# ![](media/image1.png){width="1.3875in" height="1.3875in"}

![](media/image2.png){width="3.033333333333333in"
height="0.9986111111111111in"}

**[Financial Responsibility for Water Pollution (Vessels) and OPA 90
Limits of Liability (Vessels and Deepwater Ports)]{.underline}**

**Regulatory Assessment**

**Final Rule**

Coast Guard Docket Number: USCG-2005-21780

RIN 1625-AA98

August 2008

Prepared by:

The National Pollution Funds Center

United States Coast Guard

4200 Wilson Blvd Suite 1000

Arlington, VA 22203-1804

# Executive Summary

This rule amends the vessel financial responsibility applicable amounts
of 33 CFR 138.80(f) to align them with the limits of liability required
by the Delaware River Protection Act of 2006 (33 U.S.C. 2704(a), as
amended). Also, this rule increases Certificate of Financial
Responsibility (COFR) application fees (33 CFR 138.130(c)) and COFR
certification fees (33 CFR 138.130(d)) for the first time since they
were established in 1994, and removes the requirement for original or
copies of COFRs to be carried onboard vessels.

The regulatory costs and benefits of this action were analyzed against
the regulatory baseline (no action alternative) to determine net
economic impacts.

This rule results in the following regulatory costs:

-   Regulatory Cost 1: An aggregate increase of COFR application and
    certification fees of approximately \$252,000 per year.

-   Regulatory Cost 2: An increase in the economic burden for
    establishing financial responsibility to the amended amounts for
    Responsible Parties (RPs) of vessels using commercial insurance and
    self insurance methods of financial guaranty. The ten-year
    (2007-2016) present value of this regulatory cost at a 3% discount
    rate is estimated to be between \$73.8 Million and \$83.4 Million.
    The ten-year (2007-2016) present value of this regulatory cost at a
    7% discount rate is estimated to be between \$63.3 Million and
    \$71.9 Million. The ranges reflect two vessel profiles that were
    developed and analyzed separately to account for the uncertainty,
    due to data gaps, of when existing single hulled tank vessels would
    be phased out.

The primary cost driver of this rule is the increased cost associated
with establishing financial responsibility for RPs of those vessels
using the commercial insurance method of financial guaranty. Depending
on the particular year and the discount rate used, annual costs range
from \$4.2 Million to \$10.3 Million per year. The ten-year (2007-2016)
present value of the total costs of this rule (Regulatory Cost 1 +
Regulatory Cost 2) at a 3% discount rate is estimated to be between \$76
Million and \$85.6 Million. The ten-year (2007-2016) present value of
the costs of this rule (Regulatory Cost 1 + Regulatory Cost 2) at a 7%
discount rate is estimated to be between \$65.2 Million and \$73.8
Million.

This rule results in two regulatory benefits which were analyzed
qualitatively:

-   Alignment of financial responsibility amounts with amended limits of
    liability for vessels.

-   Removal of the requirement to maintain the original or copies of
    COFRs onboard vessels.

This rule is not expected to significantly impact a substantial number
of small entities.

# Table of Contents

[*Executive Summary* i](#executive-summary)

[*Table of Contents* 1](#table-of-contents)

[*Index of Tables* 1](#index-of-tables)

[*Cost Benefit Analysis* 1](#cost-benefit-analysis)

[Introduction 1](#introduction)

[Regulatory Costs of the Rule 1](#regulatory-costs-of-the-rule)

[Regulatory Cost 1: Increased COFR Fees
1](#regulatory-cost-1-increased-cofr-fees)

[Regulatory Cost 2: Increased Cost of Establishing Financial
Responsibility
1](#regulatory-cost-2-increased-cost-of-establishing-financial-responsibility)

[Total Regulatory Costs (Regulatory Cost 1 + Regulatory Cost 2)
1](#total-regulatory-costs-regulatory-cost-1-regulatory-cost-2)

[Benefit Analysis 1](#benefit-analysis)

[Consistency between the Financial Responsibility Applicable Amounts and
the Limits of Liability
1](#consistency-between-the-financial-responsibility-applicable-amounts-and-the-limits-of-liability)

[Removal of the Requirement to Maintain the Original or Copies of COFRs
onboard Vessels
1](#removal-of-the-requirement-to-maintain-the-original-or-copies-of-cofrs-onboard-vessels)

[*Initial Regulatory Flexibility Analysis*
1](#final-regulatory-flexibility-analysis)

[Reasons Why the Action is Being Considered
1](#reasons-why-the-action-is-being-considered)

[Objectives and Legal Basis of the Rule
1](#objectives-and-legal-basis-of-the-rule)

[Federal Rules that may duplicate, overlap, conflict with the rule
1](#federal-rules-that-may-duplicate-overlap-conflict-with-the-rule)

[Description of any Significant Alternatives to the Rule
1](#description-of-any-significant-alternatives-to-the-rule)

[Description and Estimate of the Number of Small Entities Affected to
Which the Rule will Apply
1](#description-and-estimate-of-the-number-of-small-entities-affected-to-which-the-rule-will-apply)

[Description of the Projected Reporting, Recordkeeping, and Other
Compliance Requirements of the Rule, including an Estimate of the
Classes of Small Entities that will be Subject to the Requirement and
the Type of Professional Skills Necessary for Preparation of the Report
or Record
1](#description-of-the-projected-reporting-recordkeeping-and-other-compliance-requirements-of-the-rule-including-an-estimate-of-the-classes-of-small-entities-that-will-be-subject-to-the-requirement-and-the-type-of-professional-skills-necessary-for-preparation-of-the-report-or-record)

[*Appendix A: Tank Vessel Population using Insurance Method of Guaranty
by Hull Type 2007-2016 -- Vessel Profiles A and B.*
1](#appendix-a-tank-vessel-population-using-insurance-method-of-guaranty-by-hull-type-2007-2016-vessel-profiles-a-and-b.)

