[Federal Register Volume 80, Number 175 (Thursday, September 10, 2015)]
[Proposed Rules]
[Pages 54484-54507]
[FR Doc No: 2015-22895]

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

DEPARTMENT OF HOMELAND SECURITY

Coast Guard

46 CFR Parts 401, 403, and 404

[USCG-2015-0497]
RIN 1625-AC22

Great Lakes Pilotage Rates--2016 Annual Review and Changes to
Methodology

AGENCY: Coast Guard, DHS.

ACTION: Notice of proposed rulemaking; public meeting.

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

SUMMARY: The Coast Guard proposes revisions to the annual ratemaking
methodology (``procedural changes'') and several Great Lakes pilotage
regulations, and proposes new base pilotage rates and surcharges
(``rate changes''), using that proposed revised methodology. The
changes would take effect 30 days after publication of a final rule.
Rates for pilotage services on the Great Lakes were last revised in
February 2015 and by law must be reviewed annually. The Coast Guard
intends for the proposed revised methodology to be understandable and
transparent, and to encourage investment in pilots, infrastructure, and
training while helping ensure safe, efficient, and reliable service on
the Great Lakes. In addition, the Coast Guard announces a public
meeting on September 17, 2015, at which the public may ask questions
about the proposals and comment on them. This rulemaking promotes the
Coast Guard's maritime safety and stewardship (environmental
protection) missions by promoting safe shipping on the Great Lakes.

DATES: Comments and related material must either be submitted to the
online docket via www.regulations.gov on or before November 9, 2015 or
reach the Docket Management Facility by that date. The public meeting
will be held on September 17, 2015, from 1:00 p.m. to 4:00 p.m., but
may end sooner depending on the extent to which the public has
questions or comments.

ADDRESSES: The September 17, 2015 public meeting will be held at the
Detroit Metro Airport Marriott, 30559 Flynn Dr., Romulus, MI 48174
(telephone<PHONE_NUMBER> or Marriott.com). Submit written comments using
one of the listed methods, and see SUPPLEMENTARY INFORMATION for more
information on public comments.
     Online--http://www.regulations.gov following Web site
instructions.
     Fax--202-493-2251.
     Mail or hand deliver--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. Hand
delivery hours: 9 a.m. to 5 p.m., Monday through Friday, except Federal
holidays (telephone<PHONE_NUMBER>).

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:

Executive Summary

    The purpose of this rulemaking is to amend the Coast Guard's Great
Lakes pilotage regulations by revising the current methodology by which
the Coast Guard sets base rates for U.S. pilotage service. The legal
basis for the rulemaking is provided by Great Lakes pilotage statutes
in 46 U.S.C. chapter 93. The proposed changes would take effect 30 days
after publication of a final rule; this would coincide closely with the
start of the 2016 shipping season and be several months earlier than in
past rulemakings, which set changes that took effect on August 1 of
each year.
    The Coast Guard is proposing a complete revision of the current
methodology for two reasons. First, over many years both pilots and
industry have identified certain methodology issues that they believe
significantly distort ratemaking calculations. Pilot associations
believe those distortions result in low rates that contribute to their
difficulty in retaining pilots and attracting applicant pilots. Second,
only one union's contract data has ever been made available to the
Coast Guard for the purpose of determining the benchmark for pilot
compensation. The union now regards that data as proprietary and will
no longer disclose it to the Coast Guard. The union is not subject to
our Great Lakes pilotage regulatory oversight and therefore we respect
and accept their decision. However, as a result of this decision, the
Coast Guard no longer has access to the detailed breakdown of
compensation calculations that our current methodology relies on, and
the public cannot review the union's calculations or the manner in
which we apply those calculations in setting pilotage rates. Therefore,
we have decided we must select another benchmark for our ratemaking
purposes. In 2014, the Coast Guard's Great Lakes Pilotage Advisory
Committee (GLPAC) recommended significant changes to address
stakeholder issues with the current methodology and to adapt to the
unavailability of benchmark contract data.\1\ This rulemaking would
build a new ratemaking methodology around the GLPAC recommendations,
the 2013 Bridge Hour Study, and numerous comments we have received over
the past decade from previous rulemakings to revise this proposed
methodology. Also, we believe the proposed methodology addresses the
issues raised with the 2014 Appendix A Final Rule lawsuit, St. Lawrence
Seaway Pilots Association, Inc., et al., v. U.S. Coast Guard.\2\ The
pilots successfully challenged the 2014 Appendix A Final Rule and their
recommendation for target pilot compensation is discussed in this
proposed rule.
---------------------------------------------------------------------------

    \1\ See 46 U.S.C. 9307.
    \2\ Docket No. 1:14-cv-00392-TSC.
---------------------------------------------------------------------------

    As is done in the current ratemaking methodology, the proposed new
methodology would follow a series of steps, which we describe in Part
V. Step 1 reviews and recognizes previous operating expenses based on
audits of records provided by the pilot associations. Step 2 projects
each association's future operating expenses, adjusting for inflation
or deflation. Step 3 projects the number of pilots needed based on each
area's peak pilotage demand data and the pilot work cycle. Step 4 sets
target pilot compensation using a compensation benchmark. Step 5
projects each association's return on investment by adding the
projected adjusted operating expenses from Step 2 and the total target
pilot compensation from Step 4 and multiplying by the preceding year's
average annual rate of return for new issues of high grade corporate
securities. Step 6 calculates each association's needed revenue by
adding the projected adjusted operating expenses from Step 2, the total
target pilot compensation from Step 4 and the projected return on
investment from Step 5. Step 7 calculates initial base rates based on
the preceding steps. Step 8 adjusts the Step 7 initial rates if
necessary and reasonable to do so for supportable circumstances, and
sets final rates.
    In Part VI, the Coast Guard uses the proposed methodology described
in Part V to calculate proposed base rates for the 2016 shipping
season.
    In Step 1 we propose accepting the independent accountant's final
findings

from the 2013 audits of each association's expenses.
    In Step 2 we project next year's operating expenses and adjust them
for inflation, using actual inflation data for 2014 and 2015 and the
Federal Reserve target inflation rate as a proxy for actual 2016
inflation.
    In Step 3, we determine that 50 pilots are needed next year, up
from the 36 pilots we currently authorize. This number is based on data
for four shipping seasons, 2010 through 2013, instead of the normal
five seasons, because we do not have reliable source data for 2009 or
2014. The number is also based average pilot assignment cycle time
based on our 2013 Bridge Hour Definition and Methodology Final Report
though we intend to use Great Lakes Pilotage Management System (GLPMS)
source data in the future.
    In Step 4 we propose individual target pilot compensation of
$312,500 and total target pilot compensation for 42 pilots of
$13,125,000. Though we find that 50 pilots are needed over the period
for which 2016 base rates would be in effect, based on our best current
information we project there to be only 42 fully working and fully
compensated pilots (``working pilots'') in 2016. The figures were set
after considering various possible compensation benchmarks, including
the compensation figures proposed by the pilot associations, and
selecting 2013 Canadian Great Lakes Pilotage Authority (GLPA)
registered pilot compensation as the most appropriate benchmark.
    In Steps 5 and 6 we calculate the return on investment and project
each pilot association's needed revenue.
    In Step 7, we calculate initial base rates using the multi-year
base period used above, covering the 2010 through 2013 shipping
seasons.
    Finally, in Step 8, we finalize the Step 7 rates, but propose
imposing a temporary surcharge of $300,000 per district in 2016. The
surcharge would reimburse pilot associations for the anticipated
expenses of providing necessary training for current pilots and
applicant pilots.
    In addition to the proposed methodology revisions and proposed 2016
rates, we also propose an additional location for beginning and ending
pilot assignments (a ``change point'') at Iroquois Lock. This would
enhance safety by mitigating fatigue associated with long pilotage runs
of 10 hours or more in the St. Lawrence River.
    The proposed rule would not be economically significant under E.O.
12866. It would affect 36 U.S. Great Lakes pilots, 3 pilot
associations, and the owners and operators of an average of 126 vessels
that journey the Great Lakes on an average 396 visits to various ports
annually. The Coast Guard estimates that the proposed rate changes
would result in shippers paying pilot associations a net 2016 shipping
season increase from 2015 of $6,521,205. The proposed $6,521,205
represents a roughly 50% increase over the revenue the 2015 Appendix A
Final Rule should generate. The Coast Guard also proposes authorizing
temporary surcharges to reimburse pilot associations for training
costs. These surcharges would add an estimated $900,000 in costs, for a
total 2016 cost increase from 2015 of $7,421,205. Since the Coast Guard
must review and prescribe rates for Great Lakes Pilotage annually, the
effects are estimated as single year costs rather than annualized over
a ten-year period. This rulemaking would not result in a change to
Coast Guard's budget and it would not increase Federal spending. A
summary of the regulatory analysis can be found in Part VII.

Table of Contents for Preamble

I. Public Participation and Request for Comments
II. Abbreviations
III. Basis and Purpose
IV. Background
V. Discussion of Proposed Procedural Changes
    A. Summary
    B. Discussion of Methodology
VI. Discussion of Proposed Rate Changes
VII. Regulatory Analyses
    A. Regulatory Planning and Review
    B. Small Entities
    C. Assistance for Small Entities
    D. Collection of Information
    E. Federalism
    F. Unfunded Mandates Reform Act
    G. Taking of Private Property
    H. Civil Justice Reform
    I. Protection of Children
    J. Indian Tribal Governments
    K. Energy Effects
    L. Technical Standards
    M. Environment

I. Public Participation and Request for Comments

    We encourage you to submit comments (or related material) on this
rulemaking. We will consider all submissions and may adjust our final
action based on your comments. Comments should be marked with docket
number USCG-2015-0497 and should provide a reason for each suggestion
or recommendation. You should provide personal contact information so
that we can contact you if we have questions regarding your comments;
but please note that all comments will be posted to the online docket
without change and that any personal information you include can be
searchable online (see the Federal Register Privacy Act notice
regarding our public dockets, 73 FR 3316, Jan. 17, 2008).
    Mailed or hand-delivered comments should be in an unbound 8\1/2\ x
11 inch format suitable for reproduction. The Docket Management
Facility will acknowledge receipt of mailed comments if you enclose a
stamped, self-addressed postcard or envelope with your submission.
    Documents mentioned in this proposed rule and all public comments
are in our online docket at http://www.regulations.gov and can be
viewed by following the Web site's instructions. You can also view the
docket at the Docket Management Facility (see the mailing address under
ADDRESSES) between 9 a.m. and 5 p.m., Monday through Friday, except
Federal holidays.
    On September 17, 2015, members of the public are invited to attend
a meeting in Detroit, Michigan, at which we will answer questions and
take comments on this NPRM. See DATES and ADDRESSES for further
information on the meeting. A transcript of the meeting will be
prepared and placed in the docket for this rulemaking.

