Under both the old and the new processes, we make various calculations
to derive tentative rates that we then propose for broad public
comment. We analyze and carefully consider the public comments before
finalizing rates. That process is open to the ``public'' wherever it
resides, and we regularly receive comments from the stakeholders
mentioned by this commenter. All stakeholders have the same opportunity
to participate in the ratemaking process.
    In addition, foreign stakeholders and their representatives
generally attend GLPAC meetings as members of the public, and are able
to voice their concerns and opinions during those meetings which
include discussion of recommendations on the future ratemakings.
    Finally, because Great Lakes pilotage is regulated both by the U.S.
and Canada, the Coast Guard's Director of Great Lakes Pilotage is in
nearly daily contact with his Canadian counterpart, and together they
meet regularly with pilots, port representatives, and U.S. and Canadian
agents for foreign vessel owners and operators. This, plus the
attendance and representation of Canadian stakeholders at GLPAC
meetings, ensures that both the Coast Guard and Canadian officials are
continually aware of the concerns and views of all pilotage
stakeholders, and can coordinate a binational response, if necessary.
    The ports and shippers coalition, in comment 53, said that our NPRM
gave ``undue weight'' to the GLPAC recommendations on which the NPRM's
proposals are based, because GLPAC is no longer representative of all
stakeholders, particularly foreign shippers and shipping agents who are
not directly represented on the committee, and is now a ``pilot-
dominated interest group.'' A current GLPAC member AF, who represents
port interests, denies this charge and stated he believes the charge is
``offensive and wrong.''
    Response: We disagree with the coalition. Like all Coast Guard
committees subject to the Federal Advisory Committee Act, GLPAC
membership is carefully vetted by the Coast Guard and the Department of
Homeland Security to ensure a fair balance of stakeholder
representation.
    Moreover, the statute creating GLPAC specifies that six of its
seven members must be balanced between pilots on one side and ports,
shippers, and vessel operators on the other, which we believe ensures
that the pilots will have adequate, but not dominant, representation on
the committee.\54\ We reiterate that the great weight we give GLPAC
recommendations is due in no small part to GLPAC's diverse
representation and the statutory requirement that any GLPAC
recommendation be approved by at least all but one of its serving
members.
---------------------------------------------------------------------------

    \54\ See 46 U.S.C. 9307(b)(2).
---------------------------------------------------------------------------

    As we have already stated, although GLPAC does not include any
foreign members, GLPAC's meetings are open to the public, including
foreign citizens. As members of the public, Canadian stakeholders, the
head of the Canadian Great Lakes pilot authority, members of the
coalition, and their representatives all routinely attend and voice
their concerns at those meetings.
    Traffic projections and use of multi-year historical traffic data.
In comment 52, the presidents' group said it is important to note that,
when we overestimate the shipping traffic that will take place in the
upcoming shipping season, actual pilot compensation falls below the
target compensation we project. They supported using a 5-year traffic
average to more accurately project future traffic, and including all
pilot time related to an assignment to help set the number of pilots
needed.
    Response: We agree that traffic overestimates have been a problem
in the past and that, as a result, pilot revenue has been less than
necessary to support pilot attraction and retention efforts and the
maintenance of necessary pilot association infrastructure. We also
agree that a multi-year average should produce more reliable estimates
for future traffic projections. We are lengthening our proposed 5-year
average to include (starting in 2017) 10 years of data, which should
reduce even further the rate volatility caused by basing rates on
traffic projections for the upcoming season, rather than on actual past
experience.
    The ports and shippers coalition, in comment 53, charged that the
Coast Guard acted arbitrarily in proposing to exclude 2009 and 2014
traffic volume data from our 5-year average, because we viewed those
years as ``outliers'' the inclusion of which would distort that
average. The coalition pointed out that 2015 is on track to mirror 2014
traffic volume, and that therefore, 2014 should no longer be considered
an outlier year. In comment AW, the coalition opposed identifying any
seasons as outliers, for the purpose of projecting future traffic.
    Response: We agree that 2009 and 2014 traffic volume data should be
included in our calculations. We have reliable traffic data from 2006
(covering only part of that season) onward, and therefore, for the 2016
ratemaking we have 9 years of data available for use in our
calculations (2007-2015). Because our identification of an ``outlier''
year would be subjective, and because a 9-year data set will reduce any
distortion that an outlier year's data could cause, we have decided
against excluding outlier years from our calculations, and to consider
all 9 years' data for this ratemaking. By 2017, we will have reliable
data from 10 full shipping seasons, 2007-2016, and from then on we will
use data from the 10 most recent seasons.
    The ports and shippers coalition, in comment 53, responded to our
question asking if there is an objective standard by which we can
determine whether a particular shipping season should be considered an
outlier and excluded from our multi-year historic average traffic
level. They said there is no typical shipping season, that both 2014
(which we considered an outlier in the NPRM) and 2015 should be
included, and that we should rely on industry projections to estimate
future demand.
    Response: We agree that, at least at this time, we cannot identify
a ``typical'' season. As already discussed, we agree and have decided
not to identify or exclude outlier shipping seasons from our
calculations and to expand our data set to include more years.
    We disagree with the coalition's suggestion that we should rely,
not on historical traffic data, but on industry projections. That was
our practice for the past 20 years and we repeatedly found it
unreliable. It led to significant overestimates of the next season's
traffic, and consequently to revenue shortfalls and overworked pilots.
Continued use of such projections would jeopardize the safe, efficient,
and reliable pilotage service that the Coast

