[Federal Register Volume 79, Number 42 (Tuesday, March 4, 2014)]
[Rules and Regulations]
[Pages 12084-12108]
[FR Doc No: 2014-04591]

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DEPARTMENT OF HOMELAND SECURITY

Coast Guard

46 CFR Part 401

[USCG-2013-0534]
RIN 1625-AC07

Great Lakes Pilotage Rates--2014 Annual Review and Adjustment

AGENCY: Coast Guard, DHS.

ACTION: Final rule.

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SUMMARY: The Coast Guard is adjusting Great Lakes pilotage rates that
were last amended in February 2013. The adjustments establish new base
rates, and are made in accordance with a full ratemaking procedure. The
Coast Guard is exercising its discretion to establish new base rates to
more closely align with recent Canadian rate increases. The final rule
also adjusts weighting factors used to determine rates for vessels of
different size, adopts a new procedure for temporary surcharges,
applies a temporary surcharge for one pilotage association, and allows
pilotage associations to recoup the cost of dues paid to the American
Pilots Association. This rulemaking promotes the Coast Guard's maritime
safety mission.

DATES: Effective August 1, 2014 except for Sec. Sec.  401.400 and
401.401 which are effective April 3, 2014.

ADDRESSES: Comments and material received from the public, as well as
documents mentioned in this preamble as being available in the docket,
are part of docket USCG-2013-0534 and are available for inspection or
copying at the Docket Management Facility (M-30), U.S. Department of
Transportation, West Building Ground Floor, Room W12-140, 1200 New
Jersey Avenue SE., Washington, DC 20590, between 9 a.m. and 5 p.m.,
Monday through Friday, except Federal holidays. You may also find this
docket online by going to http://www.regulations.gov and following the
instructions on that Web site.

FOR FURTHER INFORMATION CONTACT: If you have questions on this rule,
call or email Mr. Todd Haviland, Coast Guard; telephone<PHONE_NUMBER>,
email<EMAIL_ADDRESS>If you have questions on viewing
material to the

docket, call Ms. Barbara Hairston, Program Manager, Docket Operations,
telephone<PHONE_NUMBER>.

SUPPLEMENTARY INFORMATION:

Table of Contents for Preamble

I. Abbreviations
II. Regulatory History
III. Basis and Purpose
IV. Background
V. Discussion of Comments and Changes
    A. AMOU Contracts
    B. APA Dues
    C. Pilot License Insurance
    D. Weighting Factors
    E. Surcharges
    F. Director Discretion
    G. Number of Pilots
    H. Ratemaking Methodology
    I. Economic Analysis
    J. District One Dock
VI. Discussion of Rulemaking
VII. Regulatory Analyses
    A. Regulatory Planning and Review
    B. Small Entities
    C. Assistance for Small Entities
    D. Collection of Information
    E. Federalism
    F. Unfunded Mandates Reform Act
    G. Taking of Private Property
    H. Civil Justice Reform
    I. Protection of Children
    J. Indian Tribal Governments
    K. Energy Effects
    L. Technical Standards
    M. Environment

I. Abbreviations

AMOU American Maritime Officers Union
APA American Pilots Association
CFR Code of Federal Regulations
CPA Certified Public Accountant
CPI Consumer price index
DHS Department of Homeland Security
E.O. Executive Order
FR Federal Register
GLPA Great Lakes Pilotage Authority (Canada)
GLPAC Great Lakes Pilotage Advisory Committee
MISLE Marine Information for Safety and Law Enforcement
NAICS North American Industry Classification System
NPRM Notice of proposed rulemaking
OMB Office of Management and Budget
ROI Return on investment
U.S.C. United States Code

II. Regulatory History

    On August 8, 2013, we published a notice of proposed rulemaking
(NPRM) titled ``Great Lakes Pilotage Rates--2014 Annual Review and
Adjustment'' in the Federal Register (78 FR 48374). We received 11
submissions on the NPRM from multiple sources, including pilotage
associations, pilots, pilot organizations, and shippers. No public
meeting was requested and none was held.