[*Appendix B: Tank Vessel Population using Self Insurance Method of
Guaranty by Hull Type 2007-2016 -- Vessel Profile A and B*
1](#appendix-b-tank-vessel-population-using-self-insurance-method-of-guaranty-by-hull-type-2007-2016-vessel-profile-a-and-b)

[*Appendix C: Example Calculation for Determining Annual Cost Associated
with Increased Insurance Premiums*
1](#appendix-c-example-calculation-for-determining-annual-cost-associated-with-increased-insurance-premiums)

[Appendix D: Example Calculation for Determining Annual Cost Associated
with the Migration of Self-Insurers to Commercial Insurance
1](#appendix-d-example-calculation-for-determining-annual-cost-associated-with-the-migration-of-self-insurers-to-commercial-insurance)

#  

# Index of Tables

# 

[Table 1. Vessel Limits of Liability Before and After Enactment of the
Delaware River Protection Act of 2006 1](#__RefHeading___Toc180307399)

[Table 2. Number of COFR Applications and COFR Certifications Received
by NPFC FY 2002-FY 2006 1](#__RefHeading___Toc180307400)

[Table 3. Average Insurance Premiums by Vessel Type
1](#__RefHeading___Toc180307401)

[Table 4. Increased Commercial Insurance Premiums for Vessel Profile A
1](#__RefHeading___Toc180307402)

[Table 5. Increased Commercial Insurance Premiums for Vessel Profile B
1](#__RefHeading___Toc180307403)

[Table 6. Cost of Migration to Commercial Insurance Market for Vessel
Profile A 1](#__RefHeading___Toc180307404)

[Table 7. Cost of Migration to Commercial Insurance Market for Vessel
Profile B 1](#__RefHeading___Toc180307405)

[Table 8. 10-Year Present Value at 3% and 7% Discount Rates (Vessel
Profile A) 1](#__RefHeading___Toc180307406)

[Table 9. 10-Year Present Value at 3% and 7% Discount Rates (Vessel
Profile B) 1](#__RefHeading___Toc180307407)

[Table 10. 10-Year Present Value at 3% and 7% Discount Rates
1](#_Ref205868469)

[Table 11. 10-Year Present Value at 3% and 7% Discount Rates
1](#_Ref179783084)

[Table 12. Number and Percentage of Small Entities by NAICS Code
(Extrapolated to All Small Entities) 1](#__RefHeading___Toc180307410)

[Table 13. Economic Impact on Small Entities (Small Entities with Known
Annual Sales Only) 1](#__RefHeading___Toc180307411)

[Table 14. Economic Impact on Small Entities (Extrapolated to all Small
Entities) 1](#__RefHeading___Toc180307412)

#  

# Cost Benefit Analysis

## 

## Introduction

The Oil Pollution Act of 1990 (OPA 90) requires, in 33 U.S.C. 2716(a),
that responsible parties (RPs) of vessels applicable under 33 U.S.C.
2716(a)(1) and (2) must establish and maintain, in accordance with
regulations, evidence of financial responsibility sufficient to meet
their maximum amount of liability under 33 U.S.C. 2704(a) or (d).

On July 11, 2006, the Delaware River Protection Act of 2006 (Pub. L.
109-241) amended the limits of liability for vessels under 33 U.S.C.
2704(a). The new limits were effective for non-tank vessels on July 11,
2006 and for tank vessels on October 9, 2006. Table 1 shows the original
and amended limits of liability by vessel type:

[]{#__RefHeading___Toc180307399 .anchor}Table 1. Vessel Limits of
Liability Before and After Enactment of the\
Delaware River Protection Act of 2006

![](media/image3.wmf){width="5.868055555555555in"
height="4.251388888888889in"}

As a result of the enactment of the Delaware River Protection Act of
2006, the required financial applicable amounts under 33 CFR
138.80(f)(1) are no longer consistent with the limits of liability for
vessels under 33 U.S.C. 2704(a). The rule requires RPs to provide
evidence of financial responsibility to the same amounts as the amended
limits of liability. This consistency is necessary to ensure the RP's
ability to prove that they can meet their maximum potential liability in
the event of an incident.

In addition, the rule increases COFR application fees (33 CFR
138.130(c)) from \$150 to \$200 and COFR certification fees (33 CFR
138.130(d)) from \$80 to \$100. These fees have not been amended since
1994.

Lastly, the rule removes all requirements in 33 CFR 138 that originals
or copies of COFRs be maintained onboard the vessel. Technology now
allows the Coast Guard to access COFR documents electronically while
conducting their enforcement activities.

On February 5, 2008, a notice of proposed rulemaking (NPRM) was
published (73 FR 6642) which included a supplemental Preliminary
Regulatory Assessment of the costs and benefits of the proposed rule.
The comment period ended on May 5, 2008. No comments were received on
the Preliminary Regulatory Assessment. Prior to developing the Final
Regulatory Assessment, we confirmed that the data contained in the
Preliminary Regulatory Assessment had not changed.

## Regulatory Costs of the Rule

The costs of this regulatory action were analyzed against the regulatory
baseline (no action alternative) to determine net impacts. There are two
costs identified for this rule. This rule increases the cost of COFR
fees to levels that approximate a Consumer Price Index[^1] adjustment
from the time the fees in were established in 1994 to the present and
increases the cost of establishing financial responsibility for RPs of
vessels.

### [Regulatory Cost 1: Increased COFR Fees]{.underline}

The rule increases the COFR application fee (33 CFR 138.130(c)) from
\$150 to \$200 and the COFR certification fee from \$80 to \$100 (33 CFR
138.130(d)). Table 2 shows the number of COFR application fees [^2] and
COFR certification fees[^3] received by the National Pollution Funds
Center (NPFC) from Fiscal Year (FY) 2002-FY 2006. To forecast the
expected number of future COFR applications and certifications, we
calculated the average number of applications and certifications
received by NPFC from FY 2002 to FY 2006 and applied it to future
years[^4]. During this 5-year period, NPFC received approximately 7,900
COFR application fees and 43,100 COFR certification fees. As shown in
Table 2, the average annual number of application fees and certification
fees are 1,600 and 8,600 respectively.

