[Federal Register Volume 79, Number 171 (Thursday, September 4, 2014)]
[Proposed Rules]
[Pages 52602-52624]
[FR Doc No: 2014-21046]

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DEPARTMENT OF HOMELAND SECURITY

Coast Guard

46 CFR Part 401

[USCG-2014-0481]
RIN 1625-AC22

Great Lakes Pilotage Rates--2015 Annual Review and Adjustment

AGENCY: Coast Guard, DHS.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Coast Guard proposes rate adjustments for pilotage
services on the Great Lakes, last amended in March 2014. The proposed
adjustments would establish new base rates made in accordance with a
full ratemaking procedure. Additionally, the Coast Guard proposes to
exercise the discretion provided by Step 7 of the Appendix A
methodology. The result is an upward adjustment to match the rate
increase of the Canadian Great Lakes Pilotage Authority. We also
propose temporary surcharges to accelerate recoupment of necessary and
reasonable training costs for the pilot associations. This notice of
proposed rulemaking promotes the Coast Guard's strategic goal of
maritime safety.

DATES: Comments and related material must either be submitted to our
online

docket via http://www.regulations.gov on or before November 3, 2014 or
reach the Docket Management Facility by that date.

ADDRESSES: You may submit comments identified by docket number USCG-
2014-0481 using any one of the following methods:
    (1) Federal eRulemaking Portal: http://www.regulations.gov.
    (2) Fax:<PHONE_NUMBER>.
    (3) Mail: Docket Management Facility (M-30), U.S. Department of
Transportation, West Building Ground Floor, Room W12-140, 1200 New
Jersey Avenue SE., Washington, DC 20590-0001.
    (4) Hand delivery: Same as mail address above, between 9 a.m. and 5
p.m., Monday through Friday, except Federal holidays. The telephone
number is<PHONE_NUMBER>.
    To avoid duplication, please use only one of these four methods.
See the ``Public Participation and Request for Comments'' portion of
the SUPPLEMENTARY INFORMATION section below for instructions on
submitting comments.

FOR FURTHER INFORMATION CONTACT: If you have questions on this proposed
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. Public Participation and Request for Comments
    A. Submitting Comments
    B. Viewing Comments and Documents
    C. Privacy Act
    D. Public Meeting
II. Abbreviations
III. Basis and Purpose
IV. Background
V. Discussion of Proposed Rule
    A. Summary
    B. Discussion of Methodology
VI. 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. Public Participation and Request for Comments

    We encourage you to participate in this rulemaking by submitting
comments and related materials. All comments received will be posted
without change to http://www.regulations.gov and will include any
personal information you have provided.

A. Submitting Comments

    If you submit a comment, please include the docket number for this
rulemaking (USCG-2014-0481), indicate the specific section of this
document to which each comment applies, and provide a reason for each
suggestion or recommendation. You may submit your comments and material
online or by fax, mail, or hand delivery, but please use only one of
these means. We recommend that you include your name and a mailing
address, an email address, or a phone number in the body of your
document so that we can contact you if we have questions regarding your
submission.
    To submit your comment online, go to http://www.regulations.gov and
insert ``USCG-2014-0481'' in the ``Search'' box. Click on ``Submit a
Comment'' in the ``Actions'' column. If you submit your comments by
mail or hand delivery, submit them in an unbound format, no larger than
8\1/2\ by 11 inches, suitable for copying and electronic filing. If you
submit comments by mail and would like to know that they reached the
Facility, please enclose a stamped, self-addressed postcard or
envelope.
    We will consider all comments and material received during the
comment period and may change this notice of proposed rulemaking (NPRM)
based on your comments.

B. Viewing Comments and Documents

    To view comments, as well as documents mentioned in this preamble
as being available in the docket, go to http://www.regulations.gov and
insert ``USCG-2014-0481'' in the ``Search'' box. Click ``Search.''
Click the ``Open Docket Folder'' in the ``Actions'' column. If you do
not have access to the Internet, you may view the docket online by
visiting the Docket Management Facility in Room W12-140 on the ground
floor of the Department of Transportation West Building, 1200 New
Jersey Avenue SE., Washington, DC 20590, between 9 a.m. and 5 p.m.,
Monday through Friday, except Federal holidays. We have an agreement
with the Department of Transportation to use the Docket Management
Facility.

