[Federal Register Volume 80, Number 38 (Thursday, February 26, 2015)]
[Rules and Regulations]
[Pages 10365-10389]
[FR Doc No: 2015-04036]

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DEPARTMENT OF HOMELAND SECURITY

Coast Guard

46 CFR Part 401

[Docket No. USCG-2014-0481]
RIN 1625-AC22

Great Lakes Pilotage Rates--2015 Annual Review and Adjustment

AGENCY: Coast Guard, DHS.

ACTION: Final rule.

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SUMMARY: The Coast Guard is adjusting rates for pilotage services on
the Great Lakes, which were last amended in March 2014. The adjustments
establish new base rates made in accordance with a full ratemaking
procedure. Additionally, the Coast Guard exercises the discretion
provided by Step 7 of the Appendix A methodology. The result is an
upward adjustment to close the gap between revenues projected by this
rulemaking and those collected by the pilot associations. Our proposed
rates planned to maintain parity with the Canadian Great Lakes Pilotage
Authority. While this continues to be our goal, we have since
discovered a more significant challenge demonstrated by the recently
completed revenue audits. This is a more pressing concern for the
operation of safe, efficient, and reliable pilotage service on the
Great Lakes than maintaining parity because it demonstrates that the
pilot associations are unable to properly fund their operations. Also,
we are implementing temporary surcharges to accelerate recoupment of
necessary and reasonable training and investment costs for the pilot
associations. This final rule promotes the Coast Guard's strategic goal
of maritime safety.

DATES: This final rule is effective August 1, 2015.

ADDRESSES: Comments and material received from the public, as well as
documents mentioned in this preamble as being available in the docket,
are part of docket USCG-2014-0481 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-2014-0481 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. Cheryl Collins,
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
    A. Ratemaking Methodology
    B. AMOU Contracts
    C. Surcharge
    D. Revenue Audits
    E. Pilot Boats
VI. Summary of the Rule and Discussion of Methodology
    A. Summary of the Rule
    B. Discussion of the Methodology
VII. Regulatory Analyses
    A. Regulatory Planning and Review
    B. Small Entities
    C. Assistance for Small Entities
    D. Collection of Information
    E. Federalism
    F. Unfunded Mandates Reform Act
    G. Taking of Private Property
    H. Civil Justice Reform
    I. Protection of Children
    J. Indian Tribal Governments
    K. Energy Effects
    L. Technical Standards
    M. Environment

I. Abbreviations

AMOU American Maritime Officers Union
APA American Pilots Association
CFR Code of Federal Regulations
CPA Certified public accountant
CPI Consumer Price Index
E.O. Executive Order
FR Federal Register
GLPA Great Lakes Pilotage Association
MISLE Marine Information for Safety and Law Enforcement
MOA Memorandum of Arrangements
MOU Memorandum of Understanding
NAICS North American Industry Classification System
NPRM Notice of proposed rulemaking
OMB Office of Management and Budget
ROI Return on investment
Sec.  Section symbol
U.S.C. United States Code
WGLPA Western Great Lakes Pilots Association

II. Regulatory History

    On September 4, 2014, we published a notice of proposed rulemaking
(NPRM) titled ``Great Lakes Pilotage Rates--2015 Annual Review and
Adjustment'' in the Federal Register (79 FR 52602). We received 10
submissions on the NPRM from multiple sources, including pilotage
associations, pilots, pilot organizations, and shippers. No public
meeting was requested and none was held.
    On December 1, 2014, we published the recently completed revenue
audits of the pilot associations and reopened the public comment period
in the Federal Register (79 FR 71082). We received 5 submissions on the
revenue audits.

III. Basis and Purpose

    The basis of this final rule is the Great Lakes Pilotage Act of
1960 (``the Act'') (46 U.S.C. Chapter 93), which requires U.S. vessels
operating ``on register'' \1\ and foreign vessels to use U.S. or
Canadian registered pilots while transiting the U.S. waters of the St.
Lawrence Seaway and the Great Lakes

system. 46 U.S.C. 9302(a)(1). The Act requires the Secretary to
``prescribe by regulation rates and charges for pilotage services,
giving consideration to the public interest and the costs of providing
the services.'' 46 U.S.C. 9303(f). Rates must be established or
reviewed and adjusted each year, not later than March 1. Base rates
must be established by a full ratemaking at least once every 5 years,
and in years when base rates are not established, they must be reviewed
and, if necessary, adjusted. Id. The Secretary's duties and authority
under the Act have been delegated to the Coast Guard. Department of
Homeland Security Delegation No. 0170.1, paragraph (92)(f). Coast Guard
regulations implementing the Act appear in parts 401 through 404 of
Title 46, Code of Federal Regulations (CFR). Procedures for use in
establishing base rates appear in 46 CFR part 404, Appendix A, and
procedures for annual review and adjustment of existing base rates
appear in 46 CFR part 404, Appendix C.
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    \1\ ``On register'' means that the vessel's certificate of
documentation has been endorsed with a registry endorsement, and
therefore, may be employed in foreign trade or trade with Guam,
American Samoa, Wake, Midway, or Kingman Reef. 46 U.S.C. 12105, 46
CFR 67.17.
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    The purpose of this final rule is to establish new base pilotage
rates, using the methodology found in 46 CFR part 404, Appendix A.

IV. Background

    The vessels affected by this final rule are those engaged in
foreign trade upon the U.S. waters of the Great Lakes. United States
and Canadian ``lakers,'' \2\ which account for most commercial shipping
on the Great Lakes, are not affected. 46 U.S.C. 9302.
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    \2\ A ``laker'' is a commercial cargo vessel especially designed
for and generally limited to use on the Great Lakes.
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    The U.S. waters of the Great Lakes and the St. Lawrence Seaway are
divided into three pilotage districts. Pilotage in each district is
provided by an association certified by the Coast Guard Director of
Great Lakes Pilotage to operate a pilotage pool. It is important to
note that we do not control the actual compensation that pilots
receive. The actual compensation is determined by each of the three
district associations, which use different compensation practices.
    District One, consisting of Areas 1 and 2, includes all U.S. waters
of the St. Lawrence River and Lake Ontario. District Two, consisting of
Areas 4 and 5, includes all U.S. waters of Lake Erie, the Detroit
River, Lake St. Clair, and the St. Clair River. District Three,
consisting of Areas 6, 7, and 8, includes all U.S. waters of the St.
Mary's River, Sault Ste. Marie Locks, and Lakes Michigan, Huron, and
Superior. Area 3 is the Welland Canal, which is serviced exclusively by
the Canadian Great Lakes Pilotage Association (GLPA) and, accordingly,
is not included in the United States rate structure. Areas 1, 5, and 7
have been designated by Presidential Proclamation, pursuant to the Act,
to be waters in which pilots must, at all times, be fully engaged in
the navigation of vessels in their charge. Areas 2, 4, 6, and 8 have
not been so designated because they are open bodies of water. While
working in those undesignated areas, pilots must only ``be on board and
available to direct the navigation of the vessel at the discretion of
and subject to the customary authority of the master.'' 46 U.S.C.
9302(a) (1) (B).
    This final rule is a full ratemaking to establish new base pilotage
rates, using the methodology found in 46 CFR part 404, Appendix A
(hereafter ``Appendix A''). The last full ratemaking established the
current base rates in March 2014 (79 FR 12084; Mar. 4, 2014). Among
other things, the Appendix A methodology requires us to review detailed
pilot association financial information, and we contract with
independent accountants to assist in that review. We have now completed
our review of the independent accountants' 2012 financial reports. The
comments by the pilot associations on those reports and the independent
accountants' final findings are discussed in our document titled
``Summary--Independent Accountant's Report on Pilot Association
Expenses, with Pilot Association Comments and Accountant's Responses,''
which appears in the docket. In addition, we also use the independent
accountant's review of pilot association revenues. The review,
contracted by the Coast Guard, confirms the revenues of the pilot
associations and it establishes a baseline of comparison between actual
collected revenues and those projected by the rulemaking. The revenue
reports also appear in the docket.

V. Discussion of Comments and Changes

    We received 10 public submissions in response to the initial public
comment period of our NPRM.
    In the NPRM, the Coast Guard proposed a 2.5 percent across the
board rate increase for the three pilotage districts and varying
surcharge levels across the three districts. However, due to the
completion of the revenue audits during the initial comment period, the
Coast Guard extended the comment period for 30 days for the public to
comment on the revenue audits. We received an additional five comments
to our supplementary comment period focusing on the revenue audits. Of
all the comments we received, 10 came from pilots or pilot
associations, 3 came from industry groups, and 2 came from the union
whose contract data provides benchmark data for pilot compensation.
    Based on the comments and revenue audits, the Coast Guard is
implementing a 10 percent across the board rate increase for the three
pilotage districts and a 10 percent surcharge for each district. The
reasoning behind the changes follows. Any further changes involving the
Appendix A methodology will be published for notice and comment in a
future rulemaking.

