Document ID: USCG-2013-0534-0016
Agency: uscg
Document Type: Rule
Title: FR:  Great Lakes Pilotage Rates: 2014 Annual Review and Adjustment (Federal Register Publication)
Posted Date: 2014-03-04T05:00Z

[Federal Register Volume 79, Number 42 (Tuesday, March 4, 2014)]
[Rules and Regulations]
[Pages 12084-12108]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-04591]

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DEPARTMENT OF HOMELAND SECURITY

Coast Guard

46 CFR Part 401

[USCG-2013-0534]
RIN 1625-AC07

Great Lakes Pilotage Rates--2014 Annual Review and Adjustment

AGENCY: Coast Guard, DHS.

ACTION: Final rule.

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SUMMARY: The Coast Guard is adjusting Great Lakes pilotage rates that 
were last amended in February 2013. The adjustments establish new base 
rates, and are made in accordance with a full ratemaking procedure. The 
Coast Guard is exercising its discretion to establish new base rates to 
more closely align with recent Canadian rate increases. The final rule 
also adjusts weighting factors used to determine rates for vessels of 
different size, adopts a new procedure for temporary surcharges, 
applies a temporary surcharge for one pilotage association, and allows 
pilotage associations to recoup the cost of dues paid to the American 
Pilots Association. This rulemaking promotes the Coast Guard's maritime 
safety mission.

DATES: Effective August 1, 2014 except for Sec. Sec.  401.400 and 
401.401 which are effective April 3, 2014.

ADDRESSES: Comments and material received from the public, as well as 
documents mentioned in this preamble as being available in the docket, 
are part of docket USCG-2013-0534 and are available for inspection or 
copying at the Docket Management Facility (M-30), U.S. Department of 
Transportation, West Building Ground Floor, Room W12-140, 1200 New 
Jersey Avenue SE., Washington, DC 20590, between 9 a.m. and 5 p.m., 
Monday through Friday, except Federal holidays. You may also find this 
docket online by going to http://www.regulations.gov and following the 
instructions on that Web site.

FOR FURTHER INFORMATION CONTACT: If you have questions on this rule, 
call or email Mr. Todd Haviland, Coast Guard; telephone 202-372-2037, 
email Todd.A.Haviland@uscg.mil. If you have questions on viewing 
material to the

[[Page 12085]]

docket, call Ms. Barbara Hairston, Program Manager, Docket Operations, 
telephone 202-366-9826.

SUPPLEMENTARY INFORMATION:

Table of Contents for Preamble

I. Abbreviations
II. Regulatory History
III. Basis and Purpose
IV. Background
V. Discussion of Comments and Changes
    A. AMOU Contracts
    B. APA Dues
    C. Pilot License Insurance
    D. Weighting Factors
    E. Surcharges
    F. Director Discretion
    G. Number of Pilots
    H. Ratemaking Methodology
    I. Economic Analysis
    J. District One Dock
VI. Discussion of Rulemaking
VII. Regulatory Analyses
    A. Regulatory Planning and Review
    B. Small Entities
    C. Assistance for Small Entities
    D. Collection of Information
    E. Federalism
    F. Unfunded Mandates Reform Act
    G. Taking of Private Property
    H. Civil Justice Reform
    I. Protection of Children
    J. Indian Tribal Governments
    K. Energy Effects
    L. Technical Standards
    M. Environment

I. Abbreviations

AMOU American Maritime Officers Union
APA American Pilots Association
CFR Code of Federal Regulations
CPA Certified Public Accountant
CPI Consumer price index
DHS Department of Homeland Security
E.O. Executive Order
FR Federal Register
GLPA Great Lakes Pilotage Authority (Canada)
GLPAC Great Lakes Pilotage Advisory Committee
MISLE Marine Information for Safety and Law Enforcement
NAICS North American Industry Classification System
NPRM Notice of proposed rulemaking
OMB Office of Management and Budget
ROI Return on investment
U.S.C. United States Code

II. Regulatory History

    On August 8, 2013, we published a notice of proposed rulemaking 
(NPRM) titled ``Great Lakes Pilotage Rates--2014 Annual Review and 
Adjustment'' in the Federal Register (78 FR 48374). We received 11 
submissions on the NPRM from multiple sources, including pilotage 
associations, pilots, pilot organizations, and shippers. No public 
meeting was requested and none was held.

III. Basis and Purpose

    The basis of this rulemaking 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 of the department in which the Coast Guard 
is operating to ``prescribe by regulation rates and charges for 
pilotage services, giving consideration to the public interest and the 
costs of providing the services.'' 46 U.S.C. 9303(f). Rates must be 
established, or reviewed and adjusted, each year not later than March 
1. Base rates must be established by a full ratemaking at least once 
every 5 years, and in years when base rates are not established, they 
must be reviewed and, if necessary, adjusted. 46 U.S.C. 9303(f). The 
Secretary of the Department of Homeland Security's (DHS's) duties and 
authority under the Act have been delegated to the Coast Guard. DHS 
Delegation No. 0170.1, paragraph (92)(f). Coast Guard regulations 
implementing the Act appear in parts 401 through 404 of 46 CFR. 
Procedures for 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 rulemaking 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 rulemaking 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 (``the Director'') to operate a pilotage pool. It 
is important to note that, while we set rates, the Coast Guard does not 
control the actual number of pilots an association maintains. We ensure 
the association is able to provide safe, efficient, and reliable 
pilotage service. The Coast Guard also does not control the actual 
compensation that pilots receive. Each district association determines 
the actual compensation of its district, and each association uses 
different compensation practices.
    District One, consisting of Areas 1 and 2, includes all U.S. waters 
of the St. Lawrence River and Lake Ontario. District Two, consisting of 
Areas 4 and 5, includes all U.S. waters of Lake Erie, the Detroit 
River, Lake St. Clair, and the St. Clair River. District Three, 
consisting of Areas 6, 7, and 8, includes all U.S. waters of the St. 
Mary's River, Sault Ste. Marie Locks, and Lakes Michigan, Huron, and 
Superior. Area 3 is the Welland Canal, which is serviced exclusively by 
the Canadian Great Lakes Pilotage Authority (GLPA), and accordingly is 
not included in the U.S. 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).
    The last full ratemaking established the current base rates in 2013 
(78 FR 13521, Feb. 28, 2013), using the ratemaking methodology 
described in 46 CFR part 404, Appendix A. Among other things, the 
Appendix A methodology requires us to review detailed pilotage 
association financial information, and we contract with independent 
accountants to assist in that review.
    We opened this year's ratemaking with an NPRM (78 FR 48374, Aug. 8, 
2013) that reflected financial data for the 2011 shipping season, and 
that the proposed new base rates be calculated in accordance with the 
Appendix A methodology.

V. Discussion of Comments and Changes

    We received 11 public submissions in response to our NPRM. Eight of 
those submissions came from pilotage associations, pilots, and pilot 
organizations; two came from groups that represent shippers who use 
Great Lakes pilotage service; and one came from the union whose 
contracts provide benchmark data for Great Lakes pilotage ratemaking.

[[Page 12086]]

A. AMOU Contracts

    Seven commenters--six pilots or pilot representatives, and the 
American Maritime Officers Union (AMOU)--addressed our use of AMOU 
contracts to estimate the average annual compensation for masters and 
first mates on U.S. Great Lakes vessels, in accordance with Step 2.A of 
our Appendix A ratemaking methodology.
    Many of these commenters took issue with the NPRM's statement, 78 
FR 48374 at 48376, col. 2, that recent AMOU contracts are marked by 
``downward changes,'' and pointed out that AMOU contracts actually 
increase wages over a 5-year period. Our discussion is not a reflection 
on AMOU contract trends, but rather emphasizes that AMOU contract 
information, when factored into our Appendix A ratemaking methodology, 
could lead to a pilotage rate decrease, if not offset by the 
application of discretion under Step 7 of Appendix A.
    The six pilot/pilot representative commenters said we had 
incorrectly interpreted or misapplied AMOU contract data. A registered 
lobbyist representing all three pilotage associations said we should 
have used the daily aggregate rate information included in an AMOU 
letter dated November 2, 2012, and further claimed that we based our 
calculations on ``wrong multipliers.''
    We reject each of these assertions and confirm the accuracy of the 
figures given in our NPRM. The assertion of the registered lobbyist 
that we should have used data from the November 2, 2012 AMOU letter is 
unfounded. Prior to publication of the NPRM, the AMOU provided and 
confirmed contract data to us on four separate occasions in 2012: On 
November 2, November 15, December 5, and December 17. The first 
communication on November 2 (the letter referenced by the registered 
lobbyist) provided information on wages and benefits but was marked 
``proprietary,'' and therefore has not been and cannot be shared by the 
Coast Guard with the public. Because Coast Guard could not share the 
component data, Coast Guard and AMOU agreed that AMOU would provide 
daily aggregate data. The November 15 and December 5 letters provided 
information on 2013, 2014 and 2015 daily aggregate (wage and benefit) 
rates for Agreement A and Agreement B, respectively. The letters 
indicated that the daily aggregate rates would increase by 3% each 
year. On December 17, 2012, we emailed a table of the aggregate rate 
data that we planned to use in the NPRM, and in response, the AMOU 
promptly emailed: ``This table and only this table is acceptable to 
AMO[U].'' That table's data, with 3% added in accordance with AMOU's 
correspondence, is what we presented in Table 11 of our NPRM, 78 FR at 
48382. Multipliers are only used if we can site individual components 
of compensation in our calculations. Because our calculations were 
based only on the aggregate data shown in the table, they are not 
affected by ``wrong multipliers.''
    In its October 4, 2013 comment on the NPRM, the AMOU offered 
``correct'' daily aggregate rates that differ significantly from the 
figures in the table the AMOU confirmed as ``acceptable'' on December 
17, 2012. The AMOU comment reflects a ``season bonus'' that the AMOU 
has not previously cited as part of its contracts, and that we do not 
recognize for purposes of Great Lakes pilotage compensation. 46 CFR 
404.5(a). As a disinterested third party to our ratemakings, the AMOU 
is under no obligation to share contract information with us. The AMOU 
has not provided a copy of the contracts nor agreed to allow us to 
review them. This compromises our ability to use that data in a 
transparent way and prohibits us from evaluating the individual 
components for compensation. We are investigating alternatives to using 
AMOU contract data for our ratemaking purposes.

B. APA Dues

    Four commenters addressed our proposed inclusion in the ratemaking 
calculations of dues for pilotage association membership in the 
American Pilots Association (APA). Three pilot representatives favored 
inclusion. One shipping industry commenter said that APA membership is 
voluntary, and therefore should not be included. We consider the APA to 
play a key role in ensuring our mutual goals of safe, efficient, and 
reliable pilotage on the Great Lakes. The APA has assisted the three 
pilotage associations with professional development and training plans, 
and we believe the APA is a critical resource for the pilotage 
associations in spreading best practices throughout the pilotage 
profession. Therefore, we continue to find that APA dues are a 
necessary and reasonable expense of the pilotage associations. One 
pilotage association said we had incorrectly calculated its APA dues. 
The St. Lawrence Seaway Pilots' Association contends that APA dues paid 
by the organization were actually $27,730. We disagree. Much of the 
amount asserted by the association is for lobbying expenses that are 
not eligible to be included in the rate. However, a review of the 
financial statements approved by the pilotage association shows dues 
paid to the APA in the amount of $22,720. Accordingly we updated the 
necessary tables to include this amount, an addition to the expense 
base of $4,360. However, because of our Step 7 discretion, this change 
to the underlying data does not impact the final rate.

C. Pilot License Insurance

    One pilotage association commented that we failed to include the 
amount that the association paid for pilot license insurance in our 
calculations. This is incorrect. The association requested a change in 
reporting that moved license insurance from an operating expense to an 
employee benefit. The association again approved the change when they 
were given the opportunity to comment on the reports prepared by the 
auditors. Benefits are considered part of compensation, and are not 
allowed to be included separately in the rate. However, because we have 
historically included license insurance as an allowable expense, and 
because both of the other pilotage associations include license 
insurance as an allowable expense, we will allow inclusion of the 2011 
license insurance cost ($52,232) in the expense base of the 
association. Again, because of our exercise of Step 7 discretion in 
this rulemaking, this change to the expense base does not alter the 
final rate.

