,942 433,141

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Total Operating Expenses........ 756,386 324,167 463,094 1,543,647

Proposed Adjustments (Independent CPA):

Pilot subsistence/travel............ (5,303) (2,273) (3,247) (10,823)

Payroll taxes....................... 44,613 19,120 27,314 91,046

Other taxes......................... (1,761) (755) (1,078) (3,594)

Other............................... (637) (273) (390) (1,300)

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TOTAL CPA ADJUSTMENTS........... 36,912 15,819 22,599 75,329

Proposed Adjustments (Director):

APA dues............................ 11,695 5,012 7,160 23,868

Legal--lobbying..................... (4,304) (1,845) (2,635) (8,784)

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TOTAL DIRECTOR ADJUSTMENTS...... 7,391 3,167 4,525 15,084

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Total Operating Expenses........ 800,689 343,153 490,218 1,634,060

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Note: Numbers may not total due to rounding.

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Step 1.C: Adjustment for Inflation or Deflation. In this sub-step, we project rates of inflation or deflation for the succeeding navigation season. Because we used 2012 financial information, the ``succeeding navigation season'' for this ratemaking is 2013. We based our inflation adjustment of 1.4 percent on the 2013 change in the Consumer Price Index (CPI) for the Midwest Region of the United States, which can be found at http://www.bls.gov/xgshells/ro5xg01.htm. This adjustment appears in Tables 5 through 7.

The Coast Guard is aware that the current annual adjustment for inflation does not account for the value of money over time. We are working on a solution to allow for a better approximation of actual costs.

Table 5--Inflation Adjustment, District One

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Area 1 Area 2

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Reported Expenses for 2012 St. Lawrence Total

River Lake Ontario

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Total Operating Expenses:.................. ... $594,983 ... $451,827 ... $1,046,810

2013 change in the CPI for the Midwest x .014 x .014 x .014

Region of the United States...............

Inflation Adjustment....................... = 8,330 = 6,326 = 14,655

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Table 6--Inflation Adjustment, District Two

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Area 4 Area 5

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Reported Expenses for 2012 Southeast Shoal Total

Lake Erie to Port Huron,

MI

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Total Operating Expenses:.................. ... $504,958 ... $757,444 ... $1,262,402

2013 change in the CPI for the Midwest x .014 x .014 x .014

Region of the United States...............

Inflation Adjustment....................... = 7,069 = 10,604 = 17,674

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Table 7--Inflation Adjustment, District Three

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Area 6 Area 7 Area 8

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Reported Expenses for 2012 Lakes Huron St. Mary's Total

and Michigan River Lake Superior

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Total Operating Expenses:...................................... ..... $800,689 ..... $343,153 ..... $490,218 ..... $1,634,060

2013 change in the CPI for the Midwest Region of the United x .014 x .014 x .014 x .014

States........................................................

Inflation Adjustment........................................... = 11,210 = 4,804 = 6,863 = 22,877

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Step 1.D: Projection of Operating Expenses. In this final sub-step of Step 1, we project the operating expenses for each pilotage area on the basis of the preceding sub-steps and any other foreseeable circumstances that could affect the accuracy of the projection.

For District One, the projected operating expenses are based on the calculations from Steps 1.A through 1.C. Table 8 shows these projections.

Table 8--Projected Operating Expenses, District One

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Area 1 Area 2

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Reported Expenses for 2012 St. Lawrence Total

River Lake Ontario

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Total operating expenses...................... ..... $594,983 ..... $451,827 ..... $1,046,810

Inflation adjustment 1.4%..................... + 8,330 + 6,326 + 14,655

Total projected expenses for 2015 pilotage = 603,313 = 458,153 = 1,061,465

season.......................................

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Note: Numbers may not total due to rounding.

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

Table 9--Projected Operating Expenses, District Two

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Area 4 Area 5

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Reported Expenses for 2012 Southeast Shoal Total

Lake Erie to Port Huron,

MI

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Total Operating Expenses................... ... $504,958 ... $757,444 ... $1,262,402

Inflation adjustment 1.4%.................. + 7,069 + 10,604 + 17,674

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Total projected expenses for 2015 pilotage = 512,027 = 768,048 = 1,280,076

season....................................

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

Table 10--Projected Operating Expenses, District Three

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Area 6 Area 7 Area 8

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Reported Expenses for 2012 Lakes Huron and Total

Michigan St. Mary's River Lake Superior

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Total Expenses.............................................. ... $800,689 ... $343,153 ... $490,218 ... $1,634,060

Inflation adjustment 1.4%................................... + 11,210 + 4,804 + 6,863 + 22,877

Total projected expenses for 2015 pilotage season........... = 811,899 = 347,957 = 497,081 = 1,656,937

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Step 2: Projection of Target Pilot Compensation. In Step 2, we project the annual amount of target pilot compensation that pilotage rates should provide in each area. These projections are based on our latest information on the conditions that will prevail in 2015.

Step 2.A: Determination of Target Rate of Compensation. Target pilot compensation for pilots in undesignated waters approximates the average annual compensation for first mates on U.S. Great Lakes vessels. Compensation is determined based on the most current union contracts and includes wages and benefits received by first mates. We calculate target pilot compensation on designated waters by multiplying the average first mates' wages by 150 percent and then adding the average first mates' benefits.

We rely upon union contract data provided by the AMOU, which has agreements with three U.S. companies engaged in Great Lakes shipping. We derive the data from two separate AMOU contracts--we refer to them as Agreements A and B--and apportion the compensation provided by each agreement according to the percentage of tonnage represented by companies under each agreement. Agreement A applies to vessels operated by Key Lakes, Inc., and Agreement B applies to vessels operated by American Steamship Co. and Mittal Steel USA, Inc.

Agreements A and B both expire on July 31, 2016. The AMOU has set the daily aggregate rate, including the daily wage rate, vacation pay, pension plan contributions, and medical plan contributions effective August 1, 2015, as follows: 1) In undesignated waters, $632.12 for Agreement A and $624.34 for Agreement B; and 2) In designated waters, $870.05 for Agreement A and $856.42 for Agreement B.

Because we are interested in annual compensation, we must convert these daily rates. We use a 270-day multiplier which reflects an average 30-day month, over the 9 months of the average shipping season. Table 11 shows our calculations using the 270-day multiplier.

Table 11--Projected Annual Aggregate Rate Components

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Aggregate Rate--Wages and Vacation,

Pension, and Medical Benefits

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Pilots on undesignated waters

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Agreement A:

$632.12 daily rate x 270 days......... $170,672.40

Agreement B:

$624.34 daily rate x 270 days......... 168,571.80

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Pilots on designated waters

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

Agreement A:

$870.05 daily rate x 270 days......... 234,913.50

Agreement B:

$856.42 daily rate x 270 days......... 231,233.40

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

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

Page 52610

Table 12--Shipping Tonnage Apportioned by Contract

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

Company Agreement A Agreement B

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

American Steamship Company...................... .............................. 815,600

Mittal Steel USA, Inc........................... .............................. 38,826

Key Lakes, Inc.................................. 361,385 ..............................