A. Ratemaking Methodology

    Three commenters questioned various aspects of the ratemaking
methodology. First, a pilot from the Western Great Lakes Pilots
Association (WGLPA) questioned the application of bridge hours, as well
as what the definition should include. We are currently working with
the pilots, industry, and the American Pilots Association to finalize a
new model to gauge necessary pilot strength. We plan to propose this
model in a future rulemaking. We believe this coordinated, thorough
process is needed to address the longstanding challenges with pilot
recruitment and retention on the Great Lakes. Another pilot suggested
that we need to incorporate multiple years of inflation in the rate to
compensate for the time lapse between the conduct of the audits and the
effective date of the rate. Under Step 1.C of the Appendix A
methodology, the adjustment for inflation or deflation is a 1-year
adjustment between the reported year (the audit year) and the
succeeding navigation season. As we have stated in previous
rulemakings, we are unable to incorporate a multiyear adjustment in the
current methodology. We will consider changing this step in a future
rulemaking.
    Also, the same commenter questioned our application of benefits to
the American Maritime Officers Union (AMOU) contract. This is a
longstanding issue and the commenter argues that we should multiply
first mate wages and benefits by 150 percent to determine designated
waters compensation. We disagree and continue to maintain that the 150
percent applies only to wages; benefits are then added to the result.
As part of our extensive review of the Appendix A methodology, we are
actively seeking alternative compensation benchmarks to the AMOU
contracts. Another commenter believes that compensation must exceed
that of the AMOU in order to successfully recruit future pilots. We

agree that actual pilot compensation should be sufficient to attract
and retain U.S. Registered Pilots and we are actively pursuing
alternatives to the AMOU contracts for a new pilot compensation
standard. Two commenters suggested that the pilot strength called for
in the rate is inadequate. As discussed previously, we believe the
current bridge hour standard is not an effective means of establishing
pilot strength. We plan to continue efforts to develop a new pilot
strength model based on feedback from the stakeholders and will provide
it for public comment in a future rulemaking. Another commenter
questioned the effective date of the rate, saying that the rate should
go into effect at the start of the season instead of aligning with the
union contract start date of August 1. Since the AMOU contracts are
part of the current Appendix A methodology, August 1 continues to be
the effective date of the rate. We are open to adjusting the effective
date of the rate in a future rulemaking in coordination with our
expansive review of the methodology if doing so will enhance the
delivery of safe, efficient, and reliable service.
    Additionally, five commenters questioned use of our discretion
under Step 7 of the Appendix A methodology. Two of those commenters, a
member of industry and a pilot, disagree with our basis for Step 7
adjustments, citing insufficient support for our justification of
parity adjustments under the Memorandum of Arrangements/Memorandum of
Understanding (MOA/MOU) with Canada and Executive Order (E.O.) 13609.
We disagree. The purpose of the MOA/MOU and E.O. 13609 is to work to
better align U.S. and Canadian regulatory schemes. We agree that the
new MOU has a less strict interpretation of parity, seeking comparable
rates over identical ones. However, we believe that the revenue
shortfall against projections uncovered in the recently completed
audits calls for action. Our actions to seek comparable rates are
undercut by overprojections and the inability of the current billing
scheme to generate sufficient revenue to operate the pilotage
associations. The third commenter, also a member of industry, asserts
that the results of our calculations represent a ``serious flaw'' in
the methodology. We plan to address the challenges with the current
methodology in a future rulemaking. We neither believe the calculations
resulting from the methodology in this rule are representative of
economic conditions in the Great Lakes region, nor do they represent
increased efficiencies of the pilot organizations. As such, we continue
to utilize our Step 7 discretion to adjust them.
    Another commenter stated that the Canadian GLPA is actually raising
their rates only 1 percent rather than 2.5 percent as stated in the
NPRM. While we continue to strive for comparability with Canadian
rates, our greater concern currently is the gap in revenue. Thus, we
seek to actively close the confirmed revenue gap between pilot
association collections and Coast Guard projections by increasing the
rate. The gap highlighted in the revenue audits points to an even
greater disparity between U.S. and Canadian rates on the Great Lakes
that must be addressed.
    This leads into a discussion of the final commenter on the
ratemaking methodology. The remaining commenter highlights the gap
between revenues projected in the rate and those actually collected by
the pilot association, as well as the second and third order effects of
that gap. Based on a review of the recently completed revenue audits,
we agree with the commenter that the gap between revenue projections in
the rate and the revenues actually collected by the pilot associations
presents an untenable situation. The revenue projections in the rate
for each pilot association directly impact each association's ability
to provide safe, efficient, and reliable service. Since the actual
revenues collected by the associations fall well short of our
projections, we are utilizing our Step 7 discretion to increase the
rates in all areas by 10 percent. This rate increase will begin to
address the significant shortfall in pilotage revenue against our
projections. We believe that the current shortfall in revenue is a
result of both bridge hour projections and a billing scheme that is not
properly baselined to collect appropriate revenue. Rate increases to
address the shortfall will continue to be separate and distinct from
the temporary surcharges applied in the districts for training and
investments.

B. AMOU Contracts

    Five commenters-three pilots or pilots' representatives and two
officials from the AMOU-addressed our use of AMOU contracts to estimate
average annual compensation for U.S. Registered Pilots in Step 2.A of
our Appendix A ratemaking methodology. Since the application of these
contracts is currently the subject of pending litigation, we refrain
from addressing these comments and will continue to utilize the AMOU
contract data as we did in the 2013 and 2014 ratemakings.

C. Surcharge

    Eight commenters-seven pilots or pilot associations and one member
of industry-addressed the proposed surcharges in the NPRM. We received
a comment from the Lakes Pilots Association, Inc. supporting the
proposed surcharge for District Two. Commenters from both District One
and District Three stated that they require two additional pilot
applicants each above their authorized strength to deal with personnel
turnover. We agree with both commenters. The pilotage associations are
facing a wave of retirements, both expected and unexpected, and these
additional applicant pilots are necessary to ensure the system
continues to operate smoothly. The long lead time for pilot training
necessitates that the pilot associations begin training now to address
current pilot retirements as well as those projected for the next 24
months. Thus, we are using our surcharge authority to fund applicant
pilots that exceed the current authorized pilot strength of the
associations. Based on how three associations plan to compensate the
applicants and the costs associated with training, we have estimated
that a 5 percent surcharge is necessary to fund each applicant pilot.
As you will see in the following discussion, we have established a 10
percent surcharge for each district in order to accelerate the costs
associated with training 2 applicant pilots.
    In the case of District One, we agree with the need for two
applicant pilots above their authorized strength of 11 pilots to ensure
safe, efficient, and reliable pilotage service. To fund these applicant
pilots, we will increase their authorized surcharge to 10 percent.
    We also agree with the need for two applicant pilots above their
authorized strength of 15 pilots to ensure safe, efficient, and
reliable pilotage service in District Three. Accordingly, we will fund
two additional applicants above their authorized pilot strength and
increase their authorized surcharge to 10 percent. As mentioned above,
in conjunction with stakeholders, we are developing a new pilotage
strength model that we will provide for public comment in a future
rulemaking.
    Finally, a member of industry questioned the need for pilot
training surcharges and the authority to charge for expenses not yet
incurred. The Coast Guard has the authority to prescribe rates and
charges pursuant to 46 U.S.C. 9303. Temporary surcharge authority was
implemented through regulation in the 2014 ratemaking cycle. See 78 FR
48376. The surcharges include funds for

professional training, investments in pilotage technology, and the
costs to train and fund six new applicant pilots across the system.
These applicants will all be in place for the 2015 shipping season and
thus, through the temporary surcharge, the Coast Guard is accelerating
recoupment of these important expenses. We fully support investments in
professional development and technology to enhance the safety,
reliability, and efficiency of the system. Further, we believe the
recruitment, funding, and training of applicant pilots before the
retirement of current registered pilots is essential to the stability
of the system and to achieve and maintain acceptable levels of service.
Any overages in surcharge collection against the actual costs will be
adjusted in the next year's rate. We discuss surcharges further in Part
VI after our discussion of other comments.

D. Revenue Audits

    We received three comments on the revenue audits--two from pilots
and one from industry. Both pilot commenters approved of the revenue
audits and asked the Coast Guard to adjust for the differences between
actual and projected revenues. We agree with these comments and have
adjusted our rate increase to 10 percent across all districts to begin
aligning actual and projected revenues. Our discussion in Step 7
provides additional discussion on this topic. It is clear that the
audits for the 2013 Appendix A rulemaking demonstrate a significant
shortfall. Since we only have a single data point, we plan to increase
the base rate to fill this gap over a multi-year period. Ten percent is
reasonable because this is greater than inflation and begins to align
the revenues needed to provide safe, efficient, and reliable service
with the actual revenues that our rulemakings generate. We will also
work to address this discrepancy in a future rulemaking regarding the
methodology. We discuss this further in Step 7 of the methodology. The
industry commenter disapproves of the open-ended nature of the comment
period, seeking further clarity regarding our plan for use of the
revenue audits and a better explanation of our use of discretion. We
disagree. The comment period was set up to allow access by all parties
to the revenue audits and to provide feedback to the Coast Guard
regarding their review and incorporation into the ratemaking
methodology. The revenue audits clearly point to a shortcoming in the
billing scheme and methodology that significantly reduces actual
revenue. Failure to act on the revenue audits would ignore the point
``and other supportable economic factors'' in Step 7 of the
methodology. While we do not propose a solution for the methodology in
this rulemaking, we are working to develop new proposals to address the
significant hindrances of the current methodology. The discretion
exercised in Step 7 seeks to maintain safe, efficient, and reliable
pilotage service while we prepare a future rulemaking to address the
current methodology.

E. Pilot Boats

    We received two comments regarding purchase of new pilot boats.
District Two submitted information regarding the purchase of a new boat
for use in Detroit for consideration in the rate. However, based on the
documents submitted, the pilots have reached an agreement with the
Canadian GLPA and industry to fund the pilot boat through usage fees,
not through the rate. As a result, the expenses associated with the new
pilot boat will not be included in the 2015 rate. Similarly, a pilot
from the WGLPA believes that infrastructure investment in a new dock
and new pilot boat near Sault Sainte Marie, MI should be included in
the rate. We disagree. Like District Two, the letter of intent signed
between the WGLPA and the Canadian GLPA plans to recoup the cost of
their infrastructure improvement through levied pilot boat fees, not
the pilotage rate. We support and encourage the investment of both
associations in badly needed infrastructure and capital assets but
cannot allow recoupment of expenses already marked to be paid by
industry separately.

