[Federal Register Volume 78, Number 40 (Thursday, February 28, 2013)]
[Rules and Regulations]
[Pages 13521-13543]
[FR Doc No: 2013-04321]

=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF HOMELAND SECURITY

Coast Guard

46 CFR Part 401

[Docket No. USCG-2012-0409]
RIN 1625-AB89

Great Lakes Pilotage Rates--2013 Annual Review and Adjustment

AGENCY: Coast Guard, DHS.

ACTION: Final rule.

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

SUMMARY: The Coast Guard is adjusting the rates for pilotage services
on the Great Lakes, which were last amended in February 2012. The
adjustments establish new base rates and are made in accordance with a
full ratemaking procedure. This rulemaking promotes the Coast Guard's
maritime safety mission.

DATES: This final rule is effective August 1, 2013.

ADDRESSES: Comments and material received from the public, as well as
any documents mentioned in this preamble as being available in the
docket, are part of docket USCG-2012-0409 and are available for
inspection or copying at the Docket Management Facility (M-30), U.S.
Department of Transportation, West Building Ground Floor, Room W12-140,
1200 New Jersey Avenue SE., Washington, DC 20590, between 9 a.m. and 5
p.m., Monday through Friday, except Federal holidays. You may also find
this docket on the Internet by going to http://www.regulations.gov,
inserting USCG-2012-0409 in the ``Keyword'' box, and then clicking
``Search.''

FOR FURTHER INFORMATION CONTACT: If you have questions on this rule,
call or email Mr. Todd Haviland, Director, Great Lakes Pilotage,
Commandant (CG-WWM-2), Coast Guard; telephone<PHONE_NUMBER>, email
<EMAIL_ADDRESS>or fax<PHONE_NUMBER>. If you have questions on
viewing or submitting material to the docket, call Ms. Renee V. Wright,
Program Manager, Docket Operations, telephone<PHONE_NUMBER>.

SUPPLEMENTARY INFORMATION:

Table of Contents for Preamble

I. Abbreviations
II. Regulatory History
III. Basis and Purpose
IV. Background
V. Discussion of Comments and Changes
VI. Discussion of the Final Rule
    A. Summary
    B. Calculating the Rate Adjustment
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
COBRA Consolidated Omnibus Budget Reconciliation Act
CPA Certified Public Accountant
CPI Consumer Price Index
E.O. Executive Order
FR Federal Register
GLPA Canadian Great Lakes Pilotage Authority
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
Sec.  Section symbol
SPI Seaway Pilot, Inc.
U.S.C. United States Code

II. Regulatory History

    On August 1, 2012, we published a notice of proposed rulemaking
(NPRM) entitled ``Great Lakes Pilotage Rates--2013 Annual Review and
Adjustment'' in the Federal Register (77 FR 45539). We received six
comments on the NPRM from four sources, including the three pilots'
associations and one District Three pilot. 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.
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 adjusted if necessary. 46 U.S.C. 9303(f). The Secretary's duties
and authority under the Act have been delegated to the Coast Guard.
Department of Homeland Security Delegation No. 0170.1, paragraph
(92)(f). Coast Guard regulations implementing the Act appear in parts
401 through 404 of Title 46, Code of Federal Regulations (CFR).
Procedures for use in establishing base rates appear in 46 CFR part
404, Appendix A, and procedures for annual review and adjustment of
existing base rates appear in 46 CFR part 404, Appendix C.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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

IV. Background

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

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

    The U.S. waters of the Great Lakes and the St. Lawrence Seaway are
divided into three pilotage districts. Pilotage in each district is
provided by an association certified by the Coast Guard Director of
Great Lakes Pilotage to operate a pilotage pool. It is important to
note that, while we set rates, we do not control the actual number of
pilots an association maintains, so long as the association is able to
provide safe, efficient, and reliable pilotage service. Also, we do not
control the actual compensation that pilots receive. The actual
compensation is determined by each of the three district associations.
    District One, consisting of Areas 1 and 2, includes all U.S. waters
of the St. Lawrence River and Lake Ontario. District Two, consisting of
Areas 4 and 5, includes all U.S. waters of Lake Erie, the Detroit
River, Lake St. Clair, and the St. Clair River. District Three,
consisting of Areas 6, 7, and 8, includes all U.S. waters of the St.
Mary's River, Sault Ste. Marie Locks, and Lakes Michigan, Huron, and
Superior. Area 3 is the Welland Canal, which is serviced exclusively by
the Canadian Great Lakes Pilotage Authority and, accordingly, is not
included in the 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).
    This rule is a full ratemaking to establish new base pilotage
rates, using the 46 CFR part 404, Appendix A, methodology. The last
full ratemaking established the current base rates in the 2012 final
rule (77 FR 11752, February 28, 2012). Among other things, the Appendix
A methodology requires us to review detailed pilot association
financial information, and we contract with independent accountants to
assist in that review. This final rule is based on the review of 2010
financial information. The associations are given time to review and
comment on the preliminary reports of the independent accountants,
before the review is finalized. Comments by the pilots' associations on
those reports and the independent accountant's final findings are
available in the docket.

V. Discussion of Comments and Changes

    We received six public comments on our NPRM from four sources, the
three pilotage associations and a District Three pilot. Two of the
associations filed two comments each. The third association filed a
single series of comments from the association president and the
association's certified public accountant.
    Agreement A. Two associations said we made mistakes regarding the
American Maritime Officers Union (AMOU) contracts, Agreement A and
Agreement B, which provide data used by the Appendix A methodology.
    First, the associations claimed the Agreement A health benefit
should be $105.61 per day, not $52.96. Second, the associations claimed
the Agreement A pension benefit should be $44.61 per day, not zero.
Third, the associations claimed the Agreement A daily wage rate should
be $295.94, not $270.61.
    Our NPRM correctly reflected the contract information that was
available to us when the NPRM was published. However, as a result of
these comments we reached out to AMOU to inquire if the contract that
we had used was superseded. AMOU then provided us with more recent
contract information. However, they now treat each individual component
of wage, health, and pension benefits as proprietary information and
did not consent to our request to disclose this information. Instead,
they provided us with a daily aggregate rate for Agreements A and B for
first mates on U.S. Great Lakes vessels, and validated our Agreements A
and B aggregate rate values for designated waters. These aggregate
rates combine, without separately identifying, the following inputs:
Daily wage rate, vacation pay, pension plan contributions, and medical
plan contributions.
    In the past, those inputs were separately identified and we passed
that information along to the public. For example, our August 2012 NPRM
included Tables 11 (Projected Wage Components) and 12 (Projected
Benefits Components). Now, because AMOU treats the separate inputs as
proprietary information, the NPRM's Tables 11 and 12 must be replaced
in this final rule by new Table 11 (Projected Annual Rate Components),
which uses the AMOU's aggregate rates. This change in the degree of
detail with which our tables display AMOU contract data does not result
in any change in how those data are factored into our ratemaking
methodology.
    Weighting factors. Weighting factors are based on the size of a
ship and are used in determining actual charges for pilotage service.
All three associations pointed out that Canada now uses different
weighting factors than the weighting factors used by the U.S. and shown
in 46 CFR 401.400(b). Canada unilaterally changed its weighting factors
in 2008 to reflect an industry shift to smaller vessels so that these
smaller vessels carried a more fair portion of the costs associated
with pilotage on the Great Lakes. As a result, a Canadian pilot on a
``1.0 factor'' vessel now charges 15 percent more than a U.S. pilot on
the same vessel.
    A similar comment was made during our 2010 ratemaking, and in the
final rule for that ratemaking, 75 FR 7958 at 7959, col. 3 (Feb. 23,
2010), we declined to take action on the grounds that adjusting the
weighting factors was beyond the scope of that rulemaking. Having made
that determination in 2010, we cannot take action in this 2013 final
rule, the public not having been afforded adequate notice in our August
1, 2012 NPRM that weighting factors might be under consideration for
adjustment in the 2013 ratemaking. However, we agree with the
associations that the U.S. should match the Canadian weighting factors,
as a matter of parity and to reduce billing confusion between the two
countries, both of which are important Federal Government concerns, as
emphasized by recent Executive Order 13609, ``Promoting International
Regulatory Cooperation'' (77 FR 26413, May 4, 2012). Therefore,
although we will not address weighting factors in this final rule, we
will do so either in the 2014 ratemaking or in a separate regulatory
action.
    American Pilots' Association dues. One association said we should
factor into our ratemaking the dues that associations pay for
membership in the American Pilots' Association (APA) because the APA
``continually collects information of value to its members [and]
represents the pilotage organizations with international entities.'' We
disagree. Our position has not changed from the position taken in our
last two Appendix A ratemakings, completed in 2006 (71 FR 16501 at
16507, col. 3; April 3, 2006) and 2012 (77 FR 11752 at 11755, col. 2;
Feb. 28, 2012). Our regulations provide clear guidance concerning this
issue and state, ``[each] expense item included in the rate base is
evaluated to determine if it is necessary for the provision of pilotage
service, and if so, what dollar amount is reasonable for the expense.''
46 CFR 404.5(a)(1). Recognizable expenses must be both ``reasonable and
necessary for the provision of pilotage.'' This topic is analogous to a
licensure issue. Expenditures associated with obtaining and maintaining
one's pilot's license represent ``necessary'' expenses that are
recognized. Membership in a voluntary special interest association,
like the APA, is not necessary for the provision of pilotage. We
continue to find that American Pilots' Association membership dues are
not necessary, and thus are excluded from the rate's operating
expenses.
    Bridge hour projections. Two associations commented on Coast Guard
procedures for projecting bridge hours, an important part of the
Appendix A ratemaking methodology, and the District Three pilot
commented on the negative impact on pilot revenue of over-projecting
bridge hours. One association said that, in an unexplained departure
from past practice, our NPRM multiplied 2011 revenue per bridge hour by
projected bridge hours to arrive at projected revenue. The other
association said we consistently over-project bridge hours, resulting
in over-projection of revenue. We disagree with both comments. There
has been no ``unexplained departure from past practice''--we have
consistently followed Step 3.A of the Appendix A methodology which
states: ``Projected demand for pilotage service is