[]{#__RefHeading___Toc180307400 .anchor}Table 2. Number of COFR
Applications and COFR Certifications\
Received by NPFC FY 2002-FY 2006

![](media/image4.wmf){width="6.4944444444444445in"
height="0.7243055555555555in"}

The expected annual cost associated with the increases of COFR
application and COFR certification fees is calculated as follows:

\[Expected Annual Number of Applications x New Application Fee +
Expected Annual Number of Certifications x New Certification Fee\] --
\[Expected Annual Number of Applications x Current Application Fee +
Expected Annual Number of Certifications x Current Certification Fee\] =
Expected Annual Cost of Increased COFR Fees

\[1,600 Applications/ Year x \$200/ Application + 8,600 Certifications/
Year x \$100/ Certification\] -- \[1,600 Applications/ Year x \$150/
Application + 8,600 Certifications/ Year x \$80/ Certification\] =
\$252,000/ Year

### [Regulatory Cost 2: Increased Cost of Establishing Financial Responsibility]{.underline} 

The rule results in the increased cost of establishing financial
responsibility for RPs of vessels using commercial insurance and self
insurance methods of financial guaranty. This impact occurs in two ways:

-   RPs using commercial insurance would incur higher premiums; and

-   Self-insurers without the working capital and net worth required for
    the new financial responsibility applicable amounts would need to
    migrate a portion of their vessels to the commercial insurance
    market.

*[Affected Population of Regulatory Cost 2]{.underline}*

This regulatory cost affects vessels that require Certificates of
Financial Responsibility (COFRs) under 33 CFR 138.12 using commercial
insurance or self-insurance as their method of guaranty. As of September
22, 2006, the NPFC's COFR database contained 20,446 vessels with active
COFRs[^5]. Of these vessels, there were 16,982 using commercial
insurance and 823 using self insurance as their methods of guaranty[^6].

To account for future OPA 90 non-double hull tank vessel phase-out
requirements, these vessels were cross referenced with the Coast Guard's
Marine Information for Safety and Law Enforcement (MISLE) database to
determine their hull type (double hull "DH", double bottom or double
sides only "DB/DS", or single hull "SH") and build year. Vessels were
sorted by COFR guaranty type (Commercial Insurance or Self-Insurance)
and then again by hull type and gross tonnage.

Data received from MISLE had significant data gaps with respect to the
hull type and in several cases the build year for the vessels in the
data set, two factors critical to determining when a double sided,
double bottomed, or single hulled tank vessel would be phased out of the
vessel population. To address this issue, two possible non-double hull
phase out scenarios were developed for use in this analysis[^7]. These
two phase-out scenarios are depicted in Appendix A for those vessels
using the commercial insurance method of guaranty and Appendix B for
those vessels using the self insurance method of guaranty.

*[Increases to Commercial Insurance Premiums for RPs of
Vessels]{.underline}*

The calculation of commercial insurance premium rates are dependent on
many constantly changing factors: market forces, interest rates and
investment opportunities for the premium income, the terms and
conditions of the policy, and finally underwriting criteria such as
vessel age, loss history, construction, classification details, and
management history. Based on input received from commercial insurers,
this rule impacts the costs that commercial insurers pay for reinsurance
coverage. Two aspects of reinsurance would be affected: the increase in
limits for those vessels having liability limits within the layers
currently purchased, and secondly, the increased limit necessary above
\$400 Million to complete coverage to those clients that have Ultra
Large Crude Carriers. Both facets would incur additional costs to the
program as a result of the increases in the amounts of financial
responsibility and therefore an increase in premiums would likely
result. Feedback received from several commercial insurance companies
indicates that premium increases would occur if the amounts of financial
responsibility are increased to the levels in this rule. Table 3 shows
the current average premiums, the expected increases, and the average
expected premiums[^8].

[]{#__RefHeading___Toc180307401 .anchor}Table 3. Average Insurance
Premiums by Vessel Type

![](media/image5.wmf){width="4.777777777777778in"
height="2.767361111111111in"}

Costs associated with increased commercial insurance premiums were
determined for Vessel Profile A and Vessel Profile B. Costs were
determined by multiplying the number of vessels of a particular vessel
type for a given year (Appendix A) by the Expected Average Increase in
Premium for that particular vessel type (Table 3)[^9]. See example
calculation in Appendix C which calculates the aggregate cost for 2007
for Vessel Profile A.

Table 4 shows the estimated annual costs by vessel type for vessel
profile A.

[]{#__RefHeading___Toc180307402 .anchor}Table 4. Increased Commercial
Insurance Premiums for Vessel Profile A

![](media/image6.wmf){width="6.489583333333333in"
height="1.5805555555555555in"}

Table 5 shows the estimated annual costs by vessel type for vessel
profile B.

[]{#__RefHeading___Toc180307403 .anchor}Table 5. Increased Commercial
Insurance Premiums for Vessel Profile B

##  {#section-5 .Table-Title}

![](media/image7.wmf){width="6.489583333333333in"
height="1.5805555555555555in"}

*[Migration of COFR Holders currently using the Self Insurance Method of
Guaranty to the Commercial Insurance Market]{.underline}*

RPs using the self insurance method of guaranty use their business
assets as evidence that they are capable of paying for clean up and
damages up to their established limit of liability. In this case, self
insuring RPs have made a corporate decision that the cost of assuming
the OPA 90 liability risk is less than the premium charged by commercial
insurance. This cost of assuming OPA 90 risk is company specific and not
quantifiable. However, it can be assumed that the cost to the self
insurer of self insurance must be less than the cost of commercial
insurance or else all RPs would opt for commercial insurance. Vessels
that do not have the requisite company assets to meet the new limits of
liability would have to migrate to the commercial insurance market to
provide their guaranty at an additional cost to them.