C. Privacy Act

    Anyone can search the electronic form of comments received into any
of our dockets by the name of the individual submitting the comment (or
signing the comment, if submitted on behalf of an association,
business, labor union, etc.). You may review a Privacy Act notice
regarding our public dockets in the January 17, 2008 issue of the
Federal Register (73 FR 3316).

D. Public Meeting

    We do not now plan to hold a public meeting, but you may submit a
request for one to the docket using one of the methods specified under
ADDRESSES. In your request, explain why you believe a public meeting
would be beneficial. If we decide to hold a public meeting, we will
announce its time and place in a later notice in the Federal Register.

II. 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
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

III. Basis and Purpose

    The basis of this NPRM 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 NPRM 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 NPRM 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 Authority 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 NPRM 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 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 entitled
``Summary--Independent Accountant's Report on Pilot Association
Expenses, with Pilot Association Comments and Accountant's Responses,''
which appears in the docket.

V. Discussion of Proposed Rule

A. Summary

    We propose establishing new base pilotage rates in accordance with
the methodology outlined in Appendix A to 46 CFR part 404. The proposed
new rates would be established by March 1, 2015, and 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 American Maritime Officers Union
(AMOU) contracts. Therefore, we will continue to exercise the
discretion outlined in Step 7, increasing rates by 2.5 percent, and
matching the Canadian Great Lakes Pilotage Authority's rate adjustment
for 2015. We will provide additional discussion when we explain our
Step 7 adjustment of pilot rates. Table 1 shows the proposed percent
change for the new rates for each area.
    Secondly, we propose temporary surcharges for the pilot
associations to recoup necessary and reasonable training expenses
incurred or that are expected to be incurred prior to the required
March 1, 2015 publication of the 2015 final rule. Normally, these
expenses would not be recognized until the 2016 annual ratemaking or
later. By authorizing the temporary surcharges now, we propose to
accelerate the reimbursement for necessary and reasonable training
expenses. The surcharge would be authorized for the duration of the
2015 shipping season which begins in March 2015. This action would
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 propose a temporary surcharge of 5 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 $150,000 cost to train a new applicant pilot in the 2014
shipping season to prepare a replacement for a retiring pilot. We
believe this training is necessary and reasonable to maintain 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 propose a temporary surcharge of 10 percent in
District Two to compensate pilots for $300,000 that the District Two
pilot association will spend 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 would 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 would assist in the safety, efficiency, and reliability of
the system.
    Next, we propose a temporary surcharge of 1 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.
    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 NPRM.

     Table 1--Summary of Rate Adjustments Based on Step 7 Discretion
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                                                       Then the percent
        If pilotage service is required in:            change over the
                                                       current rate is:
------------------------------------------------------------------------
Area 1 (Designated waters).........................                2.50
Area 2 (Undesignated waters).......................                2.50
Area 4 (Undesignated waters).......................                2.50
Area 5 (Designated waters).........................                2.50
Area 6 (Undesignated waters).......................                2.50
Area 7 (Designated waters).........................                2.50
Area 8 (Undesignated waters).......................                2.50
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B. Discussion of Methodology

    The Appendix A methodology provides seven steps, with sub-steps,
for calculating rate adjustments. The following discussion describes
those steps and sub-steps, and includes tables showing how we 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
Proposed 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)
Proposed Adjustments (Director):
    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
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Note: Numbers may not total due to rounding.