D. Weighting Factors

    Five commenters addressed our proposal to match U.S. weighting 
factors to those used by Canada. All were in favor of this proposal, 
but one pilotage association said we overestimated the beneficial 
impact, for pilots, of adjusting weighting factors (see the NPRM, 78 FR 
48376). One pilot commented that it is unfair of us not to apply a 
retroactive rate adjustment recognizing the 6 years during which the 
U.S. weighting factors differed from those used by Canada. We think the 
association based its lower estimate on its local data, not on data for 
the Great Lakes as a whole. We stand by our estimate of the beneficial 
impact of the adjustment.

E. Surcharges

    Two pilot representatives and two representatives of shippers 
commented on our proposal to allow establishment of temporary 
surcharges. The pilot representatives supported the proposal. One of 
the shipper representatives said our proposal was too vague and that 
surcharges could have a damaging economic impact, and the other said it

[[Page 12087]]

is unnecessary because the Director of Great Lakes Pilotage already has 
sufficient authority to make discretionary rate adjustments. We think 
the proposal is sufficiently clear, and this final rule adopts it. 
Whether any given surcharge will have a damaging economic impact can be 
the subject of public comment, an opportunity for which will be given 
each time we propose a surcharge. While it is true that the Director 
has substantial authority to make discretionary rate adjustments, we 
believe that the surcharge mechanism is preferable because it provides 
more regulatory transparency.

F. Director Discretion

    Our regulations found in 46 CFR 404.10(a) give the Director of 
Great Lakes Pilotage discretionary authority to determine what ``other 
circumstances'' beyond those listed in the Appendix A ratemaking 
methodology might need to be factored into ratemaking calculations. Two 
shipper representatives and one pilot representative commented on the 
Director's exercise of this discretionary authority. The pilot 
representative commented the latitude of the Director's discretion to 
modify rates as calculated by the Appendix A methodology is 
``troubling.'' One of the shipper representatives commented that the 
apparent need for the Director to exercise this discretion indicates 
there is something ``definitely wrong'' with the methodology given that 
the calculated rates and the rates that were actually implemented are 
drastically different. We agree with both commenters. Our concerns 
about possible flaws in the Appendix A methodology led us to commission 
the comprehensive study of that methodology, which a contractor 
recently completed for the Coast Guard. The recommendations from that 
study will be addressed in a future rulemaking.
    Separately, another shipper representative commented that the 
Director's proposed discretionary adjustment of rate calculations to 
increase rates would have a ``damaging economic impact.'' We disagree. 
Pilotage charges in U.S. waters of the Great Lakes remain below the 
charges (including temporary surcharges) that apply in Canadian waters. 
We know of no evidence that U.S. pilotage rates are driving traffic 
away from the Great Lakes. We plan to exercise the Director's authority 
in future rulemakings until the methodology is updated. We will use the 
surcharges to accelerate certain expenses as previously discussed. 
Until we are able to obtain an audit of the revenues by an independent 
third party, we will rely upon inflation and the consumer price index 
(CPI) for the Midwest to guide our ratemaking adjustments. If the 
revenue audit reveals a significant revenue gap between the projected 
revenues and the actual revenues recovered by the rate, we will work 
with the stakeholders through the Great Lakes Pilotage Advisory 
Committee (GLPAC) and exercise our discretion to address the gap.

G. Ratemaking Methodology

    Four pilot representatives and one shipper representative commented 
on our ratemaking methodology. Three pilot representatives commented 
that we should use a multi-year inflation factor to compensate for the 
time value of money between the time the audits are conducted and the 
rate is established (for the 2014 NPRM, we proposed to use 2011 data 
that was audited in 2012). Under Step 1.C of the Appendix A ratemaking 
methodology, the ratemaking adjustment for inflation or deflation is a 
one-year adjustment between the reported year (2011) and the 
``succeeding navigation season'' (2012). We are therefore unable to 
make a multi-year adjustment under the current methodology; however, we 
acknowledge the pilots' concern and will consider altering the 
inflation/deflation adjustment mechanism in a future rulemaking.
    A pilot and a pilot representative reiterated the pilots' long-held 
contention (see the 2013 final rule, 78 FR 13522) that our over-
projection of shipping traffic results in an over-projection of 
pilotage revenue. One of these commenters said that the Coast Guard 
should ensure that pilots reach target compensation. We agree that 
traffic projection is an issue that needs to be addressed in a future 
rulemaking to revise the Appendix A methodology, but we disagree that 
the Coast Guard should ensure that pilots reach target compensation. 
The Coast Guard never sets actual compensation; instead, actual 
compensation is handled differently by the three private pilotage 
associations. Due to the inherent risk in operating a private business, 
we cannot guarantee compensation for any of the associations.
    A pilot commented that, under the 1977 Memorandum of Agreement 
between the United States and Canada, U.S. pilotage rates must be 
identical to Canadian rates. He said that while our proposed 2.5 
percent rate increase matches the latest Canadian increase, the two 
rate structures are not identical. While it is true that the 1977 
agreement does require ``identical'' rates, in practice the two 
pilotage systems are so differently structured that it has not been 
possible to set identical rates since the early 1980s. A new memorandum 
has been signed and will replace the 1977 agreement. It calls for 
``comparable'' rates. We believe that, after accounting for the 
structural differences in U.S. and Canadian Great Lakes pilotage 
systems, the two rate structures are comparable.
    The same commenter reiterated the pilots' long-held contention (see 
the 2010 final rule, 75 FR 7959, Feb. 23, 2010) that we incorrectly 
calculate the application of benefits to the AMOU contracts in setting 
rates for designated waters, and that we should instead multiply both 
the average first mate wages and benefits by 150 percent to approximate 
a master's compensation. Our position continues to be that, under Step 
2.A of the Appendix A methodology, the 150 percent is applied only to 
wages; benefits are then added to the result. As previously mentioned, 
we are evaluating if there are alternatives to using AMOU contract data 
for our ratemaking purposes.
    Finally, the same commenter contends that we should allow a higher 
return on investment (ROI) than the average rate for Moody's AAA high 
grade corporate securities, given the degree of risk that pilots run. 
We have correctly calculated the ROI, in accordance with Step 5 of the 
Appendix A methodology, which requires us to tie ROI to the ``preceding 
year's average rate of return for new issues of high grade corporate 
securities.'' We may revise our ROI calculations as part of a 
comprehensive revision of Appendix A.
    The shipper representative suggested that our NPRM's Appendix A 
calculations, resulting in a pre-discretion-adjusted 11 percent rate 
decrease, may demonstrate that U.S. Great Lakes pilots are at least 
adequately compensated, and perhaps overcompensated by regional 
standards. We disagree. As we discussed at length in the NPRM (78 FR 
48389), the pre-adjustment calculations are due to changes in benchmark 
AMOU contracts rather than to any changes in Great Lakes pilotage as 
such, and we think it would be contrary to the public interest to 
decrease pilotage rates as a result of this year's calculations. 
Additionally, incorporating these compensation changes would result in 
a target pilot compensation significantly lower than Canadian Great 
Lakes-registered pilots. We believe this is also contrary to the public 
interest. We intend to address this inequity in target pilot 
compensation in a future rulemaking. We believe the proper benchmark 
for target pilot compensation of U.S. Great

[[Page 12088]]

Lakes registered pilots should be comparable to the compensation of 
Canadian Great Lakes registered pilots.

H. Economic Analysis

    A pilot commented that footnote 5 to our NPRM (78 FR 48391) 
``defies common sense.'' The footnote states that despite increasing 
pilotage rates, ``we estimate a net cost savings across all three 
districts as a result of an expected decrease in the demand for 
pilotage services from the previous year.'' Although we agree with the 
commenter that the reduction in payments accrued by shippers in 
Districts Two and Three are not a result of the Coast Guard's proposed 
rate changes to pilotage services, but instead are the result of 
changes in market conditions, the economic impact to industry presented 
in the NPRM remains unchanged because these market conditions were 
factored into our analysis; the aggregate reduction in payments by 
shippers across all three districts is not expected to jeopardize the 
ability of the three pilotage associations to provide safe, efficient, 
and reliable pilotage services.

I. Number of Pilots

    The District Two pilotage association requested immediate 
authorization for an additional pilot in light of the impending 
retirement of current pilots in that district. We agree that the 
district should plan for these expected retirements, but we do not 
think that requires the immediate authorization of an additional 
billet. However, the unforeseen potential medical disability of another 
pilot in the district compounds the difficulty of resourcing new pilots 
to replace those retiring. Because investing in the training, 
recruitment and resourcing of pilots is necessary to promote safe, 
efficient and reliable pilotage, we will, in accordance with our new 
surcharge authority, consider proposing, for public comment, a 
surcharge for District Two to cover the cost of training and resourcing 
a new pilot in our 2015 ratemaking NPRM.

J. District One Dock

    The District One pilotage association said that our rates have not 
enabled them to recover approximately $21,345 spent on a dock project, 
because their actual revenue fell short of our projections. We agree 
that $21,345 is a substantial shortfall relating to a capital 
expenditure made in the interest of safety. We have not validated the 
existence and/or magnitude of the alleged gap between projected and 
actual revenues, because the methodology does not consider actual 
revenues to set rates. Therefore, we believe any discussion related to 
closing a gap between projected and actual revenues should be addressed 
by the GLPAC.\3\ We defer action on this request until we hear from the 
advisory committee regarding this specific request at the next GLPAC 
meeting in 2014. We will then address this in the next annual 
ratemaking NPRM for the 2015 shipping season.
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    \3\ Per 46 U.S.C. 9307(d)(1), as delegated to the Coast Guard, 
we are to, ``whenever practicable, consult with the [GLPAC] before 
taking any significant action relating to Great Lakes pilotage.''
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VI. Discussion of Rulemaking

A. Summary

    As required by 46 U.S.C. 9303(f), we are establishing new base 
pilotage rates by the March 1, 2014 statutory deadline. The rates are 
established in accordance with the Appendix A methodology and will take 
effect on August 1, 2014. The rates reflect our determination that 85 
percent of the dues paid by the pilotage associations to the APA is 
recognizable expenses under 46 CFR 404.5 (the remaining 15 percent 
represents lobbying expenses, which are not recognizable expenses). Our 
arithmetical calculations under Steps 1 through 6 of Appendix A would 
result in an average 10.28 percent rate decrease. This rate decrease is 
not the result of increased efficiencies in providing pilotage 
services, but rather is a result of recent changes in benchmark AMOU 
contracts. Therefore, we are exercising our discretion under Appendix 
A, Step 7 to more closely align with the recent Canadian rate 
adjustment, and therefore rates in Districts One, Two and Three will 
increase by 2.5 percent.
    On April 3, 2014, we are adjusting the U.S. weighting factors in 46 
CFR 401.400 to match the weighting factors adopted by Canada in 2008, 
as recommended unanimously by the GLPAC in Resolution 13-01 in February 
2013. Weighting factors are multipliers based on the size of a ship and 
are used in determining actual charges for pilotage service. Matching 
the Canadian weighting factors provides greater parity between the U.S. 
and Canada, and should reduce billing confusion between the two 
countries. These are important Federal Government concerns, as 
emphasized by recent Executive Order (E.O.) 13609, ``Promoting 
International Regulatory Cooperation'' (77 FR 26413, May 4, 2012). In 
our NPRM, we proposed making this change effective on March 1, 2014, 
but for reasons of administrative convenience we have now determined 
that the change should take effect after the usual 30-day waiting 
period provided by the Administrative Procedure Act (5 U.S.C. 553(d)).
    Also, effective April 3, 2014, we are adding new 46 CFR 401.401, 
allowing authorization of temporary surcharges in the interest of safe, 
efficient, and reliable pilotage. The Director of Great Lakes Pilotage 
authorizes the District One pilotage association to charge a 3 percent 
surcharge during the 2014 shipping season, effective April 3, 2014, to 
recoup expenses that the association incurred for training ($48,995).
    All figures in the tables that follow in Section B ``Discussion of 
Methodology'' are based on calculations performed either by an 
independent accountant or by the Director's staff. In both cases, those 
calculations were performed using common commercial computer programs. 
Decimalization and rounding of the audited and calculated data affects 
the display in these tables, but does not affect the calculations. The 
calculations are based on the actual figure that rounds values for 
presentation in the tables.