VI. Summary of the Rule and Discussion of Methodology

A. Summary of the Rule

    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, 2015 and become effective August 1,
2015. Our calculations under Steps 1 through 6 of Appendix A would
result in an average 12 percent rate decrease. This rate decrease is
not the result of increased efficiencies in providing pilotage services
but rather is a result of changes to AMOU contract data.
    Additionally, the recently completed revenue audits demonstrate a
significant shortfall between revenues projected by the Coast Guard
using the Appendix A methodology and those actually captured by the
current billing scheme. This gap, explained further in our Step 7
discussion, demonstrates that a more significant rate increase is
necessary to promote a standard safe, efficient, and reliable pilotage
service by ensuring the pilot associations have sufficient actual
revenue to continue operations. Therefore, we will continue to exercise
the discretion outlined in Step 7, increasing rates by 10 percent to
begin closing the gap between projected revenues and those actually
collected by the pilot associations. Table 1 shows the percent change
for the new rates for each area.
    Secondly, we are implementing temporary surcharges for the pilot
associations to recoup necessary and reasonable training and investment
expenses incurred or that are expected to be incurred prior to the
required March 1, 2015 publication of the final rule. Normally, these
expenses would not be recognized until the 2016 annual ratemaking or
later. By authorizing the temporary surcharges now, this action will
accelerate the reimbursement for necessary and reasonable training and
investment expenses. The surcharge will be authorized for the duration
of the 2015 shipping season, which begins in March 2015. The value of
the surcharges is based on the audited revenues of the pilot
associations and the identified need to train two additional pilot
applicants per District. This action will merely accelerate the
recoupment of these expenses. At the conclusion of the 2015 shipping
season, we would account for the monies generated by the surcharge and
make adjustments as necessary to the operating expenses for the
following year.
    In District One, we are implementing a temporary surcharge of 10
percent to compensate pilots for $28,028.91 that the District One pilot
association spent on training in 2013 and early 2014, as well as the
anticipated $300,000 cost to train two new applicant pilots and prepare
replacements for retiring pilots. We believe this training is necessary
and reasonable to promote safe, efficient, and reliable pilotage on the
Great Lakes and support the St. Lawrence Seaway Pilots Association's
continued commitment to the training and professional development of
their pilots.
    Additionally, we are implementing a temporary surcharge of 10
percent in District Two to compensate pilots for $300,000 that the
District Two pilot association spent training two applicant pilots in
2014. This is necessary and reasonable to allow the association to
bring on new pilots in the face of upcoming retirements without
adjusting the pilotage needs as determined by the ratemaking
methodology. This surcharge will also accelerate the

repayment of the association's investment in upgraded technology
($25,829.80) to enhance the situational awareness of pilots on the
bridge. We believe this needed technology will assist in the safety,
efficiency, and reliability of the system.
    Next, we are implementing a temporary surcharge of 10 percent in
District Three to compensate pilots for $26,950 that the District Three
pilot association plans to spend on training at the conclusion of the
2014 shipping season. We believe this training is necessary and
reasonable for the provision of safe pilotage service. This also
compensates District Three for the anticipated $300,000 cost of
training two additional pilot applicants to increase pilot strength and
advance safe, efficient, and reliable pilotage service in the district.
    All figures in the tables that follow are based on calculations
performed either by an independent accountant or by the Director's \3\
staff. In both cases, those calculations were performed using common
commercial computer programs. Decimalization and rounding of the
audited and calculated data affects the display in these tables but
does not affect the calculations. The calculations are based on the
actual figures, which are rounded for presentation in the tables.
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    \3\ ``Director'' is the Coast Guard Director, Great Lakes
Pilotage, which is used throughout this rule.

     Table 1--Summary of Rate Adjustments Based on Step 7 Discretion
------------------------------------------------------------------------
                                                        Then the percent
         If pilotage service is required in:            change over the
                                                        current rate is:
------------------------------------------------------------------------
Area 1 (Designated waters)...........................                 10
Area 2 (Undesignated waters).........................                 10
Area 4 (Undesignated waters).........................                 10
Area 5 (Designated waters)...........................                 10
Area 6 (Undesignated waters).........................                 10
Area 7 (Designated waters)...........................                 10
Area 8 (Undesignated waters).........................                 10
------------------------------------------------------------------------

B. Discussion of the Methodology

    The Appendix A methodology provides seven steps, with sub-steps,
for calculating rate adjustments. The following discussion describes
those steps and sub-steps, and includes tables showing how we have
applied them to the 2012 financial information supplied by the pilots
association.
    Step 1: Projection of Operating Expenses. In this step, we project
the amount of vessel traffic annually. Based on that projection, we
forecast the amount of necessary and reasonable operating expenses that
pilotage rates should recover.
    Step 1.A: Submission of Financial Information. This sub-step
requires each pilot association to provide us with detailed financial
information in accordance with 46 CFR part 403. The associations
complied with this requirement, supplying 2012 financial information in
2013. This is the most current and complete data set we have available.
    Step 1.B: Determination of Recognizable Expenses. This sub-step
requires us to determine which reported association expenses will be
recognized for ratemaking purposes, using the guidelines shown in 46
CFR 404.5. We contracted with an independent accountant to review the
reported expenses and submit findings recommending which reported
expenses should be recognized. The accountant also reviewed which
reported expenses should be adjusted prior to recognition or disallowed
for ratemaking purposes. The accountant's preliminary findings were
sent to the pilot associations, they reviewed and commented on those
findings, and the accountant then finalized the findings. The Director
reviewed and accepted the final findings, resulting in the
determination of recognizable expenses. The preliminary findings, the
associations' comments on those findings, and the final findings are
all discussed in the ``Summary--Independent Accountant's Report on
Pilot Association Expenses, with Pilot Association Comments and
Accountant's Responses,'' which appears in the docket. Tables 2 through
4 show each association's recognized expenses.

                                  Table 2--Recognized Expenses for District One
----------------------------------------------------------------------------------------------------------------
                                                                      Area 1          Area 2
                                                                 --------------------------------
                   Reported expenses for 2012                      St. Lawrence                        Total
                                                                       River       Lake Ontario
----------------------------------------------------------------------------------------------------------------
Operating Expenses:
Other Pilotage Costs:
    Pilot subsistence/Travel....................................        $227,199        $137,315        $364,514
    License insurance...........................................               0               0               0
    Payroll taxes...............................................          62,038          48,452         110,490
    Other.......................................................             596             549           1,145
                                                                 -----------------------------------------------
        Total Other Pilotage Costs..............................         289,833         186,316         476,149
Pilot Boat and Dispatch Costs:
    Pilot boat expense..........................................         108,539          95,405         203,944
    Dispatch expense............................................               0               0               0
    Payroll taxes...............................................          13,429          11,804          25,233
                                                                 -----------------------------------------------

        Total Pilot and Dispatch Costs..........................         121,968         107,209         229,177
Administrative Expenses:
    Legal--general counsel......................................           1,369           1,281           2,650
    Legal--lobbying.............................................           3,957           3,478           7,435
    Insurance...................................................          21,907          18,998          40,905
    Employee benefits...........................................          21,281          18,509          39,790
    Payroll taxes...............................................               0               0               0
    Other taxes.................................................          18,491          15,801          34,292
    Travel......................................................             473             416             889
    Depreciation/Auto leasing/Other.............................          38,346          33,705          72,051
    Interest....................................................          15,484          13,610          29,094
    Dues and subscriptions......................................          13,740          10,240          23,980
    Utilities...................................................           4,549           3,897           8,446
    Salaries....................................................          48,837          42,927          91,764
    Accounting/Professional fees................................           4,683           4,317           9,000
    Pilot Training..............................................          26,353          21,961          48,314
    Other.......................................................          10,689           8,974          19,663
                                                                 -----------------------------------------------
        Total Administrative Expenses...........................         230,159         198,114         428,273
                                                                 -----------------------------------------------
Total Operating Expenses                                                 641,960         491,639       1,133,599
Adjustments (Independent certified public accountant (CPA)):
    Pilotage subsistence/Travel.................................           (887)           (779)         (1,666)
    Payroll taxes...............................................        (13,719)        (12,058)        (25,777)
    Dues and subscriptions......................................        (13,740)        (10,240)        (23,980)
                                                                 -----------------------------------------------
        TOTAL CPA ADJUSTMENTS...................................        (28,346)        (23,077)        (51,423)
Adjustments (Director):
    American Pilots Association (APA) Dues......................          11,679           8,704          20,383
    Pilot Training (surcharge)..................................        (26,353)        (21,961)        (48,314)
    Legal--lobbying.............................................         (3,957)         (3,478)         (7,435)
                                                                 -----------------------------------------------
        TOTAL DIRECTOR ADJUSTMENTS..............................        (18,631)        (16,735)        (35,366)
                                                                 -----------------------------------------------
        Total Operating Expenses................................         594,983         451,827       1,046,810
----------------------------------------------------------------------------------------------------------------
Note: Numbers may not total due to rounding.