Guard and all stakeholders see as our goal.
    The ports and shippers coalition, in comment 53, responded to our
question asking for other sources of traffic data for shipping seasons
prior to 2009 to help identify outlier years. They said we should
consult industry sources. A pilot association president in comment 56
also responded to this question, and said his association could provide
its data for District Three.
    Response: We thank these commenters for their input, however we
will not identify or exclude outlier years and thus no longer need
outlier year data to expand our traffic history data set.
    A pilot in comment 55B welcomed the proposed use of a multi-year
historical average to predict future traffic demand.
    Response: We agree that this will provide a more objective and
reliable standard than the industry traffic projections that have
consistently underestimated the next season's traffic volume.
    Miscellaneous issues. The national pilots association in comment 38
said we should allow a higher return on investment, given a pilot
association's management responsibilities and exposure to the risk of
fluctuating traffic levels.
    Response: We disagree. The rate of return is reasonable given the
nature of a regulated service that precludes any competition.
    A national pilot association, in comment 38, also said that current
46 CFR 401.451's existing requirement for a minimum of 10 hours between
a pilot's assignments should be revised upward to reflect the travel
time that may be necessary for a pilot to reach home or another place
where the pilot can sleep between assignments.
    Response: We will take this suggestion under advisement but it is
outside the scope of this rulemaking, which does not address the
adequacy of Sec.  401.451's 10-hour requirement.
    A national pilot association in comment 38 said we should add
regulatory language to provide for surcharges between ratemakings, to
cover unanticipated pilot association expenses.
    Response: We disagree and believe our current annual rate structure
is sufficient to identify and authorize the need for surcharges.
    A port commenter in comment 48 said the high cost of pilotage could
be mitigated by eliminating pilotage requirements in large open
portions of the Great Lakes or where improved navigational tools can
offset the need for pilotage.
    Response: U.S. Great Lakes pilotage requirements are set by
statute. The Coast Guard has no authority to change these requirements,
and therefore, this comment is outside the scope of this rulemaking.
    The national pilots association in comment 49 said we should
specify that, in setting target pilot compensation, the Coast Guard
will consider the need to attract and retain the most qualified persons
to provide safe, efficient, and reliable pilotage.
    Response: We appreciate this comment but find it unnecessary to add
the suggested language. Our proposed language for Sec.  404.1(a) makes
it clear that the guiding principle of our ratemaking is to ensure
safe, efficient, and reliable pilotage service, and it therefore goes
without saying that we will encourage the hiring and retention of a
sufficient number of highly qualified persons to provide that service.
    The presidents' group, in comment 52, supported the use of
automatic annual rate adjustments between base years.
    Response: We agree and believe this will provide all stakeholders
with more predictable cost information for the interim years.
    The ports and shippers coalition, in comment 53, said we
arbitrarily departed from our past practice of not requiring a reserve
allowance for unforeseeable future needs by proposing that our 2016
rates include a reserve allowance for each pilot association's
unforeseeable future needs, which the coalition said is contrary to
generally-accepted rate setting principles. The coalition said that, in
the past, we recognized only those reasonable and necessary expenses
that have already been incurred.
    Response: Our rates have always allowed for a fair return on an
association's revenue, as one way for the association to fund future
improvements. However, long-term revenue shortages have led to degraded
infrastructure that threatens safe, efficient, and reliable pilotage.
This change will ensure that the pilotage associations can build up
additional reserves to address current and future infrastructure needs
before they become critical.
    The coalition, in comment 53, said we should consider an
alternative regulatory tool, negotiated rulemaking to set rates.
    Response: Negotiated rulemaking committees are typically authorized
and follow a process set by statute.\55\ The coalition correctly
pointed out that a negotiated rulemaking brings key stakeholders and
Federal agencies together to develop a consensus recommendation on a
particular regulation. We accept their statement that it has been used
85 times in the past, by various agencies. We agree that negotiated
rulemaking can be a very useful regulatory instrument in certain
contexts. However, the negotiated rulemaking process is also long and
complex involving the creation of, and work by, a formal stakeholder
committee attempting to achieve consensus, in addition to undergoing
the standard notice and comment process we already follow. Although
variations on this process are possible, we do not think that
negotiated rulemaking could work within the constraints of our
statutory requirement to set rates annually or that it would provide
stakeholder input not already gained through GLPAC recommendations and
input from public comment.
---------------------------------------------------------------------------