II. Abbreviations

AMOU American Maritime Officers Union
APA American Pilots Association
BLS Bureau of Labor Statistics
CAD Canadian dollars
CFR Code of Federal Regulations
GLPA Great Lakes Pilotage Authority (Canadian)
CPA Certified public accountant
E.O. Executive Order
GLPAC Great Lakes Pilotage Advisory Committee
GLPMS Great Lakes Pilotage Management System
LPA Laurentian Pilotage Authority (Canadian)
MISLE Marine Information for Safety and Law Enforcement
NAICS North American Industry Classification System
NPRM Notice of proposed rulemaking
OMB Office of Management and Budget
Sec.  Section symbol
U.S.C. United States Code
USD United States dollars

III. Basis and Purpose

    The legal basis of this rulemaking is the Great Lakes Pilotage Act
of 1960 (``the Act''),\3\ which requires U.S. vessels operating ``on
register'' \4\ 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.\5\ For the U.S. registered Great Lakes pilots
(``pilots''), 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.'' \6\ The Act requires that rates be established or reviewed
and adjusted each year, not later than March 1.\7\ The Act requires
that base rates 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.\8\ The Secretary's duties and
authority under the Act have been delegated to the Coast Guard.\9\
---------------------------------------------------------------------------

    \3\ Public Law 86-555, 74 Stat. 259, as amended; currently
codified as 46 U.S.C. Chapter 93.
    \4\ ``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.
    \5\ 46 U.S.C. 9302(a)(1).
    \6\ 46 U.S.C. 9303(f).
    \7\ Id.
    \8\ Id.
    \9\ DHS Delegation No. 0170.1, para. II (92.f).
---------------------------------------------------------------------------

    The purpose of this notice of proposed rulemaking (NPRM) is to
propose revisions to the annual ratemaking methodology and several
Great Lakes pilotage regulations; to propose the addition of a new
pilot change point; and to propose new base pilotage rates and
surcharges, using the proposed revised ratemaking methodology.

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,'' which account for most commercial shipping on the
Great Lakes, are not affected.\10\
---------------------------------------------------------------------------

    \10\ 46 U.S.C. 9302. A ``laker'' is a commercial cargo vessel
especially designed for and generally limited to use on the Great
Lakes. The vessels affected by this rule are commonly known as
``salties.''
---------------------------------------------------------------------------

    The U.S. waters of the Great Lakes and the St. Lawrence Seaway are
divided into three pilotage districts. Pilotage in each district is
provided by an association certified by the Coast Guard Director of
Great Lakes Pilotage (``the Director'') to operate a pilotage pool. The
Coast Guard does 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 Huron, Michigan, and
Superior. Area 3 is the Welland Canal, which is serviced exclusively by
the Canadian GLPA and, accordingly, is not included in the United
States pilotage 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 ``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.'' \11\
---------------------------------------------------------------------------

    \11\ 46 U.S.C. 9302(a)(1)(B).
---------------------------------------------------------------------------

    The Coast Guard is required \12\ to establish new pilotage rates by
March 1 of each year, employing a ``full ratemaking . . . at least once
every 5 years,'' and an annual review and adjustment in the intervening
years. Currently, the methodology for an ``every 5 years'' full
ratemaking appears in 46 CFR part 404, appendix A, and the methodology
for annual review and adjustment appears in part 404, appendix C.
Definitions and formulas applicable to both methodologies appear in
part 404, appendix B. We have not used the appendix C methodology since
the 2011 ratemaking, and instead we have conducted a full appendix A
ratemaking each year.
---------------------------------------------------------------------------

    \12\ 46 U.S.C. 9303(f).
---------------------------------------------------------------------------

V. Discussion of Proposed Changes to Ratemaking Methodology

    As we do each year, the NPRM for the 2016 ratemaking proposes new
rates. In addition, this year's NPRM must also propose procedural
changes to the ratemaking methodology, for two reasons.
    First, each year our ratemakings draw pilot and industry comments
urging fundamental changes in our current ratemaking methodology.\13\
Based on our review of such comments over many years, we understand
that these stakeholders believe the current methodology is
unnecessarily complex and based on an inaccurate understanding of how
pilotage actually operates within the Great Lakes system. The
stakeholders believe the methodology produces improper rates, and wide
annual rate variations that frustrate long term planning. In response,
in 2009 we solicited public comments to better understand stakeholder
perceptions of the ratemaking methodology,\14\ and promised to refer
those comments to the Great Lakes Pilotage Advisory Committee
(GLPAC),\15\ a stakeholder group that advises us on Great Lakes
pilotage matters, for GLPAC's review and recommendations. Ever since,
we have worked closely with GLPAC to identify ways in which the
methodology might be improved.
---------------------------------------------------------------------------

    \13\ The current methodology was first proposed in 1989 (54 FR
11930), and made final in 1995 (60 FR 18366). It has not been
significantly amended in the subsequent 20 years. For a discussion
of the most recent cycle of public comments on our ratemaking
methodology, and Coast Guard responses to those comments, see the
2015 final rule, 80 FR 10365 (Feb. 26, 2015), beginning at p. 10366,
col. 3.
    \14\ 74 FR 35838 (July 21, 2009).
    \15\ Statutorily mandated by 46 U.S.C. 9307 and operating
pursuant to the Federal Advisory Committee Act, 5 U.S.C. Appendix 2.
---------------------------------------------------------------------------

    Second, we seek to ensure a safe, efficient, and reliable pilotage
system for the Great Lakes and to eliminate possible barriers to
achieving that goal. According to the pilot associations, the variance
between projected revenue and actual revenue represents a significant
challenge, because failure to achieve published revenue projections
deprives them of the resources they need to provide safe, efficient,
and reliable pilotage service. The associations cite challenges in
making capital investments, recruiting and retaining adequately
qualified pilots, achieving professional development and training
schedules recommended by the American Pilots Association, updating
technology, and achieving target compensation goals. The associations
say that as a result, several experienced pilots have left the system,
and that other desirable mariners have been discouraged from applying
to become pilots. In this rulemaking, we propose specific regulatory
changes intended to address these issues.
    The procedural changes we propose here were discussed in general at
GLPAC's public meetings on July 23 and 24, 2014. Many of the specific
changes we propose in this NPRM were submitted for GLPAC consideration
at those meetings, and GLPAC unanimously recommended them for
adoption.\16\ We consider GLPAC recommendations to have significant
weight because the three pilot associations members represent pilots'
interest and three U.S. shipping agent members represent owners.
Although foreign citizens may not serve on GLPAC and therefore the
foreign vessel

owners are not GLPAC members, we believe the U.S. shipping agents are
aware of and can adequately represent their interests. Also, the
foreign vessel owners can and do to attend GLPAC meetings and raise
their concerns during each meeting's public comment period.
---------------------------------------------------------------------------

    \16\ See full transcript in our docket and also available at
http://www.facadatabase.gov. Under 46 U.S.C. 9307(d)(1), the Coast
Guard ``shall, whenever practicable, consult with the Committee
before taking any significant action relating to Great Lakes
pilotage.''
---------------------------------------------------------------------------

    Please note that we propose making the following procedural and
rate changes effective 30 days after publication of a final rule,
almost half a year earlier than the August 1 effective date we have
used in previous rulemakings. We specifically request comments on this
proposed change. The change is justified for two reasons. First, the
traditional August 1 date was tied to the August 1 effective date for
annual changes in benchmark union contract rates. As we subsequently
discuss, we are no longer using the contract in question and hence
there is no inherent reason why we should continue following the
traditional practice. Second, annual Great Lakes pilotage rate
adjustments are required by law \17\ to be set by March 1 of the year
in which those adjustments take effect. By applying the normal
Administrative Procedure Act effective date, 30 days following
publication of a final rule,\18\ we will ensure that new rates will be
announced prior to the usual early spring opening of the annual Great
Lakes shipping season, and take effect near the opening date, thereby
providing a single rate scheme for all shipping traffic affected by the
adjusted rates.
---------------------------------------------------------------------------

    \17\ 46 U.S.C. 9303(f).
    \18\ 5 U.S.C. 553(d).
---------------------------------------------------------------------------

    We propose the following procedural changes. Please note that, for
each of the amended sections in the following discussion, we propose
extensive rewording in the interest of greater clarity and to remove
unnecessary verbiage.
    46 CFR 401.405, 401.407, and 401.410. These sections contain rate
tables and additional charges for specified Great Lakes waters. These
rates and charges are subject to our annual rate reviews and revisions.
Currently, the rate tables calculate rates differently for each area.
Most of the pilotage costs charged in designated waters are for
transits between two specified points. For example, as shown in current
Sec.  401.407(b), the current charge for transiting Lake Erie between
Toledo and Southeast Shoal is $2,637. However, in undesignated waters,
most of the pilotage charges are set at an hourly rate. For example,
current Sec.  401.407(a) shows that the cost for 6 hours of pilotage
service on the undesignated waters of Lake Erie is $934. In addition,
rates are set in designated and undesignated waters for miscellaneous
services like vessel docking or undocking, cancellation of service, or
the use of pilot boarding points other than those specified in Sec.
401.450.
    This mixed approach complicates an otherwise simple transaction of
paying for a pilot's service, either when the pilot is piloting on a
vessel's bridge, or is at the vessel master's disposal to provide
piloting. We propose eliminating the mixed approach in favor of
setting, for each district, one hourly rate for designated waters, and
another hourly rate for undesignated waters. Those rates would be
different for each district based on differences across the districts
in the infrastructure maintained by each district association (for
example, differences in numbers and types of pilot boat, or in office
arrangements) and in the distances that pilots must travel to and from
assignments.
    Currently, some rates published in 46 CFR part 401 are based on
hours, and others are based on the distance between two geographical
points. GLPAC recommended re-baselining this billing scheme by a 5-1
vote in July 2014, and we propose doing so by basing all rates on
hours.\19\ In addition to simplifying billing, an hourly-based approach
recognizes the scarcity of pilots as a resource, and charges shippers
for drawing on the limited number of these trained professionals.
---------------------------------------------------------------------------

    \19\ Transcript, ``United States Coast Guard--Great Lakes
Pilotage Advisory Committee--Thursday, July 24, 2014'' (7/24/2014),
p. 16. Discussion of this change, referred to by GLPAC members as
``re-baselining'' of rates, begins on July 23, 2014. See Transcript
(7/23/2014), ``United States Coast Guard--Great Lakes Pilotage
Advisory Committee--Wednesday, July 23, 2014,'' p. 277. Discussion
resumes: Transcript, ``United States Coast Guard--Great Lakes
Pilotage Advisory Committee--Thursday, July 24, 2014'' (7/24/2014),
p. 5.
---------------------------------------------------------------------------