Total tonnage, each agreement................... 361,385 854,426

Percent tonnage, each agreement................. 361,385/1,215,811=29.7238% 854,426/1,215,811=70.2762%

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

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

Table 13--Tonnage-Weighted Wage and Benefit Components

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

Undesignated Designated

waters waters

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

Agreement A:

Total wages and benefits...................................... ... $170,672.40 ... $234,913.50

Percent tonnage............................................... x 29.7238% x 29.7238%

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

Total..................................................... = $50,730 = $69,825

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

Agreement B:

Total wages and benefits...................................... ... $168,571.80 ... $231,233.40

Percent tonnage............................................... x 70.2762% x 70.2762%

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

Total..................................................... = $118,466 = $162,502

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

Projected Target Rate of Compensation:

Agreement A total weighted average wages and benefits......... ... $50,730 ... $69,825

Agreement B total weighted average wages and benefits......... + $118,466 + $162,502

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

Total..................................................... = $169,196 = $232,327

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

Step 2.B: Determination of the Number of Pilots Needed. Subject to adjustment by the Director to ensure uninterrupted service or for other reasonable circumstances, we determine the number of pilots needed for ratemaking purposes in each area through dividing projected bridge hours for each area by either the 1,000 (designated waters) or 1,800 (undesignated waters) bridge hours specified in Step 2.B. We round the mathematical results and express our determination as a whole number of pilots.

According to 46 CFR part 404, Appendix A, Step 2.B(1), bridge hours are the number of hours a pilot is aboard a vessel providing pilotage service. For that reason, and as we explained most recently in the 2011 ratemaking's final rule (76 FR 6351 at 6352 col. 3 (Feb. 4, 2011)), we do not include, and never have included, pilot delay, detention, or cancellation in calculating bridge hours. Projected bridge hours are based on the vessel traffic that pilots are expected to serve. We use historical data, input from the pilots and industry, periodicals and trade magazines, and information from conferences to project demand for pilotage services for the coming year.

In our 2014 final rule, we determined that 36 pilots would be needed for ratemaking purposes. For 2015, we project 36 pilots is still the proper number to use for ratemaking purposes. The total pilot authorization strength includes five pilots in Area 2, where rounding up alone would result in only four pilots. For the same reasons we explained at length in the 2008 ratemaking final rule (74 FR 220 at 221-22 (Jan. 5, 2009)), we have determined that this adjustment is essential for ensuring uninterrupted pilotage service in Area 2. Table 14 shows the bridge hours we project will be needed for each area and our calculations to determine the whole number of pilots needed for ratemaking purposes.

Table 14--Number of Pilots Needed

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

Divided by 1,000

(designated

Pilotage area Projected 2015 waters) or 1,800 Calculated value Pilots needed

bridge hours (undesignated of pilot demand (total = 36)

waters)

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

Area 1 (Designated waters).... 5,116 / 1,000 = 5.116 6

Area 2 (Undesignated waters).. 5,429 / 1,800 = 3.016 5

Area 4 (Undesignated waters).. 5,814 / 1,800 = 3.230 4

Area 5 (Designated waters).... 5,052 / 1,000 = 5.052 6

Area 6 (Undesignated waters).. 9,611 / 1,800 = 5.339 6

Area 7 (Designated waters).... 3,023 / 1,000 = 3.023 4

Area 8 (Undesignated waters).. 7,540 / 1,800 = 4.189 5

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

Page 52611

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

Table 15--Projection of Target Pilot Compensation by Area

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

Target rate of Projected target

Pilotage area Pilots needed pilot pilot

(total = 36) compensation compensation

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

Area 1 (Designated waters)...................... 6 x $232,327 = $1,393,964

Area 2 (Undesignated waters).................... 5 x 169,196 = 845,981

Area 4 (Undesignated waters).................... 4 x 169,196 = 676,785

Area 5 (Designated waters)...................... 6 x 232,327 = 1,393,964

Area 6 (Undesignated waters).................... 6 x 169,196 = 1,015,177

Area 7 (Designated waters)...................... 4 x 232,327 = 929,309

Area 8 (Undesignated waters).................... 5 x 169,196 = 845,981

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

Note: Numbers may not total due to rounding.

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

Table 16--Projection of Revenue By Area

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

Revenue

Pilotage area Projected 2015 2014 Pilotage projection for

bridge hours rates 2015

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

Area 1 (Designated waters)...................... 5,116 x $472.50 = $2,417,285

Area 2 (Undesignated waters).................... 5,429 x 291.96 = 1,585,032

Area 4 (Undesignated waters).................... 5,814 x 210.40 = 1,223,262

Area 5 (Designated waters)...................... 5,052 x 521.64 = 2,635,314

Area 6 (Undesignated waters).................... 9,611 x 204.95 = 1,969,800

Area 7 (Designated waters)...................... 3,023 x 495.01 = 1,496,427

Area 8 (Undesignated waters).................... 7,540 x 191.34 = 1,442,677

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

Total....................................... ................ ... ................ ... 12,769,797

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

Note: Numbers may not total due to rounding.

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

Table 17--Total Sources of Funds, District One

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

Area 1 Area 2

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

Recognized Assets:

Total Current Assets.......................................... $532,237 $467,833

Total Current Liabilities..................................... - 61,808 - 54,329

Current Notes Payable......................................... + 23,413 + 20,579

Total Property and Equipment (NET)............................ + 445,044 + 391,191

Land.......................................................... - 11,727 - 10,308

Total Other Assets............................................ + 0 + 0

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

Total Recognized Assets................................... = 927,159 = 814,966

Non-Recognized Assets:

Total Investments and Special Funds........................... + 6,452 + 5,672

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

Total Non-Recognized Assets............................... = 6,452 = 5,672

Total Assets:

Total Recognized Assets....................................... 927,159 814,966

Total Non-Recognized Assets................................... + 6,452 + 5,672

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

Total Assets.............................................. = 933,611 = 820,638

Recognized Sources of Funds:

Total Stockholder Equity...................................... 659,141 579,380

Long-Term Debt................................................ + 262,785 + 230,986

Current Notes Payable......................................... + 23,413 + 20,579

Advances from Affiliated Companies............................ + 0 + 0

Page 52612

Long-Term Obligations--Capital Leases......................... + 0 + 0

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

Total Recognized Sources.................................. = 945,339 = 830,945

Non-Recognized Sources of Funds:

Pension Liability............................................. 0 0

Other Non-Current Liabilities................................. + 0 + 0

Deferred Federal Income Taxes................................. + 10,675 + 9,383

Other Deferred Credits........................................ + 0 + 0

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

Total Non-Recognized Sources.............................. = 10,675 = 9,383

Total Sources of Funds:

Total Recognized Sources...................................... 945,339 830,945

Total Non-Recognized Sources.................................. + 10,675 + 9,383

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

Total Sources of Funds.................................... = 956,014 = 840,328

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

Note: Numbers may not total due to rounding.