    \55\ Negotiated Rulemaking Act, codified as 5 U.S.C. 561-570.
---------------------------------------------------------------------------

    A pilot association president in comment 56 said our regulations
should include a definitions section to provide discipline and
transparency.
    Response: We appreciate the commenter's concern but think it's
unnecessary to add a definitions section. Where the regulation does not
define its own terms, all its terms have ordinary dictionary
definitions.
    A pilot association president in comment 56 said we proposed
setting future pilot needs, and setting target compensation based on
the projected number of pilots, only for the first year of a multi-year
ratemaking, but not for the out-years, and that we should also cover
the out-years, lest associations be forced to cancel recuperative rest
periods to keep up with growing demand. He suggested revising these
projections during each annual rate review.
    Response: We agree that this is an important consideration for
implementation of a multi-year rate, but given our intention to
continue annual ratemakings in the near future, we see no need for
action with respect to out-years at this time.
    A pilot association president in comment 56 asked us to clarify
whether proposed Sec.  404.107(b) was intended to adjust rates only in
his district's (District Three's) designated waters or in both
designated and undesignated waters. He also supported our proposed
harmonization of rates in all the

undesignated waters of his district, to reduce revenue volatility due
to shifting traffic patterns.
    Response: We believe an adjustment to rates in a district's
designated waters rates would also require an adjustment to its
undesignated waters' rates, since the association must meet the same
revenue requirements regardless of the waters in which assignments take
place. We agree the rate harmonization in District Three should reduce
revenue volatility.
    A pilot association president in comment 56 said that the proposed
cancellation provisions of Sec.  401.420(b) were ill-adapted to the
large distances found in District Three, where a pilot might have to
begin traveling to a pickup point long before the order for his
services becomes final.
    Response: We agree with the president's comments but are unsure of
a remedy that would be appropriate across all districts, and we have
never issued regulations that apply to only one district. We defer
action on this comment until a future rulemaking and we welcome further
comment on an appropriate solution for this district based on the
results of 2016.
    A pilot association president in comment 56 said, with respect to
the proposed vessel trip delay and pilot detention language in Sec.
401.420(c), that weather conditions in November often produce these
delays, and that therefore, we should modify our proposed exception to
the rule, from May through November, that vessels are responsible for
compensating a pilot for weather-related delay or detention.
    Response: We will take this suggestion under advisement. We think
more analysis is required before we adjust the calendar exclusions, and
we welcome further input from the president on this issue.
    With respect to the ``overcarriage'' provisions of proposed Sec.
401.428(a), a pilot association president in comment 56 said there is
confusion between what we meant by ``change points'' in this section
and what we meant by the term in proposed Sec.  401.450. He interpreted
the former provisions to relate only to one of the eight change points
where vessels normally do not stop unless they are changing pilots, and
that a pilot should be compensated whenever his overcarriage results
from factors beyond his control.
    Response: ``Overcarriage'' refers to a pilot being kept on board a
vessel past the normal change point. The change points to which Sec.
401.428 refers are those listed in Sec.  401.450. We do not agree that
a pilot should be compensated for any overcarriage for which the pilot
is not responsible. For example, a pilot would not be responsible for a
weather delay, but (except at the beginning and end of the season)
neither would it be fair for the vessel to have to pay for an
unforeseen weather event.
    A pilot association president in comment 56 said that the vast
majority of harbor moves in District Three are short jobs that require
extensive pilot travel, and that because these moves are compensated at
the lower undesignated waters rate, there is no industry incentive to
eliminate unnecessary moves. Therefore he favored compensating these
assignments at the higher designated waters rate.
    Response: We disagree. These moves occur in undesignated waters and
thus must be billed at the undesignated rate. However, the travel costs
for these jobs are necessary and reasonable expenses that will be
reflected in future rates. We welcome further proposals from the
president for improving the dispatching system to make better use of
pilot resources.
    A port commenter in comment AB supported the new rates but said we
need to maintain strict oversight to ensure that the rates are used
largely to hire and train new pilots and to retain current pilots.
    Response: We monitor the pace at which the pilotage associations
hire and train pilots, and the overall size of their pilot pools, and
in each of our annual ratemakings we report to the public on the number
of pilots currently on hand in each association. We also closely
monitor the training of all new pilots as a routine part of issuing
registrations to Great Lakes Pilots. We think this provides the strict
oversight the commenter requested.