B. 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 applied 
them to the 2011 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 pilotage association to provide us with detailed 
financial information in accordance with 46 CFR part 403. The 
associations complied with this requirement, supplying 2011 financial 
information in 2012. 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 to submit findings recommending which reported 
expenses should be recognized. The accountant also reviewed which 
reported expenses should be adjusted prior to recognition

[[Page 12089]]

or disallowed for ratemaking purposes. The accountant's preliminary 
findings were sent to the pilotage associations; they reviewed and 
commented on those findings, and the accountant then finalized them. 
The Director reviewed and accepted the final findings, resulting in the 
determination of recognizable expenses. Tables 1 through 3 show each 
association's recognized expenses.

                                   Table 1--Recognized Expenses, District One
----------------------------------------------------------------------------------------------------------------
                                                                 Area 1            Area 2
                                                           ------------------------------------
                Reported expenses for 2011                    St. Lawrence                            Total
                                                                  River         Lake Ontario
----------------------------------------------------------------------------------------------------------------
Operating Expenses:
Other Pilotage Costs:
    Pilot subsistence/Travel..............................          $234,724          $156,246          $390,970
    License insurance.....................................            26,976            25,256            52,232
    Payroll taxes.........................................            61,483            47,611           109,094
    Other.................................................               837               588             1,425
                                                           -----------------------------------------------------
        Total Other Pilotage Costs........................           324,020           229,701           553,721
Pilot Boat and Dispatch Costs:
    Pilot boat expense....................................           111,772            76,904           188,676
    Dispatch expense......................................                 0                 0                 0
    Payroll taxes.........................................             8,611             5,925            14,536
                                                           -----------------------------------------------------
        Total Pilot and Dispatch Costs....................           120,383            82,829           203,212
Administrative Expenses:
    Legal.................................................            10,592             6,922            17,514
    Insurance.............................................            23,780            16,492            40,272
    Employee benefits.....................................            21,282            14,645            35,927
    Payroll taxes.........................................             5,032             3,463             8,495
    Other taxes...........................................             5,042             3,470             8,512
    Travel................................................               756               520             1,276
    Depreciation/Auto leasing/Other.......................            38,252            26,319            64,571
    Interest..............................................            18,484            12,718            31,202
    Dues and subscriptions................................            11,360            11,360            22,720
    Utilities.............................................             4,314             2,941             7,255
    Salaries..............................................            50,718            34,897            85,615
    Accounting/Professional fees..........................             5,752             3,428             9,180
    Pilot Training........................................             4,200             2,277             6,477
    Other.................................................             9,959             6,880            16,839
                                                           -----------------------------------------------------
        Total Administrative Expenses.....................           209,523           146,332           355,855
                                                           -----------------------------------------------------
        Total Operating Expenses..........................           653,926           458,862         1,112,788
Adjustments proposed by the Coast Guard's independent
 certified public accountant (CPA):
Operating Expenses:
Other Pilot Costs:
    Pilotage subsistence/Travel...........................           (2,492)           (1,714)           (4,206)
    Payroll taxes.........................................            12,883             8,864            21,747
                                                           -----------------------------------------------------
        Total Other Pilotage Costs........................            10,391             7,150            17,541
                                                           -----------------------------------------------------
        TOTAL CPA ADJUSTMENTS.............................            10,391             7,150            17,541
                                                           -----------------------------------------------------
        Total Operating Expenses..........................           664,317           466,012         1,130,329
----------------------------------------------------------------------------------------------------------------

                                   Table 2--Recognized Expenses, District Two
----------------------------------------------------------------------------------------------------------------
                                                                 Area 4            Area 5
                                                           ------------------------------------
                Reported expenses for 2011                                     Southeast Shoal        Total
                                                                Lake Erie      to Port Huron,
                                                                                     MI
----------------------------------------------------------------------------------------------------------------
Operating Expenses:
Other Pilotage Costs:
    Pilot subsistence/Travel..............................           $79,250          $118,874          $198,124
    License insurance.....................................             6,168             9,252            15,420
    Payroll taxes.........................................            36,676            55,013            91,689
    Other.................................................            23,560            35,341            58,901
                                                           -----------------------------------------------------
        Total Other Pilotage Costs........................           145,654           218,480           364,134
Pilot Boat and Dispatch Costs:
    Pilot boat expense....................................           104,955           157,432           262,387
    Dispatch expense......................................             6,060             9,090            15,150

[[Page 12090]]

 
    Employee Benefits.....................................            40,419            60,628           101,047
    Payroll taxes.........................................             7,135            10,703            17,838
                                                           -----------------------------------------------------
        Total Pilot and Dispatch Costs....................           158,569           237,853           396,422
Administrative Expenses:
    Legal.................................................            37,520            56,281            93,801
    Office rent...........................................            26,275            39,413            65,688
    Insurance.............................................            10,672            16,009            26,681
    Employee benefits.....................................            16,365            24,548            40,913
    Payroll taxes.........................................             4,446             6,668            11,114
    Other taxes...........................................            14,273            21,409            35,682
    Depreciation/Auto leasing/Other.......................            15,604            23,407            39,011
    Interest..............................................             2,772             4,159             6,931
    Dues and subscriptions................................             7,069            10,603            17,672
    Utilities.............................................            15,410            23,115            38,525
    Salaries..............................................            39,874            59,810            99,684
    Accounting/Professional fees..........................            12,110            18,164            30,274
    Pilot Training........................................                 0                 0                 0
    Other.................................................             8,860            13,291            22,151
                                                           -----------------------------------------------------
        Total Administrative Expenses.....................           211,250           316,877           528,127
                                                           -----------------------------------------------------
        Total Operating Expenses..........................           515,473           773,210         1,288,683
Adjustments proposed by the Coast Guard's independent
 certified public accountant (CPA):
Operating Expenses:
Other Pilotage Costs:
    Pilot subsistence/Travel..............................           (2,598)           (3,896)           (6,494)
    Other.................................................             (566)             (850)           (1,416)
                                                           -----------------------------------------------------
        Total Other Pilotage Costs........................           (3,164)           (4,746)           (7,910)
Pilot Boat and Dispatch Costs:
    Employee benefits.....................................             (100)             (150)             (249)
                                                           -----------------------------------------------------
        Total Pilot Boat and Dispatch Costs...............             (100)             (150)             (249)
Administrative Expenses:
    Employee benefits.....................................              (25)              (38)              (63)
                                                           -----------------------------------------------------
        Total Administrative Expenses.....................              (25)              (38)              (63)
                                                           -----------------------------------------------------
        TOTAL CPA ADJUSTMENTS.............................           (3,289)           (4,933)           (8,222)
                                                           -----------------------------------------------------
        Total Operating Expenses..........................           512,184           768,277         1,280,461
----------------------------------------------------------------------------------------------------------------

                                  Table 3--Recognized Expenses, District Three
----------------------------------------------------------------------------------------------------------------
                                               Area 6            Area 7            Area 8
                                         ------------------------------------------------------
       Reported expenses for 2011          Lakes Huron and                                            Total
                                              Michigan      St. Mary's River    Lake Superior
----------------------------------------------------------------------------------------------------------------
Operating Expenses:
Other Pilotage Costs:
    Pilot subsistence/Travel............          $196,529           $72,789           $94,625          $363,943
    License insurance...................            10,157             3,762             4,891            18,810
    Payroll taxes.......................            63,803            23,631            30,720           118,153
    Other...............................             2,184               809             1,052             4,045
                                         -----------------------------------------------------------------------
        Total Other Pilotage Costs......           272,673           100,991           131,288           504,951
Pilot Boat and Dispatch Costs:
    Pilot boat expense..................           243,077            90,028           117,037           450,142
    Dispatch expense....................            87,059            32,244            41,917           161,221
    Payroll taxes.......................             9,607             3,558             4,626            17,791
                                         -----------------------------------------------------------------------
        Total Pilot Boat and Dispatch              339,743           125,830           163,580           629,154
         Costs..........................
Administrative Expenses:
    Legal...............................            12,188             4,495             5,844            22,477
    Office rent.........................             5,346             1,980             2,574             9,900
    Insurance...........................             7,451             2,760             3,587            13,798

[[Page 12091]]

 
    Employee benefits...................            73,230            27,122            35,259           135,611
    Payroll taxes.......................             6,154             2,279             2,963            11,396
    Other taxes.........................            19,339             7,163             9,311            35,813
    Depreciation/Auto leasing...........            34,341            12,719            16,534            63,594
    Interest............................             2,682               993             1,291             4,966
    Dues and subscriptions..............            11,016             5,508             7,344            23,868
    Utilities...........................            19,723             7,305             9,496            36,524
    Salaries............................            55,772            20,656            26,853           103,281
    Accounting/Professional fees........            13,419             4,970             6,461            24,850
    Pilot Training......................               516               191               248               955
    Other...............................             5,394             1,998             2,597             9,989
                                         -----------------------------------------------------------------------
    Total Administrative Expenses.......           266,521           100,139           130,362           497,022
                                         -----------------------------------------------------------------------
    Total Operating Expenses............           878,937           326,960           425,230         1,631,127
Adjustments proposed by the Coast
 Guard's independent certified public
 accountant (CPA):
Operating Expenses:
Other Pilotage Costs:
    Payroll taxes.......................            22,446             8,313            10,807            41,566
                                         -----------------------------------------------------------------------
    Total Other Pilotage Costs..........            22,446             8,313            10,807            41,566
Administrative Expenses:
    Other Taxes.........................           (1,613)             (598)             (777)           (2,988)
    Depreciation/Auto leasing...........           (7,707)           (2,854)           (3,711)          (14,272)
    Other...............................             (610)             (226)             (294)           (1,130)
                                         -----------------------------------------------------------------------
    Total Administrative Expenses.......           (9,930)           (3,678)           (4,782)          (18,390)
                                         -----------------------------------------------------------------------
    TOTAL CPA ADJUSTMENTS...............            12,516             4,635             6,025            23,176
                                         -----------------------------------------------------------------------
    Total Operating Expenses............           891,453           331,595           431,255         1,654,303
----------------------------------------------------------------------------------------------------------------

    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 2011 financial information, the 
``succeeding navigation season'' for this ratemaking is 2012. We based 
our inflation adjustment of 2 percent on the 2012 change in the CPI for 
the Midwest Region of the United States, which can be found at: http://www.bls.gov/xg_shells/ro5xg01.htm. This adjustment appears in Tables 4 
through 6.

                                   Table 4--Inflation Adjustment, District One
----------------------------------------------------------------------------------------------------------------
                                                       Area 1                 Area 2
                                                 ------------------     ------------------
         Reported expenses for 2011                 St. Lawrence                                      Total
                                                        River              Lake Ontario
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses:..................  ...          $664,317  ...          $466,012  ...        $1,130,329
2012 change in the CPI for the Midwest        x                .02   x                .02   x                .02
 Region of the United States...............
Inflation Adjustment.......................   =             13,286   =              9,320   =             22,607
----------------------------------------------------------------------------------------------------------------

                                   Table 5--Inflation Adjustment, District Two
----------------------------------------------------------------------------------------------------------------
                                                       Area 4                 Area 5
                                                 ------------------     ------------------
         Reported expenses for 2011                                       Southeast Shoal             Total
                                                      Lake Erie           to Port Huron,
                                                                                MI
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses:..................  ...          $512,184  ...          $768,277  ...        $1,280,461
2012 change in the CPI for the Midwest        x                .02   x                .02   x                .02
 Region of the United States...............
Inflation Adjustment.......................   =             10,244   =             15,366   =             25,609
----------------------------------------------------------------------------------------------------------------

[[Page 12092]]

                                                      Table 6--Inflation Adjustment, District Three
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        Area 6                 Area 7                 Area 8
                                                                  ------------------     ------------------     ------------------
                 Reported expenses for 2011                         Lakes Huron and                                                           Total
                                                                       Michigan           St. Mary's River         Lake Superior
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses:...................................  ...          $891,453  ...          $331,595  ...          $431,255  ...        $1,654,303
2012 change in the CPI for the Midwest Region of the United    x                .02   x                .02   x                .02   x                .02
 States.....................................................
Inflation Adjustment........................................   =             17,829   =              6,632   =              8,625   =             33,086
--------------------------------------------------------------------------------------------------------------------------------------------------------

    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. We are 
not aware of any such foreseeable circumstances that now exist in 
District One.
    For District One, the projected operating expenses are based on the 
calculations from Steps 1.A through 1.C. Table 7 shows these 
projections.

