[Federal Register Volume 78, Number 153 (Thursday, August 8, 2013)]
[Proposed Rules]
[Pages 48374-48397]
[FR Doc No: 2013-19209]

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DEPARTMENT OF HOMELAND SECURITY

Coast Guard

46 CFR Part 401

[USCG-2013-0534]
1625-AC07

Great Lakes Pilotage Rates--2014 Annual Review and Adjustment

AGENCY: Coast Guard, DHS.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Coast Guard proposes rate adjustments for pilotage
services on the Great Lakes, which were last amended in February 2013.
The proposed adjustments would establish new base rates and are made in
accordance with a full ratemaking procedure. The proposed update
reflects the Coast Guard exercising the discretion provided by Step 7
of the Appendix A methodology. The result is an upward adjustment to
match the rate increase of the Canadian Great Lakes Pilotage Authority.
We also propose adjusting weighting factors used to determine rates for
vessels of different size, providing a procedure for temporary
surcharges, and including dues paid to the American Pilots Association.
This notice of proposed rulemaking promotes the Coast Guard's strategic
goal of maritime safety.

DATES: Comments and related material must either be submitted to our
online docket via http://www.regulations.gov on or before October 7,
2013 or reach the Docket Management Facility by that date.

ADDRESSES: You may submit comments identified by docket number USCG-
2013-0534 using any one of the following methods:
    (1) Federal eRulemaking Portal: http://www.regulations.gov.
    (2) Fax:<PHONE_NUMBER>.
    (3) Mail: Docket Management Facility (M-30), U.S. Department of
Transportation, West Building Ground Floor, Room W12-140, 1200 New
Jersey Avenue SE., Washington, DC 20590-0001.
    (4) Hand delivery: Same as mail address above, between 9 a.m. and 5
p.m., Monday through Friday, except Federal holidays. The telephone
number is<PHONE_NUMBER>.
    To avoid duplication, please use only one of these four methods.
See the ``Public Participation and Request for Comments'' portion of
the SUPPLEMENTARY INFORMATION section below for instructions on
submitting comments.

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

SUPPLEMENTARY INFORMATION:

Table of Contents for Preamble

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

I. Public Participation and Request for Comments

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

A. Submitting Comments

    If you submit a comment, please include the docket number for this
rulemaking (USCG-2013-0534), indicate the specific section of this
document to which each comment applies, and provide a reason for each
suggestion or recommendation. You may submit your comments and material
online or by fax, mail, or hand delivery, but please use only one of
these means. We recommend that you include your name and a mailing
address, an email address, or a phone number in the body of your
document so that we can contact you if we have questions regarding your
submission.
    To submit your comment online, go to http://www.regulations.gov and
insert ``USCG-2013-0534'' in the ``Search'' box. Click on ``Submit a
Comment'' in the ``Actions'' column. If you submit your comments by
mail or hand delivery, submit them in an unbound format, no larger than
8\1/2\ by 11 inches, suitable for copying and electronic filing. If you
submit comments by mail and would like to know that they reached the
Facility, please enclose a stamped, self-addressed postcard or
envelope.
    We will consider all comments and material received during the
comment period and may change this notice of proposed rulemaking (NPRM)
based on your comments.

B. Viewing Comments and Documents

    To view comments, as well as documents mentioned in this preamble
as being available in the docket, go to http://www.regulations.gov,
insert ``USCG-2013-0534'' and click ``Search.'' Click the ``Open Docket
Folder'' in the ``Actions'' column. If you do not have access to the
Internet, you may view the docket online by visiting the Docket
Management Facility in Room W12-140 on the ground floor of the
Department of Transportation West Building, 1200 New Jersey Avenue SE.,
Washington, DC 20590, between 9 a.m. and 5 p.m., Monday through Friday,
except Federal holidays. We have an agreement with the Department of
Transportation to use the Docket Management Facility.

C. Privacy Act

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

D. Public Meeting

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

II. Abbreviations

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

III. Basis and Purpose

    The basis of this NPRM is the Great Lakes Pilotage Act of 1960
(``the Act'') (46 U.S.C. Chapter 93), which requires U.S. vessels
operating ``on register'' \1\ and foreign vessels to use U.S. or
Canadian registered pilots while transiting the U.S. waters of the St.
Lawrence Seaway and the Great Lakes system. 46 U.S.C. 9302(a)(1). The
Act requires the Secretary to ``prescribe by regulation rates and
charges for pilotage services, giving consideration to the public
interest and the costs of providing the services.'' 46 U.S.C. 9303(f).
Rates must be established or reviewed and adjusted each year, not later
than March 1. Base rates must be established by a full ratemaking at
least once every 5 years, and in years when base rates are not
established, they must be reviewed and, if necessary, adjusted. 46
U.S.C. 9303(f). The Secretary's duties and authority under the Act have
been delegated to the Coast Guard. Department of Homeland Security
Delegation No. 0170.1, paragraph (92)(f). Coast Guard regulations
implementing the Act appear in parts 401 through 404 of Title 46, Code
of Federal Regulations (CFR). Procedures for use in establishing base
rates appear in 46 CFR part 404, Appendix A, and procedures for annual
review and adjustment of existing base rates appear in 46 CFR part 404,
Appendix C.
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    \1\ ``On register'' means that the vessel's certificate of
documentation has been endorsed with a registry endorsement, and
therefore, may be employed in foreign trade or trade with Guam,
American Samoa, Wake, Midway, or Kingman Reef. 46 U.S.C. 12105, 46
CFR 67.17.
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    The purpose of this NPRM is to establish new base pilotage rates,
using the methodology found in 46 CFR part 404, Appendix A.

IV. Background

    The vessels affected by this NPRM are those engaged in foreign
trade upon the U.S. waters of the Great Lakes. United

States and Canadian ``lakers,'' \2\ which account for most commercial
shipping on the Great Lakes, are not affected. 46 U.S.C. 9302.
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    \2\ A ``laker'' is a commercial cargo vessel especially designed
for and generally limited to use on the Great Lakes.
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    The U.S. waters of the Great Lakes and the St. Lawrence Seaway are
divided into three pilotage districts. Pilotage in each district is
provided by an association certified by the Coast Guard Director of
Great Lakes Pilotage to operate a pilotage pool. It is important to
note that, while we set rates, we do not control the actual number of
pilots an association maintains, so long as the association is able to
provide safe, efficient, and reliable pilotage service. Also, we do not
control the actual compensation that pilots receive. The actual
compensation is determined by each of the three district associations,
which use different compensation practices.
    District One, consisting of Areas 1 and 2, includes all U.S. waters
of the St. Lawrence River and Lake Ontario. District Two, consisting of
Areas 4 and 5, includes all U.S. waters of Lake Erie, the Detroit
River, Lake St. Clair, and the St. Clair River. District Three,
consisting of Areas 6, 7, and 8, includes all U.S. waters of the St.
Mary's River, Sault Ste. Marie Locks, and Lakes Michigan, Huron, and
Superior. Area 3 is the Welland Canal, which is serviced exclusively by
the Canadian Great Lakes Pilotage Authority and, accordingly, is not
included in the United States rate structure. Areas 1, 5, and 7 have
been designated by Presidential Proclamation, pursuant to the Act, to
be waters in which pilots must, at all times, be fully engaged in the
navigation of vessels in their charge. Areas 2, 4, 6, and 8 have not
been so designated because they are open bodies of water. While working
in those undesignated areas, pilots must only ``be on board and
available to direct the navigation of the vessel at the discretion of
and subject to the customary authority of the master.'' 46 U.S.C.
9302(a)(1)(B).
    This NPRM is a full ratemaking to establish new base pilotage
rates, using the methodology found in 46 CFR part 404, Appendix A. The
last full ratemaking established the current base rates in 2013 (78 FR
13521; Feb. 28, 2013). Among other things, the Appendix A methodology
requires us to review detailed pilot association financial information,
and we contract with independent accountants to assist in that review.
We have now completed our review of the independent accountants' 2011
financial reports. The comments by the pilot associations on those
reports and the independent accountants' final findings are discussed
in our document entitled ``Summary--Independent Accountant's Report on
Pilot Association Expenses, with Pilot Association Comments and
Accountant's Responses,'' which appears in the docket.

