the 2016 final rule ($326,114 per pilot). The addition of these pilots
to full working status accounts for $2,608,913 of the increase. The
remaining amount is attributed to inflation of operating expenses,
working capital fund, and differences in the surcharges from 2016.
---------------------------------------------------------------------------

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

                                  Table 44--Difference in Revenue by Component
----------------------------------------------------------------------------------------------------------------
                                                                                Difference (2017
                      Revenue component                        Revenue needed  Revenue needed    revenue -2016
                                                                   in 2016         in 2017          revenue)
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses..................................      $4,677,518      $4,927,636           $250,118
Total Target Pilot Compensation..............................      12,066,226      14,675,139          2,608,913
Working Capital Fund.........................................         709,934         815,475            105,541
                                                              --------------------------------------------------
    Total Revenue Needed, without Surcharge..................      17,453,678      20,418,250          2,964,572
Surcharge....................................................       1,650,000       1,350,000           -300,000
                                                              --------------------------------------------------
    Total Revenue Needed, with Surcharge.....................      19,103,678      21,768,252          2,664,574
----------------------------------------------------------------------------------------------------------------
* Values may not sum due to rounding.

Pilotage Rates as a Percentage of Vessel Operating Costs
    To estimate the impact of U.S. pilotage costs on the foreign
vessels affected by the rate adjustment, we looked at the pilotage
costs as a percentage of a vessel's costs for an entire voyage. The
part of the trip on the Great Lakes using a pilot is only a portion of
the whole trip. The affected vessels are often traveling from a foreign
port, and the days without a pilot on the total trip often exceed the
days a pilot is needed.
    To estimate this impact, we used 2013-2015 vessel arrival data from
the Coast Guard's Ship Arrival Notification System and pilotage billing
data from the GLPMS. A random sample of 50 arrivals was taken from
GLPMS data. To estimate the impact of pilotage costs on the costs of an
entire trip, we estimated the length of each one way trip. We used the
vessel name and the date of the arrival to find the last port of call
before entering the Great Lakes system. The date of the departure from
this port was used as the start date of the trip. To find the end date
of the trip we used GLPMS data to find all the pilotage charges
associated with this vessel during this trip in the Great Lakes system.
The end date of the one way trip was taken as the last pilotage charge
before beginning the trip to exit the system. We estimated the total
operating cost by multiplying the number of days for each by the 2015
average daily operating cost and added this to the total pilotage costs
from GLPMS for each trip. In 2015 the average daily operating costs
(excluding fixed costs) for Great Lakes bulkers and tankers ranged
roughly from $5,191 to $7,879.\29\ The total pilotage charges for each
trip were updated to the 2016 rates using the average rate increases in
the Great Lakes Pilotage Rates 2013-2016 Annual Review and Adjustments
final rules.\30\ The total updated pilotage charges for each trip were
then divided by the total operating cost of the trip. We found that for
a vessel's one-way trips, the U.S. pilotage costs could account for
approximately 16.99 percent \31\ of the total operating costs for a
foreign vessel's voyage using 2016 rates.
---------------------------------------------------------------------------

    \29\ ``Ship operating costs: Current and future trends,''
Richard Grenier, Moore Stephens LLP, December 2015. The 2015
weighted average operating cost is estimated at $5,191 for a
handysize bulker, $5,771 for a handymax bulker, and $7,879 for a
product tanker. These costs include only the costs of operating and
do not include any fixed costs of the vessels (such as amortization
of vessel construction costs). The operating costs include crew
wages, provisions, other crew costs, lubricating oils and store
costs, spares, repair and maintenance, P&I insurance, marine
insurance, registration costs, management fees, and sundry expenses.
    \30\ The average percentage changes in the rates for 2013-2016,
were 1.87%, 2.5%, 10%, and 12%, respectively.
    \31\ For the random sample of 50 arrivals, the average of the
pilotage costs as a percentage of the total operating costs was
16.9%. The percentages ranged from a low of 3.2% to a high of 35.2%.
---------------------------------------------------------------------------

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

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

Benefits
    This proposed rule would allow the Coast Guard to meet the
requirements in 46 U.S.C. 9303 to review the rates for pilotage
services on the Great Lakes. The rate changes would promote safe,
efficient, and reliable pilotage service on the Great Lakes by ensuring
rates cover an association's operating expenses; provide fair pilot
compensation, adequate training, and sufficient rest periods for
pilots; and ensures the association makes enough money to fund future
improvements. The rate changes will also help recruit and retain
pilots, which will ensure a sufficient number of pilots to meet peak
shipping demand, which would help reduce delays caused by pilot
shortages.
    The proposed amendment of the cancellation charge in Sec.
401.120(b) would prevent confusion and help ensure that it explicitly
states that the minimum charge for a cancellation is 4 hours. The
proposed limitation to the surcharge regulation in Sec.  401.401 would
prevent excess amounts from being recouped via the following year's
rule. The proposed adjustment to Sec.  403.300(c) to require submission
of an unqualified audit by January 31st of each year would allow our
independent auditors to begin work much sooner and complete work on the
third party audit in time to be used for the publication of the
proposed rule that summer. This timeline would remove 1 year from the
current 3-year gap between the actual expenses and their recoupment in
the rate. The proposed changes to Sec.  404.104 will promote target
compensation stability and rate predictability. The proposed changes to
Sec. Sec.  403.300(c) and 404.104 should assist the pilot associations
with recruitment and retention and help the various stakeholders
forecast budgets and pricing.