    Proposed Sec.  401.405 would set each district's new base hourly
rates. The proposed changed to Sec.  401.405 would replace the current
text in Sec. Sec.  401.407 and 401.410 so those section would be
removed.
    46 CFR 401.420 and 401.428. We propose amending Sec.  401.420
(charges for a vessel's canceling, delaying, or interrupting pilotage
service) and Sec.  401.428 (charges for picking up or discharging a
pilot other than at a pilot change point designated in Sec.  401.450),
and basing those charges on the applicable hourly rates we would
specify in Sec.  401.405. Billing under Sec.  401.420 would preclude
any additional charges for pilotage service during the hours in
question.
    We would not retain Sec.  401.428's current per diem allowance for
a pilot who is picked up or discharged at a point other than a
designated change point. Instead, if the pilot is kept aboard for the
convenience of or at the request of the ship, the pilot would bill the
vessel for the extra time involved, at the Sec.  401.405 hourly rates,
in addition to reasonable travel costs. If the pilot is kept aboard for
circumstances outside of the ship's control, for example because a
pilot boat is out of service, the pilot would bill the vessel only for
reasonable travel costs. Finally, we would specify that for both
sections, the ``reasonable travel costs'' cover travel to and from the
pilot's base.
    In both sections we propose maintaining a similar calendar-based
authorization for delays and charges associated with weather, traffic
and ice. These are expected conditions at the beginning and end of the
season; thus, our rate structure allows them as acceptable charges
after November 30th or before May 1st each year.
    46 CFR 401.450. We propose adding the Iroquois Lock in the St.
Lawrence Seaway as a new pilot change point, joining those currently
listed in this section. The St. Lawrence Seaway transit often requires
pilots to spend more than ten hours aboard a vessel. Such long
assignments contribute to pilot fatigue, and have led the National
Transportation Safety Board to recommend that we amend our Great Lakes
pilotage regulations to promulgate ``hours-of-service rules that
prevent fatigue resulting from extended hours of service, insufficient
rest within a 24-hour period, and disruption of circadian rhythms.''
\20\ We currently authorize a pilot to request a new pilot at the
Iroquois Lock for overnight assignments, but our proposed addition of
the Iroquois Lock as a permanent pilot change point would further help
mitigate the problem of long assignments in the St. Lawrence Seaway. We
would closely monitor the impact of the proposed change on the number
of pilots needed in District One.
---------------------------------------------------------------------------

    \20\ Letter of June 29, 2015, Christopher A. Hart, Chairman of
the National Transportation Safety Board to Adm. Paul F. Zukunft,
Commandant, U.S. Coast Guard.
---------------------------------------------------------------------------

    46 CFR 403.120. We propose removing this section, which discusses
notes to financial reports. Under our current financial reporting
system those notes are not necessary.
    46 CFR 403.300. The accuracy of our pilotage rates depends on the
accuracy of our information on each pilotage association's expenses and
revenue. In the past, we have had difficulty

validating the accuracy of this information, because some associations
did not use a uniform financial reporting system. Therefore, we would
require each association to use the current Coast Guard-approved and
provided financial reporting system to certify their financial data
annually. Currently, we approve the GLPMS for this purpose. We would
continue to require an annual audit prepared by an independent
certified public accountant.
    46 CFR 403.400. Currently, this section details how forms must be
filled out to report pilot transaction records. Although GLPMS allows
for paper reporting, in the near future it will also provide an
electronic reporting feature. Therefore we would amend the section to
remove language that could suggest paper reporting is required. We
accept reports made in any medium supported by our currently-approved
financial reporting system.
    46 CFR 404.1. Currently, this section explains the purpose of part
404, and summarizes ratemaking procedures that are described in the
part 404 appendices. Because the remainder of part 404 would describe
our procedures in detail, we propose removing these provisions.
Instead, Sec.  404.1 would state that our intention is to provide
maximum ratemaking transparency and simplicity. It would state that the
goal of ratemaking is to promote safe, efficient, and reliable pilotage
service on the Great Lakes, by generating for each pilotage association
sufficient revenue to reimburse its necessary and reasonable operating
expenses, fairly compensate trained and rested pilots, and provide an
appropriate reserve to use for improvements. The section would provide
for the annual audit of association expenses, which we have conducted
for many years. It would also require annual audits of association
revenue. Revenue audits promote transparency and help us gauge, and if
necessary adjust, the way in which we try to align our revenue
projections with an association's actual revenue. GLPAC endorsed
revenue audits in July 2014,\21\ and they were first used in our 2015
ratemaking.
---------------------------------------------------------------------------

    \21\ Transcript (7/23/2014), p. 180.
---------------------------------------------------------------------------

    The section would also provide for a full ratemaking to establish
base pilotage rates at least once every five years, with annual rate
reviews and adjustments in the interim years, in accordance with the
procedures described in part 404.
    46 CFR 404.2. We would close the numbering gap between current
Sec. Sec.  404.1 and 404.5, and redesignate Sec.  404.5 as Sec.  404.2.
Section 404.5 currently describes which pilot association expenses can
or cannot be recognized as appropriate to recover through the charging
of pilotage rates. New Sec.  404.2 would do the same thing, and make no
substantive changes except with respect to the recognition of pilot
benefits as an element of pilot compensation. Current Sec.  404.5
states that the amounts paid for benefits will be recognized to the
extent benefits are included in ``the most recent union contract for
first mates on Great Lakes vessels.'' Sufficiently detailed and
itemized access to relevant union contracts is no longer available for
Coast Guard or public review. Therefore, instead of linking benefits to
union contracts, we would recognize pilot compensation as covering all
association-paid pilot benefits, including medical and pension benefits
and profit sharing.
    46 CFR 404.100. We propose redesignating current Sec.  404.10 as
Sec.  404.100. Section 404.10 currently provides a general introduction
to the part 404 appendices on ratemaking methodology, but it contains
no substantive requirements. It also currently describes the seven
areas of the Great Lakes that are covered by the three pilotage
districts, but since that information already appears in part 401,
subpart D, it need not be repeated. We would replace this current
content with general rules for the conduct of full ratemakings and rate
reviews.
    Currently, and as we have done since 2012, each year we conduct a
full appendix A ratemaking to establish base pilotage rates. However,
we believe establishing base rates for multi-year periods would produce
more predictable rates for both pilots and industry. GLPAC recommended
this approach in July 2014.\22\
---------------------------------------------------------------------------

    \22\ Transcript (7/23/2014), p. 274. Discussion begins on p.
258.
---------------------------------------------------------------------------

    Under our proposed multi-year approach, we would conduct full
ratemakings to establish base rates at least once every 5 years, with
base rate reviews and necessary adjustments in interim years.\23\ In
the interim years the Director would review the existing rates to
ensure that they continue to promote safe, efficient, and reliable
pilotage service. If interim-year adjustments are needed, they would be
set either through automatic annual adjustments, pre-set during the
previous full ratemaking in anticipation of economic trends over the
multi-year term; or to reflect U.S. Bureau of Labor Statistics (BLS)
Consumer Price Index (CPI-U); or, if neither of those methods would
produce appropriate adjustments, through a new full ratemaking. Reviews
and adjustments would be proposed for public comment.
---------------------------------------------------------------------------

    \23\ Per 46 U.S.C. 9303(f), full ratemakings are required at
least once every 5 years, with reviews and adjustments of the base
rate in the intervening years.
---------------------------------------------------------------------------

    For a transitional period over the next several years, we would
conduct annual reviews of the rate and change the base rates, as
needed, to ensure the new methodology's efficacy. This would also allow
time for the pilots and industry to become familiar with the new
ratemaking methodology (including the new hourly billing scheme).
Following the transitional period, we would propose interim-year
adjustments using any of the three methods described in the preceding
paragraph.
    Ratemaking methodology. We propose simplifying the current appendix
A ratemaking methodology, and replacing it with new Sec. Sec.  404.101
through 404.108. In part, the new sections are similar to the ``Steps''
described in appendix A, but they would depart from those Steps in
significant respects. We also propose removing current appendix B
(ratemaking definitions and formulas) and appendix C (annual rate
reviews; which has not been used since 2011) as these are no longer
necessary. Table 1 shows how we propose to change appendix A's Steps in
the new regulatory text.

                   Table 1--Proposed Treatment of Appendix A Steps in 446 CFR 404.101-404.108
----------------------------------------------------------------------------------------------------------------
           Appendix A step                           Proposed change                          Comments
----------------------------------------------------------------------------------------------------------------
1....................................  Omit......................................  Unnecessary summary of
                                                                                substeps.
1.A..................................  Omit......................................  Move substance to Sec.
                                                                                404.2.
1.B..................................  Reword and move...........................  Move substance to new Sec.
                                                                                404.101 and move Step 1.B's
                                                                                second sentence to Sec.
                                                                                404.2.
1.C..................................  Reword and move...........................  Add similar language to Sec.
                                                                                404.102.

1.D..................................  Reword and move...........................  Add similar language to Sec.
                                                                                404.102.
2....................................  Omit......................................  Unnecessary summary of
                                                                                substeps.
2.A..................................  Reword and move...........................  Add similar language to Sec.
                                                                                404.104.
2.B..................................  Reword and move...........................  Add similar language to Sec.
                                                                                404.103.
2.C..................................  Reword and move...........................  Add similar language to Sec.
                                                                                404.104.
3....................................  Omit......................................  Unnecessary summary of
                                                                                substep 3.A.
3.A..................................  Reword and move...........................  Cover substance in Sec.
                                                                                404.106.
4....................................  Omit......................................  Per recommendation approved
                                                                                by GLPAC \24\
5....................................  ..........................................  Add similar language to Sec.
                                                                                404.105.
6....................................  Reword and move...........................  Per recommendation approved
                                                                                by GLPAC.\25\ Add similar
                                                                                language to Sec.   404.106.
7, except last sentence of first       Reword and move...........................  Add similar language to Sec.
 paragraph.                                                                          404.107.
7, last sentence of first paragraph..  Reword and move...........................  Add similar language to Sec.
                                                                                404.108.
----------------------------------------------------------------------------------------------------------------

    In the discussion that follows, we explain how our proposed new
methodology would replace each Step of the appendix A methodology. Our
calculations for 2016 rates, using the proposed methodology, appear in
Part VI.
---------------------------------------------------------------------------

    \24\ Transcript (7/23/2014), p. 255. Discussion begins on p.
237.
    \25\ Id.
---------------------------------------------------------------------------