V. Discussion of Proposed Rule

A. Summary

    We propose establishing new base pilotage rates in accordance with
the methodology outlined in Appendix A to 46 CFR part 404. The proposed
new rates would be established by March 1, 2014, and effective August
1, 2014. Our arithmetical calculations under Steps 1 through 6 of
Appendix A would result in an average 10.74 percent rate decrease. This
rate decrease is not the result of increased efficiencies in providing
pilotage services but rather is a result of recent downward changes to
American Maritime Officers Union (AMOU) contracts. Therefore, we will
exercise the discretion outlined in Step 7 and increase rates by 2.5
percent to match the Canadian Great Lakes Pilotage Authority's rate
adjustment. We will provide additional discussion when we explain our
Step 7 adjustment of pilot rates. Table 1 shows the proposed percent
change for the new rates for each area.
    Secondly, we propose to adjust United States weighting factors in
this NPRM to match Canadian weighting factors. At its February 2013
meeting, the Great Lakes Pilotage Advisory Committee (GLPAC)
unanimously recommended (Resolution 13-01, which can be viewed at
www.faca.gov \3\) that the Coast Guard align United States weighting
factors with those adopted by Canada in 2008. Weighting factors are
multipliers based on the size of a ship and are used in determining
actual charges for pilotage service. Matching the Canadian weighting
factors would provide greater parity between the United States and
Canada and reduce billing confusion between the two countries, both of
which are important Federal Government concerns, as emphasized by
recent Executive Order (E.O.) 13609, ``Promoting International
Regulatory Cooperation'' (77 FR 26413; May 4, 2012). These weighting
factors are applied to the charges for pilotage service; they are not
used in the ratemaking methodology nor are they related to the annual
changes in benchmark union contracts that determine target pilot
compensation. Because this adjustment would in no way be connected with
the benchmark contract changes that take effect on August 1, 2014, we
propose making the adjustment effective March 1, 2014, to eliminate the
disparity between U.S. and Canadian pilotage systems that has existed
since 2008. Based on historic traffic levels, we believe this weighting
factor adjustment will increase U.S. pilot association revenues by
approximately 6 to 7.5 percent.
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    \3\ Resolution 13-01, a summary, and a transcript of the GLPAC
meeting are available at this Web site.
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    Next, we propose to include dues paid to the American Pilots
Association (APA) by the three districts as an allowable expense that
is necessary and reasonable for the safe conduct of pilotage on the
Great Lakes. We are committed to a safe and efficient pilotage system
on the Great Lakes and the APA, as the trade association for all
pilotage groups across the United States, has worked diligently with
the Coast Guard and the associations to share best practices and
facilitate the development of training plans for the U.S. Great Lakes
Registered Pilots. Fifteen percent of the APA dues are used for
lobbying and will be excluded, because lobbying expenses are
prohibited. Previously, APA dues were excluded from the ratemaking
process because they were deemed unnecessary for pilot licensure. While
it remains true APA membership is not needed for licensure, we now
believe that the APA's commitment to safety, professional development,
and the sharing of best practices warrants the inclusion of APA dues as
a necessary and reasonable expense.
    Finally, we propose adding a new regulation that would allow the
Coast Guard to authorize temporary surcharges under the authority of 46
U.S.C. 9303(f) and in the interest of safe, efficient, and reliable
pilotage. 46 U.S.C. 9303(f) allows 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.'' Temporary surcharges would be imposed when the surcharges
serve the public interest by enabling the pilot associations to take on
expenses in the interest of providing safe and reliable pilotage. Among
the situations we think might warrant the imposition of a surcharge
would be an association's need to acquire new capital assets or new
technology, and the need to train pilots in the proper use of new
assets or technology. Under our proposal, a given surcharge will not
exceed 1 year in length and must be proposed for public comment prior
to application. We propose using this new procedure to impose a
temporary 3 percent surcharge

to traffic in District One to compensate pilots for $48,995 that the
District One pilots' association spent on training in 2012. Normally,
this expense would not be recognized and reflected in pilotage rates
until the 2015 annual ratemaking. By authorizing a surcharge now, we
would accelerate the reimbursement for necessary and reasonable
training expenses. This procedure will allow the associations to
recover these expenses the year after they are incurred instead of
waiting three years. We conducted several meetings with the pilot
association presidents to discuss training and they would be more
willing to participate in training if the expenses were fully
recognized the following year. The surcharge would be authorized for
the duration of the 2014 shipping season, which begins in March 2014.
This merely accelerates the payment for these improvements, which fall
within historically-approved reimbursable items. At the end of the 2014
shipping season, we will account for the monies the surcharge generate
and make adjustments (debits/credits) to the operating expenses for the
following year. We will also ensure that these accelerated training
expenses are removed from the expenses of future rulemakings.
    We encourage all Great Lakes pilots to renew training on a 5-10
year basis that includes these topics, which are essential for
providing safe, efficient, and reliable pilotage service:
     Radar observer certification;
     Bridge resource management;
     Requirements of the International Convention on Standards
of Training, Certification and Watchkeeping for Seafarers, 1978, as
amended;
     Legal aspects of pilotage;
     Fatigue training as recommended by the National
Transportation Safety Board; and
     Basic and emergency ship handling simulator/manned models
training. The Coast Guard is pleased that District One pilots sought
portions of this training. We encourage District Two and District Three
pilots to seek similar training, which we are willing to review for
inclusion in the rate on a case-by-case basis.
    All figures in the tables that follow are based on calculations
performed either by an independent accountant or by the Director's \4\
staff. In both cases, those calculations were performed using common
commercial computer programs. Decimalization and rounding of the
audited and calculated data affects the display in these tables but
does not affect the calculations. The calculations are based on the
actual figure that rounds values for presentation in the tables.
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    \4\ ``Director'' is the Coast Guard Director, Great Lakes
Pilotage, which is used throughout this NPRM.

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

B. Discussion of Methodology

    The Appendix A methodology provides seven steps, with sub-steps,
for calculating rate adjustments. The following discussion describes
those steps and sub-steps, and includes tables showing how we have
applied them to the 2011 financial information supplied by the pilots
association.
    Step 1: Projection of Operating Expenses. In this step, we project
the amount of vessel traffic annually. Based on that projection, we
forecast the amount of necessary and reasonable operating expenses that
pilotage rates should recover.
    Step 1.A: Submission of Financial Information. This sub-step
requires each pilot association to provide us with detailed financial
information in accordance with 46 CFR part 403. The associations
complied with this requirement, supplying 2011 financial information in
2012. This is the most current and complete data set we have available.
    Step 1.B: Determination of Recognizable Expenses. This sub-step
requires us to determine which reported association expenses will be
recognized for ratemaking purposes, using the guidelines shown in 46
CFR 404.5. We contracted with an independent accountant to review the
reported expenses and submit findings recommending which reported
expenses should be recognized. The accountant also reviewed which
reported expenses should be adjusted prior to recognition or disallowed
for ratemaking purposes. The accountant's preliminary findings were
sent to the pilot associations, they reviewed and commented on those
findings, and the accountant then finalized the findings. The Director
reviewed and accepted the final findings, resulting in the
determination of recognizable expenses. The preliminary findings, the
associations' comments on those findings, and the final findings are
all discussed in the ``Summary--Independent Accountant's Report on
Pilot Association Expenses, with Pilot Association Comments and
Accountant's Responses,'' which appears in the docket. Tables 2 through
4 show each association's recognized expenses.

                                  Table 2--Recognized Expenses for District One
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                                                                 Area 1            Area 2
                                                           ------------------------------------
                Reported expenses for 2011                    St. Lawrence                            Total
                                                                  River         Lake Ontario
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Operating Expenses:
Other Pilotage Costs:
    Pilot subsistence/Travel..............................          $234,724          $156,246          $390,970
    License insurance.....................................                 0                 0                 0
    Payroll taxes.........................................            61,483            47,611           109,094
    Other.................................................               837               588             1,425
                                                           -----------------------------------------------------
        Total Other Pilotage Costs........................           297,044           204,445           501,489
Pilot Boat and Dispatch Costs:

    Pilot boat expense....................................           111,772            76,904           188,676
    Dispatch expense......................................                 0                 0                 0
    Payroll taxes.........................................             8,611             5,925            14,536
                                                           -----------------------------------------------------
        Total Pilot and Dispatch Costs....................           120,383            82,829           203,212
Administrative Expenses:
    Legal.................................................            10,592             6,922            17,514
    Insurance.............................................            23,780            16,492            40,272
    Employee benefits.....................................            21,282            14,645            35,927
    Payroll taxes.........................................             5,032             3,463             8,495
    Other taxes...........................................             5,042             3,470             8,512
    Travel................................................               756               520             1,276
    Depreciation/Auto leasing/Other.......................            38,252            26,319            64,571
    Interest..............................................            18,484            12,718            31,202
    Dues and subscriptions................................             9,180             9,180            18,360
    Utilities.............................................             4,314             2,941             7,255
    Salaries..............................................            50,718            34,897            85,615
    Accounting/Professional fees..........................             5,752             3,428             9,180
    Pilot Training........................................             4,200             2,277             6,477
    Other.................................................             9,959             6,880            16,839
                                                           -----------------------------------------------------
        Total Administrative Expenses.....................           207,343           144,152           351,495
                                                           -----------------------------------------------------
        Total Operating Expenses..........................           624,770           431,426         1,056,196
Proposed Adjustments (Independent certified public
 accountant (CPA):
Operating Expenses:
Other Pilot Costs:
    Pilotage subsistence/Travel...........................           (2,492)           (1,714)           (4,206)
    Payroll taxes.........................................            12,883             8,864            21,747
                                                           -----------------------------------------------------
        Total Other Pilotage Costs........................            10,391             7,150            17,541
                                                           -----------------------------------------------------
        TOTAL CPA ADJUSTMENTS.............................            10,391             7,150            17,541
                                                           -----------------------------------------------------
            Total Operating Expenses......................           635,161           438,576         1,073,737
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Note: Numbers may not total due to rounding.