Table 18--Total Sources of Funds, District Two

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

Area 4 Area 5

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

Recognized Assets:

Total Current Assets.............................................. ... $498,456 ... $747,683

Total Current Liabilities..................................... - 494,410 - 741,614

Current Notes Payable......................................... + 33,962 + 50,942

Total Property and Equipment (NET)............................ + 436,063 + 654,094

Land.......................................................... - 0 - 0

Total Other Assets............................................ + 60,418 + 90,627

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

Total Recognized Assets................................... = 534,488 = 801,733

Non-Recognized Assets:

Total Investments and Special Funds........................... + 0 + 0

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

Total Non-Recognized Assets............................... = 0 = 0

Total Assets:

Total Recognized Assets....................................... ... 534,488 ... 801,733

Total Non-Recognized Assets................................... + 0 + 0

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

Total Assets.............................................. = 534,488 = 801,733

Recognized Sources of Funds:

Total Stockholder Equity...................................... ... 85,846 ... 128,768

Long-Term Debt................................................ + 414,681 + 622,022

Current Notes Payable......................................... + 33,962 + 50,942

Advances from Affiliated Companies............................ + 0 + 0

Long-Term Obligations--Capital Leases......................... + 0 + 0

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

Total Recognized Sources.................................. = 534,488 = 801,733

Non-Recognized Sources of Funds:

Pension Liability............................................. ... 0 ... 0

Other Non-Current Liabilities................................. + 0 + 0

Deferred Federal Income Taxes................................. + 0 + 0

Other Deferred Credits........................................ + 0 + 0

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

Total Non-Recognized Sources.............................. = 0 = 0

Total Sources of Funds:

Total Recognized Sources...................................... ... 534,488 ... 801,733

Total Non-Recognized Sources.................................. + 0 + 0

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

Total Sources of Funds.................................... = 534,488 = 801,733

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

Note: Numbers may not total due to rounding.

Table 19--Total Sources of Funds, District Three

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

Area 6 Area 7 Area 8

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

Recognized Assets:

Total Current Assets................... $656,459 $281,340 $401,914

Total Current Liabilities.............. - 82,775 - 35,475 - 50,679

Current Notes Payable.................. + 7,730 + 3,313 + 4,733

Total Property and Equipment (NET)..... + 19,611 + 8,405 + 12,007

Land................................... - 0 - 0 - 0

Page 52613

Total Other Assets..................... + 490 + 210 + 300

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

Total Recognized Assets............ = 601,515 = 257,793 = 368,275

Non-Recognized Assets:

Total Investments and Special Funds.... + 0 + 0 + 0

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

Total Non-Recognized Assets........ = 0 = 0 = 0

Total Assets:

Total Recognized Assets................ 601,515 257,793 368,275

Total Non-Recognized Assets............ + 0 + 0 + 0

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

Total Assets....................... = 601,515 = 257,793 = 368,275

Recognized Sources of Funds:

Total Stockholder Equity............... ... 586,300 ... 251,271 ... 358,959

Long-Term Debt......................... + 7,485 + 3,208 + 4,583

Current Notes Payable.................. + 7,730 + 3,313 + 4,733

Advances from Affiliated Companies..... + 0 + 0 + 0

Long-Term Obligations--Capital Leases.. + 0 + 0 + 0

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

Total Recognized Sources........... = 601,515 = 257,793 = 368,275

Non-Recognized Sources of Funds:

Pension Liability...................... 0 0 0

Other Non-Current Liabilities.......... + 0 + 0 + 0

Deferred Federal Income Taxes.......... + 0 + 0 + 0

Other Deferred Credits................. + 0 + 0 + 0

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

Total Non-Recognized Sources....... = 0 = 0 = 0

Total Sources of Funds:

Total Recognized Sources............... 601,515 257,792 368,275

Total Non-Recognized Sources........... + 0 + 0 + 0

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

Total Sources of Funds............. = 601,515 = 257,792 = 368,275

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

Note: Numbers may not total due to rounding.

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

Table 20--Investment Base by Area and District

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

Multiplier

Total Recognized Total sources (ratio of Investment

District Area recognized sources of of funds ($) recognized to base ($) \1\

assets ($) funds ($) total sources)

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

One..................................................... 1 927,159 945,339 956,014 0.99 916,806

2 814,966 830,945 840,328 0.99 805,866

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

Total............................................... .............. .............. .............. .............. .............. 1,722,672

Two \2\................................................. 4 534,488 534,488 534,488 1 534,488

5 801,733 801,733 801,733 1 801,733

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

Total............................................... .............. .............. .............. .............. .............. 1,336,221

Three................................................... 6 601,515 601,515 601,515 1 601,515

7 257,793 257,792 257,792 1 257,793

8 368,275 368,275 368,275 1 368,275

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

Total............................................... .............. .............. .............. .............. .............. 1,227,581

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

\1\ ``Investment base'' = ``Total recognized assets'' X ``Multiplier (ratio of recognized to total sources)''.

\2\ The pilot associations that provide pilotage services in Districts One and Three operate as partnerships. The pilot association that provides

pilotage service for District Two operates as a corporation.

Note: Numbers may not total due to rounding.

Page 52614

Step 5: Determination of Target Rate of Return. We determine a market-equivalent return on investment (ROI) that will be allowed for the recognized net capital invested in each association by its members. We do not recognize capital that is unnecessary or unreasonable for providing pilotage services. There are no non-recognized investments in this year's calculations. The allowed ROI is based on the preceding year's average annual rate of return for new issues of high-grade corporate securities. For 2013, the preceding year, the allowed ROI was 4.24 percent, based on the average rate of return for that year on Moody's AAA corporate bonds, which can be found at: http://research.stlouisfed.org/fred2/series/AAA/downloaddata?cid=119.

Step 6: Adjustment Determination. The first part of the adjustment determination requires an initial calculation, applying a formula described in Appendix A. The formula uses the results from Steps 1, 2, 3, and 4 to project the ROI that can be expected in each area if no further adjustments are made. This calculation is shown in Tables 21 through 23.

Table 21--Projected ROI, Areas in District One

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

Area 1 Area 2

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

Revenue (from Step 3)............................................. $2,417,285 $1,585,032

Operating Expenses (from Step 1).................................. - 603,313 - 458,153

Pilot Compensation (from Step 2).................................. - 1,393,964 - 845,981

Operating Profit/(Loss)........................................... = 420,009 = 280,899

Interest Expense (from audits).................................... - 15,484 - 13,610

Earnings Before Tax............................................... = 404,525 = 267,289

Federal Tax Allowance............................................. - 0 - 0

Net Income........................................................ = 404,525 = 267,289

Return Element (Net Income + Interest)............................ 420,009 280,899

Investment Base (from Step 4)..................................... / 916,806 / 805,866

Projected Return on Investment.................................... = 0.46 = 0.35

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

Table 22--Projected ROI, Areas in District Two

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

Area 4 Area 5

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

Revenue (from Step 3)............................................. $1,223,262 $2,635,314

Operating Expenses (from Step 1).................................. - 512,027 - 768,048

Pilot Compensation (from Step 2).................................. - 676,785 - 1,393,964

Operating Profit/(Loss)........................................... = 34,450 = 473,302

Interest Expense (from audits).................................... - 2,989 - 4,483

Earnings Before Tax............................................... = 31,461 = 468,819

Federal Tax Allowance............................................. - 5,200 - 7,800