                               Table 7--Projected operating expenses, District One
----------------------------------------------------------------------------------------------------------------
                                                       Area 1                 Area 2
                                                 ------------------     ------------------
         Reported expenses for 2011                 St. Lawrence                                      Total
                                                        River              Lake Ontario
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses:..................  ...          $664,317  ...          $466,012  ...        $1,130,329
Inflation adjustment 2.0%..................   +             13,286   +              9,320   +             22,607
Total projected expenses for 2014 pilotage    =            677,603   =            475,332   =          1,152,936
 season....................................
----------------------------------------------------------------------------------------------------------------

    In District Two, Federal taxes of $12,000 are accounted for in Step 
6 (Federal Tax Allowance). The projected operating expenses are based 
on the calculations from Steps 1.A through 1.C and Federal taxes. Table 
8 shows these projections.

                               Table 8--Projected Operating Expenses, District Two
----------------------------------------------------------------------------------------------------------------
                                                       Area 4                 Area 5
                                                 ------------------     ------------------
         Reported expenses for 2011                                       Southeast Shoal             Total
                                                      Lake Erie           to Port Huron,
                                                                                MI
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses...................  ...          $512,184  ...          $768,277  ...        $1,280,461
Inflation adjustment 2.0%..................   +             10,244   +             15,366   +             25,609
Director's adjustment & foreseeable
 circumstances
Federal taxes (accounted for in Step 6)....   +            (4,800)   +            (7,200)   +           (12,000)
                                            --------------------------------------------------------------------
    Total projected expenses for 2014         =            517,627   =            776,442   =          1,294,070
     pilotage season.......................
----------------------------------------------------------------------------------------------------------------

    Currently, we are not aware of any foreseeable circumstances for 
District Three. Its 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 Three
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        Area 6                 Area 7                 Area 8
                                                                  ------------------     ------------------     ------------------
                 Reported expenses for 2011                         Lakes Huron and                                                           Total
                                                                       Michigan           St. Mary's River         Lake Superior
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total Expenses..............................................  ...          $891,453  ...          $331,595  ...          $431,255  ...        $1,654,303
Inflation adjustment 2.0%...................................   +             17,829   +              6,632   +              8,625   +             33,086
Total projected expenses for 2014 pilotage season...........   =            909,282   =            338,227   =            439,880   =          1,687,389
--------------------------------------------------------------------------------------------------------------------------------------------------------

    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 2014.
    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 for

[[Page 12093]]

pilots on designated waters by multiplying the average first mate's 
wages by 150 percent and then adding the average first mate's benefits.
    The most current union contracts available to us are AMOU contracts 
with three U.S. companies engaged in Great Lakes shipping. There are 
two separate AMOU contracts available--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 all 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, 2014 as follows: 1) In undesignated waters, $612.20 for 
Agreement A and $604.64 for Agreement B; and 2) In designated waters, 
$842.63 for Agreement A and $829.40 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 10 shows our calculations using the 270-day multiplier.

          Table 10--Projected Annual Aggregate Rate Components
------------------------------------------------------------------------
 
------------------------------------------------------------------------
      Aggregate Rate-Wages, Vacation, Pension, and Medical Benefits
------------------------------------------------------------------------
                      Pilots on Undesignated Waters
------------------------------------------------------------------------
Agreement A:
    $612.20 daily rate x 270 days.........                   $165,294.00
Agreement B:
    $604.64 daily rate x 270 days.........                    163,252.80
------------------------------------------------------------------------
                       Pilots on Designated Waters
------------------------------------------------------------------------
Agreement A:
    $842.63 daily rate x 270 days.........                    227,510.10
Agreement B:
    $829.40 daily rate x 270 days.........                    223,938.00
------------------------------------------------------------------------

    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 all vessels operated by American Steamship Co. and Mittal 
Steel USA, Inc., representing approximately 70 percent of tonnage. 
Table 11 provides details.

                               Table 11--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 11 to apportion the projected 
compensation from Table 10. This gives us a single tonnage-weighted set 
of figures. Table 12 shows our calculations.

                             Table 12--Tonnage-Weighted Wage and Benefit Components
----------------------------------------------------------------------------------------------------------------
                                                                           Undesignated            Designated
                                                                              waters                 waters
----------------------------------------------------------------------------------------------------------------
Agreement A:
    Total wages and benefits......................................  ...       $165,294.00  ...       $227,510.10
    Percent tonnage...............................................   x           29.7238%   x           29.7238%
                                                                   ---------------------------------------------
        Total.....................................................   =             49,132   =             67,625
Agreement B:
    Total wages and benefits......................................  ...        163,252.80  ...        223,938.00
    Percent tonnage...............................................   x           70.2762%   x           70.2762%
                                                                   ---------------------------------------------
        Total.....................................................   =            114,728   =            157,375
Projected Target Rate of Compensation:
    Agreement A total weighted average wages and benefits.........  ...            49,132  ...            67,625
    Agreement B total weighted average wages and benefits.........   +            114,728   +            157,375
                                                                   ---------------------------------------------

[[Page 12094]]

 
        Total.....................................................   =            163,860   =            225,000
----------------------------------------------------------------------------------------------------------------

    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 by dividing projected bridge hours for 
each area, by either 1,000 (designated waters) or 1,800 (undesignated 
waters) bridge hours. We round the mathematical results and express our 
determination as whole pilots.
    ``Bridge hours are the number of hours a pilot is aboard a vessel 
providing basic pilotage service.'' (46 CFR part 404, Appendix A, Step 
2.B(1)) For that reason, and as we explained most recently in the 2011 
ratemaking's final rule (see 76 FR 6352, Feb. 4, 2011), we do not 
include, and have never 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 2013 final rule, we determined that 38 pilots would be 
needed for ratemaking purposes. We have determined that District 3 has 
two excess billets that remain unfilled and that current and projected 
traffic levels do not support the retention of these unfilled billets. 
For 2014, we project 36 pilots is the proper number to use for 
ratemaking purposes. We are removing one pilot from each of the 
undesignated waters of District Three (one each from Area 6 and Area 
8). 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 
(see 74 FR 22221-22, Jan. 5, 2009), we determined that this adjustment 
is essential for ensuring uninterrupted pilotage service in Area 2. 
Table 13 shows the bridge hours we project will be needed for each area 
and our calculations to determine the number of whole pilots needed for 
ratemaking purposes.

                                        Table 13--Number of Pilots Needed
----------------------------------------------------------------------------------------------------------------
                                                       Divided by 1,000
                                                          (designated
         Pilotage area           Projected 2014        waters) or 1,800       Calculated value    Pilots needed
                                  bridge hours           (undesignated         of pilot demand    (total = 36)
                                                            waters)
----------------------------------------------------------------------------------------------------------------
Area 1 (Designated waters)....             5,116   /              1,000   =              5.116                 6
Area 2 (Undesignated waters)..             5,429   /              1,800   =              3.016                 5
Area 4 (Undesignated waters)..             5,814   /              1,800   =              3.230                 4
Area 5 (Designated waters)....             5,052   /              1,000   =              5.052                 6
Area 6 (Undesignated waters)..             9,611   /              1,800   =              5.339                 6
Area 7 (Designated waters)....             3,023   /              1,000   =              3.023                 4
Area 8 (Undesignated waters)..             7,540   /              1,800   =              4.189                 5
----------------------------------------------------------------------------------------------------------------

    Step 2.C: Projection of target pilot compensation. In Table 14, we 
project total target pilot compensation separately for each area by 
multiplying the number of pilots needed in each area, as shown in Table 
13, by the target pilot compensation shown in Table 12.

                            Table 14--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           $225,000   =         $1,349,999
Area 2 (Undesignated waters)....................                 5   x            163,860   =            819,298
Area 4 (Undesignated waters)....................                 4   x            163,860   =            655,438
Area 5 (Designated waters)......................                 6   x            225,000   =          1,349,999
Area 6 (Undesignated waters)....................                 6   x            163,860   =            983,157
Area 7 (Designated waters)......................                 4   x            225,000   =            899,999
Area 8 (Undesignated waters)....................                 5   x            163,860   =            819,298
----------------------------------------------------------------------------------------------------------------

    Steps 3 and 3.A: Projection of revenue. In Steps 3 and 3.A., we 
project the revenue that would be received in 2014 if demand for 
pilotage services matches the bridge hours we projected in Table 13, 
and if 2013 pilotage rates are left unchanged. Table 15 shows this 
calculation.

[[Page 12095]]

                                     Table 15--Projection of Revenue by Area
----------------------------------------------------------------------------------------------------------------
                                                                                                     Revenue
                  Pilotage area                    Projected 2014          2013 Pilotage         projection for
                                                    bridge hours              rates *                 2014
----------------------------------------------------------------------------------------------------------------
Area 1 (Designated waters)......................             5,116   x            $460.97   =         $2,358,327
Area 2 (Undesignated waters)....................             5,429   x             284.84   =          1,546,373
Area 4 (Undesignated waters)....................             5,814   x             205.27   =          1,193,426
Area 5 (Designated waters)......................             5,052   x             508.91   =          2,571,038
Area 6 (Undesignated waters)....................             9,611   x             199.95   =          1,921,756
Area 7 (Designated waters)......................             3,023   x             482.94   =          1,459,929
Area 8 (Undesignated waters)....................             7,540   x             186.67   =          1,407,490
                                                 ---------------------------------------------------------------
    Total.......................................  ................  ...  ................  ...        12,458,339
----------------------------------------------------------------------------------------------------------------
* Projected 2013 revenue divided by projected 2013 bridge hours, per area.

    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 required 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 16 through 18 follow the 
formula up to that point.

                                 Table 16--Total Sources of Funds, District One
----------------------------------------------------------------------------------------------------------------
                                                                              Area 1                 Area 2
----------------------------------------------------------------------------------------------------------------
Recognized Assets:
    Total Current Assets..........................................               $669,895               $460,921
    Total Current Liabilities.....................................   -             54,169   -             37,271
    Current Notes Payable.........................................   +             24,746   +             17,026
    Total Property and Equipment (Net)............................   +            369,024   +            253,907
    Land..........................................................   -             13,054   -              8,981
    Total Other Assets............................................   +                  0   +                  0
                                                                   ---------------------------------------------
        Total Recognized Assets:..................................   =            996,442   =            685,602
Non-Recognized Assets:
    Total Investments and Special Funds...........................   +              6,243   +              4,295
                                                                   ---------------------------------------------
        Total Non-Recognized Assets:..............................   =              6,243   =              4,295
Total Assets:
    Total Recognized Assets.......................................                996,442                685,602
    Total Non-Recognized Assets...................................   +              6,243   +              4,295
                                                                   ---------------------------------------------
        Total Assets:.............................................   =          1,002,685   =            689,897
Recognized Sources of Funds:
    Total Stockholder Equity......................................                647,677                445,633
    Long-Term Debt................................................   +            318,571   +            219,193
    Current Notes Payable.........................................   +             24,746   +             17,026
    Advances from Affiliated Companies............................   +                  0   +                  0
    Long-Term Obligations--Capital Leases.........................   +                  0   +                  0
                                                                   ---------------------------------------------
        Total Recognized Sources:.................................   =            990,994   =            681,852
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......................................                990,994                681,852
    Total Non-Recognized Sources..................................   +                  0   +                  0
                                                                   ---------------------------------------------
        Total Sources of Funds:...................................   =            990,994   =            681,852
----------------------------------------------------------------------------------------------------------------

                                 Table 17--Total Sources of Funds, District Two
----------------------------------------------------------------------------------------------------------------
                                                                              Area 4                 Area 5
----------------------------------------------------------------------------------------------------------------
Recognized Assets:
Total Current Assets..............................................               $454,465               $681,697
    Total Current Liabilities.....................................   -            409,366   -            614,048
    Current Notes Payable.........................................   +             25,822   +             38,734
    Total Property and Equipment (Net)............................   +            420,422   +            630,632
    Land..........................................................   -                  0   -                  0

[[Page 12096]]