                                  Table 3--Recognized Expenses for District Two
----------------------------------------------------------------------------------------------------------------
                                                                      Area 4          Area 5
                                                                 --------------------------------
                   Reported Expenses for 2012                                        Southeast         Total
                                                                     Lake Erie     Shoal to Port
                                                                                Huron, MI
----------------------------------------------------------------------------------------------------------------
Operating Expenses:
Other Pilotage Costs:
    Pilot subsistence/Travel....................................          86,947         130,421         217,368
    License insurance...........................................           6,168           9,252          15,420
    Payroll taxes...............................................          42,218          63,328         105,546
    Other.......................................................          23,888          35,833          59,721
                                                                 -----------------------------------------------
        Total Other Pilotage Costs..............................         159,221         238,834         398,055
Pilot Boat and Dispatch Costs:
    Pilot boat expense..........................................         131,285         196,930         328,215
    Dispatch expense............................................           6,600           9,900          16,500
    Employee Benefits...........................................          48,310          72,465         120,775
    Payroll taxes...............................................           7,412          11,119          18,531
                                                                 -----------------------------------------------
        Total Pilot and Dispatch Costs..........................         193,607         290,414         484,021
Administrative Expenses:
    Legal--general counsel......................................           2,054           3,082           5,136
    Legal--lobbying.............................................           2,704           4,055           6,759
    Legal--litigation...........................................           6,488           9,733          16,221
    Office rent.................................................          26,275          39,413          65,688
    Insurance...................................................          10,682          16,024          26,706
    Employee benefits...........................................          16,452          24,678          41,130
    Payroll taxes...............................................           4,143           6,216          10,359
    Other taxes.................................................          12,546          18,819          31,365

    Depreciation/Auto leasing/Other.............................           9,074          13,610          22,684
    Interest....................................................           2,989           4,483           7,472
    Utilities...................................................          13,917          20,876          34,793
    Salaries....................................................          36,252          54,377          90,629
    Accounting/Professional fees................................          11,764          17,646          29,410
    Pilot Training..............................................               0               0               0
    Other.......................................................           9,405          14,108          23,513
                                                                 -----------------------------------------------
        Total Administrative Expenses...........................         164,745         247,120         411,865
                                                                 -----------------------------------------------
        Total Operating Expenses................................         517,573         776,368       1,293,941
Adjustments (Independent CPA):
    Pilot subsistence/Travel....................................         (1,982)         (2,974)         (4,956)
    Employee benefits...........................................         (3,585)         (5,378)         (8,963)
        TOTAL CPA ADJUSTMENTS...................................         (5,567)         (8,352)        (13,919)
                                                                 -----------------------------------------------
Adjustments (Director):
    Federal Tax Allowance.......................................         (5,200)         (7,800)        (13,000)
    APA Dues....................................................           7,344          11,016          18,360
    Legal--lobbying.............................................         (2,704)         (4,055)         (6,759)
    Legal--litigation...........................................         (6,488)         (9,733)        (16,221)
                                                                 -----------------------------------------------
        TOTAL DIRECTOR ADJUSTMENTS..............................         (7,048)        (10,572)        (17,620)
                                                                 -----------------------------------------------
        Total Operating Expenses................................         504,958         757,444       1,262,402
----------------------------------------------------------------------------------------------------------------
Note: Numbers may not total due to rounding.

                                 Table 4--Recognized expenses for District Three
----------------------------------------------------------------------------------------------------------------
                                                      Area 6          Area 7          Area 8
                                                 ------------------------------------------------
           Reported expenses for 2012               Lakes Huron     St. Mary's                         Total
                                                   and Michigan        River       Lake Superior
----------------------------------------------------------------------------------------------------------------
Operating Expenses:
Other Pilotage Costs:
    Pilot subsistence/Travel....................        $180,316         $77,278        $110,398        $367,992
    License insurance...........................           8,859           3,797           5,424          18,080
    Payroll taxes...............................               0               0               0               0
    Other.......................................           2,875           1,232           1,760           5,867
                                                 ---------------------------------------------------------------
        Total Other Pilotage Costs..............         192,050          82,307         117,582         391,939
Pilot Boat and Dispatch Costs:
    Pilot boat expense..........................         261,937         112,259         160,370         534,566
    Dispatch expense............................          81,958          35,125          50,178         167,261
    Payroll taxes...............................           8,203           3,515           5,022          16,740
                                                 ---------------------------------------------------------------
        Total Pilot Boat and Dispatch Costs.....         352,098         150,899         215,570         718,567
Administrative Expenses:
    Legal--lobbying.............................           4,304           1,845           2,635           8,784
    Office rent.................................           4,851           2,079           2,970           9,900
    Insurance...................................           6,469           2,773           3,961          13,203
    Employee benefits...........................          77,348          33,149          47,356         157,854
    Payroll taxes...............................           5,404           2,316           3,309          11,029
    Other taxes.................................             941             403             576           1,920
    Depreciation/Auto leasing...................          17,462           7,484          10,691          35,637
    Interest....................................           2,692           1,154           1,648           5,494
    Utilities...................................          20,950           8,979          12,827          42,756
    Salaries....................................          54,003          23,144          33,063         110,210
    Accounting/Professional fees................          13,157           5,639           8,055          26,851
    Pilot Training..............................               0               0               0               0
    Other.......................................           4,657           1,996           2,851           9,504
                                                 ---------------------------------------------------------------
        Total Administrative Expenses...........         212,238          90,961         129,942         433,141
                                                 ---------------------------------------------------------------
        Total Operating Expenses................         756,386         324,167         463,094       1,543,647
Adjustments (Independent CPA):
    Pilot subsistence/travel....................         (5,303)         (2,273)         (3,247)        (10,823)

    Payroll taxes...............................          44,613          19,120          27,314          91,046
    Other taxes.................................         (1,761)           (755)         (1,078)         (3,594)
    Other.......................................           (637)           (273)           (390)         (1,300)
                                                 ---------------------------------------------------------------
        TOTAL CPA ADJUSTMENTS...................          36,912          15,819          22,599          75,329
Adjustments (Director):
    APA dues....................................          11,695           5,012           7,160          23,868
    Legal--lobbying.............................         (4,304)         (1,845)         (2,635)         (8,784)
                                                 ---------------------------------------------------------------
        TOTAL DIRECTOR ADJUSTMENTS..............           7,391           3,167           4,525          15,084
                                                 ---------------------------------------------------------------
        Total Operating Expenses................         800,689         343,153         490,218       1,634,060
----------------------------------------------------------------------------------------------------------------
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 2012 financial information, the
``succeeding navigation season'' for this ratemaking is 2013. We based
our inflation adjustment of 1.4 percent on the 2013 change in the
Consumer Price Index (CPI) for the Midwest Region of the United States,
which can be found at http://www.bls.gov/xg_shells/ro5xg01.htm. This
adjustment appears in Tables 5 through 7.
    The Coast Guard is aware that the current annual adjustment for
inflation does not account for the value of money over time. We are
working on a solution to allow for a better approximation of actual
costs.

                                   Table 5--Inflation Adjustment, District One
----------------------------------------------------------------------------------------------------------------
                                                       Area 1                 Area 2
                                                 ------------------     ------------------
         Reported expenses for 2012                 St. Lawrence                                      Total
                                                        River              Lake Ontario
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses:..................  ...          $594,983  ...          $451,827  ...        $1,046,810
2013 change in the CPI for the Midwest        x               .014   x               .014   x               .014
 Region of the United States...............
Inflation Adjustment.......................   =             $8,330   =             $6,326   =            $14,655
----------------------------------------------------------------------------------------------------------------

                                   Table 6--Inflation Adjustment, District Two
----------------------------------------------------------------------------------------------------------------
                                                       Area 4                 Area 5
                                                 ------------------     ------------------
         Reported expenses for 2012                                       Southeast Shoal             Total
                                                      Lake Erie           to Port Huron,
                                                                                MI
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses...................  ...          $504,958  ...          $757,444  ...        $1,262,402
2013 change in the CPI for the Midwest        x               .014   x               .014   x               .014
 Region of the United States...............
Inflation Adjustment.......................   =             $7,069   =            $10,604   =            $17,674
----------------------------------------------------------------------------------------------------------------

                                                      Table 7--Inflation adjustment, District Three
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        Area 6                 Area 7                 Area 8
                                                                  ------------------     ------------------     ------------------
                 Reported expenses for 2012                         Lakes Huron and                                                           Total
                                                                       Michigan           St. Mary's River         Lake Superior
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses....................................  ...          $800,689  ...          $343,153  ...          $490,218  ...        $1,634,060
2013 change in the CPI for the Midwest Region of the United    x               .014   x               .014   x               .014   x               .014
 States.....................................................
Inflation Adjustment........................................   =            $11,210   =             $4,804   =             $6,863   =            $22,877
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Step 1.D: Projection of Operating Expenses. In this final sub-step
of Step 1, we project the operating expenses for each pilotage area on
the basis of the preceding sub-steps and any other foreseeable
circumstances that could affect the accuracy of the projection.
    For District One, the projected operating expenses are based on the
calculations from Steps 1.A through 1.C. Table 8 shows these
projections.

                               Table 8--Projected Operating Expenses, District One
----------------------------------------------------------------------------------------------------------------
                                                       Area 1                 Area 2
                                                 ------------------     ------------------
         Reported expenses for 2012                 St. Lawrence                                      Total
                                                        River              Lake Ontario
----------------------------------------------------------------------------------------------------------------
Total operating expenses...................  ...          $594,983  ...          $451,827  ...        $1,046,810
Inflation adjustment 1.4%..................   +             $8,330   +             $6,326   +            $14,655
Total projected expenses for 2015 pilotage    =           $603,313   =           $458,153   =         $1,061,465
 season....................................
----------------------------------------------------------------------------------------------------------------
Note: Numbers may not total due to rounding.

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

                               Table 9--Projected Operating Expenses, District Two
----------------------------------------------------------------------------------------------------------------
                                                      Area 4                  Area 5
                                                 ----------------     ----------------------
         Reported expenses for 2012                                     Southeast Shoal to             Total
                                                     Lake Erie            Port Huron, MI
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses...................  ...        $504,958  ...              $757,444  ...      $1,262,402
Inflation adjustment 1.4%..................   +            7,069   +                 10,604   +           17,674
Total projected expenses for 2015 pilotage    =          512,027   =                768,048   =        1,280,076
 season....................................
----------------------------------------------------------------------------------------------------------------

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

                                                 Table 10--Projected Operating Expenses, District Three
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        Area 6                  Area 7                  Area 8
                                                                 -------------------     -------------------     -------------------
                 Reported expenses for 2012                        Lakes Huron and                                                             Total
                                                                       Michigan            St. Mary's River         Lake Superior
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total Expenses.............................................  ...           $800,689  ...           $343,153  ...           $490,218  ...      $1,634,060
Inflation adjustment 1.4%..................................   +              11,210   +               4,804   +               6,863   +           22,877
Total projected expenses for 2015 pilotage season..........   =             811,899   =             347,957   =             497,081   =        1,656,937
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Step 2: Projection of Target Pilot Compensation. In Step 2, we
project the annual amount of target pilot compensation that pilotage
rates should provide in each area. These projections are based on our
latest information on the conditions that will prevail in 2015.
    Step 2.A: Determination of Target Rate of Compensation. Target
pilot compensation for pilots in undesignated waters approximates the
average annual compensation for first mates on U.S. Great Lakes
vessels. Compensation is determined based on the most current union
contracts and includes wages and benefits received by first mates. We
calculate target pilot compensation on designated waters by multiplying
the average first mates' wages by 150 percent and then adding the
average first mates' benefits.
    We rely upon union contract data provided by the AMOU, which has
agreements with three U.S. companies engaged in Great Lakes shipping.
We derive the data from two separate AMOU contracts--we refer to them
as Agreements A and B--and apportion the compensation provided by each
agreement according to the percentage of tonnage represented by
companies under each agreement. Agreement A applies to vessels operated
by Key Lakes, Inc., and Agreement B applies to vessels operated by
American Steamship Co. and Mittal Steel USA, Inc.
    Agreements A and B both expire on July 31, 2016. The AMOU has set
the daily aggregate rate, including the daily wage rate, vacation pay,
pension plan contributions, and medical plan contributions effective
August 1, 2015, as follows: (1) In undesignated waters, $632.12 for
Agreement A and $624.34 for Agreement B; and (2) In designated waters,
$870.05 for Agreement A and $856.42 for Agreement B.
    Because we are interested in annual compensation, we must convert
these daily rates. We use a 270-day multiplier which reflects an
average 30-day month, over the 9 months of the average shipping season.
Table 11 shows our calculations using the 270-day multiplier.