VI. Discussion of Rate Changes

    We proposed new rates and a temporary surcharge (for pilot hiring
and training) for 2016. We reviewed the independent accountant's
financial reports for each association's 2013 expenses and revenues.
Those reports, which include pilot comments on draft versions and the
accountant's response to those comments, appear in the docket.\56\
---------------------------------------------------------------------------

    \56\ See ``Summary--Independent Accountant's Report on Pilot
Association Expenses, with Pilot Association Comments and
Accountant's Responses.''
---------------------------------------------------------------------------

    We are setting new rates, applying our new ratemaking methodology
as follows:
    Recognize previous year's operating expenses (Sec.  404.101). We
reviewed and accepted the accountant's final findings on the 2013
audits of association expenses, as shown in Figures 8 through 10.

                                 Figure 8--Recognized expenses for District One
----------------------------------------------------------------------------------------------------------------
                                                                                District One
                                                           -----------------------------------------------------
                                                                 Area 1            Area 2
                Reported expenses for 2013                     designated       undesignated
                                                           ------------------------------------       Total
                                                              St. Lawrence
                                                                  River         Lake Ontario
----------------------------------------------------------------------------------------------------------------
Operating Expenses:
    Other Pilotage Costs:
        Pilot subsistence/Travel..........................          $281,488          $168,508          $449,996
        License insurance.................................            26,976            25,010            51,986
        Payroll taxes.....................................            65,826            51,244           117,070
        Other.............................................             6,925             5,460            12,385
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
            Total other pilotage costs....................           381,215           250,222           631,437
    Pilot Boat and Dispatch Costs:
        Pilot boat expense................................           131,193           102,077           233,270
        Dispatch expense..................................  ................  ................  ................
        Payroll taxes.....................................             9,169             7,230            16,399
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
            Total pilot and dispatch costs................           140,362           109,307           249,669

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

                                 Figure 9--Recognized Expenses for District Two
----------------------------------------------------------------------------------------------------------------
                                                                                District Two
                                                           -----------------------------------------------------
                                                                 Area 4            Area 5
                                                              undesignated       designated
                Reported expenses for 2013                 ------------------------------------
                                                                               Southeast Shoal        Total
                                                                Lake Erie      to Port Huron,
                                                                                MI
----------------------------------------------------------------------------------------------------------------
Operating Expenses:
    Other Pilotage Costs:
        Pilot subsistence/Travel..........................           $84,164          $126,246          $210,410
        License insurance.................................             6,168             9,252            15,420
        Payroll taxes.....................................            44,931            67,397           112,328
        Other.............................................            33,021            49,532            82,553
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
            Total other pilotage costs....................           168,284           252,427           420,711
    Pilot Boat and Dispatch Costs:
        Pilot boat expense................................           142,936           214,405           357,341
        Dispatch expense..................................             7,080            10,620            17,700
        Employee benefits.................................            60,665            90,997           151,662
        Payroll taxes.....................................             8,316            12,474            20,790
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
            Total pilot and dispatch costs................           218,997           328,496           547,493
    Administrative Expenses:
        Legal--general counsel............................             3,414             5,122             8,536
        Legal--shared counsel (K&L Gates).................             7,304            10,956            18,260
        Legal--USCG litigation............................               231               346               577
        Office rent.......................................            26,275            39,413            65,688
        Insurance.........................................             9,175            13,762            22,937
        Employee benefits.................................            20,586            30,879            51,465

        Payroll taxes.....................................             4,899             7,349            12,248
        Other taxes.......................................            14,812            22,217            37,029
        Depreciation/auto leasing/other...................            22,956            34,434            57,390
        Interest..........................................             3,439             5,159             8,598
        APA Dues..........................................             8,208            12,312            20,520
        Utilities.........................................            14,310            21,465            35,775
        Salaries..........................................            42,633            63,949           106,582
        Accounting/Professional fees......................             9,294            13,940            23,234
        Pilot Training....................................  ................  ................  ................
        Other.............................................             9,757            14,638            24,395
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
            Total Administrative Expenses.................           197,293           295,941           493,234
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
            Total Operating Expenses (Other Costs + Pilot            584,574           876,864         1,461,438
             Boats + Admin)...............................
Proposed Adjustments (Independent CPA):
    Insurance.............................................           (2,362)           (3,544)           (5,906)
    Employee benefits.....................................             (360)             (541)             (901)
    Depreciation/auto leasing/other.......................           (6,391)           (9,587)          (15,978)
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
        TOTAL CPA ADJUSTMENTS.............................           (9,113)          (13,672)          (22,785)
Proposed Adjustments (Director):
    APA Dues..............................................           (1,231)           (1,847)           (3,078)
    Legal--shared counsel (K&L Gates).....................           (7,304)          (10,956)          (18,260)
    Legal--USCG litigation................................             (231)             (346)             (577)
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
        TOTAL DIRECTOR'S ADJUSTMENTS......................           (8,766)          (13,149)          (21,915)
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
            Total Operating Expenses (OpEx + Adjustments).           566,695           850,043         1,416,738
----------------------------------------------------------------------------------------------------------------