                                  Table 3--Recognized Expenses for District Two
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                                                                 Area 4            Area 5
                                                           ------------------------------------
                Reported expenses for 2011                                     Southeast Shoal        Total
                                                                Lake Erie      to Port Huron,
                                                                                MI
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Operating Expenses:
Other Pilotage Costs:
    Pilot subsistence/Travel..............................           $79,250          $118,874          $198,124
    License insurance.....................................             6,168             9,252            15,420
    Payroll taxes.........................................            36,676            55,013            91,689
    Other.................................................            23,560            35,341            58,901
                                                           -----------------------------------------------------
        Total Other Pilotage Costs........................           145,654           218,480           364,134
Pilot Boat and Dispatch Costs:
    Pilot boat expense....................................           104,955           157,432           262,387
    Dispatch expense......................................             6,060             9,090            15,150
    Employee Benefits.....................................            40,419            60,628           101,047
    Payroll taxes.........................................             7,135            10,703            17,838
                                                           -----------------------------------------------------
        Total Pilot and Dispatch Costs....................           158,569           237,853           396,422
Administrative Expenses:
    Legal.................................................            37,520            56,281            93,801
    Office rent...........................................            26,275            39,413            65,688
    Insurance.............................................            10,672            16,009            26,681
    Employee benefits.....................................            16,365            24,548            40,913
    Payroll taxes.........................................             4,446             6,668            11,114
    Other taxes...........................................            14,273            21,409            35,682
    Depreciation/Auto leasing/Other.......................            15,604            23,407            39,011
    Interest..............................................             2,772             4,159             6,931
    Dues and subscriptions................................             7,069            10,603            17,672

    Utilities.............................................            15,410            23,115            38,525
    Salaries..............................................            39,874            59,810            99,684
    Accounting/Professional fees..........................            12,110            18,164            30,274
    Pilot Training........................................                 0                 0                 0
    Other.................................................             8,860            13,291            22,151
                                                           -----------------------------------------------------
        Total Administrative Expenses.....................           211,250           316,877           528,127
                                                           -----------------------------------------------------
        Total Operating Expenses:.........................           515,473           773,210         1,288,683
Proposed Adjustments (Independent CPA):
Operating Expenses:
Other Pilotage Costs:
    Pilot subsistence/Travel..............................           (2,598)           (3,896)           (6,494)
    Other.................................................             (566)             (850)           (1,416)
                                                           -----------------------------------------------------
        Total Other Pilotage Costs........................           (3,164)           (4,746)           (7,910)
Pilot Boat and Dispatch Costs:
    Employee benefits.....................................             (100)             (150)             (249)
                                                           -----------------------------------------------------
        Total Pilot Boat and Dispatch Costs...............             (100)             (150)             (249)
Administrative Expenses:
    Employee benefits.....................................              (25)              (38)              (63)
                                                           -----------------------------------------------------
        Total Administrative Expenses.....................              (25)              (38)              (63)
                                                           -----------------------------------------------------
        TOTAL CPA ADJUSTMENTS.............................           (3,289)           (4,933)           (8,222)
                                                           -----------------------------------------------------
            Total Operating Expenses......................           512,184           768,277         1,280,461
----------------------------------------------------------------------------------------------------------------
Note: Numbers may not total due to rounding.

                                 Table 4--Recognized Expenses for District Three
----------------------------------------------------------------------------------------------------------------
                                               Area 6            Area 7            Area 8
                                         ------------------------------------------------------
       Reported expenses for 2011          Lakes Huron and                                            Total
                                              Michigan      St. Mary's River    Lake Superior
----------------------------------------------------------------------------------------------------------------
Operating Expenses:
Other Pilotage Costs:
    Pilot subsistence/Travel............           196,529            72,789            94,625           363,943
    License insurance...................            10,157             3,762             4,891            18,810
    Payroll taxes.......................            63,803            23,631            30,720           118,153
    Other...............................             2,184               809             1,052             4,045
                                         -----------------------------------------------------------------------
        Total Other Pilotage Costs......           272,673           100,991           131,288           504,951
Pilot Boat and Dispatch Costs:
    Pilot boat expense..................           243,077            90,028           117,037           450,142
    Dispatch expense....................            87,059            32,244            41,917           161,221
    Payroll taxes.......................             9,607             3,558             4,626            17,791
                                         -----------------------------------------------------------------------
        Total Pilot Boat and Dispatch              339,743           125,830           163,580           629,154
         Costs..........................
Administrative Expenses:
    Legal...............................            12,138             4,495             5,844            22,477
    Office rent.........................             5,346             1,980             2,574             9,900
    Insurance...........................             7,451             2,760             3,587            13,798
    Employee benefits...................            73,230            27,122            35,259           135,611
    Payroll taxes.......................             6,154             2,279             2,963            11,396
    Other taxes.........................            19,339             7,163             9,311            35,813
    Depreciation/Auto leasing...........            34,341            12,719            16,534            63,594
    Interest............................             2,682               993             1,291             4,966
    Dues and subscriptions..............            11,016             5,508             7,344            23,868
    Utilities...........................            19,723             7,305             9,496            36,524
    Salaries............................            55,772            20,656            26,853           103,281
    Accounting/Professional fees........            13,419             4,970             6,461            24,850
    Pilot Training......................               516               191               248               955
    Other...............................             5,394             1,998             2,597             9,989
                                         -----------------------------------------------------------------------
        Total Administrative Expenses...           266,521           100,139           130,362           497,022
                                         -----------------------------------------------------------------------

        Total Operating Expenses........           878,937           326,960           425,230         1,631,127
Proposed Adjustments (Independent CPA):
Operating Expenses:
Other Pilotage Costs:
    Payroll taxes.......................            22,446             8,313            10,807            41,566
                                         -----------------------------------------------------------------------
        Total Other Pilotage Costs......            22,446             8,313            10,807            41,566
Administrative Expenses:
    Other Taxes.........................           (1,613)             (598)             (777)           (2,988)
    Depreciation/Auto leasing...........           (7,707)           (2,854)           (3,711)          (14,272)
    Other...............................             (610)             (226)             (294)           (1,130)
                                         -----------------------------------------------------------------------
        Total Administrative Expenses...           (9,930)           (3,678)           (4,782)          (18,390)
                                         -----------------------------------------------------------------------
        TOTAL CPA ADJUSTMENTS...........            12,516             4,635             6,025            23,176
                                         -----------------------------------------------------------------------
            Total Operating Expenses....           891,453           331,595           431,255         1,654,303
----------------------------------------------------------------------------------------------------------------
Note: Numbers may not total due to rounding.

    Step 1.C: Adjustment for Inflation or Deflation. In this sub-step,
we project rates of inflation or deflation for the succeeding
navigation season. Because we used 2011 financial information, the
``succeeding navigation season'' for this ratemaking is 2012. We based
our inflation adjustment of 2 percent on the 2012 change in the
Consumer Price Index (CPI) for the Midwest Region of the United States,
which can be found at: http://www.bls.gov/xg_shells/ro5xg01.htm. This
adjustment appears in Tables 5 through 7.

                                   Table 5--Inflation Adjustment, District One
----------------------------------------------------------------------------------------------------------------
                                                       Area 1                 Area 2
                                                 ------------------     ------------------
         Reported expenses for 2011                 St. Lawrence                                      Total
                                                        River              Lake Ontario
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses:..................  ...          $635,161  ...          $438,576  ...        $1,073,737
2012 change in the CPI for the Midwest        x                .02   x                .02   x                .02
 Region of the United States...............
Inflation Adjustment.......................   =            $12,703   =             $8,772   =            $21,475
----------------------------------------------------------------------------------------------------------------

                                   Table 6--Inflation Adjustment, District Two
----------------------------------------------------------------------------------------------------------------
                                                       Area 4                 Area 5
                                                 ------------------     ------------------
         Reported expenses for 2011                                       Southeast Shoal             Total
                                                      Lake Erie           to Port Huron,
                                                                                MI
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses:..................  ...          $512,184  ...          $768,277  ...        $1,280,461
2012 change in the CPI for the Midwest        x                .02   x                .02   x                .02
 Region of the United States...............
Inflation Adjustment.......................   =            $10,244   =            $15,366   =            $25,609
----------------------------------------------------------------------------------------------------------------

                                                      Table 7--Inflation Adjustment, District Three
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        Area 6                 Area 7                 Area 8
                                                                  ------------------     ------------------     ------------------
                 Reported expenses for 2011                         Lakes Huron and                                                           Total
                                                                       Michigan           St. Mary's River         Lake Superior
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses:...................................  ...          $891,453  ...          $331,595  ...          $431,255  ...        $1,654,303
2012 change in the CPI for the Midwest Region of the United    x                .02   x                .02   x                .02   x                .02
 States.....................................................
Inflation Adjustment........................................   =            $17,829   =             $6,632   =             $8,625   =            $33,086
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Step 1.D: Projection of Operating Expenses. In this final sub-step
of Step 1, we project the operating expenses for each pilotage area on
the basis of the preceding sub-steps and any other foreseeable
circumstances that could affect the accuracy of the projection. We are
not aware of any such foreseeable circumstances that now exist in
District One.
    For District One, the projected operating expenses are based on the
calculations from Steps 1.A through 1.C. Table 8 shows these
projections.

                               Table 8--Projected Operating Expenses, District One
----------------------------------------------------------------------------------------------------------------
                                                       Area 1                 Area 2
                                                 ------------------     ------------------
         Reported expenses for 2011                 St. Lawrence                                      Total
                                                        River              Lake Ontario
----------------------------------------------------------------------------------------------------------------
Total operating expenses...................  ...          $635,161  ...          $438,576  ...        $1,073,737
Inflation adjustment 2.0%..................   +            $12,703   +             $8,772   +            $21,475
                                            --------------------------------------------------------------------
    Total projected expenses for 2014         =           $647,864   =           $447,348   =         $1,095,212
     pilotage season.......................
----------------------------------------------------------------------------------------------------------------
Note: Numbers may not total due to rounding.

    In District Two, Federal taxes of $12,000 are accounted for in Step
6 (Federal Tax Allowance). The projected operating expenses are based
on the calculations from Steps 1.A through 1.C and Federal taxes. Table
9 shows these projections.