Net Income........................................................ = 26,261 = 461,019

Return Element (Net Income + Interest)............................ 29,250 465,502

Investment Base (from Step 4)..................................... / 534,488 / 801,733

Projected Return on Investment.................................... = 0.05 = 0.58

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

Table 23--Projected ROI, Areas in District Three

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

Area 6 Area 7 Area 8

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

Revenue (from Step 3)...................... $1,969,800 $1,496,427 $1,442,677

Operating Expenses (from Step 1)........... - 811,899 - 347,957 - 497,081

Pilot Compensation (from Step 2)........... - 1,015,177 - 929,309 - 845,981

Operating Profit/(Loss).................... = 142,724 = 219,161 = 99,615

Interest Expense (from audits)............. - 2,692 - 1,154 - 1,648

Earnings Before Tax........................ = 140,032 = 218,007 = 97,967

Federal Tax Allowance...................... - 0 - 0 - 0

Net Income................................. = 140,032 = 218,007 = 97,967

Return Element (Net Income + Interest)..... 142,724 219,161 99,615

Investment Base (from Step 4).............. / 601,515 / 257,793 / 368,275

Projected Return on Investment............. = 0.24 = 0.85 = 0.27

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

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

Page 52615

Table 24--Comparison of Projected ROI and Target ROI, by Area \1\

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

Area 1 Area 2 Area 4 Area 5 Area 6 Area 7 Area 8

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

Southeast

St. Lawrence Lake Ontario Lake Erie Shoal to Port Lakes Huron St. Mary's Lake Superior

River Huron, MI and Michigan River

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

Projected return on investment.......... 0.4581 0.3486 0.0547 0.5806 0.2373 0.8501 0.2705

Target return on investment............. 0.0424 0.0424 0.0424 0.0424 0.0424 0.0424 0.0424

Difference in return on investment...... 0.4157 0.3062 0.0123 0.5382 0.1949 0.8077 0.2281

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

\1\ Note: Decimalization and rounding of the target ROI affects the display in this table but does not affect our calculations, which are based on the

actual figure.

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

Table 25--Revenue Needed To Recover Target ROI, by Area

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

Investment

Operating Target pilot base (Step 4)

Pilotage area expenses compensation x 4.24% Federal tax Revenue needed

(Step 1) (Step 2) (Target ROI allowance

Step 5)

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

Area 1 (Designated waters).......................... $603,313 + $1,393,964 + $38,873 + $0 = $2,036,149

Area 2 (Undesignated waters)........................ 458,153 + 845,981 + 34,169 + 0 = 1,338,302

Area 4 (Undesignated waters)........................ 512,027 + 676,785 + 22,662 + 5,200 = 1,216,674

Area 5 (Designated waters).......................... 768,048 + 1,393,964 + 33,993 + 7,800 = 2,203,805

Area 6 (Undesignated waters)........................ 811,899 + 1,015,177 + 25,504 + 0 = 1,852,580

Area 7 (Designated waters).......................... 347,957 + 929,309 + 10,930 + 0 = 1,288,197

Area 8 (Undesignated waters)........................ 497,081 + 845,981 + 15,615 + 0 = 1,358,677

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

Total........................................... 3,998,479 + 7,101,160 + 181,747 + 13,000 = 11,294,385

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

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

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

Table 26--Rate Multiplier, Areas in District One

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

Area 1 Area 2

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

Ratemaking projections St. Lawrence

River Lake Ontario

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

Revenue Needed (from Step 6)...................................... ... $2,036,149 ... $1,338,302

Revenue (from Step 3)............................................. / $2,417,285 / $1,585,032

Rate Multiplier................................................... = 0.8423 = 0.8443

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

Table 27--Rate Multiplier, Areas in District Two

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

Area 4 Area 5

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

Ratemaking projections Southeast Shoal

Lake Erie to Port Huron,

MI

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

Revenue Needed (from Step 6)...................................... ... $1,216,674 ... $2,203,805

Revenue (from Step 3)............................................. / $1,223,262 / $2,635,314

Rate Multiplier................................................... = 0.9946 = 0.8363

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

Page 52616

Table 28--Rate Multiplier, Areas in District Three

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

Area 6 Area 7 Area 8

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

Ratemaking projections Lakes Huron and

Michigan St. Mary's River Lake Superior

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

Revenue Needed (from Step 6)............... ... $1,825,580 ... $1,288,197 ... $1,358,677

Revenue (from Step 3)...................... / $1,969,800 / $1,496,427 / $1,442,677

Rate Multiplier............................ = 0.9405 = 0.8608 = 0.9418

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

Note: Numbers may not total due to rounding.

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

Table 29--Rate Multiplier for Basic Rates and Charges in 46 CFR 401.420

and 401.428

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

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

Ratemaking Projections:

Total Revenue Needed (from Step 6)............... ... $11,294,385

Total revenue (from Step 3)...................... / $12,769,797

Rate Multiplier...................................... = 0.884

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

Using this table, we calculate rates for cancellation, delay, or interruption in rendering services (46 CFR 401.420) and basic rates and charges for carrying a U.S. pilot beyond the normal change point, or for boarding at other than the normal boarding point (46 CFR 401.428). The result is a decrease by 11.55 percent in all areas.

Without further action, the existing rates we established in our 2014 final rule would then be multiplied by the rate multipliers from Tables 29 through 31 to calculate the area by area rate changes for 2015. The resulting 2015 rates across the Great Lakes, on average, would then be decreased approximately 12 percent from the 2014 rates. This decrease is not due to increased efficiencies in pilotage services but rather a result of adjustments to AMOU contracts. We propose to decline to impose this decrease because it would have an adverse effect on providing safe, efficient, and reliable pilotage in the pilotage districts. Additionally, we propose to decline to impose this decrease because we are unable to independently verify the compensation data contained in the AMOU contracts. Our Memorandum of Arrangements (MOA) with Canada, as well as our recently signed Memorandum of Understanding (MOU),\4\ which replaces the MOA, calls for comparable pilotage rates between the two countries and we have proposed matching our rate increase to the Canadian rate increase, which is 2.5 percent this year. Our discretionary authority under Step 7 must be ``based on requirements of the Memorandum of Arrangements between the United States and Canada, and other supportable circumstances that may be appropriate.'' The MOA calls for comparable United States and Canadian rates, and the rates would not be comparable if United States rates for 2015 decrease by approximately 12 percent, while Canadian rates for 2015 increase by 2.5 percent. Though rates are not equivalent, matching the Canadian rate increase prevents a move further away from established levels of comparability. ``Other supportable circumstances'' for exercising our discretion include:

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

\4\ The Memorandum of Understanding between the GLPA and USCG was signed on September 19, 2013 and goes into effect on January 1, 2015. Copies of the MOA and MOU are available on our Web site: http://www.uscg.mil/hq/cg5/cg552/pilotage.asp.

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

Executive Order (E.O.) 13609, ``Promoting International Regulatory Cooperation,'' which calls on Federal agencies to eliminate ``unnecessary differences'' between U.S. and foreign regulations (77 FR 26413; May 4, 2012; sec. 1); and

The risk that a significant rate decrease would jeopardize the ability of the three pilotage associations to provide safe, efficient, and reliable pilotage service.