III. Basis and Purpose

    The basis of this rulemaking 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 of the department in which the Coast Guard
is operating 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 of the Department of Homeland Security's (DHS's) duties and
authority under the Act have been delegated to the Coast Guard. DHS
Delegation No. 0170.1, paragraph (92)(f). Coast Guard regulations
implementing the Act appear in parts 401 through 404 of 46 CFR.
Procedures for 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 rulemaking 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 rulemaking 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 (``the Director'') to operate a pilotage pool. It
is important to note that, while we set rates, the Coast Guard does not
control the actual number of pilots an association maintains. We ensure
the association is able to provide safe, efficient, and reliable
pilotage service. The Coast Guard also does not control the actual
compensation that pilots receive. Each district association determines
the actual compensation of its district, and each association uses
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 (GLPA), and accordingly is
not included in the U.S. 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).
    The last full ratemaking established the current base rates in 2013
(78 FR 13521, Feb. 28, 2013), using the ratemaking methodology
described in 46 CFR part 404, Appendix A. Among other things, the
Appendix A methodology requires us to review detailed pilotage
association financial information, and we contract with independent
accountants to assist in that review.
    We opened this year's ratemaking with an NPRM (78 FR 48374, Aug. 8,
2013) that reflected financial data for the 2011 shipping season, and
that the proposed new base rates be calculated in accordance with the
Appendix A methodology.

V. Discussion of Comments and Changes

    We received 11 public submissions in response to our NPRM. Eight of
those submissions came from pilotage associations, pilots, and pilot
organizations; two came from groups that represent shippers who use
Great Lakes pilotage service; and one came from the union whose
contracts provide benchmark data for Great Lakes pilotage ratemaking.

A. AMOU Contracts

    Seven commenters--six pilots or pilot representatives, and the
American Maritime Officers Union (AMOU)--addressed our use of AMOU
contracts to estimate the average annual compensation for masters and
first mates on U.S. Great Lakes vessels, in accordance with Step 2.A of
our Appendix A ratemaking methodology.
    Many of these commenters took issue with the NPRM's statement, 78
FR 48374 at 48376, col. 2, that recent AMOU contracts are marked by
``downward changes,'' and pointed out that AMOU contracts actually
increase wages over a 5-year period. Our discussion is not a reflection
on AMOU contract trends, but rather emphasizes that AMOU contract
information, when factored into our Appendix A ratemaking methodology,
could lead to a pilotage rate decrease, if not offset by the
application of discretion under Step 7 of Appendix A.
    The six pilot/pilot representative commenters said we had
incorrectly interpreted or misapplied AMOU contract data. A registered
lobbyist representing all three pilotage associations said we should
have used the daily aggregate rate information included in an AMOU
letter dated November 2, 2012, and further claimed that we based our
calculations on ``wrong multipliers.''
    We reject each of these assertions and confirm the accuracy of the
figures given in our NPRM. The assertion of the registered lobbyist
that we should have used data from the November 2, 2012 AMOU letter is
unfounded. Prior to publication of the NPRM, the AMOU provided and
confirmed contract data to us on four separate occasions in 2012: On
November 2, November 15, December 5, and December 17. The first
communication on November 2 (the letter referenced by the registered
lobbyist) provided information on wages and benefits but was marked
``proprietary,'' and therefore has not been and cannot be shared by the
Coast Guard with the public. Because Coast Guard could not share the
component data, Coast Guard and AMOU agreed that AMOU would provide
daily aggregate data. The November 15 and December 5 letters provided
information on 2013, 2014 and 2015 daily aggregate (wage and benefit)
rates for Agreement A and Agreement B, respectively. The letters
indicated that the daily aggregate rates would increase by 3% each
year. On December 17, 2012, we emailed a table of the aggregate rate
data that we planned to use in the NPRM, and in response, the AMOU
promptly emailed: ``This table and only this table is acceptable to
AMO[U].'' That table's data, with 3% added in accordance with AMOU's
correspondence, is what we presented in Table 11 of our NPRM, 78 FR at
48382. Multipliers are only used if we can site individual components
of compensation in our calculations. Because our calculations were
based only on the aggregate data shown in the table, they are not
affected by ``wrong multipliers.''
    In its October 4, 2013 comment on the NPRM, the AMOU offered
``correct'' daily aggregate rates that differ significantly from the
figures in the table the AMOU confirmed as ``acceptable'' on December
17, 2012. The AMOU comment reflects a ``season bonus'' that the AMOU
has not previously cited as part of its contracts, and that we do not
recognize for purposes of Great Lakes pilotage compensation. 46 CFR
404.5(a). As a disinterested third party to our ratemakings, the AMOU
is under no obligation to share contract information with us. The AMOU
has not provided a copy of the contracts nor agreed to allow us to
review them. This compromises our ability to use that data in a
transparent way and prohibits us from evaluating the individual
components for compensation. We are investigating alternatives to using
AMOU contract data for our ratemaking purposes.