                               Table 9--Projected Operating Expenses, District Two
----------------------------------------------------------------------------------------------------------------
                                                       Area 4                 Area 5
                                                 ------------------     ------------------
         Reported expenses for 2011                                       Southeast Shoal             Total
                                                      Lake Erie           to Port Huron,
                                                                                MI
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses...................  ...          $512,184  ...          $768,277  ...        $1,280,461
Inflation adjustment 2.0%..................   +            $10,244   +            $15,366   +            $25,609
Director's adjustment and foreseeable
 circumstances
Federal taxes (accounted for in Step 6)....   +           ($4,800)   +           ($7,200)   +          ($12,000)
                                            --------------------------------------------------------------------
    Total projected expenses for 2014         =           $517,627   =           $776,442   =         $1,294,070
     pilotage season.......................
----------------------------------------------------------------------------------------------------------------

    Currently, we are not aware of any foreseeable circumstances for
District Three. Its projected operating expenses are based on the
calculations from Steps 1.A through 1.C. Table 10 shows these
projections.

                                                 Table 10--Projected Operating Expenses, District Three
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        Area 6                 Area 7                 Area 8
                                                                  ------------------     ------------------     ------------------
                 Reported expenses for 2011                         Lakes Huron and                                                           Total
                                                                       Michigan           St. Mary's River         Lake Superior
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total expenses..............................................  ...          $891,453  ...          $331,595  ...          $431,255  ...        $1,654,303
Inflation adjustment 2.0%...................................   +            $17,829   +             $6,632   +             $8,625   +            $33,086
                                                             -------------------------------------------------------------------------------------------
    Total projected expenses for 2014 pilotage season.......   =           $909,282   =           $338,227   =           $439,880   =         $1,687,389
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Step 2: Projection of Target Pilot Compensation. In Step 2, we
project the annual amount of target pilot compensation that pilotage
rates should provide in each area. These projections are based on our
latest information on the conditions that will prevail in 2014.
    Step 2.A: Determination of Target Rate of Compensation. Target
pilot compensation for pilots in undesignated waters approximates the
average annual compensation for first mates on U.S. Great Lakes
vessels. Compensation is determined based on the most current union
contracts and includes wages and benefits received by first mates. We
calculate target pilot compensation for pilots on designated waters by
multiplying the average first mates' wages by 150 percent and then
adding the average first mates' benefits.
    The most current union contracts available to us are AMOU contracts
with three U.S. companies engaged in Great Lakes shipping. There are
two separate AMOU contracts available--we refer to them as Agreements A
and B, and apportion the compensation provided by each agreement
according to the percentage of tonnage represented by companies under
each agreement. Agreement A applies to vessels operated by Key Lakes,
Inc., and Agreement B applies to all vessels operated by American
Steamship Co. and Mittal Steel USA, Inc.
    Agreements A and B both expire on July 31, 2016. The AMOU has set
the daily aggregate rate--including the daily wage rate, vacation pay,
pension plan contributions, and medical plan contributions effective
August 1, 2014 as follows: (1) In undesignated waters, $612.20 for
Agreement A and $604.64 for Agreement B; and (2) In designated waters,
$842.63 for Agreement A and $829.40 for Agreement B.
    Because we are interested in annual compensation, we must convert
these daily rates. We use a 270-day multiplier which reflects an
average 30-day month, over the 9 months of the average shipping season.
Table 11 shows our calculations using the 270-day multiplier.

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

------------------------------------------------------------------------
Aggregate Rate--Wages and Vacation, Pension, and Medical Benefits Pilots
                         on undesignated waters
------------------------------------------------------------------------
Agreement A:
    $612.20 daily rate x 270 days.........                    165,294.00
Agreement B:
    $604.64 daily rate x 270 days.........                    163,252.80
------------------------------------------------------------------------
                       Pilots on designated waters
------------------------------------------------------------------------
Agreement A:
    $842.63 daily rate x 270 days.........                    227,510.10
Agreement B:
    $829.40 daily rate x 270 days.........                    223,938.00
------------------------------------------------------------------------

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

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

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

                             Table 13--Tonnage-weighted Wage and Benefit Components
----------------------------------------------------------------------------------------------------------------
                                                                           Undesignated            Designated
                                                                              waters                 waters
----------------------------------------------------------------------------------------------------------------
Agreement A:
    Total wages and benefits......................................  ...       $165,294.00  ...       $227,510.10
    Percent tonnage...............................................   x           29.7238%   x           29.7238%
                                                                   ---------------------------------------------
        Total.....................................................   =            $49,132   =            $67,625
Agreement B:
    Total wages and benefits......................................  ...       $163,252.80  ...       $223,938.00
    Percent tonnage...............................................   x           70.2762%   x           70.2762%
                                                                   ---------------------------------------------
        Total.....................................................   =           $114,728   =           $157,375
Projected Target Rate of Compensation:
    Agreement A total weighted average wages and benefits.........  ...           $49,132  ...           $67,625
    Agreement B total weighted average wages and benefits.........   +           $114,728   +           $157,375
                                                                   ---------------------------------------------
        Total.....................................................   =           $163,860   =           $225,000
----------------------------------------------------------------------------------------------------------------

    Step 2.B: Determination of the Number of Pilots Needed. Subject to
adjustment by the Director to ensure uninterrupted service or for other
reasonable circumstances, we determine the number of pilots needed for
ratemaking purposes in each area by dividing projected bridge hours for
each area, by either 1,000 (designated waters) or 1,800 (undesignated
waters) bridge hours. We round the mathematical results and express our
determination as whole pilots.
    ``Bridge hours are the number of hours a pilot is aboard a vessel
providing pilotage service.'' (46 CFR part 404, Appendix A, Step
2.B(1)). For that reason, and as we explained most recently in the 2011
ratemaking's final rule (76 FR 6351 at 6352 col. 3 (Feb. 4, 2011)), we
do not include, and never have included, pilot delay, detention, or
cancellation in calculating bridge hours. Projected bridge hours are
based on the vessel traffic that pilots are expected to serve. We use
historical data, input from the pilots and industry, periodicals and
trade magazines, and information from conferences to project demand for
pilotage services for the coming year.
    In our 2013 final rule, we determined that 38 pilots would be
needed for ratemaking purposes. We have

determined that District 3 has two excess billets that remain unfilled
and that current and projected traffic levels do not support the
retention of these unfilled billets. For 2014, we project 36 pilots is
the proper number to use for ratemaking purposes. We are removing one
pilot from each of the undesignated waters of District Three (one each
from Area 6 and Area 8). The total pilot authorization strength
includes five pilots in Area 2, where rounding up alone would result in
only four pilots. For the same reasons we explained at length in the
2008 ratemaking final rule (74 FR 220 at 221-22 (Jan. 5, 2009)) we have
determined that this adjustment is essential for ensuring uninterrupted
pilotage service in Area 2. Table 14 shows the bridge hours we project
will be needed for each area and our calculations to determine the
number of whole pilots needed for ratemaking purposes.

                                        Table 14--Number of Pilots Needed
----------------------------------------------------------------------------------------------------------------
                                                       Divided by 1,000
                                                          (designated
         Pilotage area           Projected 2014        waters) or 1,800       Calculated value    Pilots needed
                                  bridge hours           (undesignated         of pilot demand    (total = 36)
                                                            waters)
----------------------------------------------------------------------------------------------------------------
Area 1 (Designated waters)....             5,116   /              1,000   =              5.116                 6
Area 2 (Undesignated waters)..             5,429   /              1,800   =              3.016                 5
Area 4 (Undesignated waters)..             5,814   /              1,800   =              3.230                 4
Area 5 (Designated waters)....             5,052   /              1,000   =              5.052                 6
Area 6 (Undesignated waters)..             9,611   /              1,800   =              5.339                 6
Area 7 (Designated waters)....             3,023   /              1,000   =              3.023                 4
Area 8 (Undesignated waters)..             7,540   /              1,800   =              4.189                 5
----------------------------------------------------------------------------------------------------------------

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

                            Table 15--Projection of Target Pilot Compensation by Area
----------------------------------------------------------------------------------------------------------------
                                                                          Target rate of        Projected target
                  Pilotage area                     Pilots needed              pilot                  pilot
                                                     (total= 36)           compensation           compensation
----------------------------------------------------------------------------------------------------------------
Area 1 (Designated waters)......................                 6   x           $225,000   =         $1,349,999
Area 2 (Undesignated waters)....................                 5   x           $163,860   =           $819,298
Area 4 (Undesignated waters)....................                 4   x           $163,860   =           $655,438
Area 5 (Designated waters)......................                 6   x           $225,000   =         $1,349,999
Area 6 (Undesignated waters)....................                 6   x           $163,860   =           $983,157
Area 7 (Designated waters)......................                 4   x           $225,000   =           $899,999
Area 8 (Undesignated waters)....................                 5   x           $163,860   =           $819,298
----------------------------------------------------------------------------------------------------------------
Note: Numbers may not total due to rounding.

    Steps 3 and 3.A: Projection of Revenue. In Steps 3 and 3.A., we
project the revenue that would be received in 2014 if demand for
pilotage services matches the bridge hours we projected in Table 14,
and if 2012 pilotage rates are left unchanged. Table 16 shows this
calculation.

                                     Table 16--Projection of Revenue by Area
----------------------------------------------------------------------------------------------------------------
                                                                                Revenue
                  Pilotage area                    Projected 2014          2013 Pilotage         projection for
                                                    bridge hours               rates                  2013
----------------------------------------------------------------------------------------------------------------
Area 1 (Designated waters)......................             5,116   x            $460.97   =         $2,358,327
Area 2 (Undesignated waters)....................             5,429   x            $284.84   =         $1,546,373
Area 4 (Undesignated waters)....................             5,814   x            $205.27   =         $1,193,426
Area 5 (Designated waters)......................             5,052   x            $508.91   =         $2,571,038
Area 6 (Undesignated waters)....................             9,611   x            $199.95   =         $1,921,756
Area 7 (Designated waters)......................             3,023   x            $482.94   =         $1,459,929
Area 8 (Undesignated waters)....................             7,540   x            $186.67   =         $1,407,490
                                                 ---------------------------------------------------------------
    Total.......................................  ................  ...  ................  ...      $12,458,339
----------------------------------------------------------------------------------------------------------------
Note: Numbers may not total due to rounding.