    46 CFR 404.101--Recognize previous operating expenses. Section
404.101 would correspond generally to current Steps 1.A and 1.B (pilot
association submission of financial information and Coast Guard
recognition of costs). We would describe our criteria for recognizing
costs in Sec.  404.2. The section proposes that the recognition of
costs be based on independent third party audits, as has been the case
for many years.
    46 CFR 404.102--Project operating expenses, adjusting for inflation
or deflation. Section 404.102 would correspond to current Steps 1.C and
1.D and describe, as those Steps do, how we calculate an association's
projected base non-compensation operating expenses. As we do today, we
would apply a cost change factor for inflation or deflation, based on
BLS Midwest Region CPI-U changes, to any of the operating expenses
recognized under Sec.  404.101 that could be affected by inflation or
deflation.
    This NPRM proposes base rates to take effect in 2016. It considers
audited pilot association expenses from 2013, the last full year for
which reported and audited financial information is available. Current
Step 1.C allows us to apply a cost change factor only for the first
year after that (2014). This does not take into account consumer price
index changes in subsequent years (2015 and 2016). In July 2014 GLPAC
recommended that we take the subsequent years into account,\26\ and we
propose doing so, using BLS, and the target inflation rate set by the
Federal Reserve as a proxy for the Midwest Region CPI-U if BLS
projection data is unavailable.
---------------------------------------------------------------------------

    \26\ Transcript (7/23/2014), p. 200. Discussion begins on p.
192.
---------------------------------------------------------------------------

    46 CFR 404.103--Determine number of pilots needed. Section 404.103
would correspond to current Step 2.B, which determines how many pilots
are needed based on our projections of the bridge hours that pilots
will serve during the upcoming shipping season. Because bridge hours
represent only the time that a pilot is on board a vessel and providing
basic pilotage service, pilots frequently have commented in previous
years' ratemaking rules that we should also take into account necessary
demands on pilot time that go beyond bridge hours. They have also
commented that Step 2.B does not specify sources for our bridge hour
projections and that inaccurate projections distort the rest of our
ratemaking calculations. We agree and propose changing how we calculate
the number of pilots needed.
    Instead of projecting future bridge hours to calculate the number
of pilots needed, we would rely on an average of actual past data, as
recommended by GLPAC in July 2014.\27\ Also as recommended by
GLPAC,\28\ we would identify the number of pilots needed to meet each
shipping season's peak pilotage demand periods without interruption to
service. To do this, we would determine each area's peak demand over an
historical multi-year base period, and the pilot assignment cycle time
to determine how many pilots would have been needed to meet that peak
demand. For both determinations, we use averages to compensate for
normal year-to-year fluctuation in traffic and pilot availability over
the historical multi-year base period. We would divide the peak demand
figures by the per-pilot cycle time to determine the number of pilots
needed to meet peak demand.
---------------------------------------------------------------------------

    \27\ Transcript (7/23/2014), p. 258. Discussion begins on p.
255.
    \28\ Transcript (7/23/2014), p. 237. Discussion begins on p.
201.
---------------------------------------------------------------------------

    Historical multi-year base period. Normally, the base period would
cover the five most recent full shipping seasons, and our data source
would be pilot association entries in a system approved under proposed
Sec.  403.300. Using a five year period should give us a reliable
picture of recent Great Lakes traffic trends, and taking data from an
approved system should ensure the use of consistent data across the
three districts.
    If within the five most recent seasons data are unavailable or
unreliable, we would consider substituting available and reliable data
from another past shipping season or from a source other than an
approved system, such as pilot association submitted data or Canadian
GLPA data. Examples of unavailable or unreliable data are situations
where data have not been recorded in an approved system, or come from
an outlier year in which traffic was abnormally low or high and so
could significantly distort our calculations. Generally, a traffic
distortion of significant proportion, one that we would not expect be
replicated within the next decade, would form the basis of this
determination. That year's NPRM would explain, for public comment, our
determination that normal data sources are unavailable or unreliable,
and our selection of an alternate source. We specifically request
public comment on whether there is an objective standard that we can
and should use in each annual ratemaking, to determine whether a
particular shipping season should be treated as an ``outlier.''
    For our first historical multi-year base period, we do not think we
have sufficient reliable data for five recent

shipping seasons, and therefore we propose using only four seasons'
data, as we explain in Part VI.
    Base seasonal work standard. This standard is intended to ensure
that we consider all the time reasonably needed for a pilot to provide
safe, efficient, and reliable pilotage service. We start by recognizing
that pilots must provide pilotage whenever traffic demands it, and that
the timing of this traffic is often unpredictable. Current regulations
ensure only a minimum 10-hour rest period between a pilot's
assignments.\29\ Historically, peak traffic demand is concentrated at
the beginning of a shipping season, to handle the traffic buildup
created by the previous season's closure, and at the end of the season,
when vessels seek to complete their voyages before closure. During
these peak periods, pilots are often on assignment nearly continuously.
However, even in off-peak months, pilots frequently provide pilotage
over many weeks without any significant rest, which over time threatens
to degrade their ability to provide safe service. The pilots, GLPAC,
and the Coast Guard agree that proper rest is an important concern to
address.
---------------------------------------------------------------------------

    \29\ 46 CFR 401.451.
---------------------------------------------------------------------------

    In July 2014, GLPAC recommended that we ``take a serious look'' at
scheduling monthly 10 day recuperative rest periods for pilots.\30\ We
believe a reasonable goal is to provide each pilot with 10 days'
recuperative rest each month during the off-peak months of the season,
if it is possible to do so and still meet traffic demands safely,
efficiently, and reliably. A typical shipping season runs 270 or more
days of availability; 10 days scheduled time off each month is line
with other pilot associations that require pilot availability of 180-
200 days per year. Many pilot associations work a multi-team concept of
2 weeks on followed by 2 weeks off but we find this problematic because
of the compressed shipping season in the Great Lakes. Thus, we propose
building into our base seasonal work standard only 200 workdays per
pilot per season. The 70-day difference should facilitate a 10-day
recuperative rest period for each pilot in each of the seven months
(mid-April to mid-November) between peak traffic periods.
---------------------------------------------------------------------------

    \30\ Transcript (7/24/2014), p. 240. Discussion begins on p.
225. The seven non-peak months run from mid-April to mid-November.
Recuperative rest would be available ``up to'' 10 days per month
during those months, dependent on actual traffic patterns and the
need to provide reliable pilotage service. Our goal is to regulate
the pilotage system to maximize the likelihood of providing the full
10 days per month.
---------------------------------------------------------------------------

    In addition, we would determine, based on our analysis of best
available data \31\ and for each area, the reasonably necessary average
work cycle associated with each pilot assignment. We propose including
in the work cycle not only the pilot assignment itself (``bridge
hours''), but also time for pilot travel time from the pilot's home or
other base to and from assignments (including time spent on pilot boats
to and from assignments), vessel delays and detention, the 10-hour
mandatory rest between assignments,\32\ and administrative time for
district association presidents who also serve as pilots.\33\
---------------------------------------------------------------------------

    \31\ Figures for 2016 are based on analysis from the June 28,
2013 Bridge Hour Definition and Methodology Final Report conducted
for the Coast Guard by MicroSystems Integration, Inc., available in
the docket and at http://www.uscg.mil/hq/cg5/cg552/pilotage.asp.
This analysis is detailed in Appendix B, on page B-10 and presented
in the Part VI calculations for proposed Sec.  404.103.
    \32\ 46 CFR 401.451. Note that this is not the same rest
allowance as the previously-discussed 10 days' recuperative rest per
month.
    \33\ This time is necessary to ensure effective and efficient
association management and communication with industry and the Coast
Guard.
---------------------------------------------------------------------------

    Adjustment of results. Dividing peak demand figures by per-pilot
assignment figures usually will result in a fractional number that we
would round either up or down, as seems most reasonable, to the nearest
whole integer. Area totals would be added to determine each district's
needed pilots. We could also make reasonable and necessary adjustments
to take into account anticipated supportable circumstances that could
affect the district's need for pilotage over the years for which base
pilotage rates are being established.
    Needed vs. projected working pilots. In addition to showing the
number of pilots needed in each district, we would also project the
number of pilots we expect to be actually working full-time and fully
compensated during the first shipping season of the new base period for
which rates are being established. This projection becomes a key
component of our calculations under proposed Sec.  404.104. We believe
the projection will closely match the first shipping season's actual
pilot population, because our regulatory role gives us accurate data on
the number of current applicant pilots and on the progress of those
applicants through the application, training, and certificating
processes,\34\ and because the continuous communication between the
Coast Guard and the pilot association ensures that we are aware of its
near-term hiring expectations.
---------------------------------------------------------------------------

    \34\ These processes are described in 46 CFR part 401, subpart
B, and are sufficiently time-consuming that the number of new pilots
likely to enter the system in the year for which base rates are
being established can be ascertained with reasonable accuracy when
we issue the NPRM proposing those rates. The NPRM's projections, of
course, can be modified in the final rule, in response to public
comments on the NPRM.
---------------------------------------------------------------------------

    46 CFR 404.104--Determine target pilot compensation. This step
would correspond to current Steps 2.A (individual target compensation)
and 2.C (total target compensation) except in three respects.
    First, Step 2.A sets two different target compensation figures, one
for undesignated waters and the other for designated waters. Although
we propose (in Sec.  401.405) to set different rates for each
district's designated and undesignated waters, we see no reasonable
basis for discriminating between the target compensation of pilots on
the basis of the distinction between designated or undesignated waters.
In any waters and in any district, pilots need the same skills, and
therefore we propose a single individual target pilot compensation
figure across all three districts.
    Second, as we explained in discussing Sec.  404.2, our compensation
benchmark can no longer rely (as it does under Step 2.A) on contract
compensation information that now is treated as proprietary and
therefore not fully available for Coast Guard or public review.
Instead, we propose considering only the most relevant current data
that are available for Coast Guard and public review. Sources for such
data may vary from one full ratemaking to another, and for supportable
circumstances we would be able to make reasonable and necessary
adjustments to the data. We review the sources we considered for this
NPRM in Part VI.
    Third, we propose changing the way in which Step 2.C determines
total pilot compensation in each district, which currently is to
multiply individual target pilot compensation by the number of pilots
needed. That assumes that a district has a full complement of pilots to
share the district's target compensation, and it incorrectly increases
the district's total compensation when not fully staffed. This may act
as a disincentive for the district to reach the full complement that we
think necessary for providing safe, efficient, and reliable pilotage.
Instead, we propose multiplying individual target pilot compensation by
the number of pilots we project, in Sec.  404.103, to be working full
time \35\ and compensated fully in the first shipping season of the new
base period for which rates are being established.
---------------------------------------------------------------------------

    \35\ At various times during the season, typically during
seasonal peaks, associations engage contract registered pilots to
temporarily increase staffing and meet traffic demand requirements.
---------------------------------------------------------------------------

    46 CFR 404.105--Project return on investment. Currently, appendix A

contains three complex steps related to a district association's return
on investment: Steps 4 (calculation of investment base), 5
(determination of target rate of return on investment), and 6
(adjustment determination). In July 2014, GLPAC recommended eliminating
Steps 4 and 6 entirely, as being unclear and having minimal effect on
the final rates, and revising Step 5 as we now propose.\36\ We would
project an association's return on investment by taking the sum of
operating expenses from Sec.  404.102 and target pilot compensation
from Sec.  404.104, and multiplying that sum by the preceding year's
average annual rate of return for new high grade corporate securities
(the same multiplier used in Step 5).
---------------------------------------------------------------------------