 
    Total Other Assets............................................   +             60,195   +             90,293
                                                                   ---------------------------------------------
        Total Recognized Assets...................................   =            551,538   =            827,308
Non-Recognized Assets:
    Total Investments and Special Funds...........................   +                  0   +                  0
                                                                   ---------------------------------------------
        Total Non-Recognized Assets...............................   =                  0   =                  0
Total Assets:
    Total Recognized Assets.......................................                551,538                827,308
    Total Non-Recognized Assets...................................   +                  0   +                  0
                                                                   ---------------------------------------------
        Total Assets..............................................   =            551,538   =            827,308
Recognized Sources of Funds:
    Total Stockholder Equity......................................                 89,537                134,305
    Long-Term Debt................................................   +            410,357   +            615,535
    Current Notes Payable.........................................   +             25,822   +             38,734
    Advances from Affiliated Companies............................   +                  0   +                  0
    Long-Term Obligations--Capital Leases.........................   +                  0   +                  0
                                                                   ---------------------------------------------
        Total Recognized Sources..................................   =            525,716   =            788,574
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......................................                525,716                788,574
    Total Non-Recognized Sources..................................   +                  0   +                  0
                                                                   ---------------------------------------------
        Total Sources of Funds....................................   =            525,716   =            788,574
----------------------------------------------------------------------------------------------------------------

                                Table 18--Total Sources of Funds, District Three
----------------------------------------------------------------------------------------------------------------
                                                       Area 6                 Area 7                 Area 8
----------------------------------------------------------------------------------------------------------------
Recognized Assets:
    Total Current Assets...................               $658,934               $244,050               $317,265
    Total Current Liabilities..............   -             64,869   -             24,025   -             31,233
    Current Notes Payable..................   +              3,869   +              1,433   +              1,863
    Total Property and Equipment (Net).....   +             21,905   +              8,113   +             10,547
    Land...................................   -                  0   -                  0   -                  0
    Total Other Assets.....................   +                540   +                200   +                260
    Total Recognized Assets................   =            620,379   =            229,771   =            298,702
Non-Recognized Assets:
    Total Investments and Special Funds....   +                  0   +                  0   +                  0
    Total Non-Recognized Assets............   =                  0   =                  0   =                  0
Total Assets:
    Total Recognized Assets................                620,379                229,771                298,702
    Total Non-Recognized Assets............   +                  0   +                  0   +                  0
    Total Assets...........................   =            620,379   =            229,771   =            298,702
Recognized Sources of Funds:
    Total Stockholder Equity...............                606,164                224,505                291,857
    Long-Term Debt.........................   +              6,478   +              2,399   +              3,119
    Current Notes Payable..................   +              3,869   +              1,433   +              1,863
    Advances from Affiliated Companies.....   +                  0   +                  0   +                  0
    Long-Term Obligations--Capital Leases..   +                  0   +                  0   +                  0
    Total Recognized Sources...............   =            616,511   =            228,337   =            296,839
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...............                616,511                228,337                296,839
    Total Non-Recognized Sources...........   +                  0   +                  0   +                  0
                                            --------------------------------------------------------------------
        Total Sources of Funds.............   =            616,511   =            228,337   =            296,839
----------------------------------------------------------------------------------------------------------------

[[Page 12097]]

    Tables 16 through 18 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 no non-recognized sources of funds (sources we do not recognize 
as required to support pilotage operations) exist for any of the 
pilotage associations 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) in all cases. Table 19 applies the multiplier of 1 and 
shows that the investment base for each association equals its total 
recognized assets. Table 19 also expresses these results by area, 
because area results will be needed in subsequent steps.

                                                     Table 19--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         996,442         990,994         990,994               1         996,442
                                                                       2         685,602         681,852         681,852               1         685,602
                                                         -----------------------------------------------------------------------------------------------
    Total...............................................  ..............  ..............  ..............  ..............  ..............       1,682,044
Two \2\.................................................               4         551,538         525,716         525,716               1         551,538
                                                                       5         827,308         788,574         788,574               1         827,308
                                                         -----------------------------------------------------------------------------------------------
    Total...............................................  ..............  ..............  ..............  ..............  ..............       1,378,846
Three...................................................               6         620,379         616,511         616,511               1         620,379
                                                                       7         229,771         228,337         228,337               1         229,771
                                                                       8         298,702         296,839         296,839               1         298,702
                                                         -----------------------------------------------------------------------------------------------
    Total...............................................  ..............  ..............  ..............  ..............  ..............       1,148,852
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ ``Investment base'' = ``Total recognized assets'' x ``Multiplier (ratio of recognized to total sources)''.
\2\ The pilotage associations that provide pilotage services in Districts One and Three operate as partnerships. The pilotage association that provides
  pilotage service for District Two operates as a corporation.

    Step 5: Determination of target rate of return. We determine a 
market-equivalent 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 2012, the preceding year, the allowed ROI was 3.67 
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 sub-step of Step 6 
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 20 through 
22.

                                 Table 20--Projected ROI, Areas in District One
----------------------------------------------------------------------------------------------------------------
                                                                              Area 1                 Area 2
----------------------------------------------------------------------------------------------------------------
Revenue (from Step 3).............................................             $2,358,327             $1,546,373
Operating Expenses (from Step 1)..................................   -            677,603   -            475,332
Pilot Compensation (from Step 2)..................................   -          1,349,999   -            819,298
Operating Profit/(Loss)...........................................   =            330,725   =            251,743
Interest Expense (from audits)....................................   -             18,484   -             12,718
Earnings Before Tax...............................................   =            312,241   =            239,025
Federal Tax Allowance.............................................   -                  0   -                  0
Net Income........................................................   =            312,241   =            239,025
Return Element (Net Income + Interest)............................                330,725                251,743
Investment Base (from Step 4).....................................   /            996,442   /            685,602
Projected ROI.....................................................   =             0.3319   =             0.3672
----------------------------------------------------------------------------------------------------------------

                                 Table 21--Projected ROI, Areas in District Two
----------------------------------------------------------------------------------------------------------------
                                                                              Area 4                 Area 5
----------------------------------------------------------------------------------------------------------------
Revenue (from Step 3).............................................             $1,193,426             $2,571,038
Operating Expenses (from Step 1)..................................   -            517,627   -            776,442
Pilot Compensation (from Step 2)..................................   -            655,438   -          1,349,999
Operating Profit/(Loss)...........................................   =             20,361   =            444,597
Interest Expense (from audits)....................................   -              2,772   -              4,159
Earnings Before Tax...............................................   =             17,589   =            440,438
Federal Tax Allowance.............................................   -              4,800   -              7,200
Net Income........................................................   =             12,789   =            433,238

[[Page 12098]]

 
Return Element (Net Income + Interest)............................                 15,561                437,397
Investment Base (from Step 4).....................................   /            551,538   /            827,308
Projected ROI.....................................................   =             0.0282   =             0.5287
----------------------------------------------------------------------------------------------------------------

                                Table 22--Projected ROI, Areas in District Three
----------------------------------------------------------------------------------------------------------------
                                                       Area 6                 Area 7                 Area 8
----------------------------------------------------------------------------------------------------------------
Revenue (from Step 3)......................             $1,921,756             $1,459,929             $1,407,490
Operating Expenses (from Step 1)...........   -            909,282   -            338,227   -            439,880
Pilot Compensation (from Step 2)...........   -            983,157   -            899,999   -            819,298
Operating Profit/(Loss)....................   =             29,317   =            221,703   =            148,312
Interest Expense (from audits).............   -              2,682   -                993   -              1,291
Earnings Before Tax........................   =             26,635   =            220,710   =            147,021
Federal Tax Allowance......................   -                  0   -                  0   -                  0
Net Income.................................   =             26,635   =            220,710   =            147,021
Return Element (Net Income + Interest).....                 29,317                221,703  ...           148,312
Investment Base (from Step 4)..............   /            620,379   /            229,771   /            298,702
Projected ROI..............................   =             0.0473   =             0.9649   =             0.4965
----------------------------------------------------------------------------------------------------------------

    The second sub-step compares the results of Tables 20 through 22 
with the target ROI (3.67 percent) we obtained in Step 5 to determine 
if an adjustment to the base pilotage rate is necessary. Table 23 shows 
this comparison for each area.

                                              Table 23--Comparison of Projected ROI and Target ROI, by Area
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                              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 ROI...........................          0.3319          0.3672          0.0282          0.5287          0.0473          0.9649          0.4965
Target ROI..............................          0.0367          0.0367          0.0367          0.0367          0.0367          0.0367          0.0367
Difference in ROIs......................          0.2952          0.3305        (0.0085)          0.4920          0.0106          0.9282          0.4598
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Because Table 23 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 24. 
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 24--Revenue Needed to Recover Target ROI, by Area
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                  Investment
                                                         Operating          Target pilot        Base  (Step 4)
                    Pilotage area                        expenses           compensation            x 3.67%            Federal tax        Revenue needed
                                                         (Step 1)             (Step 2)            (Target ROI           allowance
                                                                                                    Step 5)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Area 1 (Designated waters)..........................        $677,603   +       $1,349,999   +          $36,569   +               $0   =       $2,064,171
Area 2 (Undesignated waters)........................         475,332   +          819,298   +           25,162   +                0   =        1,319,791
Area 4 (Undesignated waters)........................         517,627   +          655,438   +           20,241   +            4,800   =        1,198,107
Area 5 (Designated waters)..........................         776,442   +        1,349,999   +           30,362   +            7,200   =        2,164,003
Area 6 (Undesignated waters)........................         909,282   +          983,157   +           22,768   +                0   =        1,915,207
Area 7 (Designated waters)..........................         338,227   +          899,999   +            8,433   +                0   =        1,246,659
Area 8 (Undesignated waters)........................         439,880   +          819,298   +           10,962   +                0   =        1,270,140
                                                     ---------------------------------------------------------------------------------------------------
    Total...........................................       4,134,394   +        6,877,187   +          154,498   +           12,000   =       11,178,078
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The ``Revenue Needed'' column of Table 24 is more than the revenue 
we projected in Table 15. For purposes of transparency, we verify the 
calculations in Table 24 by rerunning the formula in the first sub-step 
of Step 6, using the revenue needed from Table 24 instead of the Table 
15 revenue projections we used in Tables 20 through 22. Tables 25 
through 27 show that attaining the Table 24 revenue needed is 
sufficient to recover target ROI.

[[Page 12099]]

                         Table 25--Balancing Revenue Needed and Target ROI, District One
----------------------------------------------------------------------------------------------------------------
                                                                              Area 1                 Area 2
----------------------------------------------------------------------------------------------------------------
Revenue Needed....................................................  ...        $2,064,171  ...        $1,319,791
Operating Expenses (from Step 1)..................................   -            677,603   -            475,332
Pilot Compensation (from Step 2)..................................   -          1,349,999   -            819,298
Operating Profit/(Loss)...........................................   =             36,569   =             25,162
Interest Expense (from audits)....................................   -             18,484   -             12,718
Earnings Before Tax...............................................   =             18,085   =             12,444
Federal Tax Allowance.............................................   -                  0   -                  0
Net Income........................................................   =             18,085   =             12,444
Return Element (Net Income + Interest)............................  ...            36,569  ...            25,162
Investment Base (from Step 4).....................................   /            996,442   /            685,602
ROI...............................................................   =             0.0367   =             0.0367
----------------------------------------------------------------------------------------------------------------

                         Table 26--Balancing Revenue Needed and Target ROI, District Two
----------------------------------------------------------------------------------------------------------------
                                                                              Area 4                 Area 5
----------------------------------------------------------------------------------------------------------------
Revenue Needed....................................................   +         $1,198,107   +         $2,164,003
Operating Expenses (from Step 1)..................................   -            517,627   -            776,442
Pilot Compensation (from Step 2)..................................   -            655,438   -          1,349,999
Operating Profit/(Loss)...........................................   =             25,041   =             37,562
Interest Expense (from audits)....................................   -              2,772   -              4,159
Earnings Before Tax...............................................   =             22,269   =             33,403
Federal Tax Allowance.............................................   -              4,800   -              7,200
Net Income........................................................   =             17,469   =             26,203
Return Element (Net Income + Interest)............................  ...            20,241  ...            30,362
Investment Base (from Step 4).....................................   /            551,538   /            827,308
ROI...............................................................   =             0.0367   =             0.0367
----------------------------------------------------------------------------------------------------------------

                        Table 27--Balancing Revenue Needed and Target ROI, District Three
----------------------------------------------------------------------------------------------------------------
                                                       Area 6                 Area 7                 Area 8
----------------------------------------------------------------------------------------------------------------
Revenue Needed.............................   +         $1,915,207   +         $1,246,659   +         $1,270,140
Operating Expenses (from Step 1)...........   -            909,282   -            338,227   -            439,880
Pilot Compensation (from Step 2)...........   -            983,157   -            899,999   -            819,298
Operating Profit/(Loss)....................   =             22,768   =              8,433   =             10,962
Interest Expense (from audits).............   -              2,682   -                993   -              1,291
Earnings Before Tax........................   =             20,086   =              7,440   =              9,671
Federal Tax Allowance......................   -                  0   -                  0   -                  0
Net Income.................................   =             20,086   =              7,440   =              9,671
Return Element (Net Income + Interest).....  ...            22,768  ...             8,433  ...            10,962
Investment Base (from Step 4)..............   /            620,379   /            229,771   /            298,702
ROI........................................   =             0.0367   =             0.0367   =             0.0367
----------------------------------------------------------------------------------------------------------------

    Step 7: Adjustment of pilotage rates. Finally, and subject to 
negotiation with Canada or to an adjustment for other supportable 
circumstances, we calculate rate adjustments by dividing the Step 6 
revenue needed (Table 24) by the Step 3 revenue projection (Table 15), 
to give us a rate multiplier for each area. Tables 28 through 30 show 
these calculations.