Therefore, we propose relying on the discretionary authority we have under Step 7 to further adjust rates so that they match those adopted by the Canadian Great Lakes Pilotage Authority for 2014. Table 30 compares the impact, area by area, that an average decrease of 12 percent would have, relative to the impact each area would experience if United States rates match those of the Canadian GLPA.

Table 30--Impact of Exercising Step 7 Discretion

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

Percent change in rate Percent change in rate

Area without exercising Step with exercise of Step 7

7 discretion discretion

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

Area 1 (Designated waters).................................... -15.77 2.50

Area 2 (Undesignated waters).................................. -15.57 2.50

Area 4 (Undesignated waters).................................. -0.54 2.50

Area 5 (Designated waters).................................... -16.37 2.50

Area 6 (Undesignated waters).................................. -5.95 2.50

Area 7 (Designated waters).................................... -13.92 2.50

Area 8 (Undesignated waters).................................. -5.82 2.50

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

The following tables reflect our proposed rate adjustments of 2.5 percent across all areas.

Tables 31 through 33 show these calculations.

Page 52617

Table 31--Proposed Adjustment of Pilotage Rates, Areas in District One

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

Adjusted rate

2014 Rate Rate multiplier for 2015

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

Area 1 St. Lawrence River

Basic Pilotage.............................. $19.22/km, x 1.025 = $19.70/km,

34.02/mi 34.87/mi

Each lock transited......................... 426 x 1.025 = 437

Harbor movage............................... 1,395 x 1.025 = 1,430

Minimum basic rate, St. Lawrence River...... 931 x 1.025 = 954

Maximum rate, through trip...................... 4,084 x 1.025 = 4,186

Area 2 Lake Ontario

6-hour period............................... 872 x 1.025 = 894

Docking or undocking............................ 832 x 1.025 = 853

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

Note: Numbers may not total due to rounding.

In addition to the proposed rate charges in Table 31, as we explain in the Summary section of Part V of this preamble, we propose authorizing District One to implement a temporary supplemental 5 percent charge on each source form (the ``bill'' for pilotage service) for the duration of the 2015 shipping season, which begins in March 2015. District One would be required to provide us with monthly status reports once this surcharge becomes effective for the duration of the 2015 shipping season. We would exclude these expenses from future rates and any surcharge surplus/deficit from the 2014 season would impact the final authorized surcharge for the 2015 season.

Table 32--Proposed Adjustment of Pilotage Rates, Areas in District Two

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

Adjusted rate

2014 Rate Rate multiplier for 2015

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

Area 4 Lake Erie

6-hour period............................... $849 x 1.025 = $870

Docking or undocking........................ 653 x 1.025 = 669

Any point on Niagara River below Black Rock 1,667 x 1.025 = 1,709

Lock.......................................

Area 5 Southeast Shoal to Port Huron, MI between

any point on or in

Toledo or any point on Lake Erie W. of 1,417 x 1.025 = 1,452

Southeast Shoal............................

Toledo or any point on Lake Erie W. of 2,397 x 1.025 = 2,457

Southeast Shoal & Southeast Shoal..........

Toledo or any point on Lake Erie W. of 3,113 x 1.025 = 3,191

Southeast Shoal & Detroit River............

Toledo or any point on Lake Erie W. of 2,397 x 1.025 = 2,457

Southeast Shoal & Detroit Pilot Boat.......

Port Huron Change Point & Southeast Shoal 4,176 x 1.025 = 4,280

(when pilots are not changed at the Detroit

Pilot Boat)................................

Port Huron Change Point & Toledo or any 4,837 x 1.025 = 4,958

point on Lake Erie W. of Southeast Shoal

(when pilots are not changed at the Detroit

Pilot Boat)................................

Port Huron Change Point & Detroit River..... 3,137 x 1.025 = 3,215

Port Huron Change Point & Detroit Pilot Boat 2,441 x 1.025 = 2,502

Port Huron Change Point & St. Clair River... 1,735 x 1.025 = 1,778

St. Clair River............................. 1,417 x 1.025 = 1,452

St. Clair River & Southeast Shoal (when 4,176 x 1.025 = 4,280

pilots are not changed at the Detroit Pilot

Boat)......................................

St. Clair River & Detroit River/Detroit 3,137 x 1.025 = 3,215

Pilot Boat.................................

Detroit, Windsor, or Detroit River.......... 1,417 x 1.025 = 1,452

Detroit, Windsor, or Detroit River & 2,397 x 1.025 = 2,457

Southeast Shoal............................

Detroit, Windsor, or Detroit River & Toledo 3,113 x 1.025 = 3,191

or any point on Lake Erie W. of Southeast

Shoal......................................

Detroit, Windsor, or Detroit River & St. 3,137 x 1.025 = 3,215

Clair River................................

Detroit Pilot Boat & Southeast Shoal........ 1,735 x 1.025 = 1,778

Detroit Pilot Boat & Toledo or any point on 2,397 x 1.025 = 2,457

Lake Erie W. of Southeast Shoal............

Detroit Pilot Boat & St. Clair River........ 3,137 x 1.025 = 3,215

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

Note: Numbers may not total due to rounding.

In addition to the proposed rate charges in Table 32, and for the reasons we discussed in the Summary section of Part V of this preamble, we propose authorizing District Two to implement a temporary supplemental 10 percent charge on each source form for the duration of the 2015 shipping season, which begins in March 2015. District Two would be required to provide us with monthly status reports once this surcharge becomes effective for the duration of the 2015 shipping season. We would exclude these expenses from future rates.

Page 52618

Table 33--Proposed Adjustment of Pilotage Rates, Areas in District Three

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

Adjusted rate

2014 Rate Rate multiplier for 2015

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

Area 6 Lakes Huron and Michigan

6-hour Period............................... $708 x 1.025 = $726

Docking or undocking........................ 672 x 1.025 = 689

Area 7 St. Mary's River between any point on or

in

Gros Cap & De Tour.......................... 2,648 x 1.025 = 2,714

Algoma Steel Corp. Wharf, Sault Ste. Marie, 2,648 x 1.025 = 2,714

Ont. & De Tour.............................

Algoma Steel Corp. Wharf, Sault. Ste. Marie, 997 x 1.025 = 1,022

Ont. & Gros Cap............................

Any point in Sault St. Marie, Ont., except 2,219 x 1.025 = 2,274

the Algoma Steel Corp. Wharf & De Tour.....

Any point in Sault St. Marie, Ont., except 997 x 1.025 = 1,022

the Algoma Steel Corp. Wharf & Gros Cap....

Sault Ste. Marie, MI & De Tour.............. 2,219 x 1.025 = 2,274

Sault Ste. Marie, MI & Gros Cap............. 997 x 1.025 = 1,022

Harbor movage............................... 997 x 1.025 = 1,022

Area 8 Lake Superior

6-hour period............................... 601 x 1.025 = 616

Docking or undocking........................ 571 x 1.025 = 585

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

Note: Numbers may not total due to rounding.