B. Small Entities

    Under the Regulatory Flexibility Act, 5 U.S.C. 601-612, we have
considered whether this proposed rule would have a significant economic
effect on a substantial number of small entities. The term ``small
entities'' comprises small businesses, not-for-profit organizations
that are independently owned and operated and are not dominant in their
fields, and governmental jurisdictions with populations of less than
50,000 people.
    For the proposed rule, we reviewed recent company size and
ownership data for the vessels identified in GLPMS and we reviewed
business revenue and size data provided by publicly available sources
such as MANTA \33\ and ReferenceUSA.\34\ As described in Section VI.A
of this preamble, Regulatory Planning and Review, we found that a total
of 407 unique vessels used pilotage services over the years 2013-2015.
These vessels are owned by 119 entities. We found that of the 119
entities that own or operate vessels engaged in trade on the Great
Lakes affected by this proposed rule, 104 are foreign entities that
operate primarily outside of the United States. The remaining 15
entities are U.S. entities. We compared the revenue and employee data
found in the company search to the Small Business Administration's
(SBA) Table of Small Business Size Standards \35\ to determine how many
of these companies are small entities. Table 45 shows the NAICS codes
of the U.S. entities and the small entity standard size established by
the Small Business Administration.
---------------------------------------------------------------------------

    \33\ See http://www.manta.com/.
    \34\ See http://resource.referenceusa.com/.
    \35\ Source: https://www.sba.gov/contracting/getting-started-contractor/make-sure-you-meet-sba-size-standards/table-small-business-size-standards. SBA has established a Table of Small
Business Size Standards, which is matched to NAICS industries. A
size standard, which is usually stated in number of employees or
average annual receipts (``revenues''), represents the largest size
that a business (including its subsidiaries and affiliates) may be
considered in order to remain classified as a small business for SBA
and Federal contracting programs.

                             Table 45--NAICS Codes and Small Entities Size Standards
----------------------------------------------------------------------------------------------------------------
                  NAICS                              Description                Small business size standard
----------------------------------------------------------------------------------------------------------------
238910..................................  Site Preparation Contractors....  $15 million.
441222..................................  Boat Dealers....................  $32.5 million.
483113..................................  Coastal & Great Lakes Freight     750 employees.
                                           Transportation.
483211..................................  Inland Water Freight              750 employees.
                                           Transportation.
483212..................................  Inland Water Passenger            500 employees.
                                           Transportation.
487210..................................  Scenic & Sightseeing              $7.5 million.
                                           Transportation, Water.
488320..................................  Marine Cargo Handling...........  $38.5 million.
488330..................................  Navigational Services to          $38.5 million.
                                           Shipping.
488510..................................  Freight Transportation            $15 million.
                                           Arrangement.
----------------------------------------------------------------------------------------------------------------

    The entities all exceed the SBA's small business standards for
small businesses. Further, these U.S. entities operate U.S.-flagged
vessels and are not required to have pilots as required by 46 U.S.C.
9302.
    In addition to the owners and operators of vessels affected by this
proposed rule, there are three U.S. entities affected by the proposed
rule that receive revenue from pilotage services. These are the three
pilot associations that provide and manage pilotage services within the
Great Lakes districts. Two of the associations operate as partnerships
and one operates as a corporation. These associations are designated
with the same NAICS industry classification and small-entity size
standards described above, but they have fewer than 500 employees;
combined, they have approximately 65 total employees. We expect no
adverse effect to these entities from this proposed rule because all
associations receive enough revenue to balance the projected expenses
associated with the projected number of bridge hours and pilots.
    We did not find any small not-for-profit organizations that are
independently owned and operated and are not dominant in their fields.
We did not find any small governmental jurisdictions with populations
of fewer than 50,000 people. Based on this analysis, we found this
proposed rulemaking, if promulgated, would not affect a substantial
number of small entities.
    Therefore, the Coast Guard certifies under 5 U.S.C. 605(b) that
this proposed rule would not have a significant economic impact on a
substantial number of small entities. If you think that your business,
organization, or governmental jurisdiction qualifies as a small entity
and that this proposed rule would have a significant economic impact on
it, please submit a comment to the Docket Management Facility at the
address under ADDRESSES. In your comment, explain why you think it
qualifies, as well as how and to what degree this proposed rule would
economically affect it.