                                  Table 3--Recognized Expenses for District Two
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                                                                 Area 4            Area 5
                                                           ------------------------------------
                Reported Expenses for 2012                                     Southeast Shoal        Total
                                                                Lake Erie      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
Proposed 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)
Proposed 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
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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 and                                            Total
                                              Michigan      St. Mary's 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              352,098           150,899           215,570           718,567
         Costs..........................
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
Proposed 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
Proposed 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/xgshells/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            St. Mary's                                     Total
                                                                         and Michigan               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             Total
                                                      Lake Erie           to 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 average wages and benefits.........  ...           $50,730  ...           $69,825
    Agreement B total weighted average wages and benefits.........   +           $118,466   +           $162,502
                                                                   ---------------------------------------------
        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 target
                  Pilotage area                     Pilots needed              pilot                  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 Equipment (NET)............................   +            445,044   +            391,191
    Land..........................................................   -             11,727   -             10,308
    Total Other Assets............................................   +                  0   +                  0
                                                                   ---------------------------------------------
        Total Recognized Assets...................................   =            927,159   =            814,966
Non-Recognized Assets:
    Total Investments and Special Funds...........................   +              6,452   +              5,672
                                                                   ---------------------------------------------
        Total Non-Recognized Assets...............................   =              6,452   =              5,672
Total Assets:
    Total Recognized Assets.......................................                927,159                814,966
    Total Non-Recognized Assets...................................   +              6,452   +              5,672
                                                                   ---------------------------------------------
        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 Companies............................   +                  0   +                  0

    Long-Term Obligations--Capital Leases.........................   +                  0   +                  0
                                                                   ---------------------------------------------
        Total Recognized Sources..................................   =            945,339   =            830,945
Non-Recognized Sources of Funds:
    Pension Liability.............................................                      0                      0
    Other Non-Current Liabilities.................................   +                  0   +                  0
    Deferred Federal Income Taxes.................................   +             10,675   +              9,383
    Other Deferred Credits........................................   +                  0   +                  0
                                                                   ---------------------------------------------
        Total Non-Recognized Sources..............................   =             10,675   =              9,383
Total Sources of Funds:
    Total Recognized Sources......................................                945,339                830,945
    Total Non-Recognized Sources..................................   +             10,675   +              9,383
                                                                   ---------------------------------------------
        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 Equipment (NET)............................   +            436,063   +            654,094
    Land..........................................................   -                  0   -                  0
    Total Other Assets............................................   +             60,418   +             90,627
                                                                   ---------------------------------------------
        Total Recognized Assets...................................   =            534,488   =            801,733
Non-Recognized Assets:
    Total Investments and Special Funds...........................   +                  0   +                  0
                                                                   ---------------------------------------------
        Total Non-Recognized Assets...............................   =                  0   =                  0
Total Assets:
    Total Recognized Assets.......................................  ...           534,488  ...           801,733
    Total Non-Recognized Assets...................................   +                  0   +                  0
                                                                   ---------------------------------------------
        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 Companies............................   +                  0   +                  0
    Long-Term Obligations--Capital Leases.........................   +                  0   +                  0
                                                                   ---------------------------------------------
        Total Recognized Sources..................................   =            534,488   =            801,733
Non-Recognized Sources of Funds:
    Pension Liability.............................................  ...                 0  ...                 0
    Other Non-Current Liabilities.................................   +                  0   +                  0
    Deferred Federal Income Taxes.................................   +                  0   +                  0
    Other Deferred Credits........................................   +                  0   +                  0
                                                                   ---------------------------------------------
        Total Non-Recognized Sources..............................   =                  0   =                  0
Total Sources of Funds:
    Total Recognized Sources......................................  ...           534,488  ...           801,733
    Total Non-Recognized Sources..................................   +                  0   +                  0
                                                                   ---------------------------------------------
        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
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Multiplier
                                                                               Total        Recognized     Total sources     (ratio of      Investment
                        District                               Area         recognized      sources of     of funds ($)    recognized to   base ($) \1\
                                                                            assets ($)       funds ($)                    total sources)
--------------------------------------------------------------------------------------------------------------------------------------------------------
One.....................................................               1         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 1)..................................     -          603,313     -          458,153
Pilot Compensation (from Step 2)..................................     -        1,393,964     -          845,981
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 + Interest)............................                420,009                280,899
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 1)..................................     -          512,027     -          768,048
Pilot Compensation (from Step 2)..................................     -          676,785     -        1,393,964
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 + Interest)............................                 29,250                465,502
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
                                                         Operating          Target pilot         base (Step 4)
                    Pilotage area                        expenses           compensation            x 4.24%            Federal tax        Revenue needed
                                                         (Step 1)             (Step 2)            (Target ROI           allowance
                                                                                Step 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 negotiation with
Canada or 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
                                                                             Lake Erie           to 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 be decreased 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 contracts. We propose to
decline to impose this decrease because it would have an adverse effect
on providing safe, efficient, and reliable pilotage in the pilotage
districts. Additionally, we propose to decline to impose this decrease
because we are unable to independently verify the compensation data
contained in the AMOU contracts. Our Memorandum of Arrangements (MOA)
with Canada, as well as our recently signed Memorandum of Understanding
(MOU),\4\ which replaces the MOA, calls for comparable pilotage rates
between the two countries and we have proposed matching our rate
increase to the Canadian rate increase, which is 2.5 percent this year.
Our discretionary authority under Step 7 must be ``based on
requirements of the Memorandum of Arrangements between the United
States and Canada, and other supportable circumstances that may be
appropriate.'' The MOA calls for comparable United States and Canadian
rates, and the rates would not be comparable if United States rates for
2015 decrease by approximately 12 percent, while Canadian rates for
2015 increase by 2.5 percent. Though rates are not equivalent, matching
the Canadian rate increase prevents a move further away from
established levels of comparability. ``Other supportable
circumstances'' for exercising our discretion include:
---------------------------------------------------------------------------