multiplied by the existing pilotage rates for that service, to arrive
at the `projection of revenue.' '' As to over-projecting bridge hours,
a concern raised by the associations and the District Three pilot, we
have consistently improved our ability to project demand for pilotage
services. We rely on historic data, input from pilots and industry,
periodicals and trade magazines, and information from conferences to
project demand for pilotage services. Both associations said we should
use a ``less arbitrary'' and more accurate method to project bridge
hours. This rule applies the best available information to our current
methodology. However, we understand the pilots' concern about
definitions and methodologies relating to bridge hours and therefore
those definitions and methodologies are currently undergoing an
independent, comprehensive study and review. We anticipate the study
will be completed by this summer. The results of the study will inform
our assessment of whether changes to the regulations are needed, and we
will publish a proposed rule updating definitions and methodologies if
revisions are deemed necessary.
    License insurance. The District One pilots' association said we
should recognize two license insurance premium costs of $26,946 and
$15,781, not $23,880 and $18,847, respectively. We disagree. The
association did not raise this issue during the comment period for
reviewing the independent accountant's preliminary report and the
commenter has provided no subsequent data in support of its claim that
the costs are incorrectly allocated.
    Insurance costs. The District One pilots' association said we
should increase its insurance costs by $4,491 to recognize the
association's addition in 2011 of a fifth pilot. The association's
implication is that, under Step 1.D of the Appendix A methodology, we
should adjust our projections because the fifth pilot is a
``foreseeable circumstance'' that will affect the association's costs
going forward. We disagree. The audits are based on a review of the
2010 financial statements, transactions, and documents. Therefore, the
addition of a fifth pilot in 2011 would not be included in a review of
the 2010 financial records. This expense will be captured and evaluated
in the audit of the 2011 expenses. As we stated in the previous
Appendix A ratemaking, ``[we] consider significant capital expenditures
and the fixed costs associated with those capital expenditures as
`foreseeable circumstances.' The rest of the expenses that fluctuate
due to market forces and the variance in demand for pilot services will
be reimbursed when they are recognized in the independent accountant's
financial reports that we will use in future ratemaking.'' (77 FR 11752
at 11755, col. 3). Therefore, we will not include this expense in the
2013 Appendix A ratemaking.
    Travel expenses. The District One pilots' association said our NPRM
relied on an improper extrapolation in disallowing a $13,861 travel
expense. We disagree. Our independent accountant determined that the
expense at issue was not incurred in 2010. Only expenses incurred in
that calendar year are eligible for consideration in this year's
ratemaking.
    Fixed assets. The District One pilots' association noted that
virtually all of the association's fixed assets are owned by its
``corporate arm,'' Seaway Pilot, Inc. (SPI) and claims that we erred in
our calculation of the 2012 investment base. According to the pilots,
we erroneously excluded $548,369 from SPI's investment base. The pilots
believe we have calculated the investment base correctly in the 2013
NPRM, but assert we have never made them whole by correcting the 2012
rate. We disagree that any corrective action is needed with respect to
our 2012 calculations. As we stated in the 2012 Appendix A final rule,
``[we] coordinated with the independent accountant and used the
financial information provided by District One to calculate the
investment base for this rulemaking,'' and ``the independent
accountant's financial reports include the investment base calculation
for future rulemakings.'' (77 FR 11752 at 11755, col. 3). We used the
information that was provided to us by the association and do not see
any grounds for making the suggested adjustment. The 2013 rate, as
promised, includes the investment base calculation.
    Inflation. The District One pilots' association said we should
adjust the 2013 rate to reflect ``a particularly egregious error'' in
the 2012 rate, the exclusion of an inflationary component based on the
Consumer Price Index (CPI) for the years 2007 and 2008. The association
also said our inflation adjustment should reflect inflation between
2010 and 2013, and that when Appendix A was created, no one foresaw how
long it would take to recognize actual past financial data in new
rates. We disagree. We used the 2009 association's financial
transactions to determine the allowable operating expenses for the 2012
Appendix A ratemaking. We have always calculated the inflationary
portion of operating expenses in accordance with Step 1.C of the
Appendix A methodology, which states: ``The inflation adjustment will
be based on the preceding year's change in the Consumer Price Index for
the North Central Region of the United States.'' We are currently
engaged in a comprehensive study and review of the Appendix A
methodology and will reevaluate how we take inflation into account. The
possible need for changes in how we address inflation is within the
scope of the previously-mentioned comprehensive study and review of our
Great Lakes pilotage ratemaking methodology now underway.
    Payroll tax methodology. The District One pilots' association said
our NPRM's proposed adjustment for payroll taxes would be more
appropriately based on target compensation than on actual 2010 pilot
earnings. We disagree. The methodology was established to reimburse a
given pilot association for its expenses that are necessary,
reasonable, and directly related to providing pilotage services on the
Great Lakes during the shipping season. We follow 46 CFR 404.5(a)(1),
which states: ``Each expense item included in the rate base is
evaluated to determine if it is necessary for the provision of pilotage
service, and if so, what dollar amount is reasonable for that expense
item.'' We recognize that the payroll tax is a necessary expense, but
we do not agree that we should use the value we calculate for target
pilot compensation instead of the actual pilot compensation to
determine the amount for payroll taxes. We consider it unreasonable to
use a payroll tax amount other than the amount actually paid.
    Health insurance subsidy. The District Two pilots' association said
a $60,460 ``COBRA subsidy'' (referring to the Federal health subsidy
under the Consolidated Omnibus Budget Reconciliation Act of 1985, or
``COBRA'') ``should not be an adjustment to projected operating
expenses, because pilot health insurance premiums are not included in
the projected operating expense line item.'' We disagree. The
methodology was established to reimburse a given pilot association for
its expenses that are necessary, reasonable, and directly related to
providing pilotage services on the Great Lakes during the shipping
season. If an association obtains funding from a separate source to
reimburse it for an expense, the expense must be proportionately
discounted for ratemaking purposes. We cannot oblige industry to
reimburse an association for an expense that has already been
reimbursed. This practice would be contrary to the public's interest
and

inconsistent with prior determinations and rulemakings.
    The District Two pilots' association also said it was given no
opportunity to comment on a $99,993 COBRA expense reduction made in the
2012 final rule and that the 2013 rate should be adjusted to restore
that amount. We disagree. We will not include the amount we excluded in
the 2012 Appendix A ratemaking in the 2013 Appendix A ratemaking. The
health insurance expense was accounted for in the 2012 Appendix A
ratemaking, and thus the offset to that expense obtained by the pilots'
association also needed to be accounted for. The methodology was
established to reimburse a given pilots' association for its expenses
that are necessary, reasonable, and directly related to providing
pilotage services on the Great Lakes during a given shipping season. If
an association obtains funding to reimburse it for an expense, the
expense disappears for ratemaking purposes. We cannot compel industry
to reimburse an association a second time for an expense that has
already been reimbursed. This practice would be contrary to the
public's interest and inconsistent with prior determinations and
rulemakings.

VI. Discussion of the Final Rule

A. Summary

    We are establishing new base pilotage rates in accordance with the
methodology outlined in Appendix A to 46 CFR part 404. The new rates
will be established by March 1, 2013 and will go into effect on August
1, 2013.
    Based on baseline AMOU contract information that we received after
publication of our August 2012 NPRM, our arithmetical calculations
under Steps 1 through 6 of Appendix A would result in an average 15.89
percent rate decrease. However, as we will discuss when we explain our
Step 7 adjustment of pilot rates, this year's rate adjustments will be
what we proposed in the August 2012 NPRM, representing on average an
approximately 1.87 percent increase over the February 2012 final rule's
rate adjustments.
    All figures in the tables that follow are based on calculations
performed either by an independent accountant or by the Director of
Great Lakes Pilotage'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.
    Table 1 shows the percent change for the new rates for each area.

                  Table 1--Summary of Rate Adjustments
------------------------------------------------------------------------
                                                        Then the percent
                                                         change over the
         If pilotage service is  required in:           current rate is:
                                                            (percent)

------------------------------------------------------------------------
Area 1 (Designated waters)............................             -1.41
Area 2 (Undesignated waters)..........................             -1.69
Area 4 (Undesignated waters)..........................              8.87
Area 5 (Designated waters)............................              0.95
Area 6 (Undesignated waters)..........................              4.31
Area 7 (Designated waters)............................              0.56
Area 8 (Undesignated waters)..........................              1.52
------------------------------------------------------------------------

B. Calculating the Rate Adjustment

    The Appendix A methodology provides seven steps, with sub-steps,
for calculating rate adjustments. The following discussion describes
those steps and sub-steps and includes tables showing how we have
applied them to the 2010 detailed pilot financial information.
    Step 1: Projection of Operating Expenses. In this step, we project
the amount of vessel traffic annually. Based upon 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 pilots' association to provide us with detailed financial
information in accordance with 46 CFR part 403. The associations
complied with this requirement, supplying 2010 financial information in
2011; this is the most current and complete data set we have available.
    Step 1.B: Determination of Recognizable Expenses. This sub-step
requires us to determine which reported association expenses will be
recognized for ratemaking purposes, using the guidelines shown in 46
CFR 404.5. We contracted with an independent accountant to review the
reported expenses and submit findings recommending which reported
expenses should be recognized. The accountant also reviewed which
reported expenses should be adjusted prior to recognition, or if they
should not be allowed for ratemaking purposes. The independent
accountant made preliminary findings, which were sent to the pilots'
associations. The pilots' associations reviewed and commented on the
preliminary findings. Then, the independent accountant made final
findings. The Director reviewed and accepted those final findings,
resulting in the determination of recognizable expenses. The
preliminary findings, the associations' comments on those findings, and
the final findings are all available in the docket. Tables 2 through 4
show each association's recognized expenses.