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

------------------------------------------------------------------------
    Aggregate Rate-Wages and Vacation, Pension, and Medical Benefits
------------------------------------------------------------------------
              Pilots on undesignated waters
------------------------------------------------------------------------
Agreement A:
    $632.12 daily rate x 270 days.......................     $170,672.40

Agreement B:
    $624.34 daily rate x 270 days.......................      168,571.80
------------------------------------------------------------------------
                       Pilots on designated waters
------------------------------------------------------------------------
Agreement A:
    $870.05 daily rate x 270 days.......................      234,913.50
Agreement B:
    $856.42 daily rate x 270 days.......................      231,233.40
------------------------------------------------------------------------

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

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

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

         Table 13--Tonnage-Weighted Wage and Benefit Components
------------------------------------------------------------------------
                                      Undesignated          Designated
                                         waters               waters
------------------------------------------------------------------------
Agreement A:
    Total wages and benefits..  ...     $170,672.40  ...     $234,913.50
    Percent tonnage...........   x         29.7238%   x         29.7238%
                               -----------------------------------------
        Total.................   =          $50,730   =          $69,825
------------------------------------------------------------------------
Agreement B:
    Total wages and benefits..  ...     $168,571.80  ...     $231,233.40
    Percent tonnage...........   x         70.2762%   x         70.2762%
                               -----------------------------------------
        Total.................   =         $118,466   =         $162,502
------------------------------------------------------------------------
Projected Target Rate of
 Compensation:
    Agreement A total weighted  ...         $50,730  ...         $69,825
     average wages and
     benefits.................
    Agreement B total weighted   +         $118,466   +         $162,502
     average wages and
     benefits.................
                               -----------------------------------------
        Total.................   =         $169,196   =         $232,327
------------------------------------------------------------------------

    Step 2.B: Determination of the Number of Pilots Needed. Subject to
adjustment by the Director to ensure uninterrupted service or for other
reasonable circumstances, we determine the number of pilots needed for
ratemaking purposes in each area through dividing projected bridge
hours for each area by either the 1,000 (designated waters) or 1,800
(undesignated waters) bridge hours specified in Step 2.B. We round the
mathematical results and express our determination as a whole number of
pilots.
    According to 46 CFR part 404, Appendix A, Step 2.B(1), bridge hours
are the number of hours a pilot is aboard a vessel providing pilotage
service. For that reason, and as we explained most recently in the 2011
ratemaking's final rule (76 FR 6351 at 6352 col. 3 (Feb. 4, 2011)), we
do not include, and never have included, pilot delay, detention, or
cancellation in calculating bridge hours. Projected bridge hours are
based on the vessel traffic that pilots are expected to serve. We use
historical data, input from the pilots and industry, periodicals and
trade magazines, and information from conferences to project demand for
pilotage services for the coming year.
    In our 2014 final rule, we determined that 36 pilots would be
needed for ratemaking purposes. For 2015, we project 36 pilots is still
the proper number to use for ratemaking purposes. The total pilot
authorization strength includes five pilots in Area 2, where rounding
up alone would result in only four pilots. For the same reasons we
explained at length in the 2008 ratemaking final rule (74 FR 220 at
221-22 (Jan. 5, 2009)), we have determined that this adjustment is
essential for

ensuring uninterrupted pilotage service in Area 2. Table 14 shows the
bridge hours we project will be needed for each area and our
calculations to determine the whole number of pilots needed for
ratemaking purposes.

                                                            Table 14--Number of Pilots Needed
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Divided by 1,000
                                                                                (designated
                           Pilotage area                              Projected 2015         waters) or 1,800         Calculated value    Pilots needed
                                                                       bridge hours            (undesignated           of pilot demand     (total = 36)
                                                                                waters)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Area 1 (Designated waters).........................................             5,116   /                1,000   =                5.116                6
Area 2 (Undesignated waters).......................................             5,429   /                1,800   =                3.016                5
Area 4 (Undesignated waters).......................................             5,814   /                1,800   =                3.230                4
Area 5 (Designated waters).........................................             5,052   /                1,000   =                5.052                6
Area 6 (Undesignated waters).......................................             9,611   /                1,800   =                5.339                6
Area 7 (Designated waters).........................................             3,023   /                1,000   =                3.023                4
Area 8 (Undesignated waters).......................................             7,540   /                1,800   =                4.189                5
--------------------------------------------------------------------------------------------------------------------------------------------------------

    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 = 36)          compensation          compensation
----------------------------------------------------------------------------------------------------------------
Area 1 (Designated waters).........................                6   x          $232,327   =        $1,393,964
Area 2 (Undesignated waters).......................                5   x           169,196   =           845,981
Area 4 (Undesignated waters).......................                4   x           169,196   =           676,785
Area 5 (Designated waters).........................                6   x           232,327   =         1,393,964
Area 6 (Undesignated waters).......................                6   x           169,196   =         1,015,177
Area 7 (Designated waters).........................                4   x           232,327   =           929,309
Area 8 (Undesignated waters).......................                5   x           169,196   =           845,981
----------------------------------------------------------------------------------------------------------------
Note: Numbers may not total due to rounding.

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

                                     Table 16--Projection of Revenue by Area
----------------------------------------------------------------------------------------------------------------
                                                                                Revenue
                  Pilotage area                    Projected 2015          2014 Pilotage         projection  for
                                                    bridge hours               rates                  2015
----------------------------------------------------------------------------------------------------------------
Area 1 (Designated waters)......................             5,116   x            $472.50   =         $2,417,285
Area 2 (Undesignated waters)....................             5,429   x             291.96   =          1,585,032
Area 4 (Undesignated waters)....................             5,814   x             210.40   =          1,223,262
Area 5 (Designated waters)......................             5,052   x             521.64   =          2,635,314
Area 6 (Undesignated waters)....................             9,611   x             204.95   =          1,969,800
Area 7 (Designated waters)......................             3,023   x             495.01   =          1,496,427
Area 8 (Undesignated waters)....................             7,540   x             191.34   =          1,442,677
                                                                                -----------------
    Total.......................................  ................       ................             12,769,797
----------------------------------------------------------------------------------------------------------------
Note: Numbers may not total due to rounding.

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

             Table 17--Total Sources of Funds, District One
------------------------------------------------------------------------
                                         Area 1               Area 2
------------------------------------------------------------------------
Recognized Assets:              ...  ..............  ...  ..............
    Total Current Assets......  ...        $532,237  ...        $467,833
    Total Current Liabilities.   -           61,808   -           54,329
    Current Notes Payable.....   +           23,413   +           20,579

    Total Property and           +          445,044   +          391,191
     Equipment (NET)..........
    Land......................   -           11,727   -           10,308
    Total Other Assets........   +                0   +                0
                               -----------------------------------------
        Total Recognized         =          927,159   =          814,966
         Assets...............
------------------------------------------------------------------------
Non-Recognized Assets:          ...  ..............  ...  ..............
    Total Investments and        +            6,452   +            5,672
     Special Funds............
                               -----------------------------------------
        Total Non-Recognized     =            6,452   =            5,672
         Assets...............
------------------------------------------------------------------------
Total Assets:                   ...  ..............  ...  ..............
    Total Recognized Assets...  ...         927,159  ...         814,966
    Total Non-Recognized         +            6,452   +            5,672
     Assets...................
                               -----------------------------------------
        Total Assets..........   =          933,611   =          820,638
------------------------------------------------------------------------
Recognized Sources of Funds:    ...  ..............  ...  ..............
    Total Stockholder Equity..  ...         659,141  ...         579,380
    Long-Term Debt............   +          262,785   +          230,986
    Current Notes Payable.....   +           23,413   +           20,579
    Advances from Affiliated     +                0   +                0
     Companies................
    Long-Term Obligations--      +                0   +                0
     Capital Leases...........
                               -----------------------------------------
        Total Recognized         =          945,339   =          830,945
         Sources..............
------------------------------------------------------------------------
Non-Recognized Sources of       ...  ..............  ...  ..............
 Funds:
    Pension Liability.........  ...               0  ...               0
    Other Non-Current            +                0   +                0
     Liabilities..............
    Deferred Federal Income      +           10,675   +            9,383
     Taxes....................
    Other Deferred Credits....   +                0   +                0
                               -----------------------------------------
        Total Non-Recognized     =           10,675   =            9,383
         Sources..............
------------------------------------------------------------------------
Total Sources of Funds:         ...  ..............  ...  ..............
    Total Recognized Sources..  ...         945,339  ...         830,945
    Total Non-Recognized         +           10,675   +            9,383
     Sources..................
                               -----------------------------------------
        Total Sources of Funds   =          956,014   =          840,328
------------------------------------------------------------------------
Note: Numbers may not total due to rounding.