    \4\ The Memorandum of Understanding between the GLPA and USCG
was signed on September 19, 2013 and goes into effect on January 1,
2015. Copies of the MOA and MOU are available on our Web site:
http://www.uscg.mil/hq/cg5/cg552/pilotage.asp.
---------------------------------------------------------------------------

     Executive Order (E.O.) 13609, ``Promoting International
Regulatory Cooperation,'' which calls on Federal agencies to eliminate
``unnecessary differences'' between U.S. and foreign regulations (77 FR
26413; May 4, 2012; sec. 1); and
     The risk that a significant rate decrease would jeopardize
the ability of the three pilotage associations to provide safe,
efficient, and reliable pilotage service.
    Therefore, we propose relying on the discretionary authority we
have under Step 7 to further adjust rates so that they match those
adopted by the Canadian Great Lakes Pilotage Authority for 2014. Table
30 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 match those of the Canadian GLPA.

                                Table 30--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                     2.50
Area 2 (Undesignated waters)..................................                   -15.57                     2.50
Area 4 (Undesignated waters)..................................                    -0.54                     2.50
Area 5 (Designated waters)....................................                   -16.37                     2.50
Area 6 (Undesignated waters)..................................                    -5.95                     2.50
Area 7 (Designated waters)....................................                   -13.92                     2.50
Area 8 (Undesignated waters)..................................                    -5.82                     2.50
----------------------------------------------------------------------------------------------------------------

    The following tables reflect our proposed rate adjustments of 2.5
percent across all areas.
    Tables 31 through 33 show these calculations.

                     Table 31--Proposed Adjustment of Pilotage Rates, Areas in District One
----------------------------------------------------------------------------------------------------------------
                                                                                Adjusted rate
                                                      2014 Rate           Rate multiplier           for 2015
----------------------------------------------------------------------------------------------------------------
Area 1 St. Lawrence River
    Basic Pilotage..............................        $19.22/km,   x              1.025   =         $19.70/km,
                                                          34.02/mi                                      34.87/mi
    Each lock transited.........................               426   x              1.025   =                437
    Harbor movage...............................             1,395   x              1.025   =              1,430
    Minimum basic rate, St. Lawrence River......               931   x              1.025   =                954
Maximum rate, through trip......................             4,084   x              1.025   =              4,186
Area 2 Lake Ontario
    6-hour period...............................               872   x              1.025   =                894
Docking or undocking............................               832   x              1.025   =                853
----------------------------------------------------------------------------------------------------------------
Note: Numbers may not total due to rounding.