                                Table 28--Rate Multiplier, Areas in District One
----------------------------------------------------------------------------------------------------------------
                                                                              Area 1                 Area 2
                                                                        ------------------     -----------------
                      Ratemaking Projections                               St. Lawrence
                                                                               River              Lake Ontario
----------------------------------------------------------------------------------------------------------------
Revenue Needed (from Step 6)......................................  ...        $2,064,171  ...        $1,319,791
Revenue (from Step 3).............................................   /          2,358,327   /          1,546,373
Rate Multiplier...................................................   =             0.8753   =             0.8535
----------------------------------------------------------------------------------------------------------------

                                Table 29--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)......................................  ...        $1,198,107  ...        $2,164,003

[[Page 12100]]

 
Revenue (from Step 3).............................................   /          1,193,426   /          2,571,038
Rate Multiplier...................................................   =             1.0039   =             0.8417
----------------------------------------------------------------------------------------------------------------

                               Table 30--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)...............  ...        $1,915,207  ...        $1,246,659  ...        $1,270,140
Revenue (from Step 3)......................   /          1,921,756   /          1,459,929   /          1,407,490
Rate Multiplier............................   =             0.9966   =             0.8539   =             0.9024
----------------------------------------------------------------------------------------------------------------

    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 24) by 
total projected revenue (Steps 3 and 3.A, Table 15). Table 31 shows 
this calculation.

 Table 31--Rate Multiplier for Basic Rates and Charges in 46 CFR 401.420
                               and 401.428
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Ratemaking Projections:
  Total Revenue Needed (from Step 6).................  ...   $11,178,078
  Total revenue (from Step 3)........................   /     12,458,339
Rate Multiplier......................................   =          0.897
------------------------------------------------------------------------

    This table shows that 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), 
would decrease by 10.3 percent in all areas.
    Without further action, the existing rates we established in our 
2013 final rule would then be multiplied by the rate multipliers from 
Tables 28 through 30 to calculate the area by area rate changes for 
2014. The resulting 2014 rates, on average, would then be decreased 
approximately 11 percent from the 2013 rates. This decrease is not due 
to increased efficiencies in pilotage services, but rather is a result 
of recent significant changes in AMOU contracts. We declined to impose 
this decrease because financial data from one of the associations 
indicates that such a rate decrease would make it difficult for it to 
continue funding operations, and may even cause the association to 
permanently close. Moreover, the decrease would have an adverse effect 
on providing safe, efficient, and reliable pilotage in the other two 
pilotage districts. Finally, our 2013 agreement with Canada calls for 
comparable pilotage rates between the two countries, and we proposed 
aligning our rates to the Canadian rate, which actually increased by 
2.5 percent this year. Our discretionary authority under Step 7 must be 
``based on requirements of the Memorandum . . . between the United 
States and Canada, and other supportable circumstances that may be 
appropriate.'' 46 CFR part 404, App. A. Without the 2.5 percent 
increase, U.S. and Canadian rates would be less comparable. ``Other 
supportable circumstances'' we have for exercising our discretion 
include E.O. 13609, ``Promoting International Regulatory Cooperation,'' 
which calls on Federal agencies to eliminate ``unnecessary 
differences'' between U.S. and foreign regulations (see 77 FR 26413, 
May 4, 2012). Additionally, there is a risk that a substantial rate 
decrease would jeopardize the ability of the three pilotage 
associations to provide safe, efficient, and reliable pilotage service.
    Therefore, we are relying on the discretionary authority we have 
under Step 7 to further adjust rates so that they closely align with 
those adopted by the Canadian GLPA for 2014. Table 32 compares the 
impact, area by area, that an average decrease of 11 percent would 
have, relative to the impact each area would experience if U.S. rates 
more closely align with those of the Canadian GLPA.

                                Table 32--Impact of Exercising Step 7 Discretion
----------------------------------------------------------------------------------------------------------------
                                                                 Percent change in rate   Percent change in rate
                             Area                                  without exercising     with exercise of  Step
                                                                   Step 7 discretion           7 discretion
----------------------------------------------------------------------------------------------------------------
Area 1 (Designated waters)....................................                   -12.47                     2.50
Area 2 (Undesignated waters)..................................                   -14.65                     2.50
Area 4 (Undesignated waters)..................................                     0.39                     2.50
Area 5 (Designated waters)....................................                   -15.83                     2.50
Area 6 (Undesignated waters)..................................                    -0.34                     2.50
Area 7 (Designated waters)....................................                   -14.61                     2.50
Area 8 (Undesignated waters)..................................                    -9.76                     2.50
----------------------------------------------------------------------------------------------------------------

[[Page 12101]]

    Tables 33 through 35 reflect our rate adjustments of 2.5 percent 
across Districts One, Two and Three.

                          Table 33--Adjustment of Pilotage Rates, Areas in District One
----------------------------------------------------------------------------------------------------------------
                                                                                                  Adjusted rate
                                                      2013 Rate           Rate multiplier           for 2014
----------------------------------------------------------------------------------------------------------------
                                           Area 1, St. Lawrence River
----------------------------------------------------------------------------------------------------------------
Basic Pilotage..................................        $18.75/km,   x              1.025   =         $19.22/km,
                                                         $33.19/mi                                     $34.02/mi
Each lock transited.............................               416   x              1.025   =                426
Harbor movage...................................             1,361   x              1.025   =              1,395
Minimum basic rate, St. Lawrence River..........               908   x              1.025   =                931
Maximum rate, through trip......................             3,984   x              1.025   =              4,084
----------------------------------------------------------------------------------------------------------------
                                              Area 2, Lake Ontario
----------------------------------------------------------------------------------------------------------------
6-hour period...................................               851   x              1.025   =                872
Docking or undocking............................               812   x              1.025   =                832
----------------------------------------------------------------------------------------------------------------

    In addition to the rate charges in Table 33, and for the reasons we 
discussed in Section V.A. of this preamble, we are adding 46 CFR 
401.401, authorizing imposition of temporary surcharges. Effective 
April 3, 2014, we authorize District One to implement a temporary 
supplemental 3 percent charge on each source form (the ``bill'' for 
pilotage service) for the duration of the 2014 shipping season. We do 
not think this surcharge will have a disruptive effect on District One 
traffic, because Canada has used an 18 percent surcharge in the past 
with no such effect.

                          Table 34--Adjustment of Pilotage Rates, Areas in District Two
----------------------------------------------------------------------------------------------------------------
                                                                                                  Adjusted rate
                                                      2013 Rate           Rate multiplier           for 2014
----------------------------------------------------------------------------------------------------------------
                                                Area 4, Lake Erie
----------------------------------------------------------------------------------------------------------------
6-hour period...................................              $828   x              1.025   =               $849
Docking or undocking............................               637   x              1.025   =                653
Any point on Niagara River below Black Rock Lock             1,626   x              1.025   =              1,667
----------------------------------------------------------------------------------------------------------------
                      Area 5, Southeast Shoal to Port Huron, MI between any point on or in
----------------------------------------------------------------------------------------------------------------
Toledo or any point on Lake Erie W. of Southeast             1,382   x              1.025   =              1,417
 Shoal..........................................
Toledo or any point on Lake Erie W. of Southeast             2,339   x              1.025   =              2,397
 Shoal & Southeast Shoal........................
Toledo or any point on Lake Erie W. of Southeast             3,037   x              1.025   =              3,113
 Shoal & Detroit River..........................
Toledo or any point on Lake Erie W. of Southeast             2,339   x              1.025   =              2,397
 Shoal & Detroit Pilot Boat.....................
Port Huron Change Point & Southeast Shoal (when              4,074   x              1.025   =              4,176
 pilots are not changed at the Detroit Pilot
 Boat)..........................................
Port Huron Change Point & Toledo or any point on             4,719   x              1.025   =              4,837
 Lake Erie W. of Southeast Shoal (when pilots
 are not changed at the Detroit Pilot Boat).....
Port Huron Change Point & Detroit River.........             3,060   x              1.025   =              3,137
Port Huron Change Point & Detroit Pilot Boat....             2,381   x              1.025   =              2,441
Port Huron Change Point & St. Clair River.......             1,693   x              1.025   =              1,735
St. Clair River.................................             1,382   x              1.025   =              1,417
St. Clair River & Southeast Shoal (when pilots               4,074   x              1.025   =              4,176
 are not changed at the Detroit Pilot Boat).....
St. Clair River & Detroit River/Detroit Pilot                3,060   x              1.025   =              3,137
 Boat...........................................
Detroit, Windsor, or Detroit River..............             1,382   x              1.025   =              1,417
Detroit, Windsor, or Detroit River & Southeast               2,339   x              1.025   =              2,397
 Shoal..........................................
Detroit, Windsor, or Detroit River & Toledo or               3,037   x              1.025   =              3,113
 any point on Lake Erie W. of Southeast Shoal...
Detroit, Windsor, or Detroit River & St. Clair               3,060   x              1.025   =              3,137
 River..........................................
Detroit Pilot Boat & Southeast Shoal............             1,693   x              1.025   =              1,735
Detroit Pilot Boat & Toledo or any point on Lake             2,339   x              1.025   =              2,397
 Erie W. of Southeast Shoal.....................
Detroit Pilot Boat & St. Clair River............             3,060   x              1.025   =              3,137
----------------------------------------------------------------------------------------------------------------

[[Page 12102]]

                         Table 35--Adjustment of Pilotage Rates, Areas in District Three
----------------------------------------------------------------------------------------------------------------
                                                                                                  Adjusted rate
                                                      2013 Rate           Rate multiplier           for 2014
----------------------------------------------------------------------------------------------------------------
                                         Area 6 Lakes Huron and Michigan
----------------------------------------------------------------------------------------------------------------
6-hour Period...................................              $691   x              1.025   =               $708
Docking or undocking............................               656   x              1.025   =                672
----------------------------------------------------------------------------------------------------------------
                               Area 7 St. Mary's River between any point on or in
----------------------------------------------------------------------------------------------------------------
Gros Cap & De Tour..............................             2,583   x              1.025   =              2,648
Algoma Steel Corp. Wharf, Sault Ste. Marie, Ont.             2,583   x              1.025   =              2,648
 & De Tour......................................
Algoma Steel Corp. Wharf, Sault. Ste. Marie,                   973   x              1.025   =                997
 Ont. & Gros Cap................................
Any point in Sault St. Marie, Ont., except the               2,165   x              1.025   =              2,219
 Algoma Steel Corp. Wharf & De Tour.............
Any point in Sault St. Marie, Ont., except the                 973   x              1.025   =                997
 Algoma Steel Corp. Wharf & Gros Cap............
Sault Ste. Marie, MI & De Tour..................             2,165   x              1.025   =              2,219
Sault Ste. Marie, MI & Gros Cap.................               973   x              1.025   =                997
Harbor movage...................................               973   x              1.025   =                997
----------------------------------------------------------------------------------------------------------------
                                              Area 8 Lake Superior
----------------------------------------------------------------------------------------------------------------
6-hour period...................................               586   x              1.025   =                601
Docking or undocking............................               557   x              1.025   =                571
----------------------------------------------------------------------------------------------------------------