             Table 18--Total Sources of Funds, District Two
------------------------------------------------------------------------
                                         Area 4               Area 5
------------------------------------------------------------------------
Recognized Assets:              ...  ..............  ...  ..............
    Total Current Assets......  ...         498,456  ...         747,683
    Total Current Liabilities.   -          494,410   -          741,614
    Current Notes Payable.....   +           33,962   +           50,942
    Total Property and           +          436,063   +          654,094
     Equipment (NET)..........
    Land......................   -                0   -                0
    Total Other Assets........   +           60,418   +           90,627
                               -----------------------------------------
        Total Recognized         =          534,488   =          801,733
         Assets...............
------------------------------------------------------------------------
Non-Recognized Assets:          ...  ..............  ...  ..............
    Total Investments and        +                0   +                0
     Special Funds............
                               -----------------------------------------
        Total Non-Recognized     =                0   =                0
         Assets...............
------------------------------------------------------------------------
Total Assets:                   ...  ..............  ...  ..............
    Total Recognized Assets...  ...         534,488  ...         801,733
    Total Non-Recognized         +                0   +                0
     Assets...................
                               -----------------------------------------
        Total Assets..........   =          534,488   =          801,733
------------------------------------------------------------------------
Recognized Sources of Funds:    ...  ..............  ...  ..............
    Total Stockholder Equity..  ...          85,846  ...         128,768
    Long-Term Debt............   +          414,681   +          622,022
    Current Notes Payable.....   +           33,962   +           50,942
    Advances from Affiliated     +                0   +                0
     Companies................

    Long-Term Obligations--      +                0   +                0
     Capital Leases...........
                               -----------------------------------------
        Total Recognized         =          534,488   =          801,733
         Sources..............
------------------------------------------------------------------------
Non-Recognized Sources of       ...  ..............  ...  ..............
 Funds:
    Pension Liability.........  ...               0  ...               0
    Other Non-Current            +                0   +                0
     Liabilities..............
    Deferred Federal Income      +                0   +                0
     Taxes....................
    Other Deferred Credits....   +                0   +                0
                               -----------------------------------------
        Total Non-Recognized     =                0   =                0
         Sources..............
------------------------------------------------------------------------
Total Sources of Funds:         ...  ..............  ...  ..............
    Total Recognized Sources..  ...         534,488  ...         801,733
    Total Non-Recognized         +                0   +                0
     Sources..................
                               -----------------------------------------
        Total Sources of Funds   =          534,488   =          801,733
------------------------------------------------------------------------
Note: Numbers may not total due to rounding.

                                Table 19--Total Sources of Funds, District Three
----------------------------------------------------------------------------------------------------------------
                                                            Area 6               Area 7               Area 8
----------------------------------------------------------------------------------------------------------------
Recognized Assets:                                 ...  ..............  ...  ..............  ...  ..............
    Total Current Assets.........................  ...         656,459  ...         281,340  ...         401,914
    Total Current Liabilities....................   -           82,775   -           35,475   -           50,679
    Current Notes Payable........................   +            7,730   +            3,313   +            4,733
    Total Property and Equipment (NET)...........   +           19,611   +            8,405   +           12,007
    Land.........................................   -                0   -                0   -                0
    Total Other Assets...........................   +              490   +              210   +              300
                                                  --------------------------------------------------------------
        Total Recognized Assets..................   =          601,515   =          257,793   =          368,275
----------------------------------------------------------------------------------------------------------------
Non-Recognized Assets:                             ...  ..............  ...  ..............  ...  ..............
    Total Investments and Special Funds..........   +                0   +                0   +                0
                                                  --------------------------------------------------------------
        Total Non-Recognized Assets..............   =                0   =                0   =                0
----------------------------------------------------------------------------------------------------------------
Total Assets:                                      ...  ..............  ...  ..............  ...  ..............
    Total Recognized Assets......................  ...         601,515  ...         257,793  ...         368,275
    Total Non-Recognized Assets..................   +                0   +                0   +                0
                                                  --------------------------------------------------------------
        Total Assets.............................   =          601,515   =          257,793   =          368,275
----------------------------------------------------------------------------------------------------------------
Recognized Sources of Funds:                       ...  ..............  ...  ..............  ...  ..............
    Total Stockholder Equity.....................  ...         586,300  ...         251,271  ...         358,959
    Long-Term Debt...............................   +            7,485   +            3,208   +            4,583
    Current Notes Payable........................   +            7,730   +            3,313   +            4,733
    Advances from Affiliated Companies...........   +                0   +                0   +                0
    Long-Term Obligations - Capital Leases.......   +                0   +                0   +                0
                                                  --------------------------------------------------------------
        Total Recognized Sources.................   =          601,515   =          257,793   =          368,275
----------------------------------------------------------------------------------------------------------------
Non-Recognized Sources of Funds:                   ...  ..............  ...  ..............  ...  ..............
    Pension Liability............................  ...               0  ...               0  ...               0
    Other Non-Current Liabilities................   +                0   +                0   +                0
    Deferred Federal Income Taxes................   +                0   +                0   +                0
    Other Deferred Credits.......................   +                0   +                0   +                0
                                                  --------------------------------------------------------------
        Total Non-Recognized Sources.............   =                0   =                0   =                0
----------------------------------------------------------------------------------------------------------------
Total Sources of Funds:                            ...  ..............  ...  ..............  ...  ..............
    Total Recognized Sources.....................  ...         601,515  ...         257,792  ...         368,275
    Total Non-Recognized Sources.................   +                0   +                0   +                0
                                                  --------------------------------------------------------------
        Total Sources of Funds...................   =          601,515   =          257,792   =          368,275
----------------------------------------------------------------------------------------------------------------
Note: Numbers may not total due to rounding.

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

                                                     Table 20--Investment Base by Area and District
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Total      Recognized                    Multiplier (ratio    Investment
                              District                                Area    recognized   sources of   Total sources     of recognized to     base ($)
                                                                              assets ($)   funds ($)     of funds ($)      total sources)        \1\
--------------------------------------------------------------------------------------------------------------------------------------------------------
One................................................................       1      927,159      945,339          956,014                 0.99      916,806
                                                                          2      814,966      830,945          840,328                 0.99      805,866
                                                                    ------------------------------------------------------------------------------------
    Total..........................................................  ......  ...........  ...........  ...............  ...................    1,722,672
--------------------------------------------------------------------------------------------------------------------------------------------------------
Two \2\............................................................       4      534,488      534,488          534,488                    1      534,488
                                                                          5      801,733      801,733          801,733                    1      801,733
                                                                    ------------------------------------------------------------------------------------
    Total..........................................................  ......  ...........  ...........  ...............  ...................    1,336,221
--------------------------------------------------------------------------------------------------------------------------------------------------------
Three..............................................................       6      601,515      601,515          601,515                    1      601,515
                                                                          7      257,793      257,792          257,792                    1      257,793
                                                                          8      368,275      368,275          368,275                    1      368,275
                                                                    ------------------------------------------------------------------------------------
    Total..........................................................  ......  ...........  ...........  ...............  ...................    1,227,581
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ ``Investment base'' = ``Total recognized assets'' x ``Multiplier (ratio of recognized to total sources)''.
\2\ The pilot associations that provide pilotage services in Districts One and Three operate as partnerships. The pilot association that provides
  pilotage service for District Two operates as a corporation.
Note: Numbers may not total due to rounding.

    Step 5: Determination of Target Rate of Return. We determine a
market-equivalent return on investment (ROI) that will be allowed for
the recognized net capital invested in each association by its members.
We do not recognize capital that is unnecessary or unreasonable for
providing pilotage services. There are no non-recognized investments in
this year's calculations. The allowed ROI is based on the preceding
year's average annual rate of return for new issues of high-grade
corporate securities. For 2013, the preceding year, the allowed ROI was
4.24 percent, based on the average rate of return for that year on
Moody's AAA corporate bonds, which can be found at http://research.stlouisfed.org/fred2/series/AAA/downloaddata?cid=119.
    Step 6: Adjustment Determination. The first part of the adjustment
determination requires an initial calculation, applying a formula
described in Appendix A. The formula uses the results from Steps 1, 2,
3, and 4 to project the ROI that can be expected in each area if no
further adjustments are made. This calculation is shown in Tables 21
through 23.

             Table 21--Projected ROI, Areas in District One
------------------------------------------------------------------------
                                         Area 1               Area 2
------------------------------------------------------------------------
Revenue (from Step 3).........  ...      $2,417,285  ...      $1,585,032
Operating Expenses (from Step    -         $603,313   -         $458,153
 1)...........................
Pilot Compensation (from Step    -       $1,393,964   -         $845,981
 2)...........................
Operating Profit/(Loss).......   =         $420,009   =         $280,899
Interest Expense (from audits)   -          $15,484   -          $13,610
Earnings Before Tax...........   =         $404,525   =         $267,289
Federal Tax Allowance.........   -               $0   -               $0
Net Income....................   =         $404,525   =         $267,289
Return Element (Net Income +    ...        $420,009  ...        $280,899
 Interest)....................
Investment Base (from Step 4).   /         $916,806   /         $805,866
Projected Return on Investment   =             0.46   =             0.35
------------------------------------------------------------------------

             Table 22--Projected ROI, Areas in District Two
------------------------------------------------------------------------
                                         Area 4               Area 5
------------------------------------------------------------------------
Revenue (from Step 3).........  ...      $1,223,262  ...      $2,635,314
Operating Expenses (from Step    -         $512,027   -         $768,048
 1)...........................
Pilot Compensation (from Step    -         $676,785   -       $1,393,964
 2)...........................
Operating Profit/(Loss).......   =          $34,450   =         $473,302
Interest Expense (from audits)   -           $2,989   -           $4,483
Earnings Before Tax...........   =          $31,461   =         $468,819