B. APA Dues

    Four commenters addressed our proposed inclusion in the ratemaking
calculations of dues for pilotage association membership in the
American Pilots Association (APA). Three pilot representatives favored
inclusion. One shipping industry commenter said that APA membership is
voluntary, and therefore should not be included. We consider the APA to
play a key role in ensuring our mutual goals of safe, efficient, and
reliable pilotage on the Great Lakes. The APA has assisted the three
pilotage associations with professional development and training plans,
and we believe the APA is a critical resource for the pilotage
associations in spreading best practices throughout the pilotage
profession. Therefore, we continue to find that APA dues are a
necessary and reasonable expense of the pilotage associations. One
pilotage association said we had incorrectly calculated its APA dues.
The St. Lawrence Seaway Pilots' Association contends that APA dues paid
by the organization were actually $27,730. We disagree. Much of the
amount asserted by the association is for lobbying expenses that are
not eligible to be included in the rate. However, a review of the
financial statements approved by the pilotage association shows dues
paid to the APA in the amount of $22,720. Accordingly we updated the
necessary tables to include this amount, an addition to the expense
base of $4,360. However, because of our Step 7 discretion, this change
to the underlying data does not impact the final rate.

C. Pilot License Insurance

    One pilotage association commented that we failed to include the
amount that the association paid for pilot license insurance in our
calculations. This is incorrect. The association requested a change in
reporting that moved license insurance from an operating expense to an
employee benefit. The association again approved the change when they
were given the opportunity to comment on the reports prepared by the
auditors. Benefits are considered part of compensation, and are not
allowed to be included separately in the rate. However, because we have
historically included license insurance as an allowable expense, and
because both of the other pilotage associations include license
insurance as an allowable expense, we will allow inclusion of the 2011
license insurance cost ($52,232) in the expense base of the
association. Again, because of our exercise of Step 7 discretion in
this rulemaking, this change to the expense base does not alter the
final rate.

D. Weighting Factors

    Five commenters addressed our proposal to match U.S. weighting
factors to those used by Canada. All were in favor of this proposal,
but one pilotage association said we overestimated the beneficial
impact, for pilots, of adjusting weighting factors (see the NPRM, 78 FR
48376). One pilot commented that it is unfair of us not to apply a
retroactive rate adjustment recognizing the 6 years during which the
U.S. weighting factors differed from those used by Canada. We think the
association based its lower estimate on its local data, not on data for
the Great Lakes as a whole. We stand by our estimate of the beneficial
impact of the adjustment.

E. Surcharges

    Two pilot representatives and two representatives of shippers
commented on our proposal to allow establishment of temporary
surcharges. The pilot representatives supported the proposal. One of
the shipper representatives said our proposal was too vague and that
surcharges could have a damaging economic impact, and the other said it

is unnecessary because the Director of Great Lakes Pilotage already has
sufficient authority to make discretionary rate adjustments. We think
the proposal is sufficiently clear, and this final rule adopts it.
Whether any given surcharge will have a damaging economic impact can be
the subject of public comment, an opportunity for which will be given
each time we propose a surcharge. While it is true that the Director
has substantial authority to make discretionary rate adjustments, we
believe that the surcharge mechanism is preferable because it provides
more regulatory transparency.

F. Director Discretion

    Our regulations found in 46 CFR 404.10(a) give the Director of
Great Lakes Pilotage discretionary authority to determine what ``other
circumstances'' beyond those listed in the Appendix A ratemaking
methodology might need to be factored into ratemaking calculations. Two
shipper representatives and one pilot representative commented on the
Director's exercise of this discretionary authority. The pilot
representative commented the latitude of the Director's discretion to
modify rates as calculated by the Appendix A methodology is
``troubling.'' One of the shipper representatives commented that the
apparent need for the Director to exercise this discretion indicates
there is something ``definitely wrong'' with the methodology given that
the calculated rates and the rates that were actually implemented are
drastically different. We agree with both commenters. Our concerns
about possible flaws in the Appendix A methodology led us to commission
the comprehensive study of that methodology, which a contractor
recently completed for the Coast Guard. The recommendations from that
study will be addressed in a future rulemaking.
    Separately, another shipper representative commented that the
Director's proposed discretionary adjustment of rate calculations to
increase rates would have a ``damaging economic impact.'' We disagree.
Pilotage charges in U.S. waters of the Great Lakes remain below the
charges (including temporary surcharges) that apply in Canadian waters.
We know of no evidence that U.S. pilotage rates are driving traffic
away from the Great Lakes. We plan to exercise the Director's authority
in future rulemakings until the methodology is updated. We will use the
surcharges to accelerate certain expenses as previously discussed.
Until we are able to obtain an audit of the revenues by an independent
third party, we will rely upon inflation and the consumer price index
(CPI) for the Midwest to guide our ratemaking adjustments. If the
revenue audit reveals a significant revenue gap between the projected
revenues and the actual revenues recovered by the rate, we will work
with the stakeholders through the Great Lakes Pilotage Advisory
Committee (GLPAC) and exercise our discretion to address the gap.