                                Figure 10--Recognized Expenses for District Three
----------------------------------------------------------------------------------------------------------------
                   Recognizable expenses                                       District Three
----------------------------------------------------------------------------------------------------------------
                                                              Areas 6 and 8        Area 7
                                                              undesignated       designated
                                                           ------------------------------------
                Reported Expenses for 2013                    Lakes Huron,                            Total
                                                              Michigan, and   St. Mary's River
                                                                Superior
----------------------------------------------------------------------------------------------------------------
Operating Expenses:
    Other Pilotage Costs:
        Pilot subsistence/Travel..........................          $337,978          $112,660          $450,638
        License insurance.................................            13,849             4,616            18,465
        Payroll taxes.....................................  ................  ................  ................
        Other.............................................            15,664             5,221            20,885
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
            Total other pilotage costs....................           367,491           122,497           489,988
    Pilot Boat and Dispatch Costs:
        Pilot boat expense................................           435,353           145,118           580,471
        Dispatch expense..................................           140,440            46,814           187,254
        Payroll taxes.....................................            15,680             5,227            20,907
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
            Total pilot and dispatch costs................           591,473           197,159           788,632
    Administrative Expenses:
        Legal--general counsel............................               567               189               756
        Legal--shared counsel (K&L Gates).................            20,260             6,754            27,014
        Office rent.......................................             7,425             2,475             9,900
        Insurance.........................................             8,098             2,699            10,797
        Employee benefits.................................           123,002            41,001           164,003
        Payroll taxes.....................................            10,272             3,424            13,696
        Other taxes.......................................             1,383               461             1,844
        Depreciation/auto leasing/other...................            24,237             8,079            32,316
        Interest..........................................             2,403               801             3,204
        APA Dues..........................................            18,895             6,299            25,194
        Dues and subscriptions............................             4,275             1,425             5,700
        Utilities.........................................            32,672            10,891            43,563
        Salaries..........................................            89,192            29,731           118,923
        Accounting/Professional fees......................            20,682             6,894            27,576
        Pilot Training....................................  ................  ................  ................
        Other.............................................            11,260             3,753            15,013
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
        Total Administrative Expenses.....................           374,623           124,876           499,499
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr

        Total Operating Expenses (Other Costs + Pilot              1,333,587           444,532         1,778,119
         Boats + Admin)...................................
Proposed Adjustments (Independent CPA):
    Pilot subsistence/Travel..............................           (5,183)           (1,728)           (6,911)
    Payroll taxes.........................................           103,864            34,621           138,485
    Dues and subscriptions................................           (4,275)           (1,425)           (5,700)
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
        TOTAL CPA ADJUSTMENTS.............................            94,406            31,468           125,874
Proposed Adjustments (Director):
    APA Dues..............................................           (2,834)             (945)           (3,779)
    Legal--shared counsel (K&L Gates).....................          (20,260)           (6,754)          (27,014)
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
TOTAL DIRECTOR'S ADJUSTMENTS..............................          (23,094)           (7,699)          (30,793)
                                                           -----------------------------------------------------
            Total Operating Expenses (OpEx + Adjustments).         1,404,899           468,301         1,873,200
----------------------------------------------------------------------------------------------------------------

    Project next year's operating expenses, adjusting for inflation or
deflation (Sec.  404.102). We base our 2014 and 2015 inflation
adjustments on BLS data from the Consumer Price Index for the Midwest
Region of the United States,\57\ and project it for 2016 based on the
target inflation rate set by the Federal Reserve,\58\ as shown in
Figures 11 through 13.
---------------------------------------------------------------------------

    \57\ Available at http://www.bls.gov/data. Select ``One Screen
Data Search'' under ``All Urban Consumers (Current Series) (Consumer
Price Index--CPI)''. Then select ``Midwest urban'' from Box 1 and
``All Items'' from Box 2. Our numbers for 2014 and 2015 are
generated through this query and formatted to show annual percentage
changes (available through ``More Formatting'' link).
    \58\ Further discussion available on the Federal Reserve target
inflation rate is on their Web site at http://www.federalreserve.gov/newsevents/press/monetary/20160127b.htm,
http://www.federalreserve.gov/newsevents/press/monetary/20120125c.htm, and http://www.federalreserve.gov/faqs/money_12848.htm

                                  Figure 11--Inflation Adjustment, District One
----------------------------------------------------------------------------------------------------------------
                                                                                District One
                                                                 -----------------------------------------------
                                                                    Designated     Undesignated        Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)...............................        $681,347        $484,368      $1,165,715
2014 Inflation Modification (@1.4%).............................           9,539           6,781          16,320
2015 Inflation Modification (@1.5%).............................          10,363           7,367          17,731
2016 Inflation Modification (@2%)...............................          14,025           9,970          23,995
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
    Adjusted 2016 Operating Expenses............................         715,274         508,486       1,223,760
----------------------------------------------------------------------------------------------------------------