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

                                 Table 17--Total Sources of Funds, District One
----------------------------------------------------------------------------------------------------------------
                                                                              Area 1                 Area 2
----------------------------------------------------------------------------------------------------------------
Recognized Assets:
    Total Current Assets..........................................  ...          $669,895  ...          $460,921
    Total Current Liabilities.....................................   -            $54,169   -            $37,271
    Current Notes Payable.........................................   +            $24,746   +            $17,026
    Total Property and Equipment (NET)............................   +           $369,024   +           $253,907
    Land..........................................................   -            $13,054   -             $8,981
    Total Other Assets............................................   +                 $0   +                 $0
                                                                   ---------------------------------------------
        Total Recognized Assets:..................................   =           $996,442   =           $685,602
Non-Recognized Assets
    Total Investments and Special Funds...........................   +             $6,243   +             $4,295
                                                                   ---------------------------------------------
        Total Non-Recognized Assets:..............................   =             $6,243   =             $4,295
Total Assets
    Total Recognized Assets.......................................  ...          $996,442  ...          $685,602
    Total Non-Recognized Assets...................................   +             $6,243   +             $4,295
                                                                   ---------------------------------------------
        Total Assets:.............................................   =         $1,002,685   =           $689,897
Recognized Sources of Funds
    Total Stockholder Equity......................................  ...          $647,677  ...          $445,633
    Long-Term Debt................................................   +           $318,571   +           $219,193
    Current Notes Payable.........................................   +            $24,746   +            $17,026
    Advances from Affiliated Companies............................   +                 $0   +                 $0
    Long-Term Obligations--Capital Leases.........................   +                 $0   +                 $0
                                                                   ---------------------------------------------
        Total Recognized Sources:.................................   =           $990,994   =           $681,852
Non-Recognized Sources of Funds
    Pension Liability.............................................  ...                $0  ...                $0
    Other Non-Current Liabilities.................................   +                 $0   +                 $0
    Deferred Federal Income Taxes.................................   +                 $0   +                 $0
    Other Deferred Credits........................................   +                 $0   +                 $0
                                                                   ---------------------------------------------
        Total Non-Recognized Sources:.............................   =                 $0   =                 $0
Total Sources of Funds
    Total Recognized Sources......................................  ...          $990,994  ...          $681,852
    Total Non-Recognized Sources..................................   +                 $0   +                 $0
        Total Sources of Funds:...................................   =           $990,994   =           $681,852
----------------------------------------------------------------------------------------------------------------

                                 Table 18--Total Sources of Funds, District Two
----------------------------------------------------------------------------------------------------------------
                                                                              Area 4                 Area 5
----------------------------------------------------------------------------------------------------------------
Recognized Assets:
    Total Current Assets..........................................  ...          $454,465  ...          $681,697
    Total Current Liabilities.....................................   -           $409,366   -           $614,048
    Current Notes Payable.........................................   +            $25,822   +            $38,734
    Total Property and Equipment (NET)............................   +           $420,422   +           $630,632
    Land..........................................................   -                 $0   -                 $0
    Total Other Assets............................................   +            $60,195   +            $90,293
                                                                   ---------------------------------------------
        Total Recognized Assets...................................   =           $551,538   =           $827,308
Non-Recognized Assets:                                                                          ................
    Total Investments and Special Funds...........................   +                 $0   +                 $0
        Total Non-Recognized Assets...............................   =                 $0   =                 $0
Total Assets:
    Total Recognized Assets.......................................  ...          $551,538  ...          $827,308
    Total Non-Recognized Assets...................................   +                 $0   +                 $0
                                                                   ---------------------------------------------
        Total Assets..............................................   =           $551,538   =           $827,308
Recognized Sources of Funds:
    Total Stockholder Equity......................................  ...           $89,537  ...          $134,305
    Long-Term Debt................................................   +           $410,357   +           $615,535
    Current Notes Payable.........................................   +            $25,822   +            $38,734
    Advances from Affiliated Companies............................   +                 $0   +                 $0
    Long-Term Obligations--Capital Leases.........................   +                 $0   +                 $0
                                                                   ---------------------------------------------
        Total Recognized Sources..................................   =           $525,716   =           $788,574
Non-Recognized Sources of Funds:
    Pension Liability.............................................  ...                $0  ...                $0
    Other Non-Current Liabilities.................................   +                 $0   +                 $0
    Deferred Federal Income Taxes.................................   +                 $0   +                 $0

    Other Deferred Credits........................................   +                 $0   +                 $0
                                                                   ---------------------------------------------
        Total Non-Recognized Sources..............................   =                 $0   =                 $0
Total Sources of Funds:
    Total Recognized Sources......................................  ...          $525,716  ...          $788,574
    Total Non-Recognized Sources..................................   +                 $0   +                 $0
                                                                   ---------------------------------------------
        Total Sources of Funds....................................   =           $525,716   =           $788,574
----------------------------------------------------------------------------------------------------------------

                                Table 19--Total Sources of Funds, District Three
----------------------------------------------------------------------------------------------------------------
                                                       Area 6                 Area 7                 Area 8
----------------------------------------------------------------------------------------------------------------
Recognized Assets:
    Total Current Assets...................  ...          $658,934  ...          $244,050  ...          $317,265
    Total Current Liabilities..............   -            $64,869   -            $24,025   -            $31,233
    Current Notes Payable..................   +             $3,869   +             $1,433   +             $1,863
    Total Property and Equipment (NET).....   +            $21,905   +             $8,113   +            $10,547
    Land...................................   -                 $0   -                 $0   -                 $0
    Total Other Assets.....................   +               $540   +               $200   +               $260
                                            --------------------------------------------------------------------
        Total Recognized Assets............   =           $620,379   =           $229,771   =           $298,702
Non-Recognized Assets:
    Total Investments and Special Funds....   +                 $0   +                 $0   +                 $0
                                            --------------------------------------------------------------------
        Total Non-Recognized Assets........   =                 $0   =                 $0   =                 $0
Total Assets:
    Total Recognized Assets................  ...          $620,379  ...          $229,771  ...          $298,702
    Total Non-Recognized Assets............   +                 $0   +                 $0   +                 $0
                                            --------------------------------------------------------------------
        Total Assets.......................   =           $620,379   =           $229,771   =           $298,702
Recognized Sources of Funds:
    Total Stockholder Equity...............  ...          $606,164  ...          $224,505  ...          $291,857
    Long-Term Debt.........................   +             $6,478   +             $2,399   +             $3,119
    Current Notes Payable..................   +             $3,869   +             $1,433   +             $1,863
    Advances from Affiliated Companies.....   +                 $0   +                 $0   +                 $0
    Long-Term Obligations--Capital Leases..   +                 $0   +                 $0   +                 $0
                                            --------------------------------------------------------------------
        Total Recognized Sources...........   =           $616,511   =           $228,337   =           $296,839
Non-Recognized Sources of Funds:
    Pension Liability......................  ...                $0  ...                $0  ...                $0
    Other Non-Current......................   +                 $0   +                 $0   +                 $0
    Liabilities............................
    Deferred Federal Income................   +                 $0   +                 $0   +                 $0
    Taxes..................................
    Other Deferred Credits.................   +                 $0   +                 $0   +                 $0
                                            --------------------------------------------------------------------
        Total Non-Recognized Sources.......   =                 $0   =                 $0   =                 $0
Total Sources of Funds:
    Total Recognized Sources...............  ...          $616,511  ...          $228,337  ...          $296,839
    Total Non-Recognized Sources...........   +                 $0   +                 $0   +                 $0
                                            --------------------------------------------------------------------
        Total Sources of Funds.............   =           $616,511   =           $228,337   =           $296,839
----------------------------------------------------------------------------------------------------------------

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

                                                     Table 20--Investment Base by Area and District
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Multiplier
                                                                               Total        Recognized     Total sources     (ratio of      Investment
                        District                               Area         recognized      sources of     of funds  ($)   recognized to   base  ($) \1\
                                                                            assets  ($)     funds  ($)                    total sources)
--------------------------------------------------------------------------------------------------------------------------------------------------------
One.....................................................               1         996,442         990,994         990,994               1         996,442
                                                                       2         685,602         681,852         681,852               1         685,602
                                                         -----------------------------------------------------------------------------------------------
    TOTAL...............................................  ..............  ..............  ..............  ..............  ..............       1,682,044
Two \2\.................................................               4         551,538         525,716         525,716               1         551,538
                                                                       5         827,308         788,574         788,574               1         827,308
                                                         -----------------------------------------------------------------------------------------------
    TOTAL...............................................  ..............  ..............  ..............  ..............  ..............       1,378,846
Three...................................................               6         620,379         616,511         616,511               1         620,379
                                                                       7         229,771         228,337         228,337               1         229,771
                                                                       8         298,702         296,839         296,839               1         298,702
                                                         -----------------------------------------------------------------------------------------------
    TOTAL...............................................  ..............  ..............  ..............  ..............  ..............       1,148,852
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ ``Investment base'' = ``Total recognized assets'' x ``Multiplier (ratio of recognized to total sources)''.
\2\ The pilot associations that provide pilotage services in Districts One and Three operate as partnerships. The pilot association that provides
  pilotage service for District Two operates as a corporation.