VII. Regulatory Analyses

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

A. Regulatory Planning and Review

    Executive Orders 12866 (``Regulatory Planning and Review'') and 
13563 (``Improving Regulation and Regulatory Review'') direct agencies 
to assess the costs and benefits of available regulatory alternatives 
and, if regulation is necessary, to select regulatory approaches that 
maximize net benefits (including potential economic, environmental, 
public health and safety effects, distributive impacts, and equity). 
Executive Order 13563 emphasizes the importance of quantifying both 
costs and benefits, of reducing costs, of harmonizing rules, and of 
promoting flexibility. This rule is not a significant regulatory action 
under section 3(f) of E.O. 12866 as supplemented by E.O. 13563, and 
does not require an assessment of potential costs and benefits under 
section 6(a)(3) of E.O. 12866. The Office of Management and Budget 
(OMB) has not reviewed it under E.O. 12866. Nonetheless, we developed 
an analysis of the costs and benefits of the rule to ascertain its 
probable impacts on industry.
    Based on comments received, the Coast Guard is adjusting the 
operating expense base in District One in order to account for an 
addition to the expense base of $4,360 for APA dues, as well as the 
inclusion of the 2011 license insurance cost ($52,232) in the expense 
base. However, because of our Step 7 discretionary adjustment to 
pilotage rates, which increases rates by 2.5 percent from the previous 
year in all three districts, these changes to the underlying data do 
not impact the final rates. Despite this increase in pilotage rates, as 
well as the implementation of a temporary, supplemental surcharge to 
traffic in District One of 3 percent, we estimate that shippers will 
experience a reduction in payments from the previous year of 
approximately $697,914 across all three districts as a result of an 
expected decrease in the demand for pilotage services from the previous 
year.\4\
---------------------------------------------------------------------------

    \4\ Total reduction in payments made by shippers across all 
three districts is equal to the costs from rate changes (-$817,983) 
plus a temporary surcharge to traffic in District One ($120,070).
---------------------------------------------------------------------------

    A regulatory assessment follows.
    The Coast Guard is required to review and adjust pilotage rates on 
the Great Lakes annually. See Parts III and IV of this preamble for 
detailed discussions of the Coast Guard's legal basis and purpose for 
this rulemaking, and for background information on Great Lakes pilotage 
ratemaking. Based on our annual review for this rulemaking, we are 
adjusting the pilotage rates for the 2014 shipping season to generate 
sufficient revenue to cover allowable expenses, and to target pilot 
compensation and returns on pilotage associations' investments. The 
rate adjustments in this final rule would, if codified, lead to an 
increase in the cost per unit of service to shippers in all three 
districts. Despite these rate increases, however, we estimate that 
shippers in Districts Two and Three will experience a decrease in 
payments from the previous year as a result of a decrease in demand for 
pilotage services. The reduction in payments that would occur in 
Districts Two and Three would outweigh the increase in payments in 
District One, which would result in an estimated annual decrease in 
payments by shippers of approximately $817,983 across all three 
districts.\5\ After accounting for the implementation of a temporary 3 
percent surcharge to traffic in District One, which is expected to 
generate $120,070, the annual payments made by shippers across all 
three districts for pilotage services are estimated to be approximately 
$697,914 less than the payments that were made in 2013.
---------------------------------------------------------------------------

    \5\ This annual reduction in payments is due to a projected 
decrease in the number of billeted pilots in Areas 6 and 8 from 2013 
to 2014, as well as an overall decrease in the demand for pilotage 
services across all three districts. This decrease in the demand for 
pilotage services would reduce the projected revenue needed to cover 
costs and pilotage services.
---------------------------------------------------------------------------

    The 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 in all three districts from the current rates set in 
the 2013 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 2011 financial data from the 
pilotage associations (the most

[[Page 12103]]

recent year available for auditing), projected association expenses, 
and regional inflation or deflation. The last full Appendix A 
ratemaking was concluded in 2013 and used financial data from the 2010 
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 routes in 
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 does not apply to recreational vessels.
    Owners and operators of other vessels that are not affected by this 
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; it does not affect our calculation of the 
rate, and it is not a part of our estimated national cost to shippers. 
Our sampling of pilot data suggests that there are very few domestic 
vessels that do not have a registry and operate only in the Great Lakes 
that voluntarily purchase pilotage services.
    We used 2010-2012 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 data from that period, we found that approximately 128 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, which include docking, loading, and 
unloading at facilities in Great Lakes ports. Of the total trips for 
the 128 vessels, there were approximately 353 annual U.S. port arrivals 
before the vessels left the Great Lakes system, based on 2010-2012 
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 rule to be the difference 
between the total projected revenue needed to cover costs in 2013, 
based on the 2013 rate adjustment, and the total projected revenue 
needed to cover costs in 2014, as set forth in this rule, plus any 
temporary surcharges authorized by the Coast Guard. Table 36 details 
projected revenue needed to cover costs in 2014 after making the 
discretionary adjustment to pilotage rates as discussed in Step 7 of 
Part VI of this preamble. Table 37 summarizes the derivation for 
calculating the 3 percent surcharge on District One traffic, as 
discussed earlier in this preamble. Table 38 details the additional 
cost increases or decreases by area and district as a result of the 
rate adjustments and the temporary surcharge to District One traffic.

                                                     Table 36--Rate Adjustment by Area and District
                                                                 [$U.S.; Non-discounted]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                       Projected revenue
                                                             2013 pilotage     Rate change \7\     2014 pilotage      Projected 2014     needed in 2014
                                                               rates \6\                             rates \8\       bridge hours \9\         \10\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Area 1...................................................           $460.971             1.0250            $472.50              5,116      $2,417,285.09
Area 2...................................................            284.836             1.0250             291.96              5,429       1,585,032.47
                                                          ----------------------------------------------------------------------------------------------
    Total, District One..................................  .................  .................  .................  .................       4,002,317.56
                                                          ==============================================================================================
Area 4...................................................            205.268             1.0250             210.40              5,814       1,223,261.97
Area 5...................................................            508.915             1.0250             521.64              5,052       2,635,314.21
                                                          ----------------------------------------------------------------------------------------------
    Total, District Two..................................  .................  .................  .................  .................       3,858,576.18
                                                          ==============================================================================================
Area 6...................................................            199.954             1.0250             204.95              9,611       1,969,800.03
Area 7...................................................            482.940             1.0250             495.01              3,023       1,496,427.14
Area 8...................................................            186.670             1.0250             191.34              7,540       1,442,676.83
                                                          ----------------------------------------------------------------------------------------------
    Total, District Three................................  .................  .................  .................  .................       4,908,904.00
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Some values may not total due to rounding.

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

    \6\ These 2013 estimates are described in Table 15 of this final 
rule.
    \7\ The estimated rate changes are described in Table 32 of this 
rule.
    \8\ 2014 Pilotage Rates = 2013 Pilotage Rates x Rate Change.
    \9\ These 2014 estimates are detailed in Table 13 of this final 
rule.
    \10\ Projected Revenue needed in 2014 = 2014 Pilotage Rates x 
Projected 2014 Bridge Hours.

                                   Table 37--Derivation of Temporary Surcharge
----------------------------------------------------------------------------------------------------------------
                                                                         Area 1                   Area 2
----------------------------------------------------------------------------------------------------------------
Projected Revenue Needed in 2014 \11\.........................            $2,417,285.09            $1,585,032.47
Surcharge Rate................................................                       3%                       3%
Surcharge Raised..............................................                72,518.55                47,550.97
                                                               -------------------------------------------------

[[Page 12104]]

 
    Total Surcharge...........................................                     120,069.53
----------------------------------------------------------------------------------------------------------------

              Table 38--Change in Payments by Shippers From the Previous Year by Area and District
                                             [$U.S.; Non-discounted]
----------------------------------------------------------------------------------------------------------------
                                                                                                Additional costs
                                      Projected revenue  Projected revenue      Temporary        or savings of
                                        needed in 2013     needed in 2014     surcharge \12\     this proposed
                                                                                                      rule
----------------------------------------------------------------------------------------------------------------
Area 1..............................         $2,404,424         $2,417,285            $72,519            $85,380
Area 2..............................          1,569,160          1,585,032             47,551             63,423
    Total, District One.............          3,973,584          4,002,318            120,070            148,803
                                     ===========================================================================
Area 4..............................          1,398,694          1,223,262  .................          (175,432)
Area 5..............................          2,596,484          2,635,314  .................             38,830
    Total, District Two.............          3,995,178          3,858,576  .................          (136,602)
                                     ===========================================================================
Area 6..............................          2,281,673          1,969,800  .................          (311,873)
Area 7..............................          1,556,517          1,496,427  .................           (60,090)
Area 8..............................          1,780,829          1,442,677  .................          (338,152)
    Total, District Three...........          5,619,019          4,908,904  .................          (710,115)
----------------------------------------------------------------------------------------------------------------
* Some values may not total due to rounding.

    After applying the discretionary rate change in this final rule, 
the resulting difference between the projected revenue in 2013 and the 
projected revenue in 2014 is the annual change in payments from 
shippers to pilots after accounting for market conditions (i.e., a 
decrease in demand for pilotage services) and the change to pilotage 
rates as a result of this final rule. This figure is equivalent to the 
total additional payments or reduction in payments from the previous 
year that shippers would incur for pilotage services.
---------------------------------------------------------------------------

    \11\ These estimates are derived in Table 36 of this final rule.
    \12\ These estimates are derived in Table 37 of this final rule.
---------------------------------------------------------------------------

    The impact of the discretionary rate adjustments in this final rule 
to shippers varies by area and district. Although the discretionary 
rate adjustments would lead to affected shippers experiencing an 
increase in payments for pilotage services in all three districts, when 
combined with the overall decrease in demand for pilotage services 
across all three districts, only shippers operating in District One are 
estimated to experience an increase in payments of $28,733.56, while 
affected shippers operating in District Two and District Three would 
experience a reduction in payments of $136,602.82 and $710,115.00, 
respectively from the previous year. This decrease in demand is 
projected to result in a decrease in the number of billeted pilots in 
Areas 6 and 8 from 2013 to 2014, which consequently would lead to a 
decrease in payments despite the increase in pilotage rates.
    In addition to the rate adjustments, District One would incur a 
temporary surcharge to traffic for the duration of the 2014 season. In 
District One, shippers would incur a temporary 3 percent surcharge in 
order for the district's pilot association to recover training expenses 
incurred in 2012. We estimate that this surcharge would generate 
$120,070 in District One. At the end of the 2014 shipping season, we 
will account for the monies the surcharge generates and make 
adjustments (debits/credits) to the operating expenses for the 
following year.\13\
---------------------------------------------------------------------------

    \13\ Assuming our estimate is correct, we would credit: District 
One shippers $71,075 at the end of the 2014 season in order to 
account for the difference between the total surcharges collected 
($120,070) and the actual expenses incurred by District One pilots 
($48,995 (training)).
---------------------------------------------------------------------------

    To calculate an exact cost or cost reduction 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 and the number of port arrivals of their vessels' 
trips. However, the decrease in costs reported earlier in this final 
rule does capture the adjustment in payments that shippers would 
experience from the previous year. The overall adjustment in payments, 
after taking into account: (1) The decrease in demand for pilotage 
services; (2) the increase in pilotage rates; and (3) the addition of a 
temporary surcharge in District One, would be a reduction in payments 
by shippers of approximately $697,914 across all three districts.
    This final rule would allow the Coast Guard to meet the statutory 
requirements to review the rates for pilotage services on the Great 
Lakes, ensuring proper pilot compensation.
    Alternatively, if we instead imposed the new rates based on the new 
contract data from AMOU, there would be an approximately 11 percent 
decrease in rates across the system. This would have a much more 
detrimental effect on pilots, as payments from shippers would decrease 
by approximately $2,308,184. In contrast, as discussed above, if the 
discretionary 2.5 percent increase is applied to traffic in Districts 
One, Two, and Three, the payment from shippers only decreases by 
$697,914. Table 39 details projected revenue needed to cover costs in 
2014 if the discretionary adjustment to pilotage rates as discussed in 
Step 7 of Part VI of this preamble is not made. Table 40 details the 
changes in payments to pilots from the previous year, by area and 
district, after accounting for: (1) A decrease in demand for pilotage 
services; (2) an increase in pilotage rates

[[Page 12105]]

across all three districts; and (3) the addition of a temporary 
surcharge applied to traffic in District One.