In addition to the proposed rate charges in Table 33, and for the reasons we discussed in the Summary section of Part V of this preamble, we propose authorizing District Three to implement a temporary supplemental 1 percent charge on each source form for the duration of the 2015 shipping season, which begins in March 2015. District Three would be required to provide us with monthly status reports once this surcharge becomes effective for the duration of the 2015 shipping season. We would exclude these expenses from future rates.

VI. Regulatory Analyses

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

Executive Orders 12866 (``Regulatory Planning and Review'') and 13563 (``Improving Regulation and Regulatory Review'') direct agencies to assess the costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility.

This proposed rule is not a significant regulatory action under section 3(f) of E.O. 12866 as supplemented by E.O. 13563, and does not require an assessment of potential costs and benefits under section 6(a)(3) of E.O. 12866. The Office of Management and Budget (OMB) has not reviewed it under E.O. 12866. Nonetheless, we developed an analysis of the costs and benefits of the proposed rule to ascertain its probable impacts on industry. We consider all estimates and analysis in this Regulatory Analysis to be subject to change in consideration of public comments.

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 2015 shipping season to generate sufficient revenue to cover allowable expenses, and to target pilot compensation and returns on pilot associations' investments. The rate adjustments in this 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 of approximately $319,245 across all three districts over 2014 rates--

an increase of 2.5 percent.

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 discretionary rate adjustments, we propose authorizing temporary, supplemental surcharges to traffic across all three districts in order for the pilotage associations to recover training expenses and technology improvements that were incurred throughout the 2013 and 2014 shipping seasons. These temporary surcharges would be authorized for the duration of the 2015 shipping season, which begins in March. We estimate that these temporary surcharges would generate a combined $650,939 in revenue for the pilotage associations across all three districts. In District One, the proposed 5 percent surcharge would generate an additional $205,119 in revenue. In District Two, the proposed 10 percent surcharge is expected to generate $395,504 in additional revenue. In District Three, the proposed 1 percent surcharge would generate an additional $50,316 in revenue. At the end of the 2015 shipping season, we will account for the monies the surcharges generate and make adjustments (debits/credits) to the operating expenses for the following year.\5\

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

\5\ Assuming our estimate is correct, we would credit District One shippers $27,090 at the end of the 2015 season in order to account for the difference between the total surcharges collected ($205,119) and the actual expenses incurred by the District One pilot association ($178,029 for training expenses), District Two shippers $69,674 (calculation: $395,504 (total surcharges collected) minus $300,000 to train two applicant pilots and $25,829.80 for technology improvements), and District Three shippers $23,366 (calculation: $50,316 (total surcharges collected) minus $26,950 (actual training expenses incurred)).

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

Therefore, after accounting for the implementation of the temporary surcharges on traffic across all three districts, the annual payments made by shippers are estimated to be approximately $970,184 more than the payments that were made in 2014.\6\

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

\6\ Total payments across all three districts are equal to the increase in payments incurred by shippers as a result of the rate changes plus the temporary surcharges applied to traffic in Districts One, Two, and Three.

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

A regulatory assessment follows.

Page 52619

The proposed rule would apply the 46 CFR part 404, Appendix A, full ratemaking methodology, including the exercise of our discretion to increase Great Lakes pilotage rates, on average, approximately 2.5 percent overall from the current rates set in the 2014 final rule. The Appendix A methodology is discussed and applied in detail in Part V of this preamble. Among other factors described in Part V, it reflects audited 2012 financial data from the pilotage associations (the most recent year available for auditing), projected association expenses, and regional inflation or deflation. The last full Appendix A ratemaking was concluded in 2014 and used financial data from the 2011 base accounting year. The last annual rate review, conducted under 46 CFR part 404, Appendix C, was completed early in 2011.

The shippers affected by these rate adjustments are those owners and operators of domestic vessels operating on register (employed in foreign trade) and owners and operators of foreign vessels on a route within the Great Lakes system. These owners and operators must have pilots or pilotage service as required by 46 U.S.C. 9302. There is no minimum tonnage limit or exemption for these vessels. The Coast Guard's interpretation is that the statute applies only to commercial vessels and not to recreational vessels.

Owners and operators of other vessels that are not affected by this proposed rule, such as recreational boats and vessels operating only within the Great Lakes system, may elect to purchase pilotage services. However, this election is voluntary and does not affect our calculation of the rate and is not a part of our estimated national cost to shippers.

We used 2011-2013 vessel arrival data from the Coast Guard's Marine Information for Safety and Law Enforcement (MISLE) system to estimate the average annual number of vessels affected by the rate adjustment. Using that period, we found that approximately 114 vessels journeyed into the Great Lakes system annually. These vessels entered the Great Lakes by transiting at least one of the three pilotage districts before leaving the Great Lakes system. These vessels often make more than one distinct stop, docking, loading, and unloading at facilities in Great Lakes ports. Of the total trips for the 114 vessels, there were approximately 353 annual U.S. port arrivals before the vessels left the Great Lakes system, based on 2011-2013 vessel data from MISLE.

The impact of the rate adjustment to shippers is estimated from the District pilotage revenues. These revenues represent the costs (``economic costs'') that shippers must pay for pilotage services. The Coast Guard sets rates so that revenues equal the estimated cost of pilotage for these services.

We estimate the additional impact (cost increases or cost decreases) of the rate adjustment in this proposed rule to be the difference between the total projected revenue needed to cover costs in 2014, based on the 2014 rate adjustment, and the total projected revenue needed to cover costs in 2015, as set forth in this proposed rule, plus any temporary surcharges authorized by the Coast Guard. Table 34 details projected revenue needed to cover costs in 2015 after making the discretionary adjustment to pilotage rates as discussed in Step 7 of Part VI of this preamble. Table 35 summarizes the derivation for calculating the revenue expected to be generated as a result of the temporary surcharges applied to traffic in all three districts as discussed in Step 7 of Part VI of this preamble. Table 36 details the additional cost increases to shippers by area and district as a result of the rate adjustments and temporary surcharges on traffic in Districts One, Two, and Three.

Table 34--Rate Adjustment by Area and District

$U.S.; Non-discounted

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

Projected

2014 pilotage Rate change \8\ 2015 pilotage Projected 2015 revenue needed in

rates \7\ rates \9\ bridge hours \10\ 2015 \11\

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

Area 1................................................... $472.50 1.0250 $484.31 5,116 $2,477,717

Area 2................................................... 291.96 1.0250 299.26 5,429 1,624,658

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

Total, District One.................................. ................. ................. ................. ................. 4,102,375

==============================================================================================

Area 4................................................... 210.40 1.0250 215.66 5,814 1,253,843

Area 5................................................... 521.64 1.0250 534.68 5,052 2,701,197

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

Total, District Two.................................. ................. ................. ................. ................. 3,955,040

==============================================================================================

Area 6................................................... 204.95 1.0250 210.08 9,611 2,019,045

Area 7................................................... 495.01 1.0250 507.39 3,023 1,533,838

Area 8................................................... 191.34 1.0250 196.12 7,540 1,478,744

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

Total, District Three................................ ................. ................. ................. ................. 5,031,627

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

Table 35--Derivation of Temporary Surcharge

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

Area 1 Area 2 Area 4 Area 5 Area 6 Area 7 Area 8

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

Projected Revenue Needed in $2,477,717 $1,624,658 $1,253,843 $2,701,197 $2,019,045 $1,533,838 $1,478,744

2015.......................