    \36\ Transcript (7/23/2014), p. 255. Discussion begins on p.
237.
---------------------------------------------------------------------------

    46 CFR 404.106--Project needed revenue. As discussed in connection
with proposed Sec.  404.105, we are not replicating the current Step 6
procedure for projecting each association's needed revenue for the next
year. Instead, we propose calculating base needed revenue by adding
projected base operating expenses from proposed Sec.  404.102, the
total base target pilot compensation from proposed Sec.  404.104, and
the base return on investment from proposed Sec.  404.105. We believe
this is a more transparent procedure and that it adequately projects an
association's needed revenue.
    46 CFR 404.107--Initially calculate base rates. This would
correspond to current Step 7 of appendix A and initially set base rates
for the designated and undesignated waters of each district, subject to
modification or finalization under proposed Sec.  404.108.
    Currently, Step 7 takes projected revenue needed and divides it by
projected revenue. The resulting rate multiplier is the percentage by
which rates should be changed, subject to adjustment as explained in
the last sentence of Step 7's first paragraph (we propose discussing
that adjustment in Sec.  404.108). This bases the rate multiplier on a
calculation that depends on the accuracy of our revenue projection.
    Instead, we propose initially calculating rates by dividing the
projected needed revenue (Sec.  404.106) by available and reliable data
for actual hours worked by pilots in each district's designated and
undesignated waters during a multi-year base period. We would average
this data to compensate for normal traffic fluctuation from one season
to another.
    As we propose for Sec.  404.103, the base period would normally
consist of the five most recent full shipping seasons. Normally, our
data source would be pilot association entries in the GLPMS, or another
system we would approve under proposed Sec.  403.300. If, within the
five most recent seasons, data are unavailable or unreliable, we would
substitute available and reliable data from another past shipping
season or from a source other than GLPMS, including pilot association
data or Canadian GLPA data. For example, if data has not been recorded
in a system approved under Sec.  403.300, or comes from an outlier year
in which traffic was abnormally low or high it could significantly
distort our calculations; we would look to an alternative source of
available shipping data.
    In some years and in some districts, dividing needed revenue by the
multi-year average hours could produce significantly higher rates for
designated waters than for undesignated waters. This imbalance could
create unnecessary financial risk to the pilot associations by focusing
revenue generation too narrowly in designated waters at the expense of
undesignated waters. To ensure safe, efficient, and reliable pilotage
in all Great Lakes waters whether designated or undesignated, we
therefore propose applying a ratio to adjust the balance between rates,
limiting the designated-water rate to no more than twice the
undesignated-water rate. This would correct the undesirable rate
imbalance, without affecting the total needed revenue projected for
each district.
    46 CFR 404.108--Review and finalize rates. This would correspond to
the last sentence in the first paragraph of appendix A's Step 7, which
for ``supportable circumstances'' permits discretionary adjustments to
initial rate calculations. Supportable circumstances include factors
defined in current U.S.-Canadian agreements relating to Great Lakes
pilotage.\37\ Pilots and industry have commented unfavorably on past
exercises of ``Step 7 discretion.'' We propose specifying that any
modification to the initial rates set under Sec.  404.107 must be
necessary and reasonable, as well as justified by supportable
circumstances. Under proposed Sec.  404.100, we would continue to
submit any proposed adjustment for public comment, which could result
in our omitting or modifying the proposed adjustment. Any adjustment
would be subject to Sec.  404.107's limitation on the disparity between
rates for designated and undesignated waters.
---------------------------------------------------------------------------

    \37\ The Memorandum of Understanding can be viewed at http://www.uscg.mil/hq/cg5/cg552/docs/2013%20MOU%20English.PDF
---------------------------------------------------------------------------

VI. Discussion of Proposed Rate Changes

    We propose new rates and 46 CFR 401.401 surcharges for 2016. We
reviewed the independent accountant's financial reports for each
association's 2013 expenses and revenues. Those reports, which include
pilot comments on draft versions and the accountant's response to those
comments, appear in the docket.\38\
---------------------------------------------------------------------------

    \38\ See ``Summary--Independent Accountant's Report on Pilot
Association Expenses, with Pilot Association Comments and
Accountant's Responses.''
---------------------------------------------------------------------------

    The following discussion applies the proposed ratemaking
methodology that is discussed in section V of this preamble.
    Recognize previous year's operating expenses (proposed Sec.
404.101). We reviewed and accepted the accountant's final findings on
the 2013 audits of association expenses.
    Tables 2 through 4 show each association's recognized expenses.

                                  Table 2--Recognized Expenses for District One
----------------------------------------------------------------------------------------------------------------
                                                                               District One
                                                        --------------------------------------------------------
                                                         Area 1 designated        Area 2
               Reported expenses for 2013               -------------------    undesignated
                                                            St. Lawrence   -------------------       Total
                                                               River           Lake Ontario
----------------------------------------------------------------------------------------------------------------
Operating Expenses:
    Other Pilotage Costs:
        Pilot subsistence/Travel.......................           $281,488           $168,508           $449,996
        License insurance..............................             26,976             25,010             51,986
        Payroll taxes..................................             65,826             51,244            117,070

        Other..........................................              6,925              5,460             12,385
                                                        --------------------------------------------------------
            Total other pilotage costs.................            381,215            250,222            631,437
    Pilot Boat and Dispatch Costs:
        Pilot boat expense.............................            131,193            102,077            233,270
        Dispatch expense...............................  .................  .................  .................
        Payroll taxes..................................              9,169              7,230             16,399
                                                        --------------------------------------------------------
            Total pilot and dispatch costs.............            140,362            109,307            249,669
    Administrative Expenses
        Legal--general counsel.........................                631                498              1,129
        Legal--shared counsel (K&L Gates)..............             12,736             10,040             22,776
        Insurance......................................             22,525             17,756             40,281
        Employee benefits..............................             11,063              7,868             18,931
        Payroll taxes..................................              5,190              4,093              9,283
        Other taxes....................................             22,175             17,486             39,661
        Travel.........................................                524                413                937
        Depreciation/auto leasing/other................             42,285             33,333             75,618
        Interest.......................................             15,151             11,943             27,094
        APA Dues.......................................             13,680             10,830             24,510
        Dues and subscriptions.........................                280                220                500
        Utilities......................................              4,920              3,878              8,798
        Salaries.......................................             54,153             42,691             96,844
        Accounting/Professional fees...................              5,091              4,009              9,100
        Pilot Training.................................  .................  .................  .................
        Other..........................................              8,834              6,954             15,788
                                                        --------------------------------------------------------
            Total Administrative Expenses..............            219,238            172,012            391,250
                                                        --------------------------------------------------------
            Total Operating Expenses (Other Costs +                740,815            531,541          1,272,356
             Pilot Boats + Admin)......................
Proposed Adjustments (Independent CPA).................  .................  .................  .................
    Payroll taxes......................................            (1,855)            (1,750)            (3,605)
                                                        --------------------------------------------------------
        TOTAL CPA ADJUSTMENTS..........................            (1,855)            (1,750)            (3,605)
Proposed Adjustments (Director):
    Dues and subscriptions.............................              (280)              (220)              (500)
    APA Dues...........................................            (2,052)            (1,625)            (3,677)
    Legal--shared counsel (K&L Gates)..................           (12,736)           (10,040)           (22,776)
    Dock Adjustment *..................................             11,936              9,409             21,345
    Surcharge Adjustment **............................           (54,481)           (42,948)           (97,429)
                                                        --------------------------------------------------------
        TOTAL DIRECTOR'S ADJUSTMENTS...................           (57,613)           (45,424)          (103,037)
                                                        --------------------------------------------------------
            Total Operating Expenses (OpEx +                       681,347            484,368          1,165,715
             Adjustments)..............................
----------------------------------------------------------------------------------------------------------------
* Based on the discussion without objection in the 2014 GLPAC meeting on this subject, this adjustment allocates
  $21,345 to District 1 to ensure complete recoupment of costs associated with upgrading the dock in Cape
  Vincent. Revenue projection shortfalls, confirmed by the revenue audits, resulted in District 1 not fully
  recouping the costs of the dock through previous rulemakings.
** District One collected $146,424.01 with an authorized 3% surcharge in 2014. The adjustment represents the
  difference between the collected amount and the authorized amount of $48,995 authorized in the 2014 final
  rule.
Note: Numbers may not total due to rounding.

                                  Table 3--Recognized Expenses for District Two
----------------------------------------------------------------------------------------------------------------
                                                                               District Two
                                                        --------------------------------------------------------
                                                               Area 4       Area 5 designated
               Reported expenses for 2013                   undesignated   -------------------
                                                        -------------------  Southeast Shoal         Total
                                                             Lake Erie      to Port Huron, MI
----------------------------------------------------------------------------------------------------------------
Operating Expenses:
    Other Pilotage Costs:
        Pilot subsistence/Travel.......................            $84,164           $126,246           $210,410
        License insurance..............................              6,168              9,252             15,420
        Payroll taxes..................................             44,931             67,397            112,328
        Other..........................................             33,021             49,532             82,553
                                                        --------------------------------------------------------
            Total other pilotage costs.................            168,284            252,427            420,711

    Pilot Boat and Dispatch Costs:
        Pilot boat expense.............................            142,936            214,405            357,341
        Dispatch expense...............................              7,080             10,620             17,700
        Employee benefits..............................             60,665             90,997            151,662
        Payroll taxes..................................              8,316             12,474             20,790
                                                        --------------------------------------------------------
            Total pilot and dispatch costs.............            218,997            328,496            547,493
    Administrative Expenses:
        Legal--general counsel.........................              3,414              5,122              8,536
        Legal--shared counsel (K&L Gates)..............              7,304             10,956             18,260
        Legal--USCG litigation.........................                231                346                577
        Office rent....................................             26,275             39,413             65,688
        Insurance......................................              9,175             13,762             22,937
        Employee benefits..............................             20,586             30,879             51,465
        Payroll taxes..................................              4,899              7,349             12,248
        Other taxes....................................             14,812             22,217             37,029
        Depreciation/auto leasing/other................             22,956             34,434             57,390
        Interest.......................................              3,439              5,159              8,598
        APA Dues.......................................              8,208             12,312             20,520
        Utilities......................................             14,310             21,465             35,775
        Salaries.......................................             42,633             63,949            106,582
        Accounting/Professional fees...................              9,294             13,940             23,234
        Pilot Training.................................  .................  .................  .................
        Other..........................................              9,757             14,638             24,395
                                                        --------------------------------------------------------
            Total Administrative Expenses..............            197,293            295,941            493,234
                                                        --------------------------------------------------------
            Total Operating Expenses (Other Costs +                584,574            876,864          1,461,438
             Pilot Boats + Admin)......................
Proposed Adjustments (Independent CPA):
    Insurance..........................................            (2,362)            (3,544)            (5,906)
    Employee benefits..................................              (360)              (541)              (901)
    Depreciation/auto leasing/other....................            (6,391)            (9,587)           (15,978)
                                                        --------------------------------------------------------
        TOTAL CPA ADJUSTMENTS..........................            (9,113)           (13,672)           (22,785)
Proposed Adjustments (Director):
    APA Dues...........................................            (1,231)            (1,847)            (3,078)
    Legal--shared counsel (K&L Gates)..................            (7,304)           (10,956)           (18,260)
    Legal--USCG litigation.............................              (231)              (346)              (577)
                                                        --------------------------------------------------------
TOTAL DIRECTOR'S ADJUSTMENTS...........................            (8,766)           (13,149)           (21,915)
                                                        --------------------------------------------------------
            Total Operating Expenses (OpEx +                       566,695            850,043          1,416,738
             Adjustments)..............................
----------------------------------------------------------------------------------------------------------------