G. Ratemaking Methodology

    Four pilot representatives and one shipper representative commented
on our ratemaking methodology. Three pilot representatives commented
that we should use a multi-year inflation factor to compensate for the
time value of money between the time the audits are conducted and the
rate is established (for the 2014 NPRM, we proposed to use 2011 data
that was audited in 2012). Under Step 1.C of the Appendix A ratemaking
methodology, the ratemaking adjustment for inflation or deflation is a
one-year adjustment between the reported year (2011) and the
``succeeding navigation season'' (2012). We are therefore unable to
make a multi-year adjustment under the current methodology; however, we
acknowledge the pilots' concern and will consider altering the
inflation/deflation adjustment mechanism in a future rulemaking.
    A pilot and a pilot representative reiterated the pilots' long-held
contention (see the 2013 final rule, 78 FR 13522) that our over-
projection of shipping traffic results in an over-projection of
pilotage revenue. One of these commenters said that the Coast Guard
should ensure that pilots reach target compensation. We agree that
traffic projection is an issue that needs to be addressed in a future
rulemaking to revise the Appendix A methodology, but we disagree that
the Coast Guard should ensure that pilots reach target compensation.
The Coast Guard never sets actual compensation; instead, actual
compensation is handled differently by the three private pilotage
associations. Due to the inherent risk in operating a private business,
we cannot guarantee compensation for any of the associations.
    A pilot commented that, under the 1977 Memorandum of Agreement
between the United States and Canada, U.S. pilotage rates must be
identical to Canadian rates. He said that while our proposed 2.5
percent rate increase matches the latest Canadian increase, the two
rate structures are not identical. While it is true that the 1977
agreement does require ``identical'' rates, in practice the two
pilotage systems are so differently structured that it has not been
possible to set identical rates since the early 1980s. A new memorandum
has been signed and will replace the 1977 agreement. It calls for
``comparable'' rates. We believe that, after accounting for the
structural differences in U.S. and Canadian Great Lakes pilotage
systems, the two rate structures are comparable.
    The same commenter reiterated the pilots' long-held contention (see
the 2010 final rule, 75 FR 7959, Feb. 23, 2010) that we incorrectly
calculate the application of benefits to the AMOU contracts in setting
rates for designated waters, and that we should instead multiply both
the average first mate wages and benefits by 150 percent to approximate
a master's compensation. Our position continues to be that, under Step
2.A of the Appendix A methodology, the 150 percent is applied only to
wages; benefits are then added to the result. As previously mentioned,
we are evaluating if there are alternatives to using AMOU contract data
for our ratemaking purposes.
    Finally, the same commenter contends that we should allow a higher
return on investment (ROI) than the average rate for Moody's AAA high
grade corporate securities, given the degree of risk that pilots run.
We have correctly calculated the ROI, in accordance with Step 5 of the
Appendix A methodology, which requires us to tie ROI to the ``preceding
year's average rate of return for new issues of high grade corporate
securities.'' We may revise our ROI calculations as part of a
comprehensive revision of Appendix A.
    The shipper representative suggested that our NPRM's Appendix A
calculations, resulting in a pre-discretion-adjusted 11 percent rate
decrease, may demonstrate that U.S. Great Lakes pilots are at least
adequately compensated, and perhaps overcompensated by regional
standards. We disagree. As we discussed at length in the NPRM (78 FR
48389), the pre-adjustment calculations are due to changes in benchmark
AMOU contracts rather than to any changes in Great Lakes pilotage as
such, and we think it would be contrary to the public interest to
decrease pilotage rates as a result of this year's calculations.
Additionally, incorporating these compensation changes would result in
a target pilot compensation significantly lower than Canadian Great
Lakes-registered pilots. We believe this is also contrary to the public
interest. We intend to address this inequity in target pilot
compensation in a future rulemaking. We believe the proper benchmark
for target pilot compensation of U.S. Great

Lakes registered pilots should be comparable to the compensation of
Canadian Great Lakes registered pilots.