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

                                 Figure 13--Inflation Adjustment, District Three
----------------------------------------------------------------------------------------------------------------
                                                                                District Three
                                                                 -----------------------------------------------
                                                                    Designated     Undesignated        Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)...............................      $1,404,899        $468,301      $1,873,200
2014 Inflation Modification (@1.4%).............................          19,669           6,556          26,225
2015 Inflation Modification (@1.5%).............................          21,369           7,123          28,491
2016 Inflation Modification (@2%)...............................          28,919           9,640          38,558
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
Adjusted 2016 Operating Expenses................................       1,474,855         491,620       1,966,474
----------------------------------------------------------------------------------------------------------------

    Determine number of pilots needed (Sec.  404.103). We first
consider if reliable traffic data are available from up to the 10 most
recent full shipping seasons. In this case, we have reliable data from
the Great Lakes Pilotage Management System dating back to 2007. This
gives us 9 years of data (2007-2015) that we can use for this year's
ratemaking. Beginning with next year's ratemaking, and for all
subsequent ratemakings, we should have reliable data for 10 years of
full shipping seasons.
    Next, we calculate the average cycle time associated with each
pilot assignment, in each area. In the future, we intend to use Great
Lakes Electronic Pilot Management System (GLPMS) data to track cycle
time, but that data is not available for our current base period. Our
best source for that base period's cycle time is the Bridge Hour
Definition and Methodology Final Report prepared on our behalf in
2013.\59\ Although we expect GLPMS data to produce better data in the
future, the 2013 report relied heavily on pilot input and drafts were
made widely available to the pilots for their review and comment.
Figure 14 shows the 2013 report's calculation of the pilot work cycle
for each area.
---------------------------------------------------------------------------

    \59\ Bridge Hour Definition and Methodology Final Report,
MicroSystems Integration, Inc. (June 25, 2013), available in the
docket and at http://www.uscg.mil/hq/cg5/cg552/pilotage.asp. This
analysis is detailed in Appendix B of the report, on page B-10.

                                                                               Figure 14--Cycle Time, 2013 Report
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Total time on                       Pilot
                                        Trip  time     Travel (hrs)     Pilot boat     Delay  (hrs)    Admin  (hrs)     assignment    Mandatory rest    assignment
                                           (hrs)                       transit (hrs)                                       (hrs)           (hrs)       cycle  (hrs)
--------------------------------------------------------------------------------------------------------------------------------------------------------------------
D1:
    Area 1..........................             7.7             2.9             0.3             0.7             0.5            12.1              10            22.1
    Area 2..........................            10.4             4.0             0.6             0.9             0.5            16.4              10            26.4
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
    Area 3..........................                                            Welland Canal Exclusive to Canadian Pilots
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
D2:
    Area 4..........................            11.1             4.2             0.4             0.7             0.5            16.9              10            26.9
    Area 5..........................             6.1             2.3             0.9             0.4             0.5            10.2              10            20.2
D3:
    Area 6..........................            22.5             1.6             0.8             1.0             0.5            26.4              10            36.4
    Area 7..........................             7.1             1.4             2.2             0.3             0.5            11.5              10            21.5
    Area 8..........................            21.6             1.8             1.9             3.3             0.5            29.1              10            39.1
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    We then determine the average peak late-season traffic demand over
the base period, as shown in Figure 15. Figure 15 also shows the
average number of pilots that would have been needed to meet the peak
demand, and for comparison purposes shows the average number (39) of
needed and authorized pilots for 2007-2015.

                                        Figure 15--Average Peak Traffic Demand and Pilot Requirements, 2007-2015
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                             District One                      District Two                              District Three
                                  ----------------------------------------------------------------------------------------------------------------------
                                        Area 1           Area 2           Area 4           Area 5           Area 6           Area 7           Area 8
                                     (designated)    (undesignated)   (undesignated)    (designated)    (undesignated)    (designated)    (undesignated)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Average late-season peak                         5                5                5                5                5                5                5
 assignments per day.............
Average number of pilots needed                 10                5                5               10                7               10                7
 to meet peak demand (total = 54)
Average authorized pilots, 2007-                 6                5                4                6                8                4                6
 2015 (total = 39)...............
Authorized pilots, 2015 (total =                 6                5                4                6                6                4                5
 36).............................
--------------------------------------------------------------------------------------------------------------------------------------------------------