C. Assistance for Small Entities

    Under section 213(a) of the Small Business Regulatory Enforcement
Fairness Act of 1996, Public Law 104-121, we want to assist small
entities in understanding this proposed rule so that they can better
evaluate its effects on them and participate in the rulemaking. If the
proposed rule would affect your small business, organization, or
governmental jurisdiction and you have questions concerning its
provisions or options for compliance, please consult Mr. Todd Haviland,
Director, Great Lakes Pilotage, Commandant (CG-WWM-2), Coast Guard;
telephone<PHONE_NUMBER>, email<EMAIL_ADDRESS>or fax 202-372-
1914. The Coast Guard will not retaliate against small entities that
question or complain about this rule or any policy or action of the
Coast Guard.
    Small businesses may send comments on the actions of Federal
employees who enforce, or otherwise determine compliance with, Federal
regulations to the Small Business and Agriculture Regulatory
Enforcement Ombudsman and the Regional Small Business Regulatory
Fairness Boards. The Ombudsman evaluates these actions annually and
rates each agency's responsiveness to small business. If you wish to
comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR
(1-888-734-3247).

D. Collection of Information

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

E. Federalism

    A rule has implications for federalism under Executive Order 13132,
Federalism, if it has a substantial direct effect on the States, on the
relationship between the national government and the States, or on the
distribution of power and responsibilities among the various levels of
government. We have analyzed this proposed rule under that order and
have determined that it is consistent with the fundamental federalism
principles and preemption requirements described in Executive Order
13132. Our analysis follows.
    Congress directed the Coast Guard to establish ``rates and charges
for pilotage services.'' 46 U.S.C. 9303(f). This regulation is issued
pursuant to that statute and is preemptive of state law as specified in
46 U.S.C. 9306. Under 46 U.S.C. 9306, a ``State or political
subdivision of a State may not regulate or impose any requirement on
pilotage on the Great Lakes.'' As a result, States or local governments
are expressly prohibited from regulating within this category.
Therefore, the rule is consistent with the principles of federalism and
preemption requirements in Executive Order 13132.
    While it is well settled that States may not regulate in categories
in which Congress intended the Coast Guard to be the sole source of a
vessel's obligations, the Coast Guard recognizes the key role that
State and local governments may have in making regulatory
determinations. Additionally, for rules with implications and
preemptive effect, Executive Order 13132 specifically directs agencies
to consult with State and local governments during the rulemaking
process. If you believe this rule has implications for federalism under
Executive Order 13132, please contact the person listed in the FOR
FURTHER INFORMATION section of this preamble.

F. Unfunded Mandates Reform Act

    The Unfunded Mandates Reform Act of 1995, (2 U.S.C. 1531-1538),
requires Federal agencies to assess the effects of their discretionary
regulatory actions. In particular, the Act addresses actions that may
result in the expenditure by a

State, local, or Tribal Government, in the aggregate, or by the private
sector of $100,000,000 (adjusted for inflation) or more in any one
year. Though this proposed rule would not result in such an
expenditure, we discuss the effects of this proposed rule elsewhere in
this preamble.

G. Taking of Private Property

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

H. Civil Justice Reform

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

I. Protection of Children

    We have analyzed this proposed rule under Executive Order 13045,
Protection of Children from Environmental Health Risks and Safety
Risks. This proposed rule is not an economically significant rule and
would not create an environmental risk to health or risk to safety that
might disproportionately affect children.

J. Indian Tribal Governments

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

K. Energy Effects

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

L. Technical Standards

    The National Technology Transfer and Advancement Act (15 U.S.C.
272, note) directs agencies to use voluntary consensus standards in
their regulatory activities unless the agency provides Congress,
through the OMB, with an explanation of why using these standards would
be inconsistent with applicable law or otherwise impractical. Voluntary
consensus standards are technical standards (e.g., specifications of
materials, performance, design, or operation; test methods; sampling
procedures; and related management systems practices) that are
developed or adopted by voluntary consensus standards bodies. This
proposed rule does not use technical standards. Therefore, we did not
consider the use of voluntary consensus standards.