                                 Table 4--Recognized Expenses for District Three
----------------------------------------------------------------------------------------------------------------
                 Recognizable expenses                                        District Three
----------------------------------------------------------------------------------------------------------------
                                                           Areas 6 and 8    Area 7 Designated
                                                            undesignated   -------------------
                                                        -------------------
               Reported expenses for 2013                   Lakes Huron,                             Total
                                                           Michigan, and     St. Mary's River
                                                              Superior
----------------------------------------------------------------------------------------------------------------
Operating Expenses:
    Other Pilotage Costs:
        Pilot subsistence/Travel.......................           $337,978           $112,660           $450,638
        License insurance..............................             13,849              4,616             18,465
        Payroll taxes..................................  .................  .................  .................
        Other..........................................             15,664              5,221             20,885
                                                        --------------------------------------------------------
            Total other pilotage costs.................            367,491            122,497            489,988
    Pilot Boat and Dispatch Costs:
        Pilot boat expense.............................            435,353            145,118            580,471
        Dispatch expense...............................            140,440             46,814            187,254
        Payroll taxes..................................             15,680              5,227             20,907
                                                        --------------------------------------------------------
            Total pilot and dispatch costs.............            591,473            197,159            788,632

    Administrative Expenses:
        Legal--general counsel.........................                567                189                756
        Legal--shared counsel (K&L Gates)..............             20,260              6,754             27,014
        Office rent....................................              7,425              2,475              9,900
        Insurance......................................              8,098              2,699             10,797
        Employee benefits..............................            123,002             41,001            164,003
        Payroll taxes..................................             10,272              3,424             13,696
        Other taxes....................................              1,383                461              1,844
        Depreciation/auto leasing/other................             24,237              8,079             32,316
        Interest.......................................              2,403                801              3,204
        APA Dues.......................................             18,895              6,299             25,194
        Dues and subscriptions.........................              4,275              1,425              5,700
        Utilities......................................             32,672             10,891             43,563
        Salaries.......................................             89,192             29,731            118,923
        Accounting/Professional fees...................             20,682              6,894             27,576
        Pilot Training.................................  .................  .................  .................
        Other..........................................             11,260              3,753             15,013
                                                        --------------------------------------------------------
            Total Administrative Expenses..............            374,623            124,876            499,499
                                                        --------------------------------------------------------
            Total Operating Expenses (Other Costs +              1,333,587            444,532          1,778,119
             Pilot Boats + Admin)......................
                                                        --------------------------------------------------------
Proposed Adjustments (Independent CPA):
    Pilot subsistence/Travel...........................            (5,183)            (1,728)            (6,911)
    Payroll taxes......................................            103,864             34,621            138,485
    Dues and subscriptions.............................            (4,275)            (1,425)            (5,700)
        TOTAL CPA ADJUSTMENTS..........................             94,406             31,468            125,874
Proposed Adjustments (Director):
    APA Dues...........................................            (2,834)              (945)            (3,779)
    Legal--shared counsel (K&L Gates)..................           (20,260)            (6,754)           (27,014)
                                                        --------------------------------------------------------
        TOTAL DIRECTOR'S ADJUSTMENTS...................           (23,094)            (7,699)           (30,793)
                                                        --------------------------------------------------------
            Total Operating Expenses (OpEx +                     1,404,899            468,301          1,873,200
             Adjustments)..............................
----------------------------------------------------------------------------------------------------------------

    Project next year's operating expenses, adjusting for inflation or
deflation (proposed Sec.  404.102). We based our 2014 and 2015
inflation adjustments on BLS data from the Consumer Price Index for the
Midwest Region of the United States,\39\ and projected it for 2016
based on the target inflation rate set by the Federal Reserve.\40\ The
adjustments are shown in Tables 5 through 7.
---------------------------------------------------------------------------

    \39\ Available at http://www.bls.gov/data. Select ``One Screen
Data Search'' under ``All Urban Consumers (Current Series) (Consumer
Price Index--CPI)''. Then select ``Midwest urban'' from Box 1 and
``All Items'' from Box 2. Our numbers for 2014 and 2015 are
generated through this query and formatted to show annual percentage
changes.
    \40\ Further discussion available on the Federal Reserve target
inflation rate is on their Web site at http://www.federalreserve.gov/newsevents/press/monetary/20120125c.htm and
http://www.federalreserve.gov/faqs/money_12848.htm.

                                   Table 5--Inflation Adjustment, District One
----------------------------------------------------------------------------------------------------------------
                                                                                District 1
                                                        --------------------------------------------------------
                                                             Designated        Undesignated          Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)......................           $681,347           $484,368         $1,165,715
2014 Inflation Modification (@1.4%)....................              9,539              6,781             16,320
2015 Inflation Modification (@1.5%)....................             10,363              7,367             17,731
2016 Inflation Modification (@2%)......................             14,025              9,970             23,995
                                                        --------------------------------------------------------
    Adjusted 2016 Operating Expenses...................            715,274            508,486          1,223,760
----------------------------------------------------------------------------------------------------------------

                                   Table 6--Inflation adjustment, District Two
----------------------------------------------------------------------------------------------------------------
                                                                                District 2
                                                        --------------------------------------------------------
                                                            Undesignated        Designated           Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)......................           $566,695           $850,043         $1,416,738
2014 Inflation Modification (@1.4%)....................              7,934             11,901             19,834
2015 Inflation Modification (@1.5%)....................              8,619             12,929             21,549
2016 Inflation Modification (@2%)......................             11,665             17,497             29,162
                                                        --------------------------------------------------------
    Adjusted 2016 Operating Expenses...................            594,913            892,370          1,487,283
----------------------------------------------------------------------------------------------------------------

                                  Table 7--Inflation adjustment, District Three
----------------------------------------------------------------------------------------------------------------
                                                                                District 3
                                                        --------------------------------------------------------
                                                            Undesignated        Designated           Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)......................         $1,404,899           $468,301         $1,873,200
2014 Inflation Modification (@1.4%)....................             19,669              6,556             26,225
2015 Inflation Modification (@1.5%)....................             21,369              7,123             28,491
2016 Inflation Modification (@2%)......................             28,919              9,640             38,558
                                                        --------------------------------------------------------
    Adjusted 2016 Operating Expenses...................          1,474,855            491,620          1,966,474
----------------------------------------------------------------------------------------------------------------

    Determine number of pilots needed (proposed Sec.  404.103). We
first consider if reliable data are available from the five most recent
full shipping seasons, in this case the 2010-2014 seasons, to populate
a five-season historical multi-year base period. For the reasons we
have discussed extensively with stakeholders, we consider 2014 to have
been an unreliable outlier season, because of an abnormal 17% increase
in shipping traffic, extended ice conditions,\41\ and associated
significant delays. The 2014 season also made extensive use of double
pilotage, the practice of assigning two pilots to a vessel, normally
because of unusually hazardous conditions such as ice and the seasonal
removal of aids to navigation. We then consider 2009, the most recent
season before 2010. Again based on discussions with stakeholders, we
must consider 2009 to have been an outlier too, because of abnormally
low traffic from the 2008 global recession.\42\ We then consider if
reliable source data is available before 2009, and conclude that it is
not available for years prior to the introduction of GLPMS in 2009. We
specifically request public comment on other possible sources of
available and reliable data for shipping seasons prior to 2009. Pending
receipt of such information, we restrict our multi-year base period to
the four shipping seasons 2010 through 2013.
---------------------------------------------------------------------------

    \41\ The Canadian Great Lakes Pilotage Authority's Annual Report
for 2014 states, p. 3: ``Traffic in 2014 increased by 17% over 2013
mainly due to the significant movement of the 2013 Western Canadian
grain crop to export markets overseas. The economic recovery of the
American economy has also accounted for increased trade in the Great
Lakes corridor.'' The Annual Report also states, p. 7, ``[d]elays
due to shortages in pilots experienced in 2014 was directly
attributable to the increase in traffic being serviced by the
existing pool of pilots as well as a higher level of over carried
pilots due to the extreme ice conditions experienced at the start of
the navigation season.''
    \42\ See [Canadian] Great Lakes Pilotage Authority, Annual
Report 2009, p. 2: ``The world economic recession which began in
late 2008 and manifested itself in 2009 had a significant effect on
ship traffic in the St. Lawrence Seaway/Great Lakes Region where
traffic and cargo volumes decreased by 25% from the previous year.''
---------------------------------------------------------------------------

    Next, we calculate the average cycle time associated with each
pilot assignment, in each area, over the 2010-2013 base period. In the
future, we intend to use GLPMS data to track cycle time, but that data
is not available for 2010 through 2014. We consider our best source for
that base period's cycle time to be the Bridge Hour Definition and
Methodology Final Report prepared on the Coast Guard's behalf in June
2013.\43\ Although we expect GLPMS data to produce better data in the
future, the 2013 report relied heavily on pilot input and drafts were
made widely available to the pilots for their review and comment. Table
8 shows the 2013 report's calculation of the pilot work cycle for each
area.
---------------------------------------------------------------------------

    \43\ Bridge Hour Definition and Methodology Final Report,
MicroSystems Integration, Inc. (June 25, 2013), available in the
docket and at http://www.uscg.mil/hq/cg5/cg552/pilotage.asp. This
analysis is detailed in Appendix B of the report, on page B-10.