    As shown in Figure 14, according to the 2013 report cycle time for
pilots in designated waters is a little over 20 hours. This implies
that, on average in late seasons over the base period, one pilot could
move one vessel per day. However, to fully meet peak season demand, the
pilot associations must be staffed to provide double pilotage, and
Figure 15 reflects that doubling in the number of pilots needed in the
designated waters of Areas 1, 5, and 7.
    Except in extreme circumstances, double pilotage is not required in
the open and undesignated waters of Areas 2, 4, 6, and 8, and Figure 15
shows no doubling in those areas. However, Figure 14 does show a 50
percent increase from the one pilot-one vessel standard in undesignated
Areas 6 and 8, which are located in the large western Great Lakes.
Areas 6 and 8 are not contiguous, but both flank the designated waters
of Area 7. Travel times in Areas 6 and 8 are greater than they are in
the undesignated waters of smaller Lakes Erie and Ontario, and on
average a pilot needs approximately 1.5 days per vessel, not just 1, to
move a vessel. Therefore, Figure 15 shows 7 pilots, not 5, in each of
Areas 6 and 8. This number will ensure that the five ships shown as
moving daily through Area 7 could be moved through the undesignated
waters at the same rate.
    Based on our Figure 15 numbers, and as shown in Figure 16, we find
that 54 pilots are needed over the period for which 2016 base rates
will be in effect, as opposed to the 36 currently authorized pilots
shown in Figure 15. Figure 16 also shows that based on our best current
information we project there will be only 37 fully working and fully
compensated pilots (``working pilots'') in 2016. This decrease from our
initial projections in the NPRM is based on feedback from the pilot
associations. However, we have increased the number of applicants
funded via surcharge significantly from the NPRM, again based on pilot
association feedback, to

help the pilot associations close the gap between needed pilots and
working pilots as soon as possible.

                            Figure 16--Pilots Needed; Pilots Projected To Be Working
----------------------------------------------------------------------------------------------------------------
                                                                 District One     District Two    District Three
----------------------------------------------------------------------------------------------------------------
Needed pilots, period for which 2016 rates are in effect                    15               15               24
 (total = 54)................................................
Working pilots projected for 2016 (total = 42)...............               12               12               13
----------------------------------------------------------------------------------------------------------------

    Determine target pilot compensation (Sec.  404.104). Coast Guard
analysis and calculations. For this 2016 ratemaking, we considered
three possible sources for benchmark compensation data, and we selected
GLPA data for that benchmark because they provide the most comparable
compensation for comparable work under comparable conditions. Recent
GLPA compensation is shown in Figure 17. The compensation in 2013 and
2014 is increased based on additional information supplied by the GLPA,
documenting how they compensate full-time, part-time, and contract
pilots. We believe only compensation associated with fulltime Canadian
pilots should be used as a basis of comparison to set the benchmark for
U.S. Registered Pilots.
---------------------------------------------------------------------------

    \60\ http://www.glpa-apgl.com/annualReports_e.asp. Also, see
GLPA updates posted to the public docket. 2013 and 2014 figures are
calculated by including only full-time compensation information for
GLPA pilots. Part-time and contract pilots are excluded from the
figures.

      Figure 17--Comparing Pilot Compensation and Wage Information
------------------------------------------------------------------------
                                                          Average GLPA
                                                          compensation
                                                           \60\ (CAD)
------------------------------------------------------------------------
2011..................................................          $233,567
2012..................................................           247,145
2013..................................................           273,145
2014..................................................           329,045
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
  Average.............................................           270,726
------------------------------------------------------------------------

    GLPA pilots provide service that is almost identical to the service
provided by U.S. Great Lakes pilots. However, unlike the U.S. pilots,
GLPA pilots are government employees with guaranteed minimum
compensation, increases for high-traffic periods, benefits (retirement,
healthcare, vacation), limited professional liability, and guaranteed
time off during the shipping season.
    Figures 18 through 20 show actual GLPA compensation figures for
2011-2014, adjust for foreign exchange differences and inflation,\61\
and project future GLPA compensation for 2015 and 2016.
---------------------------------------------------------------------------

    \61\ Based on Midwest CPI-U from BLS. Available at http://www.bls.gov/data. Select ``One Screen Data Search'' under ``All
Urban Consumers (Current Series) (Consumer Price Index--CPI)''.).
Then select ``Midwest urban'' from Box 1 and ``All Items'' from Box
2. Our numbers for 2011-2014 are generated through this query and
formatted to show annual percentage changes.
    \62\ All figures reflect annual average currency conversions for
the time periods provided, using exchange rates provided by the
Internal Revenue Service. See http://www.irs.gov/Individuals/International-Taxpayers/Yearly-Average-Currency-Exchange-Rates.

   Figure 18--Recent History of Canadian GLPA Pilot Compensation \62\
------------------------------------------------------------------------
                                               GLPA            GLPA
                  Year                     Compensation    Compensation
                                               (CAD)           (USD)
------------------------------------------------------------------------
2014....................................        $329,045        $286,375
2013....................................         273,145         255,037
2012....................................         247,145         237,639
2011....................................         233,567         226,984
------------------------------------------------------------------------

    Figure 19 adjusts these figures for inflation in each year.
---------------------------------------------------------------------------

    \63\ See footnote 64 for supporting inflation data. See also our
earlier discussion of the Federal Reserve's target inflation rate
for 2016 projections. See also the Bank of Canada's 2% target
inflation rate at http://www.bankofcanada.ca/core-functions/monetary-policy/inflation/