                                  Table 2--Recognized Expenses for District One
----------------------------------------------------------------------------------------------------------------
                                                                      Area 1          Area 2
                                                                 --------------------------------
                   Reported expenses for 2010                      St. Lawrence                        Total
                                                                       River       Lake Ontario
----------------------------------------------------------------------------------------------------------------
Pilot Costs:
    Other pilotage costs:
        Pilot subsistence/Travel................................        $212,715        $167,880        $380,595
        License insurance.......................................          23,880          18,847          42,727
        Payroll taxes...........................................               0               0               0
        Other...................................................           1,432           1,130           2,562
                                                                 -----------------------------------------------
            Total other pilotage costs..........................         238,027         187,857         425,884
----------------------------------------------------------------------------------------------------------------
Pilot Boat and Dispatch Costs:
    Pilot boat expense..........................................          95,254          75,178         170,432
    Dispatch expense............................................               0               0               0

    Payroll taxes...............................................           7,962           6,283          14,245
                                                                 -----------------------------------------------
        Total pilot and dispatch costs..........................         103,216          81,461         184,677
----------------------------------------------------------------------------------------------------------------
Administrative Expenses:
    Legal.......................................................           7,959           6,282          14,241
    Insurance...................................................          13,971          11,026          24,997
    Employee benefits...........................................          19,454          15,354          34,808
    Payroll taxes...............................................           4,816           3,801           8,617
    Other taxes.................................................           4,504           3,554           8,058
    Travel......................................................             215             169             384
    Depreciation/auto leasing/other.............................          17,440          13,765          31,205
    Interest....................................................          12,576           9,926          22,502
    Dues and subscriptions......................................          13,075          10,319          23,394
    Utilities...................................................           5,130           4,049           9,179
    Salaries....................................................          49,840          39,336          89,176
    Accounting/Professional fees................................           4,997           3,943           8,940
    Other.......................................................           9,408           7,425          16,833
                                                                 -----------------------------------------------
        Total Administrative Expenses...........................         163,385         128,949         292,334
                                                                 -----------------------------------------------
        Total Operating Expenses................................         504,628         398,267         902,895
----------------------------------------------------------------------------------------------------------------
Proposed Adjustments (independent CPA):
    Operating Expenses..........................................  ..............  ..............  ..............
    Other Pilot Costs...........................................  ..............  ..............  ..............
    Pilotage Subsistence/Travel.................................         (7,747)         (6,114)        (13,861)
    Payroll taxes...............................................          64,563          50,955         115,518
                                                                 -----------------------------------------------
        Total other pilotage costs..............................          56,816          44,841         101,657
----------------------------------------------------------------------------------------------------------------
Administrative Expenses:
    Legal.......................................................             799             631           1,430
    Employee benefits...........................................         (1,537)         (1,213)         (2,750)
    Dues and subscriptions......................................        (13,075)        (10,319)        (23,394)
                                                                 -----------------------------------------------
        Total Administrative Expenses...........................        (13,813)        (10,901)        (24,714)
                                                                 -----------------------------------------------
        Total CPA Adjustments...................................          43,003          33,940          76,943
                                                                 -----------------------------------------------
        Total Operating Expenses................................         547,631         432,207         979,838
----------------------------------------------------------------------------------------------------------------

                                  Table 3--Recognized Expenses for District Two
----------------------------------------------------------------------------------------------------------------
                                                                      Area 4          Area 5
                                                                 --------------------------------
                   Reported expenses for 2010                                        Southeast         Total
                                                                     Lake Erie     Shoal to Port
                                                                                Huron, MI
----------------------------------------------------------------------------------------------------------------
Operating Expenses:
    Other pilotage costs:
        Pilot subsistence/Travel................................         $79,503        $119,254        $198,757
        License insurance.......................................           6,168           9,252          15,420
        Payroll taxes...........................................          53,457          80,186         133,643
        Other...................................................          42,130          63,195         105,325
                                                                 -----------------------------------------------
            Total other pilotage costs..........................         181,258         271,887         453,145
----------------------------------------------------------------------------------------------------------------
Pilot Boat and Dispatch Costs:
    Pilot boat expense..........................................         145,254         217,882         363,136
    Dispatch expense............................................           7,830          11,745          19,575
    Payroll taxes...............................................           4,056           6,084          10,140
                                                                 -----------------------------------------------
        Total pilot and dispatch costs..........................         157,140         235,711         392,851
----------------------------------------------------------------------------------------------------------------
Administrative Expenses:
    Legal.......................................................           8,120          12,180          20,300
    Office rent.................................................          26,275          39,413          65,688
    Insurance...................................................          13,410          20,114          33,524

    Employee benefits...........................................          24,420          36,631          61,051
    Payroll taxes...............................................           2,980           4,471           7,451
    Other taxes.................................................          19,100          28,651          47,751
    Depreciation/Auto leasing/Other.............................          22,954          34,431          57,385
    Interest....................................................          14,790          22,185          36,975
    Dues and subscriptions......................................           6,200           9,300          15,500
    Utilities...................................................          12,138          18,208          30,346
    Salaries....................................................          46,611          69,917         116,528
    Accounting/Professional fees................................          14,067          21,100          35,167
    Other.......................................................          16,157          24,235          40,392
                                                                 -----------------------------------------------
        Total Administrative Expenses...........................         227,223         340,835         568,058
                                                                 -----------------------------------------------
        Total Operating Expenses................................         565,622         848,432       1,414,054
----------------------------------------------------------------------------------------------------------------
Proposed Adjustments (independent CPA):
Operating Expenses:
    Other Pilot Costs:
        Pilotage subsistence/Travel.............................         (3,999)         (5,999)         (9,998)
                                                                 -----------------------------------------------
            Total other pilotage costs..........................         (3,999)         (5,999)         (9,998)
----------------------------------------------------------------------------------------------------------------
Pilot boat and dispatch costs:
    Pilot boat expense..........................................           (767)         (1,150)         (1,917)
                                                                 -----------------------------------------------
        Total pilot boat and dispatch costs.....................           (767)         (1,150)         (1,917)
----------------------------------------------------------------------------------------------------------------
Administrative Expenses:
    Legal.......................................................           (209)           (314)           (523)
    Office rent.................................................           (809)         (1,213)         (2,022)
    Interest....................................................        (11,268)        (16,902)        (28,170)
    Dues and subscriptions......................................         (6,200)         (9,300)        (15,500)
                                                                 -----------------------------------------------
        Total Administrative Expenses...........................        (18,486)        (27,729)        (46,215)
                                                                 -----------------------------------------------
        Total CPA Adjustments...................................        (23,252)        (34,878)        (58,130)
                                                                 -----------------------------------------------
        Total Operating Expenses................................         542,369         813,554       1,355,924
----------------------------------------------------------------------------------------------------------------
Note: Numbers may not total due to rounding.

                                 Table 4--Recognized Expenses for District Three
----------------------------------------------------------------------------------------------------------------
                                                                 Area 6       Area 7       Area 8
                                                             ---------------------------------------
                 Reported Expenses for 2010                   Lakes Huron                               Total
                                                                  and       St. Mary's      Lake
                                                                Michigan      River       Superior
----------------------------------------------------------------------------------------------------------------
Operating Expenses:
    Other Pilot Costs:
        Pilot subsistence/Travel............................     $170,162      $81,836     $108,514     $360,512
        License insurance...................................        9,204        4,426        5,869       19,499
        Payroll taxes.......................................       27,774       13,358       17,712       58,844
        Other...............................................          630          303          402        1,335
                                                             ---------------------------------------------------
            Total other pilotage costs......................      207,770       99,923      132,497      440,190
----------------------------------------------------------------------------------------------------------------
Pilot Boat and Dispatch Expenses:
    Pilot boat costs........................................      197,244       94,861      125,785      417,890
    Dispatch expense........................................       72,550       34,891       46,266      153,707
    Payroll taxes...........................................        8,068        3,880        5,145       17,093
                                                             ---------------------------------------------------
        Total pilot boat and dispatch costs.................      277,862      133,632      177,196      588,690
----------------------------------------------------------------------------------------------------------------
Administrative Expenses:
    Legal...................................................       28,089       13,509       17,913       59,511
    Office Rent.............................................        4,673        2,247        2,980        9,900
    Insurance...............................................        6,581        3,165        4,197       13,943
    Employee benefits.......................................       57,942       27,866       36,950      122,758