Federal Tax Allowance.........   -           $5,200   -           $7,800
Net Income....................   =          $26,261   =         $461,019
Return Element (Net Income +    ...         $29,250  ...        $465,502
 Interest)....................
Investment Base (from Step 4).   /         $534,488   /         $801,733
Projected Return on Investment   =             0.05   =             0.58
------------------------------------------------------------------------

                                Table 23--Projected ROI, Areas in District Three
----------------------------------------------------------------------------------------------------------------
                                                            Area 6               Area 7               Area 8
----------------------------------------------------------------------------------------------------------------
Revenue (from Step 3)............................  ...      $1,969,800  ...      $1,496,427  ...      $1,442,677
Operating Expenses (from Step 1).................   -         $811,899   -         $347,957   -         $497,081
Pilot Compensation (from Step 2).................   -       $1,015,177   -         $929,309   -         $845,981
Operating Profit/(Loss)..........................   =         $142,724   =         $219,161   =          $99,615
Interest Expense (from audits)...................   -           $2,692   -           $1,154   -           $1,648
Earnings Before Tax..............................   =         $140,032   =         $218,007   =          $97,967
Federal Tax Allowance............................   -               $0   -               $0   -               $0
Net Income.......................................   =         $140,032   =         $218,007   =          $97,967
Return Element (Net Income + Interest)...........  ...        $142,724  ...        $219,161  ...         $99,615
Investment Base (from Step 4)....................   /         $601,515   /         $257,793   /         $368,275
Projected Return on Investment...................   =             0.24   =             0.85   =             0.27
----------------------------------------------------------------------------------------------------------------

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

                                            Table 24--Comparison of projected ROI and Target ROI, by Area\1\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                              Area 1          Area 2          Area 4          Area 5          Area 6          Area 7          Area 8
                                         ---------------------------------------------------------------------------------------------------------------
                                                                                Southeast
                                           St. Lawrence    Lake Ontario      Lake Erie     Shoal to Port    Lakes Huron     St. Mary's     Lake Superior
                                               River                                         Huron, MI     and Michigan        River
--------------------------------------------------------------------------------------------------------------------------------------------------------
Projected return on investment..........          0.4581          0.3486          0.0547          0.5806          0.2373          0.8501          0.2705
Target return on investment.............          0.0424          0.0424          0.0424          0.0424          0.0424          0.0424          0.0424
Difference in return on investment......          0.4157          0.3062          0.0123          0.5382          0.1949          0.8077          0.2281
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Note: Decimalization and rounding of the target ROI affects the display in this table but does not affect our calculations, which are based on the
  actual figure.

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

                                                 Table 25--Revenue Needed To Recover Target ROI, by Area
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Investment base
                                               Operating            Target pilot          (Step 4) x 4.24%          Federal tax
              Pilotage area                 expenses  (Step         compensation          (Target ROI Step           allowance           Revenue needed
                                                  1)                  (Step 2)                   5)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Area 1 (Designated waters)...............          $603,313   +          1,393,964   +              38,873   +                  0   =          2,036,149
Area 2 (Undesignated waters).............          $458,153   +            845,981   +              34,169   +                  0   =          1,338,302
Area 4 (Undesignated waters).............          $512,027   +            676,785   +              22,662   +              5,200   =          1,216,674
Area 5 (Designated waters)...............          $768,048   +          1,393,964   +              33,993   +              7,800   =          2,203,805
Area 6 (Undesignated waters).............          $811,899   +          1,015,177   +              25,504   +                  0   =          1,852,580

Area 7 (Designated waters)...............          $347,957   +            929,309   +              10,930   +                  0   =          1,288,197
Area 8 (Undesignated waters).............          $497,081   +            845,981   +              15,615   +                  0   =          1,358,677
                                          --------------------------------------------------------------------------------------------------------------
    Total................................        $3,998,479   +          7,101,160   +             181,747   +             13,000   =         11,294,385
--------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

                                Table 26--Rate Multiplier, Areas in District One
----------------------------------------------------------------------------------------------------------------
                                                                            Area 1                  Area 2
                                                                       ----------------     --------------------
                      Ratemaking projections                             St. Lawrence
                                                                             River               Lake Ontario
----------------------------------------------------------------------------------------------------------------
Revenue Needed (from Step 6).....................................  ...      $2,036,149  ...           $1,338,302
Revenue (from Step 3)............................................   /       $2,417,285   /            $1,585,032
Rate Multiplier..................................................   =           0.8423   =                0.8443
----------------------------------------------------------------------------------------------------------------

                                Table 27--Rate Multiplier, Areas in District Two
----------------------------------------------------------------------------------------------------------------
                                                                            Area 4                  Area 5
                                                                       ----------------     --------------------
                      Ratemaking projections                                                  Southeast Shoal to
                                                                           Lake Erie            Port Huron, MI
----------------------------------------------------------------------------------------------------------------
Revenue Needed (from Step 6).....................................  ...      $1,216,674  ...           $2,203,805
Revenue (from Step 3)............................................   /       $1,223,262   /            $2,635,314
Rate Multiplier..................................................   =           0.9946   =                0.8363
----------------------------------------------------------------------------------------------------------------

                               Table 28--Rate Multiplier, Areas in District Three
----------------------------------------------------------------------------------------------------------------
                                                    Area 6                  Area 7                   Area 8
                                             -------------------     --------------------     ------------------
         Ratemaking projections                Lakes Huron and
                                                   Michigan            St. Mary's River          Lake Superior
----------------------------------------------------------------------------------------------------------------
Revenue Needed (from Step 6)...........  ...         $1,825,580  ...          $1,288,197  ...         $1,358,677
Revenue (from Step 3)..................   /          $1,969,800   /           $1,496,427   /          $1,442,677
Rate Multiplier........................   =              0.9405   =               0.8608   =              0.9418
----------------------------------------------------------------------------------------------------------------
Note: Numbers may not total due to rounding.

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

 Table 29--Rate Multiplier for Basic Rates and Charges in 46 CFR 401.420
                               and 401.428
------------------------------------------------------------------------

------------------------------------------------------------------------
Ratemaking Projections:
    Total Revenue Needed (from Step 6).............  ...     $11,294,385
    Total revenue (from Step 3)....................   /      $12,769,797
Rate Multiplier....................................   =            0.884
------------------------------------------------------------------------

    Using this table, we calculate rates for cancellation, delay, or
interruption in rendering services (46 CFR 401.420) and basic rates and
charges for carrying a U.S. pilot beyond the normal change point, or
for boarding at other than the normal boarding point (46 CFR 401.428).
The result is a decrease by 11.55 percent in all areas.
    Without further action, the existing rates we established in our
2014 final rule would then be multiplied by the rate multipliers from
Tables 29 through 31 to calculate the area by area rate changes for
2015. The resulting 2015 rates across the Great Lakes, on average,
would then decrease by approximately 12 percent from the 2014 rates.
This decrease is not due to increased

efficiencies in pilotage services but rather a result of adjustments to
AMOU contract data.
    We decline to impose this decrease because recently completed
independent audits of pilot association revenues detail a significant
gap between revenues projected by the Coast Guard and those actually
collected by the pilot associations. Implementing a rate decrease would
further widen this disparity and adversely impact the provision of
safe, efficient, and reliable pilotage service on the Great Lakes. In
light of the revenue studies, our initial proposal in the NPRM to raise
rates 2.5 percent in order to gain parity with the Canadian GLPA now
appears insufficient to ensure the funding of safe, efficient, and
reliable pilotage service. In 46 U.S.C. 9303(f), the statute states
``The Secretary shall prescribe by regulation rates and charges for
pilotage services, giving consideration to the public interest and the
costs of providing the services.'' We believe the public interest is
best served through promotion of safe, efficient, and reliable pilotage
service. Sufficient revenue to fund safe, efficient, and reliable
pilotage operations are considered integral to the public interest.
Table 30 demonstrates the results of the revenue audits compared to our
projections.

                                              Table 30--Revenue Gap
----------------------------------------------------------------------------------------------------------------
                                                                         Actual revenue       Revenue shortfall
                   District                          Ratemaking          revenue audits      (projections  minus
                                                 projections  (2015)         (2013)                actual)
----------------------------------------------------------------------------------------------------------------
1.............................................            $4,002,317            $3,406,164              $596,153
2.............................................             3,858,576             3,169,377               689,199
3.............................................             4,908,904             4,323,965               584,939
----------------------------------------------------------------------------------------------------------------

    Further, the gap captured in Table 30 actually underestimates the
revenue gap because the projections of the current rulemaking rely on
the alterations of proprietary union contracts. Table 31 illustrates
the average U.S. Registered Pilot compensation, assuming all revenue
remaining after expenses is distributed as compensation.

                                  Table 31--2013 Average Actual Compensation *
----------------------------------------------------------------------------------------------------------------
                                                                    Total                          Approximate
           District               Revenues        Expenses      available for      Number  of      compensation
                                                                 compensation      pilots **        per pilot
----------------------------------------------------------------------------------------------------------------
1............................      $3,406,164      $1,272,365       $2,133,799               11         $193,982
2............................       3,169,377       1,461,438        1,707,939               10          170,794
3............................       4,323,965       1,778,118        2,545,847               17          149,756
                              ----------------------------------------------------------------------------------
    Total....................      10,899,506       4,511,921        6,387,585               38          168,094
----------------------------------------------------------------------------------------------------------------
* The Coast Guard does not establish pay procedures for the pilot associations, rather we set a target rate of
  compensation for general compensation calculation.
** The District Three Association actually employed 13 pilots during this timeframe; their approximate
  compensation per pilot is higher than this table depicts. Seventeen pilots were authorized in the rate.