    In addition to the proposed rate charges in Table 31, as we explain
in the Summary section of Part V of this preamble, we propose
authorizing District One to implement a temporary supplemental 5
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 would be required to provide us with monthly status
reports once this surcharge becomes effective for the duration of the
2015 shipping season. We would 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 32--Proposed Adjustment of Pilotage Rates, Areas in District Two
----------------------------------------------------------------------------------------------------------------
                                                                                Adjusted rate
                                                      2014 Rate           Rate multiplier           for 2015
----------------------------------------------------------------------------------------------------------------
Area 4 Lake Erie
    6-hour period...............................              $849   x              1.025   =               $870
    Docking or undocking........................               653   x              1.025   =                669
    Any point on Niagara River below Black Rock              1,667   x              1.025   =              1,709
     Lock.......................................
Area 5 Southeast Shoal to Port Huron, MI between
 any point on or in
    Toledo or any point on Lake Erie W. of                   1,417   x              1.025   =              1,452
     Southeast Shoal............................
    Toledo or any point on Lake Erie W. of                   2,397   x              1.025   =              2,457
     Southeast Shoal & Southeast Shoal..........
    Toledo or any point on Lake Erie W. of                   3,113   x              1.025   =              3,191
     Southeast Shoal & Detroit River............
    Toledo or any point on Lake Erie W. of                   2,397   x              1.025   =              2,457
     Southeast Shoal & Detroit Pilot Boat.......
    Port Huron Change Point & Southeast Shoal                4,176   x              1.025   =              4,280
     (when pilots are not changed at the Detroit
     Pilot Boat)................................
    Port Huron Change Point & Toledo or any                  4,837   x              1.025   =              4,958
     point on Lake Erie W. of Southeast Shoal
     (when pilots are not changed at the Detroit
     Pilot Boat)................................
    Port Huron Change Point & Detroit River.....             3,137   x              1.025   =              3,215
    Port Huron Change Point & Detroit Pilot Boat             2,441   x              1.025   =              2,502
    Port Huron Change Point & St. Clair River...             1,735   x              1.025   =              1,778
    St. Clair River.............................             1,417   x              1.025   =              1,452
    St. Clair River & Southeast Shoal (when                  4,176   x              1.025   =              4,280
     pilots are not changed at the Detroit Pilot
     Boat)......................................
    St. Clair River & Detroit River/Detroit                  3,137   x              1.025   =              3,215
     Pilot Boat.................................
    Detroit, Windsor, or Detroit River..........             1,417   x              1.025   =              1,452
    Detroit, Windsor, or Detroit River &                     2,397   x              1.025   =              2,457
     Southeast Shoal............................
    Detroit, Windsor, or Detroit River & Toledo              3,113   x              1.025   =              3,191
     or any point on Lake Erie W. of Southeast
     Shoal......................................
    Detroit, Windsor, or Detroit River & St.                 3,137   x              1.025   =              3,215
     Clair River................................
    Detroit Pilot Boat & Southeast Shoal........             1,735   x              1.025   =              1,778
    Detroit Pilot Boat & Toledo or any point on              2,397   x              1.025   =              2,457
     Lake Erie W. of Southeast Shoal............
    Detroit Pilot Boat & St. Clair River........             3,137   x              1.025   =              3,215
----------------------------------------------------------------------------------------------------------------
Note: Numbers may not total due to rounding.

    In addition to the proposed rate charges in Table 32, and for the
reasons we discussed in the Summary section of Part V of this preamble,
we propose 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
would be required to provide us with monthly status reports once this
surcharge becomes effective for the duration of the 2015 shipping
season. We would exclude these expenses from future rates.

                    Table 33--Proposed Adjustment of Pilotage Rates, Areas in District Three
----------------------------------------------------------------------------------------------------------------
                                                                                Adjusted rate
                                                      2014 Rate           Rate multiplier           for 2015
----------------------------------------------------------------------------------------------------------------
Area 6 Lakes Huron and Michigan
    6-hour Period...............................              $708   x              1.025   =               $726
    Docking or undocking........................               672   x              1.025   =                689
Area 7 St. Mary's River between any point on or
 in
    Gros Cap & De Tour..........................             2,648   x              1.025   =              2,714
    Algoma Steel Corp. Wharf, Sault Ste. Marie,              2,648   x              1.025   =              2,714
     Ont. & De Tour.............................
    Algoma Steel Corp. Wharf, Sault. Ste. Marie,               997   x              1.025   =              1,022
     Ont. & Gros Cap............................
    Any point in Sault St. Marie, Ont., except               2,219   x              1.025   =              2,274
     the Algoma Steel Corp. Wharf & De Tour.....
    Any point in Sault St. Marie, Ont., except                 997   x              1.025   =              1,022
     the Algoma Steel Corp. Wharf & Gros Cap....
    Sault Ste. Marie, MI & De Tour..............             2,219   x              1.025   =              2,274
    Sault Ste. Marie, MI & Gros Cap.............               997   x              1.025   =              1,022
    Harbor movage...............................               997   x              1.025   =              1,022
Area 8 Lake Superior
    6-hour period...............................               601   x              1.025   =                616
    Docking or undocking........................               571   x              1.025   =                585
----------------------------------------------------------------------------------------------------------------
Note: Numbers may not total due to rounding.