    Payroll taxes...........................................        5,709        2,746        3,641       12,096
    Other taxes.............................................       15,381        7,397        9,808       32,586
    Depreciation/auto leasing...............................       23,495       11,299       14,983       49,777
    Interest................................................        1,537          739          980        3,256
    Dues and subscriptions..................................       13,676        6,577        8,721       28,974
    Utilities...............................................       13,223        6,359        8,432       28,014
    Salaries................................................       49,802       23,951       31,759      105,512
    Accounting/professional fees............................       11,894        5,720        7,585       25,199
    Other...................................................        5,574        2,681        3,555       11,810
                                                             ---------------------------------------------------
        Total administrative expenses.......................      237,576      114,256      151,504      503,336
                                                             ---------------------------------------------------
        Total Operating Expenses............................      723,208      347,811      461,197    1,532,216
----------------------------------------------------------------------------------------------------------------
Proposed Adjustments (independent CPA):
    Other Pilot Costs:
        Payroll taxes.......................................       26,213       12,606       16,716       55,535
                                                             ---------------------------------------------------
            Total other pilotage costs......................       26,213       12,606       16,716       55,535
----------------------------------------------------------------------------------------------------------------
Pilot Boat and Dispatch Expenses:
    Dispatch costs..........................................      (2,170)      (1,044)      (1,384)      (4,598)
                                                             ---------------------------------------------------
        Total pilot boat and dispatch costs.................      (2,170)      (1,044)      (1,384)      (4,598)
----------------------------------------------------------------------------------------------------------------
Administrative Expenses:
    Legal...................................................      (1,454)        (699)        (927)      (3,080)
    Dues and subscriptions..................................     (13,676)      (6,577)      (8,721)     (28,974)
    Other...................................................      (1,255)        (603)        (800)      (2,658)
                                                             ---------------------------------------------------
        Total administrative expenses.......................     (16,385)      (7,879)     (10,448)     (34,712)
                                                             ---------------------------------------------------
        Total CPA Adjustments...............................        7,658        3,683        4,884       16,225
                                                             ---------------------------------------------------
        Total Operating Expenses............................      730,866      351,494      466,081    1,548,441
----------------------------------------------------------------------------------------------------------------
Note: Numbers may not total due to rounding.

    Step 1.C: Adjustment for Inflation or Deflation. In this sub-step
we project rates of inflation or deflation for the succeeding
navigation season. Because we used 2010 financial information, the
``succeeding navigation season'' for this ratemaking is 2011. We based
our inflation adjustment of 3.2 percent on the 2011 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 5 through 7.

                                   Table 5--Inflation Adjustment, District One
----------------------------------------------------------------------------------------------------------------
                                                      Area 1                  Area 2
                                                 ----------------        ----------------
       Reported Expenses for 2010                  St. Lawrence                                        Total
                                                       River               Lake Ontario
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses................                $547,631                $432,207                $979,838
2011 change in the Consumer Price Index        x            .032       x            .032       x            .032
 (CPI) for the Midwest Region of the
 United States..........................
Inflation Adjustment....................       =         $17,524       =         $13,831       =         $31,355
----------------------------------------------------------------------------------------------------------------

                                   Table 6--Inflation Adjustment, District Two
----------------------------------------------------------------------------------------------------------------
                                                      Area 4                  Area 5
                                                 ----------------        ----------------
       Reported Expenses for 2010                                            Southeast                 Total
                                                     Lake Erie             Shoal to Port
                                                                             Huron, MI
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses................                $542,369                $813,554              $1,355,924
2011 change in the Consumer Price Index        x            .032       x            .032       x            .032
 (CPI) for the Midwest Region of the
 United States..........................

Inflation Adjustment....................       =         $17,356       =         $26,034       =         $43,390
----------------------------------------------------------------------------------------------------------------

                                                      Table 7--Inflation Adjustment, District Three
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                      Area 6                  Area 7                  Area 8
                                                                 ----------------        ----------------        ----------------
               Reported Expenses for 2010                           Lakes Huron             St. Mary's                                         Total
                                                                   and Michigan                River               Lake Superior
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses................................                $730,866                $351,494                $466,081              $1,548,441
2011 change in the Consumer Price Index (CPI) for the          x            .032       x            .032       x            .032       x            .032
 Midwest Region of the United States....................
Inflation Adjustment....................................       =         $23,388       =         $11,248       =         $14,915       =         $49,550
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Step 1.D: Projection of Operating Expenses. The final sub-step of
Step 1 is to 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. Based
on comments and supporting material received for the 2012 Appendix A
NPRM, we determined that foreseeable circumstances exist in District
One.
    Eight months of District One's pilot boat mortgage payments and
boat insurance qualify as foreseeable circumstances. For District One,
the projected operating expenses are based on the calculations from
Sub-steps 1.A through 1.C and the aforementioned foreseeable
circumstances. Table 8 shows these projections.

                               Table 8--Projected Operating Expenses, District One
----------------------------------------------------------------------------------------------------------------
                                                      Area 1                  Area 2
                                                 ----------------        ----------------
       Reported Expenses for 2010                  St. Lawrence                                        Total
                                                       River               Lake Ontario
----------------------------------------------------------------------------------------------------------------
Total operating expenses................                $547,631                $432,207                $979,838
Inflation adjustment 3.2%...............       +          17,524       +          13,831       +          31,355
Director's adjustment & foreseeable
 circumstances:
    Pilot boat mortgage payments........       +          26,429       +          20,815       +          47,244
    Pilot boat insurance................       +           7,221       +           5,687       +          12,908
                                         -----------------------------------------------------------------------
        Total projected expenses for           =        $598,805       =        $472,540       =      $1,071,344
         2012 pilotage season...........
----------------------------------------------------------------------------------------------------------------
Note: Numbers may not total due to rounding.

    During the audit for the 2013 Appendix A rulemaking, the
independent accountant informed us that District Two applied for and
received a COBRA subsidy for the first and second quarter of 2010. The
American Recovery and Reinvestment Act of 2009 provided for a temporary
premium subsidy for COBRA continuation coverage. The amount of the
COBRA insurance subsidy for the period 2010 was $60,460. Federal taxes
of $18,400 are accounted for in Step 6 (Federal Tax Allowance). For
District Two, the projected operating expenses are based on the
calculations from Sub-steps 1.A through 1.C, the COBRA subsidy, and
Federal taxes. Table 9 shows these projections.

                               Table 9--Projected Operating Expenses, District Two
----------------------------------------------------------------------------------------------------------------
                                                      Area 4                  Area 5
                                                 ----------------        ----------------
       Reported Expenses for 2010                                            Southeast                 Total
                                                     Lake Erie             Shoal to Port
                                                                             Huron, MI
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses................                $542,369                $813,554              $1,355,924
Inflation Adjustment 3.2%...............       +          17,356       +          26,034       +          43,390
Director's adjustment & foreseeable
 circumstances
    American Recovery and Reinvestment         +        (24,184)       +        (36,276)       +        (60,460)
     Act Subsidy........................
    Federal taxes (accounted for in Step       +         (7,360)       +        (11,040)       +        (18,400)
     6).................................
                                         -----------------------------------------------------------------------
        Total projected expenses for           =         528,182       =         792,272       =       1,320,454
         2013 pilotage season...........
----------------------------------------------------------------------------------------------------------------

    Because we are not now aware of any such foreseeable circumstances
for District 3, its projected operating expenses are based exclusively
on the calculations from Sub-steps 1.A through 1.C. Table 10 shows
these projections.

                                                 Table 10--Projected Operating Expenses, District Three
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                      Area 6                  Area 7                  Area 8
                                                                 ----------------        ----------------        ----------------
               Reported Expenses for 2010                           Lakes Huron             St. Mary's                                         Total
                                                                   and Michigan                River               Lake Superior
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total expenses..........................................                $730,866                $351,494                $466,081              $1,548,441
Inflation adjustment 3.2%...............................       +          23,388       +          11,248       +          14,915       +          49,550
                                                         -----------------------------------------------------------------------------------------------
    Total projected expenses for 2013 pilotage season...       =         754,254       =         362,742       =         480,996       =       1,597,991
--------------------------------------------------------------------------------------------------------------------------------------------------------

    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 2013.
    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 pilots on designated waters by
multiplying the average first mates' wages by 150 percent and then
adding the average first mates' benefits. In prior rulemakings, the
AMOU shared the individual compensation components for first mates and
the scheme for applying these components. We took each component and
applied the scheme to determine a monthly value. We then multiplied
this monthly value by 9 months, because the Great Lakes shipping season
for pilotage lasts from around the end of March to around the end of
December (approximately 9 months). We then created a table that
combined all of the components to determine the target pilot
compensation for a given year.
    As we discussed in part V of this preamble, the AMOU contract
changed after we published our August 2012 NPRM. The values stipulated
by AMOU that we now use are aggregates. These aggregates include the
daily wage rate, vacation pay, pension plan contributions, and medical
plan contributions; these represent the components we previously
calculated in separate tables using the scheme outlined in the
contract. Using these aggregates eliminates the need to calculate each
component separately and reduces the number of tables we need to
demonstrate our calculations, but otherwise it does not affect how AMOU
contract data is factored into our ratemaking methodology.
    According to the information provided by the AMOU, new contracts
will take effect August 1, 2013 and will expire July 31, 2016, and they
set the following aggregate daily rates: in undesignated waters,
$592.92 for Agreement A and $585.57 for Agreement B; in designated
waters, $816.09 for Agreement A and $803.24 for Agreement B.
    Because we are interested in annual compensation, we must convert
these daily rates. In past contracts, the AMOU used monthly
multipliers, and we then applied those monthly multipliers over the
average 9-month length of the Great Lakes shipping season to determine
annual compensation. The latest AMOU contracts no longer use monthly
multipliers, but instead use a 270-day multiplier which reflects an
average 30-day month, over the 9 months of the average shipping season.
Table 11 shows our calculations using the 270-day multiplier.