H. Economic Analysis

    A pilot commented that footnote 5 to our NPRM (78 FR 48391)
``defies common sense.'' The footnote states that despite increasing
pilotage rates, ``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.'' Although we agree with the
commenter that the reduction in payments accrued by shippers in
Districts Two and Three are not a result of the Coast Guard's proposed
rate changes to pilotage services, but instead are the result of
changes in market conditions, the economic impact to industry presented
in the NPRM remains unchanged because these market conditions were
factored into our analysis; the aggregate reduction in payments by
shippers across all three districts is not expected to jeopardize the
ability of the three pilotage associations to provide safe, efficient,
and reliable pilotage services.

I. Number of Pilots

    The District Two pilotage association requested immediate
authorization for an additional pilot in light of the impending
retirement of current pilots in that district. We agree that the
district should plan for these expected retirements, but we do not
think that requires the immediate authorization of an additional
billet. However, the unforeseen potential medical disability of another
pilot in the district compounds the difficulty of resourcing new pilots
to replace those retiring. Because investing in the training,
recruitment and resourcing of pilots is necessary to promote safe,
efficient and reliable pilotage, we will, in accordance with our new
surcharge authority, consider proposing, for public comment, a
surcharge for District Two to cover the cost of training and resourcing
a new pilot in our 2015 ratemaking NPRM.

J. District One Dock

    The District One pilotage association said that our rates have not
enabled them to recover approximately $21,345 spent on a dock project,
because their actual revenue fell short of our projections. We agree
that $21,345 is a substantial shortfall relating to a capital
expenditure made in the interest of safety. We have not validated the
existence and/or magnitude of the alleged gap between projected and
actual revenues, because the methodology does not consider actual
revenues to set rates. Therefore, we believe any discussion related to
closing a gap between projected and actual revenues should be addressed
by the GLPAC.\3\ We defer action on this request until we hear from the
advisory committee regarding this specific request at the next GLPAC
meeting in 2014. We will then address this in the next annual
ratemaking NPRM for the 2015 shipping season.
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    \3\ Per 46 U.S.C. 9307(d)(1), as delegated to the Coast Guard,
we are to, ``whenever practicable, consult with the [GLPAC] before
taking any significant action relating to Great Lakes pilotage.''
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VI. Discussion of Rulemaking

A. Summary

    As required by 46 U.S.C. 9303(f), we are establishing new base
pilotage rates by the March 1, 2014 statutory deadline. The rates are
established in accordance with the Appendix A methodology and will take
effect on August 1, 2014. The rates reflect our determination that 85
percent of the dues paid by the pilotage associations to the APA is
recognizable expenses under 46 CFR 404.5 (the remaining 15 percent
represents lobbying expenses, which are not recognizable expenses). Our
arithmetical calculations under Steps 1 through 6 of Appendix A would
result in an average 10.28 percent rate decrease. This rate decrease is
not the result of increased efficiencies in providing pilotage
services, but rather is a result of recent changes in benchmark AMOU
contracts. Therefore, we are exercising our discretion under Appendix
A, Step 7 to more closely align with the recent Canadian rate
adjustment, and therefore rates in Districts One, Two and Three will
increase by 2.5 percent.
    On April 3, 2014, we are adjusting the U.S. weighting factors in 46
CFR 401.400 to match the weighting factors adopted by Canada in 2008,
as recommended unanimously by the GLPAC in Resolution 13-01 in February
2013. 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 provides greater parity between the U.S.
and Canada, and should reduce billing confusion between the two
countries. These are important Federal Government concerns, as
emphasized by recent Executive Order (E.O.) 13609, ``Promoting
International Regulatory Cooperation'' (77 FR 26413, May 4, 2012). In
our NPRM, we proposed making this change effective on March 1, 2014,
but for reasons of administrative convenience we have now determined
that the change should take effect after the usual 30-day waiting
period provided by the Administrative Procedure Act (5 U.S.C. 553(d)).
    Also, effective April 3, 2014, we are adding new 46 CFR 401.401,
allowing authorization of temporary surcharges in the interest of safe,
efficient, and reliable pilotage. The Director of Great Lakes Pilotage
authorizes the District One pilotage association to charge a 3 percent
surcharge during the 2014 shipping season, effective April 3, 2014, to
recoup expenses that the association incurred for training ($48,995).
    All figures in the tables that follow in Section B ``Discussion of
Methodology'' are based on calculations performed either by an
independent accountant or by the Director's 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.

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 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 pilotage 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 to 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 pilotage associations; they reviewed and
commented on those findings, and the accountant then finalized them.
The Director reviewed and accepted the final findings, resulting in the
determination of recognizable expenses. Tables 1 through 3 show each
association's recognized expenses.