Costs associated with the migration to commercial insurance were
determined for Vessel Profile A and Vessel Profile B. Costs were
determined by first multiplying the number of vessels of a particular
vessel type for a given year (Appendix A) by the percent of impacted
vessels[^10] and then multiplying the product by the Expected Average
Premium for that particular vessel type (Table 3).[^11] See example
calculation in Appendix D which calculates the aggregate cost for 2007
for Vessel Profile A.

Table 6 shows the estimated annual costs by vessel type for Vessel
Profile A.

[]{#__RefHeading___Toc180307404 .anchor}Table 6. Cost of Migration to
Commercial Insurance Market for Vessel Profile A

##  {#section-6 .Table-Title}

![](media/image8.wmf){width="6.4944444444444445in"
height="1.5881944444444445in"}

Table 7 shows the estimated annual costs by vessel type for Vessel
Profile B.

[]{#__RefHeading___Toc180307405 .anchor}Table 7. Cost of Migration to
Commercial Insurance Market for Vessel Profile B

##  {#section-7 .Table-Title}

![](media/image9.wmf){width="6.4944444444444445in"
height="1.5881944444444445in"}

*[Present Value of Regulatory Cost 2]{.underline}*

Table 8 and Table 9 show the present value cost of Vessel Profile A and
B respectively using both a 3% and a 7% discount rate[^12].

[]{#__RefHeading___Toc180307406 .anchor}Table 8. 10-Year Present Value
at 3% and 7% Discount Rates (Vessel Profile A)

##  {#section-8 .Table-Title}

![](media/image10.wmf){width="5.458333333333333in"
height="2.417361111111111in"}

[]{#__RefHeading___Toc180307407 .anchor}Table 9. 10-Year Present Value
at 3% and 7% Discount Rates (Vessel Profile B)

##  {#section-9 .Table-Title}

![](media/image11.wmf){width="5.458333333333333in"
height="2.417361111111111in"}

###  

### [Total Regulatory Costs (Regulatory Cost 1 + Regulatory Cost 2)]{.underline}

Table 10 and Table 11 show the present value total cost of Regulatory
Cost 1 + Regulatory Cost 2 (Vessel Profile A) and Regulatory Cost 1 +
Regulatory Cost 2 (Vessel Profile B) respectively using both a 3% and a
7% discount rate.

[]{#_Ref205868469 .anchor}**Table 10. 10-Year Present Value at 3% and 7%
Discount Rates**

**\[Regulatory Cost 1 + Regulatory Cost 2 (Vessel Profile A)\]**

![](media/image12.wmf){width="5.2625in" height="2.417361111111111in"}

[]{#_Ref179783084 .anchor}**Table 11.** **10-Year Present Value at 3%
and 7% Discount Rates**

**\[Regulatory Cost 1 + Regulatory Cost 2 (Vessel Profile B)\]**

## 

![](media/image13.wmf){width="5.458333333333333in"
height="2.417361111111111in"}

## Benefit Analysis

The benefits of this rule were analyzed qualitatively. There are two
identified benefits to this rule:

-   Consistency between the financial responsibility applicable amounts
    and the limits of liability; and

-   Removal of the requirement to maintain the original or copies of
    COFRs onboard vessels.

### [Consistency between the Financial Responsibility Applicable Amounts and the Limits of Liability]{.underline}

This rule aligns the financial responsibility applicable amounts in 33
CFR 138.80(f) with the amended limits of liability. Until the two are in
alignment, RPs would be required to provide evidence of financial
responsibility to the Coast Guard for a lower dollar amount than their
statutory limit of liability. As a result, the uncertainty of whether an
RP could meet their limit of liability would create risk of RP funds not
being available if there was a spill that amassed expenses in excess of
the financial responsibility amounts. There has been an increase in
incidents occurring over the past years where the amounts of required by
the current regulations are exceeded. If the RP was unable or unwilling
to pay, the Oil Spill Liability Trust Fund (OSLTF) would be burdened
with these expenses and the Coast Guard would have the additional burden
of recovering from the RP through time consuming and costly litigation.

### [Removal of the Requirement to Maintain the Original or Copies of COFRs onboard Vessels]{.underline}

Due to technological advances that have occurred in recent years, the
Coast Guard has eliminated the carriage requirement of COFRs onboard
vessels. The Coast Guard now can access an RP's evidence of financial
responsibility electronically. Vessel RPs no longer would be required to
replace lost or destroyed documents. This would reduce mailing costs
(postage and/or the cost of couriers) associated with original and
replacement COFRs. Also, because electronic records can be more easily
updated, we anticipate that there would be greater accuracy of the
vessel\'s COFR which would eliminate the need for time consuming and
costly corrections.

# Final Regulatory Flexibility Analysis

Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we have
considered whether this rule would have a significant economic impact on
a substantial number of small entities. The term "small entities"
comprises small businesses, not-for-profit organizations that are
independently owned and operated and not dominant in their fields, and
governmental jurisdictions with populations of less than 50,000.

This rule amends vessel financial responsibility applicable amounts to
levels consistent with amended changes to vessel limits of liability
under the Delaware River Protection Act of 2006. Also, this rule
increases COFR fees to levels that approximate a Consumer Price
Index[^13] adjustment from the time the fees were established in 1994 to
the present, and removes the carriage requirements for COFRs onboard
vessels.

The NPRM for this rulemaking published on February 5, 2008 (73 FR 6642)
included an Initial Regulatory Flexibility Analysis (IRFA) which
quantified the economic impacts to small entities of the proposed rule.
The comment period ended on May 5, 2008. No comments were received on
either the IRFA or with respect to any aspects of the NPRM that might
concern small entities. Prior to developing the Final Regulatory
Flexibility Analysis (FRFA) analysis, we confirmed that the data
contained in the IRFA had not changed.