          Table 11--Projected Annual Aggregate Rate Components
------------------------------------------------------------------------

------------------------------------------------------------------------
    Aggregate Rate--Wages and Vacation, Pension, and Medical Benefits
------------------------------------------------------------------------
                      Pilots on Undesignated Waters
------------------------------------------------------------------------
Agreement A:
    $592.92 daily rate x 270 days.......................     $160,088.40
Agreement B:
    $585.57 daily rate x 270 days.......................     $158,103.90
------------------------------------------------------------------------
                       Pilots on Designated Waters
------------------------------------------------------------------------
Agreement A:
    $816.09 daily rate x 270 days.......................     $220,334.30
Agreement B:
    1$803.24 daily rate x 270 days......................     $216,874.80
------------------------------------------------------------------------

    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 12 provides details.

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

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

                                     Table 13--Tonnage-weighted Compensation
----------------------------------------------------------------------------------------------------------------
                                                                           Undesignated             Designated
                                                                              waters                  waters
----------------------------------------------------------------------------------------------------------------
Agreement A:
    Total wages and benefits....................................  ......     $160,088.40             $220,344.30
    Percent tonnage.............................................       x        29.7238%       x        29.7238%
                                                                 -----------------------------------------------
        Total...................................................       =         $47,584       =         $65,495
                                                                 -----------------------------------------------
Agreement B:
    Total wages and benefits....................................  ......        $158,104                $216,875
    Percent tonnage.............................................       x        70.2762%       x        70.2762%
                                                                 -----------------------------------------------
        Total...................................................       =        $111,109       =        $152,411
----------------------------------------------------------------------------------------------------------------
Projected Target Rate of Compensation:
    Agreement A total weighted average wages and benefits.......  ......         $47,584                 $65,495
    Agreement B total weighted average wages and benefits.......       +        $111,109       +        $152,411
                                                                 -----------------------------------------------
        Total...................................................       =        $158,694       =        $217,906
----------------------------------------------------------------------------------------------------------------

    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 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, we do not include, and never have included,
pilot delay, detention, or cancellation in calculating bridge hours.
See 76 FR 6351 at 6352 col. 3; Feb. 4, 2011. 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 2012 final rule, we determined that 38 pilots would be
needed for ratemaking purposes. We have determined that 38 remains the
proper number to use for ratemaking purposes in 2013. This 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 final
rule for the 2008 ratemaking (74 FR 220 at 221-22 Jan. 5, 2009), which
is available in the docket, we have determined that this adjustment is
essential for ensuring uninterrupted pilotage service in Area 2. Table
14 shows the bridge hours we project will be needed for each area and
our calculations to determine the number of whole pilots needed for
ratemaking purposes.

                                        Table 14--Number of Pilots Needed
----------------------------------------------------------------------------------------------------------------
                                                            Divided by
                                                               1,000
                                                            (designated             Calculated
          Pilotage area           Projected 2013            waters) or            value of pilot   Pilots needed
                                   bridge hours                1,800                  demand       (total = 38)
                                                           (undesignated
                                                              waters)
----------------------------------------------------------------------------------------------------------------
Area 1 (Designated waters)......           5,216       /           1,000       =           5.216               6
Area 2 (Undesignated waters)....           5,509       /           1,800       =           3.061               5
Area 4 (Undesignated waters)....           6,814       /           1,800       =           3.785               4
Area 5 (Designated waters)......           5,102       /           1,000       =           5.102               6
Area 6 (Undesignated waters)....          11,411       /           1,800       =           6.339               7
Area 7 (Designated waters)......           3,223       /           1,000       =           3.223               4
Area 8 (Undesignated waters)....           9,540       /           1,800       =           5.300               6
----------------------------------------------------------------------------------------------------------------

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

                            Table 15--Projection of Target Pilot Compensation by Area
----------------------------------------------------------------------------------------------------------------
                                                                          Target rate of             Projected
                  Pilotage area                    Pilots needed               pilot               target pilot
                                                   (total = 38)            compensation            compensation
----------------------------------------------------------------------------------------------------------------
Area 1 (Designated waters)......................               6       x        $217,906       =      $1,307,436
Area 2 (Undesignated waters)....................               5       x         158,694       =         793,469
Area 4 (Undesignated waters)....................               4       x         158,694       =         634,775
Area 5 (Designated waters)......................               6       x         217,906       =       1,307,436
Area 6 (Undesignated waters)....................               7       x         158,694       =       1,110,856
Area 7 (Designated waters)......................               4       x         217,906       =         871,624
Area 8 (Undesignated waters)....................               6       x         158,694       =         952,163
----------------------------------------------------------------------------------------------------------------
Note: Numbers may not total due to rounding.

    Step 3 and 3.A: Projection of Revenue. In this step, we project the
revenue that would be received in 2013 if demand for pilotage services
matches the bridge hours we projected in Table 14, and if 2012 pilotage
rates were left unchanged. Table 16 shows this calculation.

                                     Table 16--Projection of Revenue by Area
----------------------------------------------------------------------------------------------------------------
                                                                                Revenue
                  Pilotage area                   Projected 2013           2012 Pilotage            projection
                                                   bridge hours                rates                 for 2013
----------------------------------------------------------------------------------------------------------------
Area 1 (Designated waters)......................           5,216       x         $467.58       =      $2,438,897
Area 2 (Undesignated waters)....................           5,509       x          289.72       =       1,596,067
Area 4 (Undesignated waters)....................           6,814       x          188.54       =       1,284,712
Area 5 (Designated waters)......................           5,102       x          504.11       =       2,571,969
Area 6 (Undesignated waters)....................          11,411       x          191.69       =       2,187,375
Area 7 (Designated waters)......................           3,223       x          480.26       =       1,547,878
Area 8 (Undesignated waters)....................           9,540       x          183.87       =       1,754,120
                                                 ---------------------------------------------------------------
    Total.......................................  ..............          ..............              13,381,018
----------------------------------------------------------------------------------------------------------------

    Step 4: Calculation of Investment Base. This step calculates each
association's investment base, 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 17 through 19 follow the formula up to
that point.

             Table 17--Total Sources of Funds, District One
------------------------------------------------------------------------
                                              Area 1            Area 2
------------------------------------------------------------------------
Recognized Assets:
    Total Current Assets............  ...     $681,485  ...     $537,847
    Total Current Liabilities.......   -        78,005   -        61,564
    Current Notes Payable...........   +        22,168   +        17,496
    Total Property and Equipment       +       374,021   +       295,189
     (NET)..........................
    Land............................   -        12,315   -         9,720
    Total Other Assets..............   +             0   +             0
                                     -----------------------------------
    Total Recognized Assets.........   =       987,354   =       779,248
Non-Recognized Assets:
    Total Investments and Special      +         6,103   +         4,817
     Funds..........................
                                     -----------------------------------
        Total Non-Recognized Assets.   =         6,103   =         4,817
Total Assets:
    Total Recognized Assets.........  ...      987,354  ...      779,248
    Total Non-Recognized Assets.....   +         6,103   +         4,817
                                     -----------------------------------
        Total Assets................   =       993,457   =       784,065
Recognized Sources of Funds:
    Total Stockholder Equity........  ...      659,702  ...      520,656
    Long-Term Debt..................   +       323,902   +       255,633
    Current Notes Payable...........   +        22,168   +        17,496
    Advances from Affiliated           +             0   +             0
     Companies......................
    Long-Term Obligations--Capital     +             0   +             0
     Leases.........................
                                     -----------------------------------
        Total Recognized Sources....   =     1,005,772   =       793,785
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........  ...    1,005,772  ...      793.785
    Total Non-Recognized Sources....   +             0   +             0
        Total Sources of Funds......   =     1,005,772   =       793,785
------------------------------------------------------------------------

             Table 18--Total Sources of Funds, District Two
------------------------------------------------------------------------
                                              Area 4            Area 5
------------------------------------------------------------------------
Recognized Assets:
    Total Current Assets............  ...     $454,842  ...   $1,026,731
    Total Current Liabilities.......   -       449,157   -     1,013,899
    Current Notes Payable...........   +             0   +             0
    Total Property and Equipment       +       312,858   +       706,224
     (NET)..........................
    Land............................   -             0   -             0
    Total Other Assets..............   +             0   +             0
                                     -----------------------------------
        Total Recognized Assets.....   =       318,543   =       719,056
Non-Recognized Assets:
    Total Investments and Special      +             0   +             0
     Funds..........................
                                     -----------------------------------
        Total Non-Recognized Assets.   =             0   =             0
Total Assets:
    Total Recognized Assets.........  ...      318,543  ...      719,056
    Total Non-Recognized Assets.....   +             0   +             0
                                     -----------------------------------
        Total Assets................   =       318,543   =       719,056
Recognized Sources of Funds:
    Total Stockholder Equity........  ...       60,920  ...      137,517
    Long-Term Debt..................   +       257,622   +       581,540
    Current Notes Payable...........   +             0   +             0
    Advances from Affiliated           +             0   +             0
     Companies......................
    Long-Term Obligations--Capital     +             0   +             0
     Leases.........................
                                     -----------------------------------
        Total Recognized Sources....   =       318,542   =       719,057
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........  ...      318,542  ...      719,057
    Total Non-Recognized Sources....   +             0   +             0
                                     -----------------------------------
        Total Sources of Funds......   =       318,542   =       719,057
------------------------------------------------------------------------