                                   Table 1--Recognized Expenses, District One
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                                                                 Area 1            Area 2
                                                           ------------------------------------
                Reported expenses for 2011                    St. Lawrence                            Total
                                                                  River         Lake Ontario
----------------------------------------------------------------------------------------------------------------
Operating Expenses:
Other Pilotage Costs:
    Pilot subsistence/Travel..............................          $234,724          $156,246          $390,970
    License insurance.....................................            26,976            25,256            52,232
    Payroll taxes.........................................            61,483            47,611           109,094
    Other.................................................               837               588             1,425
                                                           -----------------------------------------------------
        Total Other Pilotage Costs........................           324,020           229,701           553,721
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................................            11,360            11,360            22,720
    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.....................           209,523           146,332           355,855
                                                           -----------------------------------------------------
        Total Operating Expenses..........................           653,926           458,862         1,112,788
Adjustments proposed by the Coast Guard's 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..........................           664,317           466,012         1,130,329
----------------------------------------------------------------------------------------------------------------

                                   Table 2--Recognized Expenses, District Two
----------------------------------------------------------------------------------------------------------------
                                                                 Area 4            Area 5
                                                           ------------------------------------
                Reported expenses for 2011                                     Southeast Shoal        Total
                                                                Lake Erie      to Port Huron,
                                                                                MI
----------------------------------------------------------------------------------------------------------------
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
Adjustments proposed by the Coast Guard's independent
 certified public accountant (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
----------------------------------------------------------------------------------------------------------------

                                  Table 3--Recognized Expenses, 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...............................            12,188             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
Adjustments proposed by the Coast
 Guard's independent certified public
 accountant (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
----------------------------------------------------------------------------------------------------------------

    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 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 4
through 6.

                                   Table 4--Inflation Adjustment, District One
----------------------------------------------------------------------------------------------------------------
                                                       Area 1                 Area 2
                                                 ------------------     ------------------
         Reported expenses for 2011                 St. Lawrence                                      Total
                                                        River              Lake Ontario
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses:..................  ...          $664,317  ...          $466,012  ...        $1,130,329
2012 change in the CPI for the Midwest        x                .02   x                .02   x                .02
 Region of the United States...............
Inflation Adjustment.......................   =             13,286   =              9,320   =             22,607
----------------------------------------------------------------------------------------------------------------

                                   Table 5--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 6--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 7 shows these
projections.

                               Table 7--Projected operating expenses, District One
----------------------------------------------------------------------------------------------------------------
                                                       Area 1                 Area 2
                                                 ------------------     ------------------
         Reported expenses for 2011                 St. Lawrence                                      Total
                                                        River              Lake Ontario
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses:..................  ...          $664,317  ...          $466,012  ...        $1,130,329
Inflation adjustment 2.0%..................   +             13,286   +              9,320   +             22,607
Total projected expenses for 2014 pilotage    =            677,603   =            475,332   =          1,152,936
 season....................................
----------------------------------------------------------------------------------------------------------------

    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
8 shows these projections.

                               Table 8--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 & 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 9 shows these
projections.

                                                  Table 9--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 mate's
wages by 150 percent and then adding the average first mate's 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 10 shows our calculations using the 270-day multiplier.

          Table 10--Projected Annual Aggregate Rate Components
------------------------------------------------------------------------

------------------------------------------------------------------------
      Aggregate Rate-Wages, 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 11 provides details.

                               Table 11--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 11 to apportion the projected
compensation from Table 10. This gives us a single tonnage-weighted set
of figures. Table 12 shows our calculations.

                             Table 12--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 basic 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 (see 76 FR 6352, Feb. 4, 2011), we do not
include, and have never 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
(see 74 FR 22221-22, Jan. 5, 2009), we determined that this adjustment
is essential for ensuring uninterrupted pilotage service in Area 2.
Table 13 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 13--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 14, we
project total target pilot compensation separately for each area by
multiplying the number of pilots needed in each area, as shown in Table
13, by the target pilot compensation shown in Table 12.

                            Table 14--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
----------------------------------------------------------------------------------------------------------------

    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 13,
and if 2013 pilotage rates are left unchanged. Table 15 shows this
calculation.

                                     Table 15--Projection of Revenue by Area
----------------------------------------------------------------------------------------------------------------
                                                                                Revenue
                  Pilotage area                    Projected 2014          2013 Pilotage         projection for
                                                    bridge hours              rates *                 2014
----------------------------------------------------------------------------------------------------------------
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
----------------------------------------------------------------------------------------------------------------
* Projected 2013 revenue divided by projected 2013 bridge hours, per area.