## [Reasons Why the Action is Being Considered]{.underline} 

33 U.S.C. 2716(a) of OPA 90 and 42 U.S.C. 9608(a) of CERCLA require that
responsible parties of certain vessels establish and maintain evidence
of financial responsibility (i.e., ability to pay) sufficient to meet
the maximum amount of liability to which they could be subjected under
33 U.S.C. 2704 and 42 U.S.C. 9607. OPA 90 limits of liability for
vessels were amended by the Delaware River Protection Act of 2006.
Therefore, this rulemaking is required to ensure that the financial
applicable amounts in 33 CFR 138.80(f) are adjusted to equal the amended
limits. We are also adjusting COFR fees to approximate changes in the
Consumer Price Index and removing the carriage requirements for COFRs
onboard vessels.

## [Objectives and Legal Basis of the Rule]{.underline}

The objectives of the rule are to align the financial responsibility
applicable amounts in 33 CFR 138.80(f) to the amended limits of
liability of 33 U.S.C. 2704, increase COFR fees, and reduce the burden
on vessel RPs by removing requirements to carry hard copy COFRs onboard
vessels.

The Coast Guard has authority to amend 33 CFR 138 under the authority
of: 33 U.S.C. 2716, 2716a; 42 U.S.C. 9608, 9609; sec. 7(b), E.O. 12580,
3 CFR, 1987 Comp., p. 198; E.O. 12777, 3 CFR, 1991 Comp., p. 351; E.O.
13286, Sec. 89 (68 FR 10619, Feb. 28, 2003); Section 1512 of the
Homeland Security Act of 2002 (Pub. L. 107-296); Department of Homeland
Security Delegation Nos. 0170.1 and 5110. Section 138.30 also issued
under the authority of 46 U.S.C. 2103, 46 U.S.C. 14302.

## [Federal Rules that may Duplicate, Overlap, Conflict with the Rule]{.underline}

The Coast Guard is unaware of any duplicative, overlapping, or
conflicting Federal rules. As noted below, the Coast Guard seeks
comments, and information about any such rules, as well as any other
state or local rules.

## [Description of any Significant Alternatives to the Rule]{.underline}

COFR fee amounts in 33 CFR 138.130 were established in 1994 and have not
been adjusted since. A fee increase has been determined to be needed and
must occur by regulation. We evaluated various alternative levels of fee
increases and decided that an increase that approximates the changes
that have occurred in the Consumer Price Index since the time that the
fee amounts were established was most appropriate. An increase of this
nature removes the effects of inflation from the fee amounts and keeps
the real value of the fees the same as when they were developed.
According to this analysis, the estimated impact of the fee increases to
small entities would be \$12/vessel/year.

We originally considered requiring that RPs provide the Coast Guard with
documentation of their evidence of financial responsibility to reflect
the limits of liability established by the Delaware River Protection Act
of 2006 within 30 days after the effective date of the final rule. Due
to concern that small entities would not be able to comply, we decided
to extend the deadline for this requirement an additional 60 days to
allow ample time for entities of all sizes to comply with minimal
impact. Ninety days is expected to be reasonable for both the RP to
develop and submit the paperwork and still allow the Coast Guard the
necessary time to process this information. This requirement is simply a
one-time collection of information (of the same nature that RPs
currently provide the Coast Guard) that certifies to the Coast Guard
that they have the ability to pay for removal costs and damages
resulting from a spill up to the limits found in 33 U.S.C. 2704.

Also, rather than keeping the status quo with respect to requirements
for hard copy COFRs, the Coast Guard removes these requirements. Due to
technological advances that have occurred in recent years, the Coast
Guard has eliminated the carriage requirement of COFRs onboard vessels.
The Coast Guard now can access an RP's evidence of financial
responsibility electronically. Vessel RPs no longer would be required to
replace lost or destroyed documents. This would reduce mailing costs
(postage and/or the cost of couriers) associated with original and
replacement COFRs. Also, because electronic records can be more easily
updated, we anticipate that there would be greater accuracy of the
vessel\'s COFR, which would eliminate the need for time consuming and
costly corrections.

## [Description and Estimate of the Number of Small Entities Affected to Which the Rule will Apply]{.underline}

In this analysis, we researched vessel RP size and revenue data using
public and proprietary business databases. We then determined which
entities were small based on the U.S. Small Business Administration's
(SBA's) "Table of Small Business Standards Matched to North American
Industry Classification System (NAICS) Codes" publication.[^14]^,^[^15]
The criteria for determining whether an entity is small vary by NAICS
code and generally involve number of employees or annual sales.

We queried NPFC's Certificate of Financial Responsibility (COFR)
database to determine that there are 884 U.S. entities which operate
vessels with COFRs. Of these 884 entities, we found annual sales data on
467. Of these 467 entities, 317 were small and 150 were not small based
on SBA's criteria. For the purposes of this analysis, we assumed that
the remaining 417 entities have the same characteristics with respect to
number of employees, annual sales and NAICS code classification as the
known 467. As a result, when we extrapolated these characteristics to
the entire population, 600 would be small and 284 would not be small
(see Extrapolation Calculations below).

[Extrapolation Calculations]{.underline}

Number of Expected Small Entities = Number of All Entities multiplied by
the Percent of Small Entities in Known Population

884 entities x 67.88% Small Entities in Known Population = 600 Expected
Small Entities

> Number of Expected Non-small Entities = Number of All Entities
> multiplied by the Percent of Non-small Entities in Known Population.
>
> 884 Entities x 32.12% Non-small Entities in Known Population = 284
> Expected Non-small Entities

There are 82 distinct NAICS codes (32 of which contain 5 or more
entities) in the known population of 317 small entities. We assumed that
the remaining 283 small entities (600 total extrapolated small entities
minus 317 known small entities) have the same characteristics with
respect to NAICS classification as the known small entities. Table 12
shows the number and percentage of the types of small entities by NAICS
code that we expect would be affected by this rule[^16].