                                Table 19--Total Sources of Funds, District Three
----------------------------------------------------------------------------------------------------------------
                                                                    Area 6            Area 7            Area 8
----------------------------------------------------------------------------------------------------------------
Recognized Assets:
    Total Current Assets..................................  ...   $1,009,619  ...     $485,558  ...     $643,846
    Total Current Liabilities.............................   -       123,906   -        59,590   -        79,016
    Current Notes Payable.................................   +             0   +             0   +             0
    Total Property and Equipment (NET)....................   +        35,709   +        17,174   +        22,772
    Land..................................................   -             0   -             0   -             0
    Total Other Assets....................................   +           354   +           170   +           226
                                                           -----------------------------------------------------
        Total Recognized Assets...........................   =       921,776   =       443,312   =       587,828

Non-Recognized Assets:
    Total Investments and Special Funds...................   +             0   +             0   +             0
                                                           -----------------------------------------------------
        Total Non-Recognized Assets.......................   =             0   =             0   =             0

Total Assets:
    Total Recognized Assets...............................  ...      921,776  ...      443,312  ...      587,828
    Total Non-Recognized Assets...........................   +             0   +             0   +             0
                                                           -----------------------------------------------------
        Total Assets......................................   =       921,776   =       443,312   =       587,828

Recognized Sources of Funds:
    Total Stockholder Equity..............................  ...      921,776  ...      443,312  ...      587,828
    Long-Term Debt........................................   +             0   +             0   +             0
    Current Notes Payable.................................   +             0   +             0   +             0
    Advances from Affiliated Companies....................   +             0   +             0   +             0
    Long-Term Obligations--Capital Leases.................   +             0   +             0   +             0
                                                           -----------------------------------------------------
        Total Recognized Sources..........................   =       921,776   =       443,321   =       587,828

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..............................  ...      921,776  ...      443,321  ...      587,828
    Total Non-Recognized Sources..........................   +             0   +             0   +             0
                                                           -----------------------------------------------------

        Total Sources of Funds............................   =       921,776   =       443,321   =       587,828
----------------------------------------------------------------------------------------------------------------

    Tables 17 through 19 also relate to the second part of the formula
for calculating the investment base. The second part establishes a
ratio between recognized sources of funds and total sources of funds.
Since no non-recognized sources of funds (sources we do not recognize
as required to support pilotage operations) exist for any of the
pilots' 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 20 applies the multiplier of
``1,'' and shows that the investment base for each association equals
its total recognized assets. Table 20 also expresses these results by
area, because area results will be needed in subsequent steps.

                                                     Table 20--Investment Base by Area and District
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Recognized                        Multiplier (ratio
               District                        Area         Total recognized   sources of funds   Total sources of   of recognized to   Investment base
                                                              assets  ($)            ($)             funds  ($)       total sources)        ($) \1\
--------------------------------------------------------------------------------------------------------------------------------------------------------
One...................................                  1            987,354          1,005,772          1,005,772                  1            987,354
                                                        2            779,248            793,785            793,785                  1            779,248
                                                                                -------------------------------------
                                                                                TOTAL          1,766,602
                                                                                -------------------------------------
Two \2\...............................                  4            318,543            318,542            318,542                  1            318,543
                                                        5            719,056            719,057            719,057                  1            719,056
                                                                                -------------------------------------
                                                                                TOTAL          1,037,599
                                                                                -------------------------------------
Three.................................                  6            921,776            921,776            921,776                  1            921,776
                                                        7            443,312            443,312            443,312                  1            443,312
                                                        8            587,828            587,828            587,828                  1            587,828
                                                                                -------------------------------------
                                                                                TOTAL          1,952,916
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Note: ``Investment base'' = ``Total recognized assets'' x ``Multiplier (ratio of recognized to total sources)''.
\2\ Note: The pilots' associations that provide pilotage services in Districts One and Three operate as partnerships. The pilots' 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 return on investment (ROI) that will be allowed for
the recognized net capital invested in each association by its members.
We do not recognize capital that is unnecessary or unreasonable for
providing pilotage services. There are no non-recognized investments in
this year's calculations. The allowed ROI is based on the preceding
year's average annual rate of return for new issues of high-grade
corporate securities. For 2011, the preceding year, the allowed ROI was
a little more than 4.64 percent, based on the average rate of return
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 in the
adjustment determination requires an initial calculation, applying a
formula described in Appendix A. The formula uses the results from
Steps 1, 2, 3, and 4 to project the ROI that can be expected in each
area, if no further adjustments are made. This calculation is shown in
Tables 21 through 23.

             Table 21--Projected ROI, Areas in District One
------------------------------------------------------------------------
                                              Area 1            Area 2
------------------------------------------------------------------------
Revenue (from Step 3)...............   +    $2,438,897   +    $1,596,067
Operating Expenses (from Step 1)....   -       598,805   -       472,540
Pilot Compensation (from Step 2)....   -     1,307,436   -       793,469
Operating Profit/(Loss).............   =       532,656   =       330,059
Interest Expense (from audits)......   -        12,576   -         9,926
Earnings Before Tax.................   =       520,080   =       320,133
Federal Tax Allowance...............   -             0   -             0
Net Income..........................   =       520,080   =       320,133
Return Element (Net Income +          ...      532,656  ...      330,059
 Interest)..........................
Investment Base (from Step 4).......   /       987,354   /       779,248
Projected Return on Investment......   =          0.54   =          0.42
------------------------------------------------------------------------
Note: Numbers may not total due to rounding.

             Table 22--Projected ROI, Areas in District Two
------------------------------------------------------------------------
                                              Area 4            Area 5
------------------------------------------------------------------------
Revenue (from Step 3)...............   +    $1,284,712   +    $2,571,969
Operating Expenses (from Step 1)....   -       528,181   -       792,272
Pilot Compensation (from Step 2)....   -       634,775   -     1,307,436
Operating Profit/(Loss).............   =       121,756   =       472,261
Interest Expense (from audits)......   -         3,522   -         5,283
Earnings Before Tax.................   =       118,234   =       466,978
Federal Tax Allowance...............   -             0   -             0
Net Income..........................   =       118,234   =       466,978
Return Element (Net Income +          ...      121,756  ...      472,261
 Interest)..........................
Investment Base (from Step 4).......   /       318,543   /       719,056
Projected Return on Investment......   =          0.38   =          0.66
------------------------------------------------------------------------
Note: Numbers may not total due to rounding.

                                Table 23--Projected ROI, Areas in District Three
----------------------------------------------------------------------------------------------------------------
                                                                    Area 6            Area 7            Area 8
----------------------------------------------------------------------------------------------------------------
Revenue (from Step 3).....................................   +    $2,187,375   +    $1,547,878   +    $1,754,120
Operating Expenses (from Step 1)..........................   -       754,254   -       362,742   -       480,996
Pilot Compensation (from Step 2)..........................   -     1,110,856   -       871,624   -       952,163
Operating Profit/(Loss)...................................   =       322,264   =       313,512   =       320,962
Interest Expense (from audits)............................   -         1,537   -           739   -           980
Earnings Before Tax.......................................   =       320,727   =       312,773   =       319,982
Federal Tax Allowance.....................................   -             0   -             0   -             0
Net Income................................................   =       320,727   =       312,773   =       319,982
Return Element (Net Income + Interest)....................  ...      322,264  ...      313,512  ...      320,962
Investment Base (from Step 4).............................   /       921,776   /       443,312   /       587,828
Projected Return on Investment............................   =          0.35   =          0.71   =          0.55
----------------------------------------------------------------------------------------------------------------
Note: Numbers may not total due to rounding.

    The second sub-step required for Step 6 compares the results of
Tables 21 through 23 with the target ROI (approximately 4.64 percent)
we obtained in Step 5 to determine if an adjustment to the base
pilotage rate is necessary. Table 24 shows this comparison for each
area.

                                            Table 24--Comparison of Projected ROI and Target ROI, by Area \1\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                              Area 1          Area 2          Area 4          Area 5          Area 6          Area 7          Area 8
                                         ---------------------------------------------------------------------------------------------------------------
                                                                                Southeast
                                           St. Lawrence    Lake Ontario      Lake Erie     Shoal to Port    Lakes Huron     St. Mary's     Lake Superior
                                               River                                         Huron, MI     and Michigan        River
--------------------------------------------------------------------------------------------------------------------------------------------------------
Projected return on investment..........           0.539           0.424           0.382           0.657           0.350           0.707           0.546

Target return on investment.............           0.046           0.046           0.046           0.046           0.046           0.046           0.046
Difference in return on investment......           0.493           0.377           0.336           0.610           0.303           0.661           0.500
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\Note: Decimalization and rounding of the target ROI affects the display in this table but does not affect our calculations, which are based on the
  actual figure.