    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 16 through 18 follow the
formula up to that point.

                                 Table 16--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 17--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 18--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 Liabilities..........   +                  0   +                  0   +                  0
    Deferred Federal Income Taxes..........   +                  0   +                  0   +                  0
    Other Deferred Credits.................   +                  0   +                  0   +                  0
    Total Non-Recognized Sources...........   =                  0   =                  0   =                  0
Total Sources of Funds:
    Total Recognized Sources...............                616,511                228,337                296,839
    Total Non-Recognized Sources...........   +                  0   +                  0   +                  0
                                            --------------------------------------------------------------------
        Total Sources of Funds.............   =            616,511   =            228,337   =            296,839
----------------------------------------------------------------------------------------------------------------

    Tables 16 through 18 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
pilotage 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 19 applies the multiplier of 1 and
shows that the investment base for each association equals its total
recognized assets. Table 19 also expresses these results by area,
because area results will be needed in subsequent steps.

                                                     Table 19--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 pilotage associations that provide pilotage services in Districts One and Three operate as partnerships. The pilotage 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 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 sub-step of Step 6
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 20 through
22.

                                 Table 20--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)..................................   -            677,603   -            475,332
Pilot Compensation (from Step 2)..................................   -          1,349,999   -            819,298
Operating Profit/(Loss)...........................................   =            330,725   =            251,743
Interest Expense (from audits)....................................   -             18,484   -             12,718
Earnings Before Tax...............................................   =            312,241   =            239,025
Federal Tax Allowance.............................................   -                  0   -                  0
Net Income........................................................   =            312,241   =            239,025
Return Element (Net Income + Interest)............................                330,725                251,743
Investment Base (from Step 4).....................................   /            996,442   /            685,602
Projected ROI.....................................................   =             0.3319   =             0.3672
----------------------------------------------------------------------------------------------------------------

                                 Table 21--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 ROI.....................................................   =             0.0282   =             0.5287
----------------------------------------------------------------------------------------------------------------

                                Table 22--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 ROI..............................   =             0.0473   =             0.9649   =             0.4965
----------------------------------------------------------------------------------------------------------------

    The second sub-step compares the results of Tables 20 through 22
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 23 shows
this comparison for each area.

                                              Table 23--Comparison of Projected ROI and Target ROI, by Area
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                              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 ROI...........................          0.3319          0.3672          0.0282          0.5287          0.0473          0.9649          0.4965
Target ROI..............................          0.0367          0.0367          0.0367          0.0367          0.0367          0.0367          0.0367
Difference in ROIs......................          0.2952          0.3305        (0.0085)          0.4920          0.0106          0.9282          0.4598
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Because Table 23 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 24.
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 24--Revenue Needed to Recover Target ROI, by Area
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Investment
                                                         Operating          Target pilot        Base  (Step 4)
                    Pilotage area                        expenses           compensation            x 3.67%            Federal tax        Revenue needed
                                                         (Step 1)             (Step 2)            (Target ROI           allowance
                                                                                Step 5)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Area 1 (Designated waters)..........................        $677,603   +       $1,349,999   +          $36,569   +               $0   =       $2,064,171
Area 2 (Undesignated waters)........................         475,332   +          819,298   +           25,162   +                0   =        1,319,791
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...........................................       4,134,394   +        6,877,187   +          154,498   +           12,000   =       11,178,078
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The ``Revenue Needed'' column of Table 24 is more than the revenue
we projected in Table 15. For purposes of transparency, we verify the
calculations in Table 24 by rerunning the formula in the first sub-step
of Step 6, using the revenue needed from Table 24 instead of the Table
15 revenue projections we used in Tables 20 through 22. Tables 25
through 27 show that attaining the Table 24 revenue needed is
sufficient to recover target ROI.

                         Table 25--Balancing Revenue Needed and Target ROI, District One
----------------------------------------------------------------------------------------------------------------
                                                                              Area 1                 Area 2
----------------------------------------------------------------------------------------------------------------
Revenue Needed....................................................  ...        $2,064,171  ...        $1,319,791
Operating Expenses (from Step 1)..................................   -            677,603   -            475,332
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
ROI...............................................................   =             0.0367   =             0.0367
----------------------------------------------------------------------------------------------------------------

                         Table 26--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
ROI...............................................................   =             0.0367   =             0.0367
----------------------------------------------------------------------------------------------------------------

                        Table 27--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
ROI........................................   =             0.0367   =             0.0367   =             0.0367
----------------------------------------------------------------------------------------------------------------

    Step 7: Adjustment of pilotage rates. Finally, and subject to
negotiation with Canada or to an adjustment for other supportable
circumstances, we calculate rate adjustments by dividing the Step 6
revenue needed (Table 24) by the Step 3 revenue projection (Table 15),
to give us a rate multiplier for each area. Tables 28 through 30 show
these calculations.