[]{#__RefHeading___Toc180307410 .anchor}Table 12. Number and Percentage
of Small Entities\
by NAICS Code (Extrapolated to All Small Entities)

##  {#section-12 .Table-Title}

## ![](media/image14.wmf){width="6.0881944444444445in" height="5.946527777777778in"} {#section-13 .Table-Title}

## [Description of the Projected Reporting, Recordkeeping, and Other Compliance Requirements of the Rule, including an Estimate of the Classes of Small Entities that will be Subject to the Requirement and the Type of Professional Skills Necessary for Preparation of the Report or Record]{.underline}

With respect to the Paperwork Collection Act of 1995, there is a
one-time reporting requirement associated with this rule. Within 90 days
after this rule is effective, the RP must submit information to NPFC
providing evidence of financial responsibility to the amended limits of
liability. It is estimated that this would require an average of one
hour of time to complete. No professional skills are necessary to
complete reporting requirements of the rule. This rule slightly reduces
the existing recordkeeping requirements; RPs would no longer be required
to carry original COFRs onboard their vessels.

There are three potential economic impacts to small entities that would
result from this rule:

-   Increased insurance premiums for small entities using commercial
    insurance as their guaranty method.

-   Self-insurers would migrate to commercial insurance for some of
    their vessels incurring additional cost if their assets are not
    large enough to cover the increases in financial responsibility.

-   Increased COFR application and COFR certification fees.

[Increased Insurance Premiums]{.underline}

We based the estimate of the economic impact to small entities
associated with increasing insurance premiums on the results of the
analysis conducted in the rule's regulatory evaluation document.
Specifically, this small entity analysis uses the costs of Vessel
Profile A and B as determined for the 2007 analysis year[^17] to arrive
at an average per vessel cost. The cost of Vessel Profile A for 2007 is
estimated at \$9.57 million. The cost of Vessel Profile B for 2007 is
estimated at \$8.21 million. The number of vessels using commercial
insurance in the total COFRed vessel population is 16,982[^18]. The
following calculation shows how the average annual per vessel cost was
determined.

> Average Annual per Vessel Economic Impact of Increased Commercial
> Insurance Premiums = \[(Cost of Vessel Profile A + Vessel Profile
> B)/2\]/Number of Vessels using Commercial Insurance

\[(\$9.57M + \$8.21M)/2\]/16,982 Vessels = \$523/ Vessel

[Increased Cost to Self-insurers]{.underline}

In the case of self-insurers having to migrate to commercial insurance
as the guaranty method for some of their vessels, the annual economic
impact was based on the average commercial insurance premium estimated
at \$7,200/vessel[^19]. We assumed as a worst case scenario,
self-insurers would migrate 10 percent of their vessels to commercial
insurance[^20]. The following calculation shows the economic impact to a
notional small entity with 12 vessels using self insurance.

> Average Annual Economic Impact to a Small Entity of Migration to
> Commercial Insurance = (Number of Vessels Operated by Small Entity x
> Percent of Vessels Impacted) x Average Insurance Premium per Vessel

(12 vessels x 0.10) x \$7,200/ Vessel = \$8,640.

[Increased COFR Application Fees and COFR Certification
Fees]{.underline}

This rule raises COFR application fees from \$150 to \$200 and COFR
certification fees from \$80 to \$100. NPFC estimates that 1,600
applications and 8,600 certifications would occur annually[^21]. The
number of vessels with COFRs is 20,446[^22]. The following calculation
shows how the average annual per vessel economic impact associated with
these fee increases was determined.

> Average Annual per Vessel Economic Impact of Increased COFR Fees =
> \[(Average Number of COFR Applications) x (Increased Cost of COFR
> Applications) + (Average Number of COFR Certifications) x (Increased
> Cost of COFR Certifications)\] / Number of Vessels with COFRs
>
> \[(1,600 COFR Applications x \$50) + (8,600 COFR Certifications x
> \$20)\] / 20,446 Vessels = \$12/ Vessel

[Significant Economic Impact Criteria]{.underline}

For each of the 317 small entities with known annual sales, the annual
economic impacts were estimated as follows:

-   To quantify the impact of increased commercial insurance premiums,
    the number of vessels operated by the small entity was multiplied by
    the average annual per vessel cost (\$523).

-   To quantify the impact of self-insurers migrating some of their
    vessels to commercial insurance, the number of vessels operated by
    the small entity was multiplied by 10% to determine the number of
    impacted vessels. The number of impacted vessels was then multiplied
    by the average annual per vessel cost (\$7,200).

-   To quantify the impact of increased COFR fees, the number of vessels
    operated by the small entity was multiplied by the average annual
    per vessel cost (\$12).

These costs, as applicable, were summed for each small entity and then
divided by the small entity's annual sales to determine the percent
impact of this rule on their annual sales. These entities were then
sorted by the percent impact on annual sales and summarized in Table 13.

[]{#__RefHeading___Toc180307411 .anchor}Table 13. Economic Impact on
Small Entities\
(Small Entities with Known Annual Sales Only)

![](media/image15.wmf){width="2.6868055555555554in" height="1.5625in"}

For the purposes of this analysis, we assumed that the remaining 283
small entities have the same characteristics with respect to number
vessels they operate, number of employees, annual sales and NAICS
classification as the known 317. Table 12 shows the economic impacts as
extrapolated to the 600 small entities (see Extrapolation Calculations
below).