    Step 5: Determination of Target Rate of Return. We determine a
market-equivalent return on investment (ROI) that will be allowed for
the recognized net capital invested in each association by its members.
We do not recognize capital that is unnecessary or unreasonable for
providing pilotage services. There are no non-recognized investments in
this year's calculations. The allowed ROI is based on the preceding
year's average annual rate of return for new issues of high-grade
corporate securities. For 2012, the preceding year, the allowed ROI was
3.67 percent, based on the average rate of return for that year on
Moody's AAA corporate bonds, which can be found at: http://research.stlouisfed.org/fred2/series/AAA/downloaddata?cid=119.
    Step 6: Adjustment Determination. The first part of the adjustment
determination requires an initial calculation, applying a formula
described in Appendix A. The formula uses the results from Steps 1, 2,
3, and 4 to project the ROI that can be expected in each area if no
further adjustments are made. This calculation is shown in Tables 21
through 23.

                                 Table 21--Projected ROI, Areas in District One
----------------------------------------------------------------------------------------------------------------
                                                                              Area 1                 Area 2
----------------------------------------------------------------------------------------------------------------
Revenue (from Step 3).............................................  ...        $2,358,327  ...        $1,546,373
Operating Expenses (from Step 1)..................................   -           $647,864   -           $447,348
Pilot Compensation (from Step 2)..................................   -         $1,349,999   -           $819,298
Operating Profit/(Loss)...........................................   =           $360,464   =           $279,728
Interest Expense (from audits)....................................   -            $18,484   -            $12,718
Earnings Before Tax...............................................   =           $341,980   =           $267,010
Federal Tax Allowance.............................................   -                 $0   -                 $0
Net Income........................................................   =           $341,980   =           $267,010
Return Element (Net Income + Interest)............................  ...          $360,464  ...          $279,728
Investment Base (from Step 4).....................................   /           $996,442   /           $685,602
Projected Return on Investment....................................   =             0.3618   =             0.4080
----------------------------------------------------------------------------------------------------------------

                                 Table 22--Projected ROI, Areas in District Two
----------------------------------------------------------------------------------------------------------------
                                                                              Area 4                 Area 5
----------------------------------------------------------------------------------------------------------------
Revenue (from Step 3).............................................  ...        $1,193,426  ...        $2,571,038
Operating Expenses (from Step 1)..................................   -           $517,627   -           $776,442
Pilot Compensation (from Step 2)..................................   -           $655,438   -         $1,349,999
Operating Profit/(Loss)...........................................   =            $20,361   =           $444,597
Interest Expense (from audits)....................................   -             $2,772   -             $4,159
Earnings Before Tax...............................................   =            $17,589   =           $440,438
Federal Tax Allowance.............................................   -             $4,800   -             $7,200
Net Income........................................................   =            $12,789   =           $433,238
Return Element (Net Income + Interest)............................  ...           $15,561  ...          $437,397
Investment Base (from Step 4).....................................   /           $551,538   /           $827,308
Projected Return on Investment....................................   =             0.0282   =             0.5287
----------------------------------------------------------------------------------------------------------------

                                Table 23--Projected ROI, Areas in District Three
----------------------------------------------------------------------------------------------------------------
                                                       Area 6                 Area 7                 Area 8
----------------------------------------------------------------------------------------------------------------
Revenue (from Step 3)......................  ...        $1,921,756  ...        $1,459,929  ...        $1,407,490

Operating Expenses (from Step 1)...........   -           $909,282   -           $338,227   -           $439,880
Pilot Compensation (from Step 2)...........   -           $983,157   -           $899,999   -           $819,298
Operating Profit/(Loss)....................   =            $29,317   =           $221,703   =           $148,312
Interest Expense (from audits).............   -             $2,682   -               $993   -             $1,291
Earnings Before Tax........................   =            $26,635   =           $220,710   =           $147,021
Federal Tax Allowance......................   -                 $0   -                 $0   -                 $0
Net Income.................................   =            $26,635   =           $220,710   =           $147,021
Return Element (Net Income + Interest).....  ...           $29,317  ...          $221,703  ...          $148,312
Investment Base (from Step 4)..............   /            620,379   /           $229,771   /           $298,702
Projected Return on Investment.............   =             0.0473   =             0.9649   =             0.4965
----------------------------------------------------------------------------------------------------------------

    The second part required for Step 6 compares the results of Tables
21 through 23 with the target ROI (3.67 percent) we obtained in Step 5
to determine if an adjustment to the base pilotage rate is necessary.
Table 24 shows this comparison for each area.

                                            Table 24--Comparison of Projected ROI and Target ROI, by Area \1\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                              Area 1          Area 2          Area 4          Area 5          Area 6          Area 7          Area 8
                                         ---------------------------------------------------------------------------------------------------------------
                                                                                Southeast
                                           St. Lawrence    Lake Ontario      Lake Erie     Shoal to Port    Lakes Huron     St. Mary's     Lake Superior
                                               River                                         Huron, MI     and Michigan        River
--------------------------------------------------------------------------------------------------------------------------------------------------------
Projected return on investment..........          0.3618          0.4080          0.0282          0.5287          0.0473          0.9649          0.4965
Target return on investment.............          0.0367          0.0367          0.0367          0.0367          0.0367          0.0367          0.0367
Difference in return on investment......          0.3251          0.3713        (0.0085)          0.4920          0.0106          0.9282          0.4598
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\Note: Decimalization and rounding of the target ROI affects the display in this table but does not affect our calculations, which are based on the
  actual figure.

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

                                                 Table 25--Revenue Needed To Recover Target ROI, By Area
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Investment
                                                         Operating          Target pilot        base  (Step 4)
                    Pilotage area                     expenses (Step        compensation            x 3.67%            Federal tax        Revenue needed
                                                            1)                (Step 2)            (Target ROI           allowance
                                                                                Step 5)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Area 1 (Designated waters)..........................        $647,864   +       $1,349,999   +          $36,569   +               $0   =       $2,034,432
Area 2 (Undesignated waters)........................         447,348   +          819,298   +           25,162   +                0   =        1,291,807
Area 4 (Undesignated waters)........................         517,627   +          655,438   +           20,241   +            4,800   =        1,198,107
Area 5 (Designated waters)..........................         776,442   +        1,349,999   +           30,362   +            7,200   =        2,164,003
Area 6 (Undesignated waters)........................         909,282   +          983,157   +           22,768   +                0   =        1,915,207
Area 7 (Designated waters)..........................         338,227   +          899,999   +            8,433   +                0   =        1,246,659
Area 8 (Undesignated waters)........................         439,880   +          819,298   +           10,962   +                0   =        1,270,140
                                                     ---------------------------------------------------------------------------------------------------
    Total...........................................       4,076,671   +        6,877,187   +          154,498   +           12,000   =       11,120,355
--------------------------------------------------------------------------------------------------------------------------------------------------------

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

                         Table 26--Balancing Revenue Needed and Target ROI, District One
----------------------------------------------------------------------------------------------------------------
                                                                              Area 1                 Area 2
----------------------------------------------------------------------------------------------------------------
Revenue Needed....................................................  ...        $2,034,432  ...        $1,291,807
Operating Expenses (from Step 1)..................................   -            647,864   -            447,348
Pilot Compensation (from Step 2)..................................   -          1,349,999   -            819,298
Operating Profit/(Loss)...........................................   =             36,569   =             25,162
Interest Expense (from audits)....................................   -             18,484   -             12,718
Earnings Before Tax...............................................   =             18,085   =             12,444
Federal Tax Allowance.............................................   -                  0   -                  0
Net Income........................................................   =             18,085   =             12,444
Return Element (Net Income + Interest)............................  ...            36,569  ...            25,162
Investment Base (from Step 4).....................................   /            996,442   /            685,602
Return on Investment..............................................   =             0.0367   =             0.0367
----------------------------------------------------------------------------------------------------------------

                         Table 27--Balancing Revenue Needed and Target ROI, District Two
----------------------------------------------------------------------------------------------------------------
                                                                              Area 4                 Area 5
----------------------------------------------------------------------------------------------------------------
Revenue Needed....................................................   +         $1,198,107   +         $2,164,003
Operating Expenses (from Step 1)..................................   -            517,627   -            776,442
Pilot Compensation (from Step 2)..................................   -            655,438   -          1,349,999
Operating Profit/(Loss)...........................................   =             25,041   =             37,562
Interest Expense (from audits)....................................   -              2,772   -              4,159
Earnings Before Tax...............................................   =             22,269   =             33,403
Federal Tax Allowance.............................................   -              4,800   -              7,200
Net Income........................................................   =             17,469   =             26,203
Return Element (Net Income + Interest)............................  ...            20,241  ...            30,362
Investment Base (from Step 4).....................................   /            551,538   /            827,308
Return on Investment..............................................   =             0.0367   =             0.0367
----------------------------------------------------------------------------------------------------------------

                        Table 28--Balancing Revenue Needed and Target ROI, District Three
----------------------------------------------------------------------------------------------------------------
                                                       Area 6                 Area 7                 Area 8
----------------------------------------------------------------------------------------------------------------
Revenue Needed.............................   +         $1,915,207   +         $1,246,659   +         $1,270,140
Operating Expenses (from Step 1)...........   -           $909,282   -           $338,227   -           $439,880
Pilot Compensation (from Step 2)...........   -           $983,157   -           $899,999   -           $819,298
Operating Profit/(Loss)....................   =            $22,768   =             $8,433   =            $10,962
Interest Expense (from audits).............   -             $2,682   -               $993   -             $1,291
Earnings Before Tax........................   =            $20,086   =             $7,440   =             $9,671
Federal Tax Allowance......................   -                 $0   -                 $0   -                 $0
Net Income.................................   =            $20,086   =             $7,440   =             $9,671
Return Element (Net Income + Interest).....  ...           $22,768  ...            $8,433  ...           $10,962
Investment Base (from Step 4)..............   /           $620,379   /           $229,771   /           $298,702
Return on Investment.......................   =             0.0367   =             0.0367   =             0.0367
----------------------------------------------------------------------------------------------------------------

    Step 7: Adjustment of Pilotage Rates. Finally, and subject to
negotiation with Canada or adjustment for other supportable
circumstances, we calculate rate adjustments by dividing the Step 6
revenue needed (Table 25) by the Step 3 revenue projection (Table 16),
to give us a rate multiplier for each area. Tables 29 through 31 show
these calculations.