                                Table 28--Rate Multiplier, Areas in District One
----------------------------------------------------------------------------------------------------------------
                                                                              Area 1                 Area 2
                                                                        ------------------     -----------------
                      Ratemaking Projections                               St. Lawrence
                                                                               River              Lake Ontario
----------------------------------------------------------------------------------------------------------------
Revenue Needed (from Step 6)......................................  ...        $2,064,171  ...        $1,319,791
Revenue (from Step 3).............................................   /          2,358,327   /          1,546,373
Rate Multiplier...................................................   =             0.8753   =             0.8535
----------------------------------------------------------------------------------------------------------------

                                Table 29--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 30--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 24) by
total projected revenue (Steps 3 and 3.A, Table 15). Table 31 shows
this calculation.

 Table 31--Rate Multiplier for Basic Rates and Charges in 46 CFR 401.420
                               and 401.428
------------------------------------------------------------------------

------------------------------------------------------------------------
Ratemaking Projections:
  Total Revenue Needed (from Step 6).................  ...   $11,178,078
  Total revenue (from Step 3)........................   /     12,458,339
Rate Multiplier......................................   =          0.897
------------------------------------------------------------------------

    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 10.3 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 28 through 30 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 is a result
of recent significant changes in 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 the association to
permanently close. Moreover, the decrease would have an adverse effect
on providing safe, efficient, and reliable pilotage in the other two
pilotage districts. Finally, our 2013 agreement with Canada calls for
comparable pilotage rates between the two countries, and we proposed
aligning our rates to the Canadian rate, which actually increased by
2.5 percent this year. Our discretionary authority under Step 7 must be
``based on requirements of the Memorandum . . . between the United
States and Canada, and other supportable circumstances that may be
appropriate.'' 46 CFR part 404, App. A. Without the 2.5 percent
increase, U.S. and Canadian rates would be less comparable. ``Other
supportable circumstances'' we have for exercising our discretion
include E.O. 13609, ``Promoting International Regulatory Cooperation,''
which calls on Federal agencies to eliminate ``unnecessary
differences'' between U.S. and foreign regulations (see 77 FR 26413,
May 4, 2012). Additionally, there is a 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 are relying on the discretionary authority we have
under Step 7 to further adjust rates so that they closely align with
those adopted by the Canadian GLPA for 2014. Table 32 compares the
impact, area by area, that an average decrease of 11 percent would
have, relative to the impact each area would experience if U.S. rates
more closely align with those of the Canadian GLPA.

                                Table 32--Impact of Exercising Step 7 Discretion
----------------------------------------------------------------------------------------------------------------
                                                                 Percent change in rate   Percent change in rate
                             Area                                  without exercising     with exercise of  Step
                                                                   Step 7 discretion           7 discretion
----------------------------------------------------------------------------------------------------------------
Area 1 (Designated waters)....................................                   -12.47                     2.50
Area 2 (Undesignated waters)..................................                   -14.65                     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
----------------------------------------------------------------------------------------------------------------

    Tables 33 through 35 reflect our rate adjustments of 2.5 percent
across Districts One, Two and Three.

                          Table 33--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
----------------------------------------------------------------------------------------------------------------

    In addition to the rate charges in Table 33, and for the reasons we
discussed in Section V.A. of this preamble, we are adding 46 CFR
401.401, authorizing imposition of temporary surcharges. Effective
April 3, 2014, we authorize 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. We do
not think this surcharge will have a disruptive effect on District One
traffic, because Canada has used an 18 percent surcharge in the past
with no such effect.

                          Table 34--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
----------------------------------------------------------------------------------------------------------------

                         Table 35--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, Ont.             2,583   x              1.025   =              2,648
 & 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
----------------------------------------------------------------------------------------------------------------

VII. Regulatory Analyses

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

A. Regulatory Planning and Review

    Executive Orders 12866 (``Regulatory Planning and Review'') and
13563 (``Improving Regulation and Regulatory Review'') direct agencies
to assess the costs and benefits of available regulatory alternatives
and, if regulation is necessary, to select regulatory approaches that
maximize net benefits (including potential economic, environmental,
public health and safety effects, distributive impacts, and equity).
Executive Order 13563 emphasizes the importance of quantifying both
costs and benefits, of reducing costs, of harmonizing rules, and of