                                                            Table 8--Cycle Time, 2013 Report
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Total  time
                                                   Trip time      Travel     Pilot boat                                 on       Mandatory      Pilot
                                                     (hrs)        (hrs)       transit    Delay (hrs)  Admin (hrs)   assignment   rest (hrs)   assignment
                                                                               (hrs)                                  (hrs)                  cycle (hrs)
--------------------------------------------------------------------------------------------------------------------------------------------------------
D1
    Area 1......................................          7.7          2.9          0.3          0.7          0.5         12.1           10         22.1
    Area 2......................................         10.4          4.0          0.6          0.9          0.5         16.4           10         26.4
                                                 -------------------------------------------------------------------------------------------------------
    Area 3......................................                                Welland Canal Exclusive to Canadian Pilots
                                                 -------------------------------------------------------------------------------------------------------
D2
    Area 4......................................         11.1          4.2          0.4          0.7          0.5         16.9           10         26.9
    Area 5......................................          6.1          2.3          0.9          0.4          0.5         10.2           10         20.2

D3
    Area 6......................................         22.5          1.6          0.8          1.0          0.5         26.4           10         36.4
    Area 7......................................          7.1          1.4          2.2          0.3          0.5         11.5           10         21.5
    Area 8......................................         21.6          1.8          1.9          3.3          0.5         29.1           10         39.1
--------------------------------------------------------------------------------------------------------------------------------------------------------

    We then determine the average peak late-season traffic demand over
the base period, as shown in Table 9. Table 9 also shows the average
number of pilots that would have been needed to meet the peak demand,
and for comparison purposes shows the average number of needed pilots
for the 2010-2013 time period (38) authorized for the pilot
associations.

                                         Table 9--Average Peak Traffic Demand and Pilot Requirements, 2010-2013
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                    District 1                      District 2                              District 3
                                         ---------------------------------------------------------------------------------------------------------------
                                              Area 1          Area 2          Area 4          Area 5          Area 6          Area 7          Area 8
                                           (designated)   (undesignated)  (undesignated)   (designated)   (undesignated)   (designated)   (undesignated)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Average late-season peak assignments per               5               5               5               5               4               4               4
 day....................................
Average number of pilots needed to meet               10               5               5              10               6               8               6
 peak demand (total = 50)...............
Average authorized pilots, 2010-2013                   6               5               4               6               7               4               6
 (total = 38)...........................
Authorized pilots, 2015 (total = 36)....               6               5               4               6               6               4               5
--------------------------------------------------------------------------------------------------------------------------------------------------------

    As shown in Table 8, according to the 2013 report cycle time for
pilots in designated waters is a little over 20 hours. This implies
that, on average in late seasons over the base period, one pilot could
move one vessel per day. However, to fully meet peak season demand, the
pilot associations must be staffed to provide double pilotage, and
Table 9 reflects that doubling in the number of pilots needed in the
designated waters of Areas 1, 5, and 7.
    Except in extreme circumstances, double pilotage is not required in
the open and undesignated waters of Areas 2, 4, 6, and 8, and Table 9
shows no doubling in those areas. However, the Table does show a 50%
increase from the one pilot-one vessel standard in undesignated Areas 6
and 8, which are located in the large western Great Lakes. Areas 6 and
8 are not contiguous, but both flank the designated waters of Area 7.
Travel times in Areas 6 and 8 are greater than they are in the
undesignated waters of smaller Lakes Erie and Ontario, and on average a
pilot needs 1.5 days per vessel, not just 1, to move a vessel.
Therefore, Table 9 shows 6 pilots, not 4, in each of Areas 6 and 8.
This number will ensure that the four ships shown as moving daily
through Area 7 could be moved through the undesignated waters at the
same rate.
    Please note that the addition of Iroquois Lock to the District One
change points, previously discussed in connection with our proposed
amendment to Sec.  401.450, could eventually support adding pilots in
that district, but is not factored into Table 9.
    Based on our Table 9 figures, and as shown in Table 10, we find
that 50 pilots are needed over the period for which 2016 base rates
would be in effect, as opposed to the 36 currently authorized pilots
shown in Table 9. Table 10 also shows that based on our best current
information we project there to be only 42 fully working and fully
compensated pilots (``working pilots'') in 2016. Our goal is to help
the pilot associations close the gap between needed pilots and working
pilots as soon as possible.

                             Table 10--Pilots Needed; Pilots Projected To Be Working
----------------------------------------------------------------------------------------------------------------
                                                            District One       District Two      District Three
----------------------------------------------------------------------------------------------------------------
Needed pilots, period for which 2016 rates are in                       15                 15                 20
 effect (total = 50)...................................
Working pilots projected for 2016 (total = 42).........                 13                 12                 17
----------------------------------------------------------------------------------------------------------------

    At this time, we see no need to adjust the number of pilots shown
in Table 10.
    Determine target pilot compensation (proposed Sec.  404.104). Our
discussion of our calculations under this section contains two
sections, the first section limited to the Coast Guard's own analysis,
and the second section discussing target compensation figures proposed
by the pilot associations.
    Coast Guard analysis and calculations. For this 2016 ratemaking,

we considered three sources for possible benchmark compensation data
that provide compensation data for occupations similar to that of a
Great Lakes pilot. All of these sources provide current and available
data that is open for public review: Canadian Laurentian Pilotage
Authority (LPA) pilot compensation data; masters, mates and pilots wage
data from the BLS, and Canadian GLPA registered pilot compensation. We
specifically request public comments suggesting any other current,
reliable, and publicly available sources we should consider in setting
the 2016 season's target pilot compensation.
    Table 11 presents average recent compensations for each of these
three sources.
---------------------------------------------------------------------------

    \44\ http://www.glpa-apgl.com/annualReports_e.asp.
    \45\ http://www.pilotagestlaurent.gc.ca/publications_e.asp.
    \46\ http://www.bls.gov/oes--Captains, Mates, and Pilots of
Water Vessels (http://www.bls.gov/oes/current/naics4_483100.htm--53-
5021).

                           Table 11--Comparing Pilot Compensation and Wage Information
----------------------------------------------------------------------------------------------------------------
                                                          Average Canadian       Average
                                                          registered pilot   Laurentian pilot   Bureau of Labor
                                                         compensation \44\     compensation     Statistics Wages
                                                                (CAD)           (CAD) \45\         \46\ (USD)
----------------------------------------------------------------------------------------------------------------
2011...................................................           $233,567           $335,864            $73,590
2012...................................................            247,145            347,615             78,030
2013...................................................            268,552            349,022             80,960
2014...................................................            323,641  .................             75,000
Average................................................            268,226            344,167             76,895
----------------------------------------------------------------------------------------------------------------

    We evaluated the suitability of each of these sources as a
benchmark for setting our target pilot compensation.
    The LPA services all vessels that ultimately transit through the
Saint Lawrence River and Great Lakes. The majority of their pilotage
service is provided primarily to vessels that stop in Montreal, which
are typically larger than vessels that proceed upbound into the Great
Lakes. The LPA also provides service throughout the year, whereas Great
Lakes navigation is closed for a portion of the year due to ice
conditions and lock maintenance. Due to these differences between LPA
and U.S. Great Lakes pilotage conditions, we find LPA compensation
information unsuitable as a benchmark for setting target U.S. pilot
compensation.
    BLS data for masters, mates, and pilots cover officers whose duties
and responsibilities are different from those of a U.S. Great Lakes
pilot. For example, unlike U.S. Great Lakes pilots, most of these
officers are not directly responsible for the safe navigation of
vessels of any tonnage through restricted waters. Further, this data is
skewed downward by the higher number of lower wage mates, who do not
hold the same licenses as masters and pilots. Therefore, we find this
information is also unsuitable as a benchmark for setting target pilot
compensation.
    Canadian GLPA pilots provide service that is almost identical to
the service provided by U.S. Great Lakes pilots. However, unlike the
U.S. pilots, Canadian GLPA pilots are Canadian government employees and
therefore have guaranteed minimum compensation with increases for high-
traffic periods, retirement, healthcare and vacation benefits, and
limited professional liability. In addition, GLPA pilots have
guaranteed time off while U.S. pilots must be available for service
throughout the shipping season and without any guaranteed time off; and
due to historic staffing differences U.S. pilots get less time off than
GLPA pilots. Nevertheless, because they work under the same conditions,
months, and vessels (sometimes concurrently) as the U.S. pilots, we
find that GLPA compensation information is the most suitable available
benchmark for establishing target pilot compensation.
    The calculations shown in Tables 12 through 14 take the last four
years of GLPA data (covering actual compensation, 2011 through 2014),
adjust for foreign exchange differences and inflation,\47\ and project
future GLPA compensation for 2015 and 2016.
---------------------------------------------------------------------------

    \47\ Based on Midwest CPI-U from BLS. Available at http://www.bls.gov/data. Select ``One Screen Data Search'' under ``All
Urban Consumers (Current Series) (Consumer Price Index--CPI)''. Then
select ``Midwest urban'' from Box 1 and ``All Items'' from Box 2.
Our numbers for 2011-2014 are generated through this query and
formatted to show annual percentage changes.
---------------------------------------------------------------------------

    Table 12 shows GLPA compensation for 2011 through 2014, adjusted
for exchange rates in each year.

                          Table 12--Recent History of Canadian GLPA Pilot Compensation
----------------------------------------------------------------------------------------------------------------
                                                          Canadian Great     Average annual      Canadian Great
                                                           Lakes pilot          currency          Lakes pilot
                         Year                              compensation     conversion  (CAD      compensation
                                                              (CAD)             to USD)*             (USD)
----------------------------------------------------------------------------------------------------------------
2014..................................................           $323,641               1.149           $281,672
2013..................................................            268,552               1.071            250,749
2012..................................................            247,145               1.04         237,639,639
2011..................................................            233,567               1.029            226,984
----------------------------------------------------------------------------------------------------------------
*All figures reflect annual average currency conversions for the time periods provided. CAD is divided by the
  listed currency conversion factor to convert to USD. A complete table of these exchange rates is provided by
  the Internal Revenue Service here: http://www.irs.gov/Individuals/International-Taxpayers/Yearly-Average-Currency-Exchange-Rates.

    Table 13 takes the figures from Table 12 and adjusts them for
inflation in each year, similar to way Tables 5-7 adjust U.S. pilot
association operating expenses.

                                                             Table 13--Inflation Adjustments
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                2012         2013         2014         2015         2016
                                                                USD  (from   Inflation    Inflation    Inflation    Inflation    Inflation   Total (2016
                             Year                               Table 11)    adjustment   adjustment   adjustment   adjustment   projection      USD)
                                                                              (@3.2%)       (@2%)       (@1.4%)      (@1.5%)      (@2%) *
--------------------------------------------------------------------------------------------------------------------------------------------------------
2014.........................................................     $281,672  ...........  ...........  ...........       $4,225       $5,633     $291,531
2013.........................................................      250,749  ...........  ...........       $3,510        3,761        5,015      263,036
2012.........................................................      237,639  ...........       $4,753        3,327        3,565        4,753      254,036
2011.........................................................      226,984       $7,263        4,540        3,178        3,405        4,540      249,909
--------------------------------------------------------------------------------------------------------------------------------------------------------
See footnote 44 on previous page for supporting inflation data.
*See previous discussion on Federal Reserve target inflation rate for 2016 projections. See also policy statement of the Bank of Canada regarding their
  2% target inflation rate at http://www.bankofcanada.ca/core-functions/monetary-policy/inflation/.