    In addition to the proposed rate charges in Table 33, and for the
reasons we discussed in the Summary section of Part V of this preamble,
we propose authorizing District Three to implement a temporary
supplemental 1 percent charge on each source form for the duration of
the 2015 shipping season, which begins in March 2015. District Three
would be required to provide us with monthly status reports once this
surcharge becomes effective for the duration of the 2015 shipping
season. We would exclude these expenses from future rates.

VI. Regulatory Analyses

    We developed this proposed 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 proposed 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 proposed rule to ascertain its
probable impacts on industry. We consider all estimates and analysis in
this Regulatory Analysis to be subject to change in consideration of
public comments.
    The Coast Guard is required to review and adjust pilotage rates on
the Great Lakes annually. See Parts III and IV of this preamble for
detailed discussions of the Coast Guard's legal basis and purpose for
this rulemaking and for background information on Great Lakes pilotage
ratemaking. Based on our annual review for this proposed rulemaking, we
are adjusting the pilotage rates for the 2015 shipping season to
generate sufficient revenue to cover allowable expenses, and to target
pilot compensation and returns on pilot associations' investments. The
rate adjustments in this proposed rule would, if codified, lead to an
increase in the cost per unit of service to shippers in all three
districts, and result in an estimated annual cost increase to shippers
of approximately $319,245 across all three districts over 2014 rates--
an increase of 2.5 percent.
    In addition to the increase in payments that would be incurred by
shippers in all three districts from the previous year as a result of
the proposed discretionary rate adjustments, we propose authorizing
temporary, supplemental surcharges to traffic across all three
districts in order for the pilotage associations to recover training
expenses and technology improvements that were incurred throughout the
2013 and 2014 shipping seasons. These temporary surcharges would be
authorized for the duration of the 2015 shipping season, which begins
in March. We estimate that these temporary surcharges would generate a
combined $650,939 in revenue for the pilotage associations across all
three districts. In District One, the proposed 5 percent surcharge
would generate an additional $205,119 in revenue. In District Two, the
proposed 10 percent surcharge is expected to generate $395,504 in
additional revenue. In District Three, the proposed 1 percent surcharge
would generate an additional $50,316 in revenue. At the end of the 2015
shipping season, we will account for the monies the surcharges generate
and make adjustments (debits/credits) to the operating expenses for the
following year.\5\
---------------------------------------------------------------------------

    \5\ Assuming our estimate is correct, we would credit District
One shippers $27,090 at the end of the 2015 season in order to
account for the difference between the total surcharges collected
($205,119) and the actual expenses incurred by the District One
pilot association ($178,029 for training expenses), District Two
shippers $69,674 (calculation: $395,504 (total surcharges collected)
minus $300,000 to train two applicant pilots and $25,829.80 for
technology improvements), and District Three shippers $23,366
(calculation: $50,316 (total surcharges collected) minus $26,950
(actual training expenses incurred)).
---------------------------------------------------------------------------

    Therefore, after accounting for the implementation of the temporary
surcharges on traffic across all three districts, the annual payments
made by shippers are estimated to be approximately $970,184 more than
the payments that were made in 2014.\6\
---------------------------------------------------------------------------

    \6\ Total payments across all three districts are equal to the
increase in payments incurred by shippers as a result of the rate
changes plus the temporary surcharges applied to traffic in
Districts One, Two, and Three.
---------------------------------------------------------------------------

    A regulatory assessment follows.