Surcharge Rate.............. 5% 5% 10% 10% 1% 1% 1%

Surcharge Raised............ $123,886 $81,233 $125,384 $270,120 $20,190 $15,338 $14,787

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

Total Surcharge......... $205,119

$395,504

$50,316

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

Page 52620

Table 36--Impact of the Proposed Rule by Area and District

$U.S.; Non-discounted

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

Additional

Projected Projected Temporary costs or savings

revenue needed revenue needed surcharge of this proposed

in 2014 \12\ in 2015 \13\ rule

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

Area 1.................................. $2,417,285 $2,477,717 $123,886 $184,318

Area 2.................................. 1,585,032 1,624,658 81,233 120,859

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

Total, District One................. 4,002,318 4,102,375 205,119 305,177

=======================================================================

Area 4.................................. 1,223,262 1,253,843 125,384 155,966

Area 5.................................. 2,635,314 2,701,197 270,120 336,003

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

Total, District Two................. 3,858,576 3,955,040 395,504 491,968

=======================================================================

Area 6.................................. 1,969,800 2,019,045 20,190 69,435

Area 7.................................. 1,496,427 1,533,838 15,338 52,749

Area 8.................................. 1,442,677 1,478,744 14,787 50,854

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

Total, District Three............... 4,908,904 5,031,627 50,316 173,039

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

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

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

\7\ 2014 Pilotage Rates are described in Table 16 of this NPRM.

\8\ The estimated rate changes are described in Table 30 of this NPRM.

\9\ 2015 Pilotage Rates--2014 Pilotage Rates x Rate Change.

\10\ Projected 2015 Bridge Hours are described in Table 14 of this NPRM.

\11\ Projected Revenue Needed in 2015--2015 Pilotage Rates x Projected 2015 Bridge Hours.

\12\ Projected revenue needed in 2014 is described in Table 16 of this NPRM.

\13\ Projected revenue needed in 2015 is described in Table 34 of this NPRM.

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

The impact of the discretionary rate adjustment in this proposed rule on shippers varies by area and district. The discretionary rate adjustments would lead to affected shippers operating in District One, District Two, and District Three experiencing an increase in payments of $100,058, $96,464, and $122,723, respectively, from the previous year.

In addition to the rate adjustments, temporary surcharges on traffic in District One, District Two, and District Three would be applied for the duration of the 2015 season in order for the pilotage associations to recover training expenses and technology investments incurred during the 2013 and 2014 shipping seasons. We estimate that these surcharges would generate an additional $205,119, $395,504, and $50,316 in revenue for the pilotage associations in District One, District Two, and District Three, respectively. At the end of the 2015 shipping season, we will account for the monies the surcharges generate and make adjustments (debits/credits) to the operating expenses for the following year.\14\

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

\14\ Assuming our estimate is correct, we would credit District One shippers $27,090 at the end of the 2015 season in order to account for the difference between the total surcharges collected ($205,119) and the actual expenses incurred by the District One pilot association ($178,029 for training expenses), District Two shippers $69,674 (calculation: $395,504 (total surcharges collected) minus $300,000 to train two applicant pilots and $25,829.80 for technology improvements)), and District Three shippers $23,366 (calculation: $50,316 (total surcharges collected) minus $26,950 (actual training expenses incurred)).

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

To calculate an exact cost or savings per vessel is difficult because of the variation in vessel types, routes, port arrivals, commodity carriage, time of season, conditions during navigation, and preferences for the extent of pilotage services on designated and undesignated portions of the Great Lakes system. Some owners and operators would pay more and some would pay less, depending on the distance travelled and the number of port arrivals by their vessels. However, the increase in costs reported earlier in this NPRM does capture the adjustment in payments that shippers would experience from the previous year. The overall adjustment in payments, after taking into account the increase in pilotage rates and the addition of temporary surcharges would be an increase in payments by shippers of approximately $970,184 across all three districts.

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, thus ensuring proper pilot compensation.

Alternatively, if we imposed the new rates based on the new contract data from AMOU, instead of using the discretionary rate adjustment described in Step 7, there would be an approximately 12 percent decrease in rates across the system. Instead of shippers experiencing an increase in payments of approximately $319,245 from the previous year, as a result of the proposed rate adjustments, shippers would instead experience a reduction in payments of approximately $1,475,412.\15\ Table 37 details projected revenue needed to cover costs in 2015 if the discretionary adjustment to pilotage rates as discussed in Step 7 of Part VI of this preamble is not made. Table 38 details the additional costs or savings by area and district as a result of this alternative proposal.

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

\15\ These figures do not include the additional payments incurred by shippers as a result of the temporary surcharges applied to traffic in all three districts.

\16\ The estimated rate changes are described in Table 30 of this NPRM.

Page 52621

Table 37--Alternative Rate Adjustment by Area and District

$U.S.; Non-discounted

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

Projected

2014 pilotage Rate change \16\ 2015 pilotage Projected 2015 revenue needed

rates rates bridge hours in 2015

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

Area 1........................................................ $472.50 0.8423 $398.00 5,116 $2,036,149

Area 2........................................................ 291.96 0.8443 246.51 5,429 1,338,302

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

Total, District One....................................... ................ ................ ................ ................ 3,374,451

=========================================================================================

Area 4........................................................ 210.40 0.9946 209.27 5,814 1,216,674

Area 5........................................................ 521.64 0.8363 436.22 5,052 2,203,805

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

Total, District Two....................................... ................ ................ ................ ................ 3,420,480

=========================================================================================

Area 6........................................................ 204.95 0.9405 192.76 9,611 1,852,580

Area 7........................................................ 495.01 0.8608 426.13 3,023 1,288,197

Area 8........................................................ 191.34 0.9418 180.20 7,540 1,358,677

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

Total, District Three..................................... ................ ................ ................ ................ 4,499,454

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

* Some values may not total due to rounding.

Table 38--Alternative Impact of the Rule by Area and District

$U.S.; Non-discounted

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

Additional costs

Projected Projected Temporary or savings of

revenue needed revenue needed surcharge this proposed

in 2014 in 2015 rule

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

Area 1.................................. $2,417,285 $2,036,149 $101,807 ($279,329)

Area 2.................................. 1,585,032 1,338,302 66,915 (179,815)

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

Total, District One................. 4,002,318 3,374,451 168,723 (459,144)

=======================================================================

Area 4.................................. 1,223,262 1,216,674 121,667 115,080

Area 5.................................. 2,635,314 2,203,805 220,381 (211,128)

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

Total, District Two................. 3,858,576 3,420,480 342,048 (96,048)

=======================================================================

Area 6.................................. 1,969,800 1,852,580 18,526 (98,694)

Area 7.................................. 1,496,427 1,288,197 12,882 (195,348)

Area 8.................................. 1,442,677 1,358,677 13,587 (70,413)

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

Total, District Three............... 4,908,904 4,499,454 44,995 (364,455)

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

* Some values may not total due to rounding.