    Using this data, converted to 2016 USD, we then review the
percentage change in Canadian compensation.

         Table 14--Analysis of Canadian GLPA Pilot Compensation
------------------------------------------------------------------------
                                              Canadian Great
                                                Lakes pilot      Percent
                   Year                        compensation      change
                                              (from Table 12)
------------------------------------------------------------------------
2014......................................            $291,531      10.8
2013......................................              63,036       3.5
2012......................................             254,037       1.7
2011......................................             249,910  ........
------------------------------------------------------------------------

We are basing our target pilot compensation calculations on 2013 GLPA
compensation. We think 2013 provides more reliable current benchmark
information than 2014. There is a moderate annual growth in
compensation between 2011 and 2013, but a significant nearly 11%
increase in 2014. We believe that increase is attributable to a 17%
Canadian traffic increase in 2014, compounded by extended ice
conditions.
    Table 14 shows that, from the 2013 figure of $263,036, we project
forward an annual 2.6% increase to align with the general trend of
compensation increases for Canadian pilots. This is an average of the
increases from 2012 and 2013. Table 15 shows the results of these
calculations:

Table 15--Projected Increases in Canadian Great Lakes Pilot Compensation
------------------------------------------------------------------------
                                                           Projected
                                                        Canadian  Great
                         Year                             Lakes  pilot
                                                          compensation
                                                          (2016 USD) *
------------------------------------------------------------------------
2016.................................................           $284,091
2015.................................................            276,892
2014.................................................            269,875
2013.................................................            263,036
------------------------------------------------------------------------
*All figures from 2014 forward are projections only for the purposes of
  this rulemaking and do not reflect actual Canadian compensation. Each
  year is increased 2.6% in line with average compensation increases in
  2012 and 2013.

    As previously discussed, the difference in status between GLPA
employees and independent U.S. pilots creates significant differences
in their relative compensation. These differences constitute
supportable circumstances for adjusting U.S. target pilot compensation
by increasing it 10% over our projected 2016 GLPA compensation figure,
taking our proposed U.S. individual target pilot compensation to
$312,500. Although the appropriateness of 10% as an adjustment figure
was not put to a vote, that figure and no other was cited by several
speakers at GLPAC's July 2014 meeting \48\ as balancing the different
status of the U.S. and GLPA pilots. We invite public comment on whether
the 10% adjustment figure is appropriate for the 2016 rate.
---------------------------------------------------------------------------

    \48\ Transcript (7/24/2014), pp. 43-45.
---------------------------------------------------------------------------

    Table 16 shows the total target compensation for each district, the
result of multiplying our proposed individual target compensation of
$312,500 by the number of working pilots shown in Table 10. Our
proposed total target pilot compensation for 2016 is $13,125,000.

                             Table 16--Total Target Pilot Compensation per District
----------------------------------------------------------------------------------------------------------------
                                                            District One       District Two      District Three
----------------------------------------------------------------------------------------------------------------
Target compensation per pilot..........................           $312,500           $312,500           $312,500
Number of working pilots...............................                 13                 12                 17
Total target pilot compensation (total, all districts =         $4,062,500         $3,750,000         $5,312,500
 $13,125,000)..........................................
----------------------------------------------------------------------------------------------------------------

    At this time, and subject to the public comments that we
specifically request on this point, we find no economic data that
supplies supportable circumstances for additional adjustments to target
pilot compensation.
    Pilot association proposals. Prior to preparing this NPRM, we
discussed the determination of target pilot compensation with GLPAC and
with the pilot associations. At its July 2014 meetings, GLPAC
considered and rejected, by a vote of 4 to 2 with no abstentions, a
proposed individual target pilot compensation starting at $295,000. We
interpreted the $295,000 figure to represent total compensation,
including both wages and benefits.\49\
---------------------------------------------------------------------------

    \49\ Transcript (7/24/2014), p. 45. Discussion begins on p. 20.
Under 46 U.S.C. 9307(d)(3), GLPAC recommendations require approval
by ``at least all but one of the members then serving on the
committee;'' hence a 4-2 vote does not pass. For the Coast Guard's
grounds for interpreting ``compensation'' to include both wages and
benefits, and not wages alone, see pp. 43-45 of the transcript.
---------------------------------------------------------------------------

    On May 8, 2015, the pilot associations requested that we consider
$355,000 as an individual target pilot compensation figure, which they
said would not guarantee, but might ensure, a sufficient amount to
attract reasonable pilot

candidates and retain current pilots. This request was accompanied by
an enclosure supporting a minimum target figure of almost $394,000.\50\
In support of the $394,000 figure, the pilots cite the $295,000
compensation that a majority (but not the required super-majority) \51\
of GLPAC members supported in July 2014. The pilots interpreted the
$295,000 figure to include wages only, not benefits. To that figure,
they add the benefit amounts used in our 2012 ratemaking, which ranged
from $64,678 in undesignated waters to $73,639 in designated waters.
They then adjust the wage and benefit figures for inflation to arrive
at a total minimum compensation of approximately $394,000.
---------------------------------------------------------------------------

    \50\ Email, Capt. John Boyce, President, St. Lawrence Seaway
Pilots Association, to Director, Great Lakes Pilotage, May 8, 2015.
The actual figure stated in the enclosure to this email is $393,996,
which we round for convenience to $394,000.
    \51\ 46 U.S.C. 9307(d)(3).
---------------------------------------------------------------------------

    At this time, we decline to adopt either of the pilots' proposed
amounts. To the extent they rely on the $295,000 compensation figure
considered, and majority-approved but officially rejected by GLPAC, we
do not accept the pilots' contention that GLPAC discussed that figure
in the context of wages only, and not benefits; we believe the
discussion considered total compensation, both wages and benefits. We
also note that our proposed individual target pilot compensation,
$312,500, is 10% higher than what we project as 2016 GLPA individual
pilot compensation. By contrast, $355,000 would be about 25% higher
than the GLPA compensation, and $394,000 would be about 39% higher; we
question whether such large disparities can be justified. We
specifically request public comment and supporting data on the pilot
associations' proposal for setting the 2016 individual target pilot
compensation.
    Determine return on investment (proposed Sec.  404.105). The 2013
average annual rate of return for new issues of high-grade corporate
securities was 4.24 percent.\52\ We apply that rate to each district's
projected total operating and compensation expenses (from Sec. Sec.
404.102 and 404.104) to determine the allowed return on investment for
the shipping season, as shown in Table 17.
---------------------------------------------------------------------------

    \52\ Based on Moody's AAA corporate bonds, which can be found
at: http://research.stlouisfed.org/fred2/series/AAA/downloaddata?cid=119.

                                                     Table 17--Determination of Return on Investment
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                    District 1                      District 2                      District 3
                                                         -----------------------------------------------------------------------------------------------
                                                            Designated     Undesignated    Undesignated     Designated     Undesignated     Designated
--------------------------------------------------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)....................        $715,274        $508,486        $594,913        $892,370      $1,474,855        $491,620
Total Target Pilot Compensation (Step 4)................       2,187,500       1,875,000       1,562,500       2,187,500       3,437,500       1,875,000
Total 2016 Expenses.....................................       2,902,774       2,383,486       2,157,413       3,079,870       4,912,355       2,366,620
Return on Investment (4.24%)............................         123,078         101,060          91,474         130,587         208,284         100,345
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Project needed revenue for next year (proposed Sec.  404.106).
Table 18 shows each association's needed revenue, determined by adding
the proposed Sec.  404.102 operating expense, the proposed Sec.
404.104 total target compensation, and the proposed Sec.  404.105
return on investment. Across all three districts, the projected needed
revenue for 2016 is $18,557,345, up actual revenue of $10,899,506
reported in our 2013 audits.

                                                                Table 18--Revenue Needed
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                    District 1                      District 2                      District 3
                                                         -----------------------------------------------------------------------------------------------
                                                            Designated     Undesignated    Undesignated     Designated     Undesignated     Designated
--------------------------------------------------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)....................        $715,274        $508,486        $594,913        $892,370      $1,474,855        $491,620
Total Target Pilot Compensation (Step 4)................       2,187,500       1,875,000       1,562,500       2,187,500       3,437,500       1,875,000
Return on Investment (Step 5)...........................         123,078         101,060          91,474         130,587         208,284         100,345
Total Revenue Needed (Total for all districts =                3,025,852       2,484,546       2,248,887       3,210,457       5,120,638       2,466,965
 $18,557,345)...........................................
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Make initial base rate calculations (proposed Sec.  404.107). To
make our initial base rate calculations, we first establish a multi-
year base period from which available and reliable data for actual
pilot hours worked in each district's designated and undesignated
waters can be drawn. As discussed in connection with our calculations
for proposed Sec.  404.103, and for the same reasons, for 2016 our
multi-year base period covers the four shipping seasons from 2010
through 2013.

                                          Table 19--Hours Worked, 2010-2013, Designated and Undesignated Waters
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Pilotage district
                                                         -----------------------------------------------------------------------------------------------
                          Year                                                  D1                              D2                              D3
                                                           D1 Designated   Undesignated    D2 Designated   Undesignated    D3 Designated   Undesignated
                                                          waters (hours)  waters (hours)  waters (hours)  waters (hours)  waters (hours)  waters (hours)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2010....................................................           4,839           5,649           5,235           5,565           2,461          20,211
2011....................................................           5,045           5,377           3,680           3,708           1,678          16,012
2012....................................................           4,771           5,121           3,922           3,848           2,163          15,906
2013....................................................           5,864           5,529           4,750           4,603           2,361          17,115

Average.................................................           5,130           5,419           4,397           4,431           2,166          17,311
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Table 20 calculates new rates by dividing each association's
projected needed revenue, from Sec.  404.106, by the average hours
shown in Table 19 and rounding to the nearest whole number.

                                                               Table 20--Rate Calculations
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                    District 1                      District 2                      District 3
                                                         -----------------------------------------------------------------------------------------------
                                                            Designated     Undesignated    Undesignated     Designated     Undesignated     Designated
--------------------------------------------------------------------------------------------------------------------------------------------------------
Revenue Needed (Step 66)................................      $3,025,852      $2,484,546      $2,248,887      $3,210,457      $5,120,638      $2,466,965
Average time on task 2010-2013..........................           5,130           5,419           4,431           4,397          17,311           2,166
Hourly Rate.............................................            $590            $458            $508            $730            $296          $1,139
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Table 20 shows that the District 3 rate for designated waters would
be more than twice the rate for undesignated waters. Therefore, as
discussed earlier under this proposed section, we apply a ratio to
adjust the balance between these rates so that the rate for designated
waters is no more than twice the rate for undesignated waters, as shown
in Table 21, rounded to the nearest whole number.

           Table 21--District 3--Capped Designated Waters Rate
------------------------------------------------------------------------
                                                 District 3
                                   -------------------------------------
                                        Areas 6, 8
                                       undesignated    Area 7 designated