    The proposed rule would apply the 46 CFR part 404, Appendix A, full
ratemaking methodology, including the exercise of our discretion to
increase Great Lakes pilotage rates, on average, approximately 2.5
percent overall from the current rates set in the 2014 final rule. The
Appendix A methodology is discussed and applied in detail in Part V of
this preamble. Among other factors described in Part V, it reflects
audited 2012 financial data from the pilotage associations (the most
recent year available for auditing), projected association expenses,
and regional inflation or deflation. The last full Appendix A
ratemaking was concluded in 2014 and used financial data from the 2011
base accounting year. The last annual rate review, conducted under 46
CFR part 404, Appendix C, was completed early in 2011.
    The shippers affected by these rate adjustments are those owners
and operators of domestic vessels operating on register (employed in
foreign trade) and owners and operators of foreign vessels on a route
within the Great Lakes system. These owners and operators must have
pilots or pilotage service as required by 46 U.S.C. 9302. There is no
minimum tonnage limit or exemption for these vessels. The Coast Guard's
interpretation is that the statute applies only to commercial vessels
and not to recreational vessels.
    Owners and operators of other vessels that are not affected by this
proposed rule, such as recreational boats and vessels operating only
within the Great Lakes system, may elect to purchase pilotage services.
However, this election is voluntary and does not affect our calculation
of the rate and is not a part of our estimated national cost to
shippers.
    We used 2011-2013 vessel arrival data from the Coast Guard's Marine
Information for Safety and Law Enforcement (MISLE) system to estimate
the average annual number of vessels affected by the rate adjustment.
Using that period, we found that approximately 114 vessels journeyed
into the Great Lakes system annually. These vessels entered the Great
Lakes by transiting at least one of the three pilotage districts before
leaving the Great Lakes system. These vessels often make more than one
distinct stop, docking, loading, and unloading at facilities in Great
Lakes ports. Of the total trips for the 114 vessels, there were
approximately 353 annual U.S. port arrivals before the vessels left the
Great Lakes system, based on 2011-2013 vessel data from MISLE.
    The impact of the rate adjustment to shippers is estimated from the
District pilotage revenues. These revenues represent the costs
(``economic costs'') that shippers must pay for pilotage services. The
Coast Guard sets rates so that revenues equal the estimated cost of
pilotage for these services.
    We estimate the additional impact (cost increases or cost
decreases) of the rate adjustment in this proposed rule to be the
difference between the total projected revenue needed to cover costs in
2014, based on the 2014 rate adjustment, and the total projected
revenue needed to cover costs in 2015, as set forth in this proposed
rule, plus any temporary surcharges authorized by the Coast Guard.
Table 34 details projected revenue needed to cover costs in 2015 after
making the discretionary adjustment to pilotage rates as discussed in
Step 7 of Part VI of this preamble. Table 35 summarizes the derivation
for calculating the revenue expected to be generated as a result of the
temporary surcharges applied to traffic in all three districts as
discussed in Step 7 of Part VI of this preamble. Table 36 details the
additional cost increases to shippers by area and district as a result
of the rate adjustments and temporary surcharges on traffic in
Districts One, Two, and Three.

                                                     Table 34--Rate Adjustment by Area and District
                                                                 [$U.S.; Non-discounted]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Projected
                                                              2014 pilotage     Rate change \8\     2015 pilotage     Projected 2015   revenue needed in
                                                               rates \7\                             rates \9\      bridge hours \10\      2015 \11\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Area 1...................................................            $472.50             1.0250            $484.31              5,116         $2,477,717
Area 2...................................................             291.96             1.0250             299.26              5,429          1,624,658
                                                          ----------------------------------------------------------------------------------------------
    Total, District One..................................  .................  .................  .................  .................          4,102,375
                                                          ==============================================================================================
Area 4...................................................             210.40             1.0250             215.66              5,814          1,253,843
Area 5...................................................             521.64             1.0250             534.68              5,052          2,701,197
                                                          ----------------------------------------------------------------------------------------------
    Total, District Two..................................  .................  .................  .................  .................          3,955,040
                                                          ==============================================================================================
Area 6...................................................             204.95             1.0250             210.08              9,611          2,019,045
Area 7...................................................             495.01             1.0250             507.39              3,023          1,533,838
Area 8...................................................             191.34             1.0250             196.12              7,540          1,478,744
                                                          ----------------------------------------------------------------------------------------------
    Total, District Three................................  .................  .................  .................  .................          5,031,627
--------------------------------------------------------------------------------------------------------------------------------------------------------