                                               Table 39--Alternative Rate Adjustment by Area and District
                                                                 [$U.S.; Non-discounted]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                       Projected revenue
                                                             2013 Pilotage     Rate change \14\    2014 Pilotage      Projected 2014     needed in 2014
                                                                 rates                                 rates           bridge hours           \15\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Area 1...................................................            $460.97             0.8753            $403.47              5,116         $2,064,171
Area 2...................................................             284.84             0.8535             243.10              5,429          1,319,791
                                                          ----------------------------------------------------------------------------------------------
    Total, District One..................................  .................  .................  .................  .................          3,383,963
                                                          ==============================================================================================
Area 4...................................................             205.27             1.0039             206.07              5,814          1,198,107
Area 5...................................................             508.91             0.8417             428.35              5,052          2,164,002
                                                          ----------------------------------------------------------------------------------------------
    Total, District Two..................................  .................  .................  .................  .................          3,362,110
                                                          ==============================================================================================
Area 6...................................................             199.95             0.9966             199.27              9,611          1,915,207
Area 7...................................................             482.94             0.8539             412.39              3,023          1,246,659
Area 8...................................................             186.67             0.9024             168.45              7,540          1,270,140
                                                          ----------------------------------------------------------------------------------------------
    Total, District Three................................  .................  .................  .................  .................          4,432,006
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Some values may not total due to rounding.

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

    \14\ The estimated rate changes are described in Table 32 of 
this preamble.
    \15\ Projected Revenue needed in 2014 = 2014 Pilotage Rates x 
Projected 2014 Bridge Hours.

        Table 40--Alternative Change in Payments by Shippers From the Previous Year by Area and District
                                             [$U.S.; Non-discounted]
----------------------------------------------------------------------------------------------------------------
                                                                                               Total increase or
                                      Projected revenue  Projected revenue      Temporary         decrease in
                                        needed in 2013     needed in 2014       surcharge           payments
                                                    (A)                (B)                (C)          (B-A) + C
----------------------------------------------------------------------------------------------------------------
Area 1..............................         $2,404,424         $2,064,171            $61,925         ($278,328)
Area 2..............................          1,569,160          1,319,791             39,594          (209,775)
                                     ---------------------------------------------------------------------------
    Total, District One.............          3,973,584          3,383,963            101,519          (488,102)
                                     ===========================================================================
Area 4..............................          1,398,694          1,198,107  .................          (200,587)
Area 5..............................          2,596,484          2,164,002  .................          (432,482)
                                     ---------------------------------------------------------------------------
    Total, District Two.............          3,995,178          3,362,110  .................          (633,068)
                                     ===========================================================================
Area 6..............................          2,281,673          1,915,207  .................          (366,466)
Area 7..............................          1,556,517          1,246,659  .................          (309,858)
Area 8..............................          1,780,829          1,270,140  .................          (510,689)
                                     ---------------------------------------------------------------------------
    Total, District Three...........          5,619,019          4,432,006  .................        (1,187,013)
----------------------------------------------------------------------------------------------------------------
* Some values may not total due to rounding.

    We reject this alternative because a substantial decrease in 
payments by shippers would jeopardize the ability of the three pilotage 
associations to provide safe, efficient, and reliable pilotage 
services, and it would violate the Memorandum of Arrangements, which 
calls for the United States' and Canada's pilotage rates to be 
comparable. See our discussion of Step 7 in Part VI of this preamble 
for further explanation.

B. Small Entities

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

[[Page 12106]]

employing less than 500 employees is considered a small entity.
    For the final rule, we reviewed recent company size and ownership 
data from 2010-2012 Coast Guard MISLE data, and business revenue and 
size data provided by publicly available sources such as Manta and 
Reference USA. We found that large, foreign-owned shipping 
conglomerates or their subsidiaries owned or operated all vessels 
engaged in foreign trade on the Great Lakes. We assume that new 
industry entrants would be comparable in ownership and size to these 
shippers.
    There are three U.S. entities affected by this final rule that 
receive revenue from pilotage services. These are the three pilotage 
associations that provide and manage pilotage services within the Great 
Lakes districts. Two of the associations operate as partnerships and 
one operates as a corporation. These associations are designated with 
the same NAICS industry classification and small-entity size standards 
described above, but they have fewer than 500 employees; combined, they 
have approximately 65 total employees. We expect no adverse impact to 
these entities from this final 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 final rule would not have a significant economic impact on a 
substantial number of small entities.

C. Assistance for Small Entities

    Under section 213(a) of the Small Business Regulatory Enforcement 
Fairness Act of 1996, Public Law 104-121, we offered to assist small 
entities in understanding this rule so that they could better evaluate 
its effects on them and participate in the rulemaking. If the rule will 
affect your small business, organization, or governmental jurisdiction 
and you have questions concerning its provisions or options for 
compliance, please contact the Coast Guard (see FOR FURTHER INFORMATION 
CONTACT). The Coast Guard will not retaliate against small entities 
that question or complain about this rule or any policy or action of 
the Coast Guard.
    Small businesses may send comments on the actions of Federal 
employees who enforce, or otherwise determine compliance with, Federal 
regulations to the Small Business and Agriculture Regulatory 
Enforcement Ombudsman and the Regional Small Business Regulatory 
Fairness Boards. The Ombudsman evaluates these actions annually and 
rates each agency's responsiveness to small business. If you wish to 
comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR 
(1-888-734-3247).

D. Collection of Information

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

E. Federalism

    A rule has implications for federalism under Executive Order 13132, 
Federalism, if it has a substantial direct effect on the States, on the 
relationship between the national government and the States, or on the 
distribution of power and responsibilities among the various levels of 
government. We have analyzed this rule under that Order and have 
determined that it is consistent with the fundamental federalism 
principles and preemption requirements described in Executive Order 
13132. Our analysis 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 outlined 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.'' Because States may not promulgate rules 
within this category, the rule is consistent with the principles of 
federalism and preemption requirements in Executive Order 13132.
    While it is well settled that States may not regulate in categories 
in which Congress intended the Coast Guard to have exclusive authority 
to promulgate regulations, the Coast Guard recognizes the key role that 
State and local governments may have in making regulatory 
determinations. Additionally, for rules with federalism implications 
and preemptive effect, Executive Order 13132 specifically directs 
agencies to consult with State and local governments during the 
rulemaking process. If you believe this rule has implications for 
federalism under Executive Order 13132, please contact the person 
listed in the FOR FURTHER INFORMATION CONTACT section of this preamble.

F. Unfunded Mandates Reform Act

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

G. Taking of Private Property

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

H. Civil Justice Reform

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

I. Protection of Children

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

J. Indian Tribal Governments

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

K. Energy Effects

    We have analyzed this rule under E.O. 13211 (``Actions Concerning 
Regulations That Significantly Affect Energy Supply, Distribution, or 
Use''). We have determined that it is not a ``significant energy 
action'' under that order because it is not a ``significant regulatory 
action'' under E.O. 12866 and is not likely to have a significant 
adverse effect on the supply, distribution, or use of energy.

 L. Technical Standards

    The National Technology Transfer and Advancement Act, codified as a 
note to 15 U.S.C. 272, directs agencies to use voluntary consensus 
standards in their regulatory activities unless the agency provides 
Congress, through OMB, with an explanation of why using

[[Page 12107]]

these standards would be inconsistent with applicable law or otherwise 
impractical. Voluntary consensus standards are technical standards 
(e.g., specifications of materials, performance, design, or operation; 
test methods; sampling procedures; and related management systems 
practices) that are developed or adopted by voluntary consensus 
standards bodies. This rule does not use technical standards. 
Therefore, we did not consider the use of voluntary consensus 
standards.

 M. Environment

    We have analyzed this rule under DHS Management Directive 023-01 
and Commandant Instruction M16475.lD, which guide the Coast Guard in 
complying with the National Environmental Policy Act of 1969, 42 U.S.C. 
4321-4370f, and have concluded that this action is one of a category of 
actions that do not individually or cumulatively have a significant 
effect on the human environment. A final environmental analysis 
checklist supporting this determination is available in the docket 
where indicated under the ADDRESSES section of this preamble.

List of Subjects in 46 CFR Part 401

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

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

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.  401.400, revise paragraph (b) to read as follows:

Sec.  401.400  Calculation of pilotage units and determination of 
weighting factor.

* * * * *
    (b) Weighting factor table:

------------------------------------------------------------------------
                                                              Weighting
                  Range of pilotage units                      factor
------------------------------------------------------------------------
0-49......................................................          1.0
50-159....................................................          1.15
160-189...................................................          1.30
190-and over..............................................          1.45
------------------------------------------------------------------------

* * * * *

0
3. Add Sec.  401.401 to read as follows:

Sec.  401.401  Surcharges.

    To facilitate safe, efficient, and reliable pilotage, and for good 
cause, the Director may authorize surcharges on any rate or charge 
authorized by this subpart. Surcharges must be proposed for prior 
public comment and may not be authorized for more than 1 year.

0
4. 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......................  $19.22 per kilometer or $34.02 per
                                       mile.\1\
Each Lock Transited.................  426.\1\
Harbor Movage.......................  1,395.\1\
------------------------------------------------------------------------
\1\ The minimum basic rate for assignment of a pilot in the St. Lawrence
  River is $931, and the maximum basic rate for a through trip is
  $4,084.

    (b) Area 2 (Undesignated Waters):

------------------------------------------------------------------------
                                                                 Lake
                          Service                              Ontario
------------------------------------------------------------------------
6-hour Period..............................................         $872
Docking or Undocking.......................................          832
------------------------------------------------------------------------

0
5. In Sec.  401.407, revise paragraphs (a) and (b) to read as follows:

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

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

 
------------------------------------------------------------------------
                                                 Lake Erie
                                                  (East of
                    Service                      Southeast     Buffalo
                                                   Shoal)
------------------------------------------------------------------------
6-hour Period.................................         $849         $849
Docking or Undocking..........................          653          653
Any point on the Niagara River below the Black          N/A        1,667
 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..             $2,397             $1,417             $3,113             $2,397                N/A
Port Huron Change Point..................................          \1\ 4,176          \1\ 4,837              3,137              2,441              1,735
St. Clair River..........................................          \1\ 4,176                N/A              3,137              3,137              1,417
Detroit or Windsor or the Detroit River..................              2,397              3,113              1,417                N/A              3,137
Detroit Pilot Boat.......................................              1,735              2,397                N/A                N/A              3,137
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ When pilots are not changed at the Detroit Pilot Boat.

0
6. 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...........................................            $708
Docking or Undocking....................................             672
------------------------------------------------------------------------

    (b) Area 7 (Designated Waters):

----------------------------------------------------------------------------------------------------------------
                           Area                                  De tour          Gros cap         Any harbor
----------------------------------------------------------------------------------------------------------------
Gros Cap..................................................            $2,648               N/A               N/A
Algoma Steel Corporation Wharf at Sault Ste. Marie,                    2,648               997               N/A
 Ontario..................................................

[[Page 12108]]

 
Any point in Sault Ste. Marie, Ontario, except the Algoma              2,219               997               N/A
 Steel Corporation Wharf..................................
Sault Ste. Marie, MI......................................             2,219               997               N/A
Harbor Movage.............................................               N/A               N/A               997
----------------------------------------------------------------------------------------------------------------

    (c) Area 8 (Undesignated Waters):

------------------------------------------------------------------------
                        Service                           Lake Superior
------------------------------------------------------------------------
6-hour Period..........................................             $601
Docking or Undocking...................................              571
------------------------------------------------------------------------

Sec.  401.420  [Amended]

0
7. Amend Sec.  401.420 as follows:
0
a. In paragraph (a), remove the text ``$126'' and add, in its place, 
the text ``$129''; and remove the text ``$1,972'' and add, in its 
place, the text ``$2,021'';
0
b. In paragraph (b), remove the text ``$126'' and add, in its place, 
the text ``$129''; and remove the text ``$1,972'' and add, in its 
place, the text ``$2,021''; and
0
c. In paragraph (c)(1), remove the text ``$744'' and add, in its place, 
the text ``$763''; and in paragraph (c)(3), remove the text ``$126'' 
and add, in its place, the text ``$129'', and remove the text 
``$1,972'' and add, in its place, the text ``$2,021''.

Sec.  401.428  [Amended]

0
8. In Sec.  401.428, remove the text ``$744'' and add, in its place, 
the text ``$763''.

    Dated: February 25, 2014.
Gary C. Rasicot,
Director, Marine Transportation Systems Management, U.S. Coast Guard.
[FR Doc. 2014-04591 Filed 2-28-14; 11:15 am]
BILLING CODE 9110-04-P