                                                          Figure 19--Inflation Adjustments \63\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                            2012         2013         2014         2015         2016
                                                         USD  (from      Inflation    Inflation    Inflation    Inflation    Inflation     Total  (2016
                        Year                             Figure 16)      adjustment   adjustment   adjustment   adjustment   projection        USD)
                                                                          (@3.2%)       (@2%)       (@1.4%)      (@1.5%)      (@2%) *
--------------------------------------------------------------------------------------------------------------------------------------------------------
2014................................................          $286,375  ...........  ...........  ...........       $4,296       $5,728         $296,398
2013................................................           255,037  ...........  ...........        3,571        3,826        5,101          267,534
2012................................................           237,639  ...........        4,753        3,327        3,565        4,753          254,036
2011................................................           226,984        7,263        4,540        3,178        3,405        4,540          249,909
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Figure 20 shows the year-on-year percentage change in GLPA
compensation, converted to 2016 USD.

         Figure 20--Analysis of Canadian GLPA Pilot Compensation
------------------------------------------------------------------------
                                               GLPA           Percent
                  Year                     compensation       change
------------------------------------------------------------------------
2014....................................        $296,398            10.8
2013....................................         267,534             5.3
2012....................................         254,037             1.7
2011....................................         249,910  ..............
------------------------------------------------------------------------

    We base our target pilot compensation on 2013 GLPA compensation,
because it provides a more reliable benchmark than 2014, which saw a
sharp rise from the previous trend, probably due to a 17 percent
Canadian traffic increase in 2014, compounded by extended ice
conditions.
    Based on 2013 GLPA compensation, Figure 21 shows our projection for
GLPA's 2016 compensation. Compensation is increased at 3.5 percent
annually, the average growth rate of Canadian compensation between 2011
and 2013.

      Figure 21--Projected Increases in Canadian Great Lakes Pilot
                            Compensation \64\
------------------------------------------------------------------------
                                                          Projected GLPA
                          Year                             compensation
                                                           (2016 USD) *
------------------------------------------------------------------------
2016...................................................         $296,467
2015...................................................          286,491
2014...................................................          276,850

2013...................................................          267,534
------------------------------------------------------------------------

    The difference in the status of U.S. and Canadian pilots, and the
different compensation systems in place in the two countries are
supportable circumstances for adjusting U.S. target pilot compensation
by 10 percent over the projected 2016 GLPA figure, taking the U.S.
target to $326,114, as shown in Figure 22. Several speakers at the 2014
GLPAC meetings \65\ cited the 10 percent figure, and no other, as an
appropriate adjustment for those differences. Public comments on the
NPRM did not provide sufficient basis to adopt the target figures
recommended by the pilots, $355,000 and almost $394,000. Figure 22 also
shows total target compensation for each district, which is the
individual target multiplied by the district's number of working
pilots.
---------------------------------------------------------------------------

    \64\ Figures are expressed in USD. Each year's compensation
increases 3.5% in line with average compensation increases in 2012
and 2013.
    \65\ Transcript (7/24/2014), pp. 43-45.

                             Figure 22--Total Target Pilot Compensation per District
----------------------------------------------------------------------------------------------------------------
                                                                   District One    District Two   District Three
----------------------------------------------------------------------------------------------------------------
Target compensation per pilot...................................        $326,114        $326,114        $326,114
Number of working pilots........................................              12              12              13
                                                                 -----------------------------------------------
    District target pilot compensation (total = $12,066,225)....      $3,913,370      $3,913,370      $4,239,485
----------------------------------------------------------------------------------------------------------------

    Determine return on investment (Sec.  404.105). The 2013 average
annual rate of return for new issues of high-grade corporate securities
was 4.24 percent,\66\ which as shown in Figure 25 we use in setting
each district's allowed return on investment.
---------------------------------------------------------------------------

    \66\ Based on Moody's AAA corporate bonds. See http://research.stlouisfed.org/fred2/series/AAA/downloaddata?cid=119.

                                                             Figure 23--Return on Investment
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   District One                    District Two                   District Three
                                                         -----------------------------------------------------------------------------------------------
                                                            Designated     Undesignated    Undesignated     Designated     Undesignated     Designated
--------------------------------------------------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)....................        $715,274        $508,486        $594,913        $892,370      $1,474,855        $491,620
Total Target Pilot Compensation (Step 4)................       2,282,799       1,630,571       1,630,571       2,282,799       2,935,028       1,304,457
Total 2016 Expenses.....................................       2,998,074       2,139,057       2,225,484       3,175,170       4,409,882       1,796,077
Return on Investment (4.24%)............................         127,118          90,696          94,361         134,627         186,979          76,154
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Project needed revenue (Sec.  404.106). Figure 24 shows each
district's 2016 needed revenue. The projected needed revenue for all
districts is $17,453,678, up from 2015's latest projections of revenue
of $