We reject this alternative, however, because a rate decrease would jeopardize the ability of the three pilotage associations to provide safe, efficient, and reliable pilotage service as well as violate the Memorandum of Arrangements, which calls for the United States's and Canada's pilotage rates to be comparable. See our discussion of Step 7 in Part VI of this preamble for further explanation.
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 impact on a substantial number of small entities. The term ``small entities'' comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000 people.

We expect that entities affected by the proposed rule would be classified under the North American Industry Classification System (NAICS) code subsector 483-Water Transportation, which includes the following 6-digit NAICS codes for freight transportation: 483111-Deep Sea Freight Transportation, 483113-Coastal and Great Lakes Freight Transportation, and 483211-Inland Water Freight Transportation. According to the Small Business Administration's definition, a U.S. company with these NAICS codes and employing less than 500 employees is considered a small entity.

For the proposed rule, we reviewed recent company size and ownership data for the period 2011 through 2013 in the Coast Guard's MISLE database, and we reviewed business revenue and size data provided by publicly available sources such as MANTA and Reference USA. We found that large, foreign-owned shipping conglomerates or their subsidiaries owned or operated all vessels engaged in foreign trade on the Great Lakes. We assume that new industry entrants would be comparable in ownership and size to these shippers.

There are three U.S. entities affected by 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

Page 52622

expect no adverse impact 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.

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.
Assistance for Small Entities

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we want to assist small entities in understanding this proposed rule so that they can better evaluate its effects on them and participate in the rulemaking. If the 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).
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 the OMB under OMB Control Number 1625-0086, Great Lakes Pilotage Methodology.
Federalism

A rule has implications for federalism under E.O. 13132, Federalism, if it has a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. We have analyzed this proposed rule under that order and have determined that it is consistent with the fundamental federalism principles and preemption requirements described in E.O. 13132. Our analysis is explained below.

Congress directed the Coast Guard to establish ``rates and charges for pilotage services.'' 46 U.S.C. 9303(f). This regulation is issued pursuant to that statute and is preemptive of state law as specified in 46 U.S.C. 9306. Under 46 U.S.C. 9306, a ``State or political subdivision of a State may not regulate or impose any requirement on pilotage on the Great Lakes.'' As a result, States or local governments are expressly prohibited from regulating within this category. Therefore, the rule is consistent with the principles of federalism and preemption requirements in E.O. 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, E.O. 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 E.O. 13132, please contact the person listed in the FOR FURTHER INFORMATION section of this preamble.
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 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 expenditure, we discuss the effects of this proposed rule elsewhere in this preamble.
Taking of Private Property

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

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

I. Protection of Children

We have analyzed this proposed rule under E.O. 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.
Indian Tribal Governments

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

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

L. Technical Standards

The National Technology Transfer and Advancement Act (15 U.S.C. 272, note) directs agencies to use voluntary consensus standards in their regulatory activities unless the agency provides Congress, through the OMB, with an explanation of why using these standards would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are

Page 52623

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.
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, 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 in 46 CFR Part 401

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

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

Title 46--Shipping

PART 401--GREAT LAKES PILOTAGE REGULATIONS

0

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

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

0

2. In Sec. 401.405, revise paragraphs (a) and (b), including the footnote to paragraph (a), to read as follows:

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

* * * * *

(a) Area 1 (Designated Waters):

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

Service St. Lawrence River

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

Basic Pilotage...................... $19.70 per kilometer or $34.87 per

mile.\1\

Each Lock Transited................. $437.\1\

Harbor Movage....................... $1,430.\1\

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

\1\ The minimum basic rate for assignment of a pilot in the St. Lawrence

River is $954, and the maximum basic rate for a through trip is

$4,186.

(b) Area 2 (Undesignated Waters):

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

Lake

Service Ontario

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

6-Hour Period.............................................. $894

Docking or Undocking....................................... 853

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

0

3. In Sec. 401.407, revise paragraphs (a) and (b), including the footnote to paragraph (b), to read as follows:

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

* * * * *

(a) Area 4 (Undesignated Waters):

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

Lake Erie

(East of

Service Southeast Buffalo

Shoal)

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

6-hour Period................................. $870 $870

Docking or Undocking.......................... 669 669

Any point on the Niagara River below the Black N/A 1,709

Rock Lock....................................

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

(b) Area 5 (Designated Waters):

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

Toledo or any

point on Lake Detroit Pilot

Any point on or in Southeast Shoal Erie west of Detroit River Boat St. Clair River

Southeast Shoal

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

Toledo or any port on Lake Erie west of Southeast Shoal....... 2,457 1,452 3,191 2,457 N/A

Port Huron Change Point....................................... \1\ 4,280 \1\ 4,958 3,215 2,502 1,778

St. Clair River............................................... \1\ 4,280 N/A 3,215 3,215 1,452

Detroit or Windsor or the Detroit River....................... 2,457 3,191 1,452 N/A 3,215

Detroit Pilot Boat............................................ 1,778 2,457 N/A N/A 3,215

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

\1\ When pilots are not changed at the Detroit Pilot Boat.

0

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

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

* * * * *

(a) Area 6 (Undesignated Waters):

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

Lakes Huron

Service and Michigan

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

6-hour Period........................................... $726

Docking or Undocking.................................... 689

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

(b) Area 7 (Designated Waters):

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

Area De Tour Gros Cap Any harbor

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

Gros Cap.................................................. $2,714 N/A N/A

Algoma Steel Corporation Wharf at Sault Ste. Marie, 2,714 $1,022 N/A

Ontario..................................................

Any point in Sault Ste. Marie, Ontario, except the Algoma 2,274 1,022 N/A

Steel Corporation Wharf..................................

Sault Ste. Marie, MI...................................... 2,274 1,022 N/A

Harbor Movage............................................. N/A N/A $1,022

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

Page 52624

(c) Area 8 (Undesignated Waters):

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

Service Lake Superior

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

6-hour Period........................................... $616

Docking or Undocking.................................... 585

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

Sec. 401.420 Amended

0

5. Amend Sec. 401.420 as follows:

0
1. In paragraph (a), remove the text ``$129'' and add, in its place, the text ``$132''; and remove the text ``$2,021'' and add, in its place, the text ``$2,072'';
  
  0
2. In paragraph (b), remove the text ``$129'' and add, in its place, the text ``$132''; and remove the text ``$2,021'' and add, in its place, the text ``$2,072''; and
  
  0
3. In paragraph (c)(1), remove the text ``$763'' and add, in its place, the text ``$782''; and in paragraph (c)(3), remove the text ``$129'' and add, in its place, the text ``$132''; and remove the text ``$2,021'' and add, in its place, the text ``$2,072''.
  
  Sec. 401.428 Amended
  
  0
  
  6. In Sec. 401.428, remove the text ``$763'' and add, in its place, the text ``$782''.
  
  Dated: August 28, 2014.
  
  Gary C. Rasicot,
  
  Director of Marine Transportation Systems, U.S. Coast Guard.
  
  FR Doc. 2014-21046 Filed 9-3-14; 8:45 am
  
  BILLING CODE 9110-04-P

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