                                Table 29--Rate Multiplier, Areas in District One
----------------------------------------------------------------------------------------------------------------
                                                                              Area 1                 Area 2
                                                                        ------------------     -----------------
                      Ratemaking projections                               St. Lawrence
                                                                               River              Lake Ontario
----------------------------------------------------------------------------------------------------------------
Revenue Needed (from Step 6)......................................  ...        $2,034,432  ...        $1,291,807
Revenue (from Step 3).............................................   /         $2,358,327   /         $1,546,373
Rate Multiplier...................................................   =             0.8627   =             0.8354
----------------------------------------------------------------------------------------------------------------

                                Table 30--Rate Multiplier, Areas in District Two
----------------------------------------------------------------------------------------------------------------
                                                                              Area 4                 Area 5
                                                                        ------------------     -----------------
                      Ratemaking projections                                                     Southeast Shoal
                                                                             Lake Erie           to Port Huron,
                                                                                MI
----------------------------------------------------------------------------------------------------------------
Revenue Needed (from Step 6)......................................  ...        $1,198,107  ...        $2,164,003

Revenue (from Step 3).............................................   /         $1,193,426   /         $2,571,038
Rate Multiplier...................................................   =             1.0039   =             0.8417
----------------------------------------------------------------------------------------------------------------

                               Table 31--Rate Multiplier, Areas in District Three
----------------------------------------------------------------------------------------------------------------
                                                       Area 6                 Area 7                 Area 8
                                                 ------------------     ------------------     -----------------
           Ratemaking projections                  Lakes Huron and
                                                      Michigan           St. Mary's River         Lake Superior
----------------------------------------------------------------------------------------------------------------
Revenue Needed (from Step 6)...............  ...        $1,915,207  ...        $1,246,659  ...        $1,270,140
Revenue (from Step 3)......................   /         $1,921,756   /         $1,459,929   /         $1,407,490
Rate Multiplier............................   =             0.9966   =             0.8539   =             0.9024
----------------------------------------------------------------------------------------------------------------

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

 Table 32--Rate Multiplier for Basic Rates and Charges in 46 CFR 401.420
                               and 401.428
------------------------------------------------------------------------
                Ratemaking projections
------------------------------------------------------------------------
Total Revenue Needed (from Step 6)...................  ...   $11,120,355
Total revenue (from Step 3)..........................   /    $12,458,339
Rate Multiplier......................................   =         0.8926
------------------------------------------------------------------------

    This table shows that rates for cancellation, delay, or
interruption in rendering services (46 CFR 401.420) and basic rates and
charges for carrying a U.S. pilot beyond the normal change point, or
for boarding at other than the normal boarding point (46 CFR 401.428),
would decrease by 10.74 percent in all areas.
    Without further action, the existing rates we established in our
2013 final rule would then be multiplied by the rate multipliers from
Tables 29 through 31 to calculate the area by area rate changes for
2014. The resulting 2014 rates, on average, would then be decreased
approximately 11 percent from the 2013 rates. This decrease is not due
to increased efficiencies in pilotage services but rather a result of
recent significant downward adjustments to AMOU contracts. We declined
to impose this decrease because financial data from one of the
associations indicates that such a rate decrease would make it
difficult for it to continue funding operations and may even cause it
to fold. Further, the decrease would have an adverse effect on
providing safe, efficient, and reliable pilotage in the other two
pilotage districts as well. Finally, our Memorandum of Arrangements
(MOA) with Canada calls for comparable pilotage rates between the two
countries and we have proposed matching our rates to the Canadian rate,
which has actually increased by 2.5 percent this year. Our
discretionary authority under Step 7 must be ``based on requirements of
the Memorandum of Arrangements between the United States and Canada,
and other supportable circumstances that may be appropriate.'' The MOA
call for comparable United States and Canadian rates, and the rates
would not be comparable if United States rates for 2014 decrease by
approximately 11 percent, while Canadian rates for 2014 increase by 2.5
percent. ``Other supportable circumstances'' we have for exercising our
discretion include recent E.O. 13609, ``Promoting International
Regulatory Cooperation,'' which calls on Federal agencies to eliminate
``unnecessary differences'' between U.S. and foreign regulations (77 FR
26413; May 4, 2012; sec. 1), and the risk that a substantial rate
decrease would jeopardize the ability of the three pilotage
associations to provide safe, efficient, and reliable pilotage service.
    Therefore, we propose relying on the discretionary authority we
have under Step 7 to further adjust rates so that they match those
adopted by the Canadian Great Lakes Pilotage Authority for 2014. Table
33 compares the impact, area by area, that an average decrease of 11
percent would have, relative to the impact each area would experience
if United States rates match those of the Canadian GLPA.
    A Coast Guard contractor is currently preparing a comprehensive
study of our Great Lakes Pilotage ratemaking methodology, which is
scheduled to be completed later in 2013. The study will address
possible alternatives to the use of AMOU contracts as benchmarks for
pilot compensation. We welcome any recommendations from GLPAC or the
public on that issue.

                                Table 33--Impact of Exercising Step 7 Discretion
----------------------------------------------------------------------------------------------------------------
                                                                 Percent change in rate   Percent change in rate
                             Area                               without exercising Step  with exercise of Step 7
                                                                      7 discretion              discretion
----------------------------------------------------------------------------------------------------------------
Area 1 (Designated waters)....................................                   -13.73                     2.50
Area 2 (Undesignated waters)..................................                   -16.46                     2.50
Area 4 (Undesignated waters)..................................                     0.39                     2.50
Area 5 (Designated waters)....................................                   -15.83                     2.50
Area 6 (Undesignated waters)..................................                    -0.34                     2.50
Area 7 (Designated waters)....................................                   -14.61                     2.50

Area 8 (Undesignated waters)..................................                    -9.76                     2.50
----------------------------------------------------------------------------------------------------------------

    The following tables reflect our proposed rate adjustments of 2.5
percent across all areas.
    Tables 34 through 36 show these calculations.

                     Table 34--Proposed adjustment of Pilotage Rates, Areas in District One
----------------------------------------------------------------------------------------------------------------
                                                                                Adjusted rate
                                                      2013 Rate           Rate multiplier           for 2014
----------------------------------------------------------------------------------------------------------------
                                           Area 1--St. Lawrence River
----------------------------------------------------------------------------------------------------------------
Basic Pilotage..................................        $18.75/km,   x              1.025   =         $19.22/km,
                                                         $33.19/mi                                     $34.02/mi
Each lock transited.............................              $416   x              1.025   =               $426
Harbor movage...................................            $1,361   x              1.025   =             $1,395
Minimum basic rate, St. Lawrence River..........              $908   x              1.025   =               $931
Maximum rate, through trip......................            $3,984   x              1.025   =             $4,084
----------------------------------------------------------------------------------------------------------------
                                              Area 2--Lake Ontario
----------------------------------------------------------------------------------------------------------------
6-hour period...................................              $851   x              1.025   =               $872
Docking or undocking............................              $812   x              1.025   =               $832
----------------------------------------------------------------------------------------------------------------
Note: Numbers may not total due to rounding.

    In addition to the proposed rate charges in Table 34, and for the
reasons we discussed in the Summary section of Part V of this preamble,
we propose adding the authority to impose surcharges in the governing
regulations and, under that new regulation, we propose authorizing
District One to implement a temporary supplemental 3 percent charge on
each source form (the ``bill'' for pilotage service) for the duration
of the 2014 shipping season, which begins in March 2014. The Canadian
Great Lakes Pilotage Authority (GLPA) has used an 18 percent surcharge
without disrupting traffic. As a result, we have concluded that a 3
percent surcharge will not disrupt traffic. District One must provide
us with monthly status reports once this surcharge becomes effective
for the duration of the 2014 shipping season, which begins in March
2014. We will exclude these training expenses from future rates.

                     Table 35--Proposed Adjustment of Pilotage Rates, Areas in District Two
----------------------------------------------------------------------------------------------------------------
                                                                                Adjusted rate
                                                      2013 Rate           Rate multiplier           for 2014
----------------------------------------------------------------------------------------------------------------
                                                Area 4--Lake Erie
----------------------------------------------------------------------------------------------------------------
6-hour period...................................               828   x              1.025   =                849
Docking or undocking............................               637   x              1.025   =                653
Any point on Niagara River below Black Rock Lock             1,626   x              1.025   =              1,667
----------------------------------------------------------------------------------------------------------------
                      Area 5--Southeast Shoal to Port Huron, MI between any point on or in
----------------------------------------------------------------------------------------------------------------
Toledo or any point on Lake Erie W. of Southeast             1,382   x              1.025   =              1,417
 Shoal..........................................
Toledo or any point on Lake Erie W. of Southeast             2,339   x              1.025   =              2,397
 Shoal & Southeast Shoal........................
Toledo or any point on Lake Erie W. of Southeast             3,037   x              1.025   =              3,113
 Shoal & Detroit River..........................
Toledo or any point on Lake Erie W. of Southeast             2,339   x              1.025   =              2,397
 Shoal & Detroit Pilot Boat.....................
Port Huron Change Point & Southeast Shoal (when              4,074   x              1.025   =              4,176
 pilots are not changed at the Detroit Pilot
 Boat)..........................................
Port Huron Change Point & Toledo or any point on             4,719   x              1.025   =              4,837
 Lake Erie W. of Southeast Shoal (when pilots
 are not changed at the Detroit Pilot Boat).....
Port Huron Change Point & Detroit River.........             3,060   x              1.025   =              3,137
Port Huron Change Point & Detroit Pilot Boat....             2,381   x              1.025   =              2,441
Port Huron Change Point & St. Clair River.......             1,693   x              1.025   =              1,735
St. Clair River.................................             1,382   x              1.025   =              1,417
St. Clair River & Southeast Shoal (when pilots               4,074   x              1.025   =              4,176
 are not changed at the Detroit Pilot Boat).....
St. Clair River & Detroit River/Detroit Pilot                3,060   x              1.025   =              3,137
 Boat...........................................
Detroit, Windsor, or Detroit River..............             1,382   x              1.025   =              1,417
Detroit, Windsor, or Detroit River & Southeast               2,339   x              1.025   =              2,397
 Shoal..........................................