    These figures demonstrate the significant shortfall in pilot
compensation compared to an estimated present value of 2011
compensation (the last figures are not in dispute) of approximately
$260,000. We believe $260,000 is a fair estimate of what pilot
compensation should be based on uncontested figures from previous AMOU
contracts. The gap of almost $90,000 between approximate actual
compensation and our estimates of where pilot compensation should stand
place the pilot associations in an untenable position. We believe it is
imperative to act quickly to raise the revenue needed to sustain pilot
association operations and compensate pilots in a fair and reasonable
manner. This gap also highlights a significant discrepancy in the
actual salaries of U.S. Registered Pilots compared to the Canadian
Registered Pilots of the GLPA, estimated to be approximately ($US)
250,000. We must work quickly to rebaseline the billing scheme and
raise the revenue necessary to continue to sustain safe, efficient, and
reliable pilotage service on the Great Lakes. We believe the shortfalls
in revenue are caused by an overprojection of bridge hours and to a
larger extent, an inadequate billing scheme. To this end, we will
adjust our proposal to raise rates in all areas by 10 percent in a
concerted effort to begin closing the established gap between
compensation of U.S. and Canadian Registered Pilots, as well as the gap
between actual salaries and previous estimates. This percentage
increase is high enough above inflation to begin closing the revenue
gap without being unduly burdensome to industry. We believe sustained,
steady rate increases to close the gap are more responsible than a one-
time action. This replaces our initial projections of a 2.5 percent
increase in all areas. We will seek to address the underlying
methodology challenges in a future rulemaking.
    Therefore, we rely on the discretionary authority we have under
Step 7 to further adjust rates and begin closing the gap between
revenues projected by the Coast Guard and those collected by the pilot
associations. Table 32 compares the impact, area by area, that an
average decrease of 12 percent would have, relative to the impact each
area would experience if United States rates increase.

                                Table 32--Impact of Exercising Step 7 Discretion
----------------------------------------------------------------------------------------------------------------
                                                                 Percent change in rate   Percent change in rate
                             Area                               without exercising Step  with exercise of Step 7
                                                                      7 discretion              discretion
----------------------------------------------------------------------------------------------------------------
Area 1 (Designated waters)....................................                   -15.77                       10
Area 2 (Undesignated waters)..................................                   -15.57                       10
Area 4 (Undesignated waters)..................................                    -0.54                       10
Area 5 (Designated waters)....................................                   -16.37                       10
Area 6 (Undesignated waters)..................................                    -5.95                       10
Area 7 (Designated waters)....................................                   -13.92                       10
Area 8 (Undesignated waters)..................................                    -5.82                       10
----------------------------------------------------------------------------------------------------------------

    The following tables reflect our rate adjustments of 10 percent
across all areas.
    Tables 33 through 35 show these calculations.

                          Table 33--Adjustment of Pilotage Rates, Areas in District One
----------------------------------------------------------------------------------------------------------------
                                                                         Rate
                                             2014 Rate                multiplier          Adjusted rate for 2015
----------------------------------------------------------------------------------------------------------------
Area 1
St. Lawrence River
    Basic Pilotage..................     $19.22/km, $34.02/mi   x              1.1   =      $21.14/km, $37.42/mi
    Each lock Transited.............                     $426   x              1.1   =                      $469
    Harbor movage...................                    1,395   x              1.1   =                     1,535
    Minimum basic rate, St. Lawrence                      931   x              1.1   =                     1,024
     River..........................
    Maximum rate, through trip......                    4,084   x              1.1   =                     4,492
Area 2
Lake Ontario
    6-hour period...................                      872   x              1.1   =                       959
    Docking or Undocking............                      832   x              1.1   =                       915
----------------------------------------------------------------------------------------------------------------
Note: Numbers may not total due to rounding.

    In addition to the rate charges in Table 33, as we explain in the
Summary section of Part VI of this preamble, we are authorizing
District One to implement a temporary supplemental 10 percent charge on
each source form (the ``bill'' for pilotage service) for the duration
of the 2015 shipping season, which begins in March 2015. District One
will be required to provide us with monthly status reports once this
surcharge becomes effective for the duration of the 2015 shipping
season. We will exclude these expenses from future rates and any
surcharge surplus/deficit from the 2014 season would impact the final
authorized surcharge for the 2015 season.

                          Table 34--Adjustment of Pilotage Rates, Areas in District Two
----------------------------------------------------------------------------------------------------------------
                                                                                Rate             Adjusted rate
                                                           2014 Rate           multiplier            for 2015
----------------------------------------------------------------------------------------------------------------
Area 4
Lake Erie
    6-hour period.....................................            $849   x              1.1   =             $934
    Docking or undocking..............................             653   x              1.1   =              718
    Any point on Niagara River below Black Rock Lock..           1,667   x              1.1   =            1,834
Area 5
Southeast Shoal to Port Huron, MI between any point on
 or in
    Toledo or any point on Lake Erie W. of Southeast             1,417   x              1.1   =            1,559
     Shoal............................................
    Toledo or any point on Lake Erie W. of Southeast             2,397   x              1.1   =            2,637
     Shoal & Southeast Shoal..........................
    Toledo or any point on Lake Erie W. of Southeast             3,113   x              1.1   =            3,424
     Shoal & Detroit River............................
    Toledo or any point on Lake Erie W. of Southeast             2,397   x              1.1   =            2,637
     Shoal & Detroit Pilot Boat.......................
    Port Huron Change Point & Southeast Shoal (when              4,176   x              1.1   =            4,594
     pilots are not changed at the Detroit Pilot Boat)
    Port Huron Change Point & Toledo or any point on             4,837   x              1.1   =            5,321
     Lake Erie W. of Southeast Shoal (when pilots are
     not changed at the Detroit Pilot Boat)...........
    Port Huron Change Point & Detroit River...........           3,137   x              1.1   =            3,451
    Port Huron Change Point & Detroit Pilot Boat......           2,441   x              1.1   =            2,685
    Port Huron Change Point & St. Clair River.........           1,735   x              1.1   =            1,909
    St. Clair River...................................           1,417   x              1.1   =            1,559
    St. Clair River & Southeast Shoal (when pilots are           4,176   x              1.1   =            4,594
     not changed at the Detroit Pilot Boat)...........
    St. Clair River & Detroit River/Detroit Pilot Boat           3,137   x              1.1   =            3,451
    Detroit, Windsor, or Detroit River................           1,417   x              1.1   =            1,559
    Detroit, Windsor, or Detroit River & Southeast               2,397   x              1.1   =            2,637
     Shoal............................................

    Detroit, Windsor, or Detroit River & Toledo or any           3,113   x              1.1   =            3,424
     point on Lake Erie W. of Southeast Shoal.........
    Detroit, Windsor, or Detroit River & St. Clair               3,137   x              1.1   =            3,451
     River............................................
    Detroit Pilot Boat & Southeast Shoal..............           1,735   x              1.1   =            1,909
    Detroit Pilot Boat & Toledo or any point on Lake             2,397   x              1.1   =            2,637
     Erie W. of Southeast Shoal.......................
    Detroit Pilot Boat & St. Clair River..............           3,137   x              1.1   =            3,451
----------------------------------------------------------------------------------------------------------------
Note: Numbers may not total due to rounding.

    In addition to the rate charges in Table 34, and for the reasons we
discussed in the Summary section of Part VI of this preamble, we are
authorizing District Two to implement a temporary supplemental 10
percent charge on each source form for the duration of the 2015
shipping season, which begins in March 2015. District Two will be
required to provide us with monthly status reports once this surcharge
becomes effective for the duration of the 2015 shipping season. We will
exclude these expenses from future rates.

                         Table 35--Adjustment of Pilotage Rates, Areas in District Three
----------------------------------------------------------------------------------------------------------------
                                                                                Rate             Adjusted rate
                                                           2014 Rate           multiplier            for 2015
----------------------------------------------------------------------------------------------------------------
Area 6
Lakes Huron and Michigan
    6-hour Period.....................................            $708   x              1.1   =             $779
    Docking or undocking..............................             672   x              1.1   =              739
Area 7
St. Mary's River between any point on or in
    Gros Cap & De Tour................................           2,648   x              1.1   =            2,913
    Algoma Steel Corp. Wharf, Sault Ste. Marie, Ont. &           2,648   x              1.1   =            2,913
     De Tour..........................................
    Algoma Steel Corp. Wharf, Sault Ste. Marie, Ont. &             997   x              1.1   =            1,097
     Gros Cap.........................................
    Any point in Sault Ste. Marie, Ont., except the              2,219   x              1.1   =            2,441
     Algoma Steel Corp. Wharf & De Tour...............
    Any point in Sault Ste. Marie, Ont., except the                997   x              1.1   =            1,097
     Algoma Steel Corp. Wharf & Gros Cap..............
    Sault Ste. Marie, MI & De Tour....................           2,219   x              1.1   =            2,441
    Sault Ste. Marie, MI & Gros Cap...................             997   x              1.1   =            1,097
    Harbor movage.....................................             997   x              1.1   =            1,097
Area 8
Lake Superior
    6-hour period.....................................             601   x              1.1   =              661
    Docking or undocking..............................             571   x              1.1   =              628
----------------------------------------------------------------------------------------------------------------
Note: Numbers may not total due to rounding.

    In addition to the rate charges in Table 35, and for the reasons we
discussed in the Summary section of Part VI of this preamble, we are
authorizing District Three to implement a temporary supplemental 10
percent charge on each source form for the duration of the 2015
shipping season, which begins in March 2015. District Three will be
required to provide us with monthly status reports once this surcharge
becomes effective for the duration of the 2015 shipping season. We will
exclude these expenses from future rates.

VII. Regulatory Analyses

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

A. Regulatory Planning and Review

    Executive Orders 12866, Regulatory Planning and Review, and 13563,
Improving Regulation and Regulatory Review, direct agencies to assess
the costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). Executive
Order 13563 emphasizes the importance of quantifying both costs and
benefits, of reducing costs, of harmonizing rules, and of promoting
flexibility.
    This rule is not a significant regulatory action under section 3(f)
of E.O. 12866 as supplemented by E.O. 13563, and does not require an
assessment of potential costs and benefits under section 6(a)(3) of
E.O. 12866. The Office of Management and Budget (OMB) has not reviewed
it under E.O. 12866. Nonetheless, we developed an analysis of the costs
and benefits of the rule to ascertain its probable impacts on industry.