[Extrapolation Calculations]{.underline}

> Number of Small Entities with 0-1 Percent Impact on Annual Sales =
> Total Number of Small Entities Multiplied by the Percent of Small
> Entities with Known Annual Sales with 0-1 Percent Impact on Annual
> Sales
>
> 600 Small Entities x 0.92 = 552 Small Entities with 0-1 Percent Impact
> on Annual Sales
>
> Number of Small Entities with 1-3 Percent Impact on Annual Sales =
> Total Number of Small Entities Multiplied by the Percent of Small
> Entities with Known Annual Sales with 1-3 Percent Impact on Annual
> Sales
>
> 600 Small Entities x 0.06 = 36 Small Entities with 1-3 Percent Impact
> on Annual Sales
>
> Number of Small Entities with 3-5 Percent Impact on Annual Sales =
> Total Number of Small Entities Multiplied by the Percent of Small
> Entities with Known Annual Sales with 3-5 Percent Impact on Annual
> Sales
>
> 600 Small Entities x 0.01 = 6 Small Entities with 3-5 Percent Impact
> on Annual Sales
>
> Number of Small Entities with 5-10 Percent Impact on Annual Sales =
> Total Number of Small Entities Multiplied by the Percent of Small
> Entities with Known Annual Sales with 5-10 Percent Impact on Annual
> Sales
>
> 600 Small Entities x 0.01 = 6 Small Entities with 5-10 Percent Impact
> on Annual Sales

[]{#__RefHeading___Toc180307412 .anchor}Table 14. Economic Impact on
Small Entities\
(Extrapolated to all Small Entities)

##  {#section-14 .Table-Title}

## ![](media/image16.wmf){width="2.6840277777777777in" height="1.5583333333333333in"} {#section-15 .Table-Title}

##   {#section-16 .Table-Title}

[Conclusions]{.underline}

As shown in Table 14 above, 92 percent of small entities (552 of 600)
would experience an annual economic impact that is less than 1 percent
of their annual sales. Furthermore, 98 percent of small entities (588 of
600) would experience an annual economic impact less than 3 percent of
their annual sales. The results of our analysis also show that 2 percent
(12 of 600) of small entities would experience an annual economic impact
that is equal to or greater than 3% of their annual sales and that none
would experience an annual economic impact greater than 10 percent of
their annual sales. Based on this analysis, we believe that
implementation of this rule would not have a significant economic impact
on a substantial number of small entities under 5 U.S.C. 605(b).
Therefore, the Coast Guard certifies under 5 U.S.C. 605(b) that this
final rule will not have a significant economic impact on a substantial
number of small entities.

# Appendix A: Tank Vessel Population using Insurance Method of Guaranty by Hull Type 2007-2016 -- Vessel Profiles A and B.

**Vessel Profile A: Delayed Phase-out of Non-Double Hull Tank Vessels**

![](media/image17.wmf){width="6.499305555555556in" height="3.4125in"}

**Vessel Profile B: Expedited Phase-out of Non Double Hull Tank
Vessels**

![](media/image18.wmf){width="6.499305555555556in" height="3.4125in"}

# Appendix B: Tank Vessel Population using Self Insurance Method of Guaranty by Hull Type 2007-2016 -- Vessel Profile A and B 

**Vessel Profile A: Delayed Phase-out of Non Double Hull Tank Vessels**

![](media/image19.wmf){width="6.493055555555555in" height="2.775in"}

**Vessel Profile B: Expedited Phase-out of Non Double Hull Tank
Vessels**

![](media/image20.wmf){width="6.493055555555555in" height="2.775in"}

# Appendix C: Example Calculation for Determining Annual Cost Associated with Increased Insurance Premiums

Example calculation: cost of increased commercial insurance premiums
under Vessel Profile A for 2007:

\[(Tank Vessel with Double Bottom/Double Side 0-3,000 gt + Tank Vessel
with Single Hull 0-3,000 gt) x Expected Average Increase in Premium\] +
\[(Tank Vessel with Double Bottom/Double Side 3,001-4,999 gt + Tank
Vessel with Single Hull 3,001-4,999 gt + Tank Vessel with Double
Bottom/Double Side 5,000-14,999 gt + Tank Vessel with Single Hull
5,000-14,999 gt + Tank Vessel with Double Bottom/Double Side
15,000-29,999 gt + Tank Vessel with Single Hull 15,000-29,999 gt + Tank
Vessel with Double Bottom/Double Side \> or = 30,000 gt + Tank Vessel
with Single Hull \> or = 30,000 gt) x Expected Average Increase in
Premium\] + \[(Tank Vessel with Double Hull 0-3,000 gt) x Expected
Average Increase in Premium\] + \[(Tank Vessel with Double Hull
3,001-4,999 gt + Tank Vessel with Double Hull 5,000-14,999 gt + Tank
Vessel with Double Hull 5,000-14,999 gt + Tank Vessel with Double Hull
5,000-14,999 gt + Tank Vessel with Double Hull 15,000-29,999 gt + Tank
Vessel with Double Hull \> or = 30,000 gt) x Expected Average Increase
in Premium\] + \[Non-tank Vessel x Expected Average Increase in
Premium\]

\[(1,099+5) x \$1,800\] + \[(84+2+235+10+418+46+572+7) x \$1,600\] +
\[(931) x \$700\] + \[(44+236+535+828) x \$700\] + \[(11,930) x \$300\]
=

\$1,987,200 + \$2,198,400 + \$651,700 + \$1,150,100 + \$3,579,000 =

\$9,566,400

# Appendix D: Example Calculation for Determining Annual Cost Associated with the Migration of Self-Insurers to Commercial Insurance