Detroit, Windsor, or Detroit River & Toledo or               3,037   x              1.025   =              3,113
 any point on Lake Erie W. of Southeast Shoal...
Detroit, Windsor, or Detroit River & St. Clair               3,060   x              1.025   =              3,137
 River..........................................
Detroit Pilot Boat & Southeast Shoal............             1,693   x              1.025   =              1,735
Detroit Pilot Boat & Toledo or any point on Lake             2,339   x              1.025   =              2,397
 Erie W. of Southeast Shoal.....................
Detroit Pilot Boat & St. Clair River............             3,060   x              1.025   =              3,137
----------------------------------------------------------------------------------------------------------------
Note: Numbers may not total due to rounding.

                    Table 36--Proposed Adjustment of Pilotage Rates, Areas in District Three
----------------------------------------------------------------------------------------------------------------
                                                                                Adjusted rate
                                                     2013 Rate           Rate multiplier            for 2014
----------------------------------------------------------------------------------------------------------------
                                        Area 6--Lakes Huron and Michigan
----------------------------------------------------------------------------------------------------------------
6-hour Period..................................              $691   x              1.025    =               $708
Docking or undocking...........................              $656   x              1.025    =               $672
----------------------------------------------------------------------------------------------------------------
                               Area 7--St. Mary's River between any point on or in
----------------------------------------------------------------------------------------------------------------
Gros Cap & De Tour.............................            $2,583   x              1.025    =             $2,648
Algoma Steel Corp. Wharf, Sault Ste. Marie,                $2,583   x              1.025    =             $2,648
 Ont. & De Tour................................
Algoma Steel Corp. Wharf, Sault. Ste. Marie,                 $973   x              1.025    =               $997
 Ont. & Gros Cap...............................
Any point in Sault St. Marie, Ont., except the             $2,165   x              1.025    =             $2,219
 Algoma Steel Corp. Wharf & De Tour............
Any point in Sault St. Marie, Ont., except the               $973   x              1.025    =               $997
 Algoma Steel Corp. Wharf & Gros Cap...........
Sault Ste. Marie, MI & De Tour.................            $2,165   x              1.025    =             $2,219
Sault Ste. Marie, MI & Gros Cap................              $973   x              1.025    =               $997
Harbor movage..................................              $973   x              1.025    =               $997
----------------------------------------------------------------------------------------------------------------
                                              Area 8--Lake Superior
----------------------------------------------------------------------------------------------------------------
6-hour period..................................              $586   x              1.025    =               $601
Docking or undocking...........................              $557   x              1.025    =               $571
----------------------------------------------------------------------------------------------------------------
Note: Numbers may not total due to rounding.

VI. Regulatory Analyses

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

A. Regulatory Planning and Review

    Executive Orders 12866 (``Regulatory Planning and Review'') and
13563 (``Improving Regulation and Regulatory Review'') direct agencies
to assess the costs and benefits of available regulatory alternatives
and, if regulation is necessary, to select regulatory approaches that
maximize net benefits (including potential economic, environmental,
public health and safety effects, distributive impacts, and equity).
Executive Order 13563 emphasizes the importance of quantifying both
costs and benefits, of reducing costs, of harmonizing rules, and of
promoting flexibility.
    This proposed rule is not a ``significant regulatory action'' under
section 3(f) of E.O. 12866. Accordingly, the NPRM has not been reviewed
by the Office of Management and Budget (OMB).
    The Coast Guard is required to review and adjust pilotage rates on
the Great Lakes annually. See Parts III and IV of this preamble for
detailed discussions of the Coast Guard's legal basis and purpose for
this rulemaking and for background information on Great Lakes pilotage
ratemaking. Based on our annual review for this proposed rulemaking, we
are adjusting the pilotage rates for the 2014 shipping season to
generate sufficient revenue to cover allowable expenses, and to target
pilot compensation and returns on pilot associations' investments. The
rate adjustments in this proposed rule would, if codified, lead to a
cost in District One and cost savings in Districts Two and Three. The
cost savings that would accrue to Districts Two and Three would
outweigh the cost to District One, which would result in an estimated
annual cost savings to shippers of approximately $817,983 across all
three districts.\5\
---------------------------------------------------------------------------

    \5\ Despite increasing Great Lakes pilotage rates, on average,
by approximately 2.5 percent from the current rates set in the 2013
final rule, we estimate a net cost savings across all three
districts as a result of an expected decrease in the demand for
pilotage services from the previous year.
---------------------------------------------------------------------------

    In addition to the overall cost savings that would accrue to all
three districts as a result of the rate adjustments, we propose
authorizing District One to implement a temporary supplemental 3
percent surcharge to traffic in District One in order to recover
training expenses from 2012. This temporary surcharge would be
authorized for the duration of the 2014 shipping season, which begins
in March. We estimate that this would generate $120,070. At the end of
the 2014 shipping season, we will account for the monies the surcharge
generates and make adjustments (debits/credits) to the operating
expenses for the following year.\6\
---------------------------------------------------------------------------

    \6\ Assuming our estimate is correct, we would credit District
One shippers $71,075 in order to account for the difference between
the total surcharges collected ($120,070) and the actual training
expenses incurred ($48,995).

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

    Therefore, this proposed rule is expected to result in a cost
savings to shippers of approximately $697,914 across all three
districts.\7\
---------------------------------------------------------------------------

    \7\ Total cost savings across all three districts is equal to
the cost savings from rate changes plus a temporary surcharge to
traffic in District One.
---------------------------------------------------------------------------

    A regulatory assessment follows.
    The proposed rule would apply the 46 CFR part 404, Appendix A, full
ratemaking methodology, including the exercise of our discretion to
increase Great Lakes pilotage rates, on average, approximately 2.5
percent overall from the current rates set in the 2013 final rule. The
Appendix A methodology is discussed and applied in detail in Part V of
this preamble. Among other factors described in Part V, it reflects
audited 2011 financial data from the pilotage associations (the most
recent year available for auditing), projected association expenses,
and regional inflation or deflation. The last full Appendix A
ratemaking was concluded in 2013 and used financial data from the 2010
base accounting year. The last annual rate review, conducted under 46
CFR part 404, Appendix C, was completed early in 2011.
    The shippers affected by these rate adjustments are those owners
and operators of domestic vessels operating on register (employed in
foreign trade) and owners and operators of foreign vessels on a route
within the Great Lakes system. These owners and operators must have
pilots or pilotage service as required by 46 U.S.C. 9302. There is no
minimum tonnage limit or exemption for these vessels. The Coast Guard's
interpretation is that the statute applies only to commercial vessels
and not to recreational vessels.
    Owners and operators of other vessels that are not affected by this
proposed rule, such as recreational boats and vessels operating only
within the Great Lakes system, may elect to purchase pilotage services.
However, this election is voluntary and does not affect our calculation
of the rate and is not a part of our estimated national cost to
shippers. Our sampling of pilot data suggests that there are very few
U.S. domestic vessels that do not have registry and operate only in the
Great Lakes that voluntarily purchase pilotage services.
    We used 2010-2012 vessel arrival data from the Coast Guard's Marine
Information for Safety and Law Enforcement (MISLE) system to estimate
the average annual number of vessels affected by the rate adjustment.
Using that period, we found that approximately 128 vessels journeyed
into the Great Lakes system annually. These vessels entered the Great
Lakes by transiting at least one of the three pilotage districts before
leaving the Great Lakes system. These vessels often make more than one
distinct stop, docking, loading, and unloading at facilities in Great
Lakes ports. Of the total trips for the 128 vessels, there were
approximately 353 annual U.S. port arrivals before the vessels left the
Great Lakes system, based on 2010-2012 vessel data from MISLE.
    The impact of the rate adjustment to shippers is estimated from the
District pilotage revenues. These revenues represent the direct and
indirect costs (``economic costs'') that shippers must pay for pilotage
services. The Coast Guard sets rates so that revenues equal the
estimated cost of pilotage for these services.
    We estimate the additional impact (costs or savings) of the rate
adjustment in this proposed rule to be the difference between the total
projected revenue needed to cover costs in 2014, based on the 2013 rate
adjustment, and the total projected revenue needed to cover costs in
2014, as set forth in this proposed rule, plus any temporary surcharges
authorized by the Coast Guard. Table 37 details projected revenue
needed to cover costs in 2014 after making the discretionary adjustment
to pilotage rates as discussed in Step 7 of Part VI of this preamble.
Table 38 summarizes the derivation for calculating the 3 percent
surcharge on District One traffic as discussed in Step 7 of Part VI of
this preamble. Table 39 details the additional costs or savings by area