                                   Table 35--Derivation of Temporary Surcharge
----------------------------------------------------------------------------------------------------------------
                                Area 1      Area 2      Area 4      Area 5      Area 6      Area 7      Area 8
----------------------------------------------------------------------------------------------------------------
Projected Revenue Needed in   $2,477,717  $1,624,658  $1,253,843  $2,701,197  $2,019,045  $1,533,838  $1,478,744
 2015.......................
Surcharge Rate..............          5%          5%         10%         10%          1%          1%          1%
Surcharge Raised............    $123,886     $81,233    $125,384    $270,120     $20,190     $15,338     $14,787
                             -----------------------------------------------------------------------------------
    Total Surcharge.........         $205,119
                                     $395,504
                                            $50,316
----------------------------------------------------------------------------------------------------------------

                           Table 36--Impact of the Proposed Rule by Area and District
                                             [$U.S.; Non-discounted]
----------------------------------------------------------------------------------------------------------------
                                                                                Additional
                                              Projected         Projected         Temporary     costs or savings
                                           revenue needed    revenue needed       surcharge     of this proposed
                                            in 2014 \12\      in 2015 \13\                            rule
----------------------------------------------------------------------------------------------------------------
Area 1..................................        $2,417,285        $2,477,717          $123,886          $184,318
Area 2..................................         1,585,032         1,624,658            81,233           120,859
                                         -----------------------------------------------------------------------
    Total, District One.................         4,002,318         4,102,375           205,119           305,177
                                         =======================================================================
Area 4..................................         1,223,262         1,253,843           125,384           155,966
Area 5..................................         2,635,314         2,701,197           270,120           336,003
                                         -----------------------------------------------------------------------
    Total, District Two.................         3,858,576         3,955,040           395,504           491,968
                                         =======================================================================
Area 6..................................         1,969,800         2,019,045            20,190            69,435
Area 7..................................         1,496,427         1,533,838            15,338            52,749
Area 8..................................         1,442,677         1,478,744            14,787            50,854
                                         -----------------------------------------------------------------------
    Total, District Three...............         4,908,904         5,031,627            50,316           173,039
----------------------------------------------------------------------------------------------------------------

    After applying the discretionary rate change in this NPRM, the
resulting difference between the projected revenue in 2014 and the
projected revenue in 2015 is the annual change in payments from
shippers to pilots after accounting for market conditions (i.e., a
decrease in demand for pilotage services) and the change to pilotage
rates as a result of this proposed rule. This figure is equivalent to
the total additional payments or reduction in payments from the
previous year that shippers would incur for pilotage services from this
proposed rule.
---------------------------------------------------------------------------

    \7\ 2014 Pilotage Rates are described in Table 16 of this NPRM.
    \8\ The estimated rate changes are described in Table 30 of this
NPRM.
    \9\ 2015 Pilotage Rates--2014 Pilotage Rates x Rate Change.
    \10\ Projected 2015 Bridge Hours are described in Table 14 of
this NPRM.
    \11\ Projected Revenue Needed in 2015--2015 Pilotage Rates x
Projected 2015 Bridge Hours.
    \12\ Projected revenue needed in 2014 is described in Table 16
of this NPRM.
    \13\ Projected revenue needed in 2015 is described in Table 34
of this NPRM.
---------------------------------------------------------------------------

    The impact of the discretionary rate adjustment in this proposed
rule on shippers varies by area and district. The discretionary rate
adjustments would lead to affected shippers operating in District One,
District Two, and District Three experiencing an increase in payments
of $100,058, $96,464, and $122,723, respectively, from the previous
year.
    In addition to the rate adjustments, temporary surcharges on
traffic in District One, District Two, and District Three would be
applied for the duration of the 2015 season in order for the pilotage
associations to recover training expenses and technology investments
incurred during the 2013 and 2014 shipping seasons. We estimate that