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

                                                 Table 25--Revenue Needed To Recover Target ROI, by Area
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Investment
                                             Operating             Target Pilot            Base (Step 4)            Federal Tax
              Pilotage area                  Expenses              Compensation           x 4.64 (Target             Allowance            Revenue Needed
                                             (Step 1)                (Step 2)               ROI Step 5)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Area 1 (Designated waters)..............        $598,805       +      $1,307,436       +         $45,813       +              $0       =      $1,952,054
Area 2 (Undesignated waters)............         472,540       +         793,469       +          36,157       +               0       =       1,302,166
Area 4 (Undesignated waters)............         528,181       +         634,775       +          14,780       +           7,360       =       1,185,096
Area 5 (Designated waters)..............         792,272       +       1,307,436       +          33,364       +          11,040       =       2,144,112
Area 6 (Undesignated waters)............         754,254       +       1,110,856       +          42,770       +               0       =       1,907,881
Area 7 (Designated waters)..............         362,742       +         871,624       +          20,570       +               0       =       1,254,936
Area 8 (Undesignated waters)............         480,996       +         952,163       +          27,275       +               0       =       1,460,433
                                         ---------------------------------------------------------------------------------------------------------------
    Total...............................       3,989,788       +       6,977,760       +         220,730       +          18,400       =      11,206,678
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The ``Revenue Needed'' column of Table 25 is less than the revenue
we projected in Table 16. For purposes of transparency, we verify Table
25's calculations by rerunning the first part of Step 6, using the
revenue needed from Table 25 instead of the Table 16 revenue
projections we used in Tables 21 through 23. Tables 26 through 28 show
that attaining the Table 25 revenue needed is sufficient to recover
target ROI.

     Table 26--Balancing Revenue Needed and Target ROI, District One
------------------------------------------------------------------------
                                              Area 1            Area 2
------------------------------------------------------------------------
Revenue Needed......................   +    $1,952,054   +    $1,302,166
Operating Expenses (from Step 1)....   -       598,805   -       472,540
Pilot Compensation (from Step 2)....   -     1,307,436   -       793,469
Operating Profit/(Loss).............   =        45,813   =        36,157
Interest Expense (from audits)......   -        12,576   -         9,926
Earnings Before Tax.................   =        33,237   =        26,231
Federal Tax Allowance...............   -             0   -             0
Net Income..........................   =        33,237   =        26,231
Return Element (Net Income +          ...       45,813  ...       36,157
 Interest)..........................
Investment Base (from Step 4).......   /       987,354   /       779,248
Return on Investment................   =        0.0464   =        0.0464
------------------------------------------------------------------------

     Table 27--Balancing Revenue Needed and Target ROI, District Two
------------------------------------------------------------------------
                                              Area 4            Area 5
------------------------------------------------------------------------
Revenue Needed......................   +    $1,185,096   +    $2,144,112
Operating Expenses (from Step 1)....   -       528,181   -       792,272
Pilot Compensation (from Step 2)....   -       634,775   -     1,307,436
Operating Profit/(Loss).............   =        22,140   =        44,404
Interest Expense (from audits)......   -         3,522   -         5,283
Earnings Before Tax.................   =        18,616   =        39,115
Federal Tax Allowance...............   -         7,360   -        11,040
Net Income..........................   =        11,258   =        28,081
Return Element (Net Income +          ...       14,780  ...       33,364
 Interest)..........................
Investment Base (from Step 4).......   /       318,543   /       719,056

Return on Investment................   =        0.0464   =        0.0464
------------------------------------------------------------------------

                        Table 28--Balancing Revenue Needed and Target ROI, District Three
----------------------------------------------------------------------------------------------------------------
                                                                    Area 6            Area 7            Area 8
----------------------------------------------------------------------------------------------------------------
Revenue Needed............................................   +    $1,907,881   +    $1,254,936   +    $1,460,433
Operating Expenses (from Step 1)..........................   -       754,254   -       362,742   -       480,996
Pilot Compensation (from Step 2)..........................   -     1,110,856   -       871,624   -       952,163
Operating Profit/(Loss)...................................   =        42,770   =        20,570   =        27,275
Interest Expense (from audits)............................   -         1,537   -           739   -           980
Earnings Before Tax.......................................   =        41,233   =        19,831   =        26,295
Federal Tax Allowance.....................................   -             0   -             0   -             0
Net Income................................................   =        41,233   =        19,831   =        26,295
Return Element (Net Income + Interest)....................            42,770            20,570            27,275
Investment Base (from Step 4).............................   /       921,776   /       443,312   /       587,828
Return on Investment......................................   =        0.0464   =        0.0464   =        0.0464
----------------------------------------------------------------------------------------------------------------

    Step 7: Adjustment of Pilotage Rates. This step calls for us to
divide the Step 6 revenue needed (Table 25) by the Step 3 revenue
projection (Table 16), to give us a rate multiplier for each area.
Tables 29 through 31 show these calculations.

                                Table 29--Rate Multiplier, Areas in District One
----------------------------------------------------------------------------------------------------------------
                                                                            Area 1  St.             Area 2 Lake
                     Ratemaking projections                               Lawrence River              Ontario
----------------------------------------------------------------------------------------------------------------
Revenue Needed (from Step 6)....................................              $1,952,046              $1,302,159
Revenue (from Step 3)...........................................       /       2,438,897       /       1,596,067
Rate Multiplier.................................................       =          0.8004       =          0.8159
----------------------------------------------------------------------------------------------------------------

                                Table 30--Rate Multiplier, Areas in District Two
----------------------------------------------------------------------------------------------------------------
                                                                                Area 5
                                                                            Area 4 Lake              Southeast
                     Ratemaking projections                                    Erie                Shoal to Port
                                                                                Huron, MI
----------------------------------------------------------------------------------------------------------------
Revenue Needed (from Step 6)....................................              $1,185,094              $2,144,106
Revenue (from Step 3)...........................................       /       1,284,712       /       2,571,969
Rate Multiplier.................................................       =          0.9225       =          0.8336
----------------------------------------------------------------------------------------------------------------

                               Table 31--Rate Multiplier, Areas in District Three
----------------------------------------------------------------------------------------------------------------
                                                   Area 6 Lakes
         Ratemaking projections                      Huron and              Area 7 St.              Area 8 Lake
                                                     Michigan              Mary's River              Superior
----------------------------------------------------------------------------------------------------------------
Revenue Needed (from Step 6)............              $1,907,873              $1,254,932              $1,460,429
Revenue (from Step 3)...................       /       2,187,375       /       1,547,878       /       1,754,120
Rate Multiplier.........................       =          0.8722       =          0.8107       =          0.8326
----------------------------------------------------------------------------------------------------------------

    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
16.25 percent in all areas.
    We then calculate a rate multiplier for adjusting the basic rates
and charges described in 46 CFR 401.420 and 401.428 and applicable in
all areas. We divide total revenue needed (Step 6, Table 25) by total
projected revenue (Step 3 & 3A, Table 16). Table 32 shows this
calculation.

 Table 32--Rate Multiplier for Basic Rates and Charges in 46 CFR 401.420
                               and 401.428
------------------------------------------------------------------------
         Ratemaking projections
------------------------------------------------------------------------
Total Revenue Needed (from Step 6).....                   $11,206,638.64
Total revenue (from Step 3)............       /           $13,381,017.91

Rate Multiplier........................       =                    0.838
------------------------------------------------------------------------

    Without further action, the existing rates we established in our
2012 final rule would then be multiplied by the rate multipliers from
Tables 29 through 31 to calculate the area by area rate changes for
2013. The resulting 2013 rates, on average, would then be decreased
almost 16 percent from the 2012 rates, instead of increasing almost 2
percent as we proposed in our August 2012 NPRM. We decline to impose
that decrease; but instead, we are relying on the discretionary
authority we have under Step 7 to further adjust rates. Table 33
compares the impact, area by area, that an average decrease of almost
16 percent would have, relative to the impact each area will actually
experience as a result of this final rule.

            Table 33--Impact of Exercising Step 7 Discretion
------------------------------------------------------------------------
                                          Percent change
                                              without     Percent change
                  Area                      exercising     with exercise
                                              Step 7         of Step 7
                                            discretion      discretion
------------------------------------------------------------------------
Area 1 (Designated waters)..............          -19.96           -1.41
Area 2 (Undesignated waters)............          -18.41           -1.69
Area 4 (Undesignated waters)............           -7.75            8.87
Area 5 (Designated waters)..............          -16.64            0.95
Area 6 (Undesignated waters)............          -12.78            4.31
Area 7 (Designated waters)..............          -18.93            0.56
Area 8 (Undesignated waters)............          -16.74            1.52
------------------------------------------------------------------------

    Our discretionary authority under Step 7 must be ``based on
requirements of the Memorandum of Arrangements between the United
States and Canada, and other supportable circumstances that may be
appropriate.'' The Memorandum of Arrangements calls for comparable U.S.
and Canadian rates, and the rates would not be comparable if U.S. rates
decrease by 16 percent, while Canadian rates for 2013 increase by 2.5
percent.\3\ ``Other supportable circumstances'' we have for exercising
our discretion include recent Executive Order 13609, which calls on
Federal agencies to eliminate ``unnecessary differences'' between U.S.
and foreign regulations (77 FR 26413, sec. 1), and the possibility that
a 16 percent rate decrease would jeopardize the ability of the three
pilotage associations to provide safe, dependable service. (In the case
of one association, our examination of that association's financial
data suggests it could not survive such a rate decrease.)
---------------------------------------------------------------------------

    \3\ The Canadian Great Lakes Pilotage Authority (GLPA)
originally recommended a 2013 rate increase of 4 percent based on
GLPA's analysis of the revenue needed to cover the costs of
providing pilotage service for GLPA clients, but reduced that figure
to 2.5 percent based in large part on our NPRM's proposed average
1.87 percent increase.
---------------------------------------------------------------------------

    The following tables reflect the rate adjustments we proposed in
our August 2012 NPRM. We are finalizing the values from the NPRM in
this rulemaking.
    Tables 34 through 36 show these calculations.