Example calculation: cost of migrating to commercial insurance under
Vessel Profile A for 2007:

\[(Tank Vessel with Double Bottom/Double Side 0-3,000 gt + Tank Vessel
with Single Hull 0-3,000 gt) x 10% x Expected Average Premium\] +
\[(Tank Vessel with Double Bottom/Double Side 3,001-4,999 gt + Tank
Vessel with Single Hull 3,001-4,999 gt + Tank Vessel with Double
Bottom/Double Side 5,000-14,999 gt + Tank Vessel with Single Hull
5,000-14,999 gt + Tank Vessel with Double Bottom/Double Side
15,000-29,999 gt + Tank Vessel with Single Hull 15,000-29,999 gt + Tank
Vessel with Double Bottom/Double Side \> or = 30,000 gt + Tank Vessel
with Single Hull \> or = 30,000 gt) x 10% x Expected Average Premium\] +
\[(Tank Vessel with Double Hull 0-3,000 gt) x 10% x Expected Average
Premium\] + \[(Tank Vessel with Double Hull 3,001-4,999 gt + Tank Vessel
with Double Hull 5,000-14,999 gt + Tank Vessel with Double Hull
5,000-14,999 gt + Tank Vessel with Double Hull 5,000-14,999 gt + Tank
Vessel with Double Hull 15,000-29,999 gt + Tank Vessel with Double Hull
\> or = 30,000 gt) x 10% x Expected Average Premium\] + \[Non-tank
Vessel x 10% x Expected Average Premium\]

\[(188 + 0) x 10% x \$8,300\] + \[(25+1+11+0+0+0+2+2) x 10% x
\$9,900\] + \[(160) x 10% x \$7,200\] + \[(2+25+1+4) x 10% x \$8,000\] +
\[(402) x 10% x \$2,600)\] =

\$156,040 + \$40,590 + \$115,200 + \$25,600 + \$104,520 =

\$441,950.

[^1]: The Consumer Price Index is a measure of the average change over
    time in the prices paid by urban consumers for a market basket of
    goods and services. The Department of Labor's Bureau of Labor
    Statistics uses fluctuations in the Consumer Price Index as a means
    to quantify inflation over time.

[^2]: The number of COFR application fees was calculated by dividing the
    total revenue received for COFR applications by NPFC in a fiscal
    year by the cost per application. For example, to calculate the
    number of COFR application fees for FY 2002: \$213,150 divided by
    \$150 per application = 1,421 applications. All values in Table 2
    were rounded to the nearest hundred.

[^3]: The number of COFR certification fees was likewise calculated by
    dividing the total revenue received for COFR applications by NPFC in
    a fiscal year by the cost per certification. For example, to
    calculate the number of COFR certification fees for FY 2002:
    \$655,770 divided by \$80 per application = 8,197 certifications.
    All values in Table 2 were rounded to the nearest hundred.

[^4]: We assumed that the number of application fees and certification
    fees received for the next ten years would be equal to the average
    number received during the FY 2002-FY 2006 time period.

[^5]: We assumed that the number of vessels and their distribution with
    respect to vessel type, hull type, gross tonnage, and build year
    would remain constant.

[^6]: The remaining 2,641 vessels use either financial guaranty or
    surety bond as their method of guaranty. These vessels are not
    affected by this rule.

[^7]: Vessel Profile A represents the distribution of existing tank
    vessels where those with undetermined hull types were given the
    viable hull type which allowed for the most delayed phase-out of non
    double hulls possible (For example, if the vessel could be "single
    hulled" or "double bottomed", the vessel was given a "double
    bottomed" designation). Vessel Profile B represents the distribution
    of existing tank vessels where those with undetermined hull types
    were given the viable hull type which allowed for the most expedited
    phase-out of non double hulls possible (for example, if the vessel
    could be "double hulled" or "double sided", the vessel was given a
    "double hulled" designation). In all cases where the build year was
    necessary to determine the tank vessel phase in date but not
    available, the most delayed viable phase-out date was used.

[^8]: Average current premiums and expected average increases were
    determined by data received from multiple commercial insurers.

[^9]: Note: Table 4 combines the Single Hull (SH) with the Double Bottom
    Only or Double Side Only (DB/DS) Tank Vessel categories from
    Appendix A into "Non-double Hull" Tank Vessel categories consistent
    with the vessel categories used in the Delaware River Protection

    Act of 2006 as they pertain to the amended vessel limits of
    liability.

[^10]: Based on NPFC financial records for RPs using self insurance as
    their method of guaranty, we assume that ten percent of vessels fall
    into this category.

[^11]: Note: Table 5 combines the Single Hull (SH) with the Double
    Bottom Only or Double Side Only (DB/DS) Tank Vessel categories from
    Appendix B into "Non-double Hull" Tank Vessel categories consistent
    with the vessel categories used in the Delaware River Protection

    Act of 2006 as they pertain to the amended vessel limits of
    liability.

[^12]: OMB Circular A-4 recommends using both a 3% and a 7% discount
    rate for analyzing the economic impacts of regulations.

[^13]: The Consumer Price Index is a measure of the average change over
    time in the prices paid by urban consumers for a market basket of
    goods and services. The Department of Labor's Bureau of Labor
    Statistics uses fluctuations in the Consumer Price Index as a means
    to quantify inflation over time.

[^14]: Version effective 31 July 2006.

[^15]: The SBA provides business size standards for all sectors of the
    North American Industry Classification System.

[^16]: Note: NAICS codes with less than 5 entities have been combined as
    "Other" in Table 10.

[^17]: The highest cost year as determined in the regulatory evaluation

[^18]: Source: NPFC COFR database.

[^19]: Values of premiums provided by multiple insurance carriers were
    averaged by vessel type (e.g., Non-tank Vessels, Non-double Hulled
    Tank Vessel \< or = 3,000 Gross Tons, etc.), then these values were
    averaged to arrive at a generic vessel premium.

[^20]: Assumption based on financial records provided to NPFC by
    self-insurers and NPFC's Vessel Certification Division subject
    matter expert input.

[^21]: Forecasted application and certification impacts based on 5-year
    historical averages of application and certification fees received
    by NPFC from Fiscal Year 2002 -- Fiscal Year 2006.

[^22]: Source: NPFC COFR database.