M. Environment

    We have analyzed this proposed rule under Department of Homeland
Security Management Directive 023-01 and Commandant Instruction
M16475.lD, which guide the Coast Guard in complying with the National
Environmental Policy Act of 1969 (42 U.S.C. 4321-4370f), and have made
a preliminary determination that this action is one of a category of
actions that do not individually or cumulatively have a significant
effect on the human environment. A preliminary environmental analysis
checklist supporting this determination is available in the docket
where indicated under the ``Public Participation and Request for
Comments'' section of this preamble. This proposed rule is
categorically excluded under section 2.B.2, and figure 2-1, paragraph
34(a) of the Instruction. Paragraph 34(a) pertains to minor regulatory
changes that are editorial or procedural in nature. This proposed rule
adjusts rates in accordance with applicable statutory and regulatory
mandates. We seek any comments or information that may lead to the
discovery of a significant environmental impact from this proposed
rule.

List of Subjects

46 CFR Part 401

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

46 CFR Part 403

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

46 CFR Part 404

    Great Lakes, Navigation (water), Seamen.

    For the reasons discussed in the preamble, the Coast Guard proposes
to amend 46 CFR parts 401, 403, and 404 as follows:

Title 46--Shipping

PART 401--GREAT LAKES PILOTAGE REGULATIONS

0
1. The authority citation for part 401 continues to read as follows:

    Authority:  46 U.S.C. 2103, 2104(a), 6101, 7701, 8105, 9303,
9304; Department of Homeland Security Delegation No.
0170.1(II)(92.a), (92.d), (92.e), (92.f).

0
2. Revise Sec.  401.401 to read as follows:

Sec.  401.401  Surcharges.

    To facilitate safe, efficient, and reliable pilotage, and for good
cause, the Director may authorize surcharges on any rate or charge
authorized by this subpart. Surcharges must be proposed for prior
public comment and may not be authorized for more than 1 year. Once the
approved amount has been received, the pilot association is not
authorized to collect any additional funds under the surcharge
authority and must cease such collections for the remainder of that
shipping season.
0
3. Revise Sec.  401.405(a) to read as follows:

Sec.  401.405  Pilotage rates and charges.

    (a) The hourly rate for pilotage service on--
    (1) The St. Lawrence River is $757;
    (2) Lake Ontario is $522;
    (3) Lake Erie is $537;
    (4) The navigable waters from Southeast Shoal to Port Huron, MI is
$720;
    (5) Lakes Huron, Michigan, and Superior is $280; and
    (6) The St. Mary's River is $661.
* * * * *
0
4. Revise Sec.  401.420(b) to read as follows:

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

* * * * *
    (b) When an order for a U.S. pilot's service is cancelled, the
vessel can be charged for the pilot's reasonable travel expenses for
travel that occurred to and from the pilot's base, and the greater of--
    (1) Four hours; or
    (2) The time of cancellation and the time of the pilot's scheduled
arrival, or the pilot's reporting for duty as ordered, whichever is
later.
* * * * *

0
5. Amend Sec.  401.450 as follows:
0
a. Redesignate paragraphs (b) through (j) as paragraphs (c) through
(k), respectively; and
0
b. Add new paragraph (b) to read as follows:

Sec.  401.450  Pilotage change points.

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

PART 403--GREAT LAKES PILOTAGE UNIFORM ACCOUNTING SYSTEM

0
6. The authority citation for part 403 continues to read as follows:

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

0
7. Revise Sec.  403.300(c) to read as follows:

Sec.  403.300  Financial reporting requirements.

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

PART 404--GREAT LAKES PILOTAGE RATEMAKING

0
8. The authority citation for part 404 continues to read as follows:

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

0
9. Amend Sec.  404.103 as follows:
0
a. In paragraph (a), following the words ``dividing each area's''
remove the word ``peak'' and add, in its place, the word ``seasonal'';
and
0
b. Revise paragraph (b) to read as follows:

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

* * * * *
    (b) Pilotage demand and the base seasonal work standard are based
on available and reliable data, as so deemed by the Director, for a
multi-year base period. The multi-year period is the 10 most recent
full shipping seasons, and the data source is a system approved under
46 CFR 403.300. Where such data are not available or reliable, the
Director also may use data, from additional past full shipping seasons
or other sources, that the Director determines to be available and
reliable.
* * * * *
0
10. Revise Sec.  404.104 to read as follows:

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

    At least once every 10 years, the Director will set a base target
pilot compensation benchmark using the most relevant available non-
proprietary information. In years in which a base compensation
benchmark is not set, target pilot compensation will be adjusted for
inflation using the CPI for the Midwest region or a published
predetermined amount. The Director determines each pilotage
association's total target pilot compensation by multiplying individual
target pilot compensation by the number of pilots projected under Sec.
404.103(d).

Sec.  404.105  [Amended]

0
11. In Sec.  404.105, remove the words ``return on investment'' and
add, in their place, the words ``working capital fund.''

    Dated: October 13, 2016.
Michael D. Emerson,
Director, Marine Transportation Systems, U.S. Coast Guard.
[FR Doc. 2016-25254 Filed 10-18-16; 8:45 am]
 BILLING CODE 9110-04-P