                          Table 34--Adjustment of Pilotage Rates, Areas in District One
----------------------------------------------------------------------------------------------------------------
                                                                               Rate
                                                                            multiplier             Adjusted rate
                                                     2012 Rate              (2013 APP A              for 2013
                                                                               NPRM)
----------------------------------------------------------------------------------------------------------------
Area 1
St. Lawrence River:
    Basic Pilotage..............................      $19.02/km,       x           0.986       =      $18.75/km,
                                                       $33.67/mi                                       $33.19/mi
    Each lock transited.........................            $422       x           0.986       =            $416
    Harbor movage...............................          $1,381       x           0.986       =          $1,361
    Minimum basic rate, St. Lawrence River......            $921       x           0.986       =            $908
    Maximum rate, through trip..................          $4,041       x           0.986       =          $3,984
Area 2
Lake Ontario:
    6-Hour period...............................            $865       x           0.983       =            $851
    Docking or Undocking........................            $826       x           0.983       =            $812
----------------------------------------------------------------------------------------------------------------
Note: Numbers may not total due to rounding.

                          Table 35--Adjustment of Pilotage Rates, Areas in District Two
----------------------------------------------------------------------------------------------------------------
                                                                               Rate
                                                                            multiplier             Adjusted rate
                                                     2012 Rate              (2013 APP A              for 2013
                                                                               NPRM)
----------------------------------------------------------------------------------------------------------------
Area 4
Lake Erie:
    6-Hour period...............................            $760       x           1.089       =            $828
    Docking or undocking........................            $585       x           1.089       =            $637
    Any point on Niagara River below Black Rock           $1,493       x           1.089       =          $1,626
     Lock.......................................
Area 5
Southeast Shoal to Port Huron, MI between any
 point on or in:
    Toledo or any point on Lake Erie W. of                $1,369       x           1.010       =          $1,382
     Southeast Shoal............................
    Toledo or any point on Lake Erie W. of                $2,317       x           1.010       =          $2,339
     Southeast Shoal & Southeast Shoal..........
    Toledo or any point on Lake Erie W. of                $3,008       x           1.010       =          $3,037
     Southeast Shoal & Detroit River............
    Toledo or any point on Lake Erie W. of                $2,317       x           1.010       =          $2,339
     Southeast Shoal & Detroit Pilot Boat.......
    Port Huron Change Point & Southeast Shoal             $4,036       x           1.010       =          $4,074
     (when pilots are not changed at the Detroit
     Pilot Boat)................................
    Port Huron Change Point & Toledo or any               $4,675       x           1.010       =          $4,719
     point on Lake Erie W. of Southeast Shoal
     (when pilots are not changed at the Detroit
     Pilot Boat)................................
    Port Huron Change Point & Detroit River.....          $3,031       x           1.010       =          $3,060
    Port Huron Change Point & Detroit Pilot Boat          $2,358       x           1.010       =          $2,381
    Port Huron Change Point & St. Clair River...          $1,677       x           1.010       =          $1,693
    St. Clair River.............................          $1,369       x           1.010       =          $1,382
    St. Clair River & Southeast Shoal (when               $4,036       x           1.010       =          $4,074
     pilots are not changed at the Detroit Pilot
     Boat)......................................
    St. Clair River & Detroit River/Detroit               $3,031       x           1.010       =          $3,060
     Pilot Boat.................................
    Detroit, Windsor, or Detroit River..........          $1,369       x           1.010       =          $1,382
    Detroit, Windsor, or Detroit River &                  $2,317       x           1.010       =          $2,339
     Southeast Shoal............................
    Detroit, Windsor, or Detroit River & Toledo           $3,008       x           1.010       =          $3,037
     or any point on Lake Erie W. of Southeast
     Shoal......................................
    Detroit, Windsor, or Detroit River & St.              $3,031       x           1.010       =          $3,060
     Clair River................................
    Detroit Pilot Boat & Southeast Shoal........          $1,677       x           1.010       =          $1,693
    Detroit Pilot Boat & Toledo or any point on           $2,317       x           1.010       =          $2,339
     Lake Erie W. of Southeast Shoal............
    Detroit Pilot Boat & St. Clair River........          $3,031       x           1.010       =          $3,060
----------------------------------------------------------------------------------------------------------------
Note: Numbers may not total due to rounding.

                         Table 36--Adjustment of Pilotage Rates, Areas in District Three
----------------------------------------------------------------------------------------------------------------
                                                                               Rate
                                                                            multiplier             Adjusted rate
                                                     2012 Rate              (2013 APP A              for 2013
                                                                               NPRM)
----------------------------------------------------------------------------------------------------------------
Area 6 Lakes Huron and Michigan:
    6-Hour Period...............................            $662       x           1.043       =            $691
    Docking or undocking........................            $629       x           1.043       =            $656
Area 7 St. Mary's River between any point on or
 in:
    Gros Cap & De Tour..........................          $2,568       x           1.006       =          $2,583
    Algoma Steel Corp. Wharf, Sault Ste. Marie,           $2,568       x           1.006       =          $2,583
     Ont. & De Tour.............................
    Algoma Steel Corp. Wharf, Sault Ste. Marie,             $967       x           1.006       =            $973
     Ont. & Gros Cap............................
    Any point in Sault St. Marie, Ont., except            $2,153       x           1.006       =          $2,165
     the Algoma Steel Corp. Wharf & De Tour.....
    Any point in Sault St. Marie, Ont., except              $967       x           1.006       =            $973
     the Algoma Steel Corp. Wharf & Gros Cap....
    Sault Ste. Marie, MI & De Tour..............          $2,153       x           1.006       =          $2,165
    Sault Ste. Marie, MI & Gros Cap.............            $967       x           1.006       =            $973
    Harbor movage...............................            $967       x           1.006       =            $973
Area 8 Lake Superior:
    6-Hour period...............................            $577       x           1.015       =            $586
    Docking or undocking........................            $549       x           1.015       =            $557
----------------------------------------------------------------------------------------------------------------
Note: Numbers may not total due to rounding.

VII. Regulatory Analyses

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

A. Regulatory Planning and Review

    Executive Orders (E.O.) 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. Accordingly, the
final rule has not been reviewed by the Office of Management and Budget
(OMB). Step 7 allows for discretion when making the rate. The
Memorandum of Arrangements between the United States and Canada calls
for comparable rates. As such, we maintain the rate increase presented
in the NPRM, resulting in an estimated cost to shippers of $148,000.
    A regulatory assessment follows.
    The Coast Guard is required to review and adjust pilotage rates on
the Great Lakes annually. See sections 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 of this rule, we are adjusting
the pilotage rates for the 2013 shipping season to generate sufficient
revenue to cover allowable expenses, and target pilot compensation and
returns on investment. The rate adjustments in this final rule will
lead to a cost in all three districts with an estimated cost to
shippers of approximately $148,000 across all three districts.
    This rule increases Great Lakes pilotage rates, on average,
approximately 1.87 percent overall from the current rates set in the
2012 final rule. This represents the same increase as proposed in the
NPRM. The Appendix A methodology is discussed and applied in detail in
section V of this preamble. Among other factors described in section V,
it reflects audited 2010 financial data from the pilots' associations
(the most recent year available for auditing), projected association
expenses, and regional inflation or deflation. The last full Appendix A
ratemaking was concluded in 2011 and used financial data from the 2009
base accounting year. The last annual rate review, conducted under 46
CFR part 404, Appendix C, was completed early in 2011.
    In general, we expect an increase in pilotage rates for a certain
area to result in additional costs for shippers using pilotage services
in that area, while a decrease will result in a cost reduction or
savings for shippers in that area. The shippers affected by these rate
adjustments are those owners and operators of domestic vessels
operating on register (employed in foreign trade) and owners and
operators of foreign vessels on a route within the Great Lakes system.
These owners and operators must have pilots or pilotage service as
required by 46 U.S.C. 9302. There is no minimum tonnage limit or
exemption for these vessels. The Coast Guard's interpretation is that
the statute applies only to commercial vessels and not to recreational
vessels.
    Owners and operators of other vessels that are not affected by this
rule, such as recreational boats and vessels only operating within the
Great Lakes system may elect to purchase pilotage services. However,
this election is voluntary and does not affect the Coast Guard's
calculation of the rate and is not a part of our estimated national
cost to shippers. Coast Guard sampling of pilot data suggests there are
very few U.S. domestic vessels, without registry and operating only in
the Great Lakes that voluntarily purchase pilotage services.
    We used 2008-2010 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 to
be 204 vessels that journey into the Great Lakes system. These vessels
entered the Great Lakes by transiting through or in part of at least
one of the three pilotage districts before leaving the Great Lakes
system. These vessels often make more than one distinct stop, docking,
loading, and unloading at facilities in Great Lakes ports. Of the total
trips for the 204 vessels, there were approximately 319 annual U.S.
port arrivals before the vessels left the Great Lakes system, based on
2008-2010 vessel data from MISLE.
    Historically, the impact of the rate adjustment to shippers is
estimated from the District pilotage revenues. These revenues represent
the direct and indirect costs that shippers must pay for pilotage
services. The Coast Guard sets rates so that revenues equal the
estimated cost of pilotage. For this rule, we base our rate on pilotage
revenues as reported for the NPRM, as discussed in step 7, despite new
data provided by AMOU.
    We estimate the additional impact (costs or savings) 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 2012 rate
adjustment and the total projected revenue needed to cover costs in
2013 as set forth in the NPRM. Table 37 details additional costs or
savings by area and district.

    Table 37--Rate Adjustment and Additional Impact of the Rule by Area and District ($U.S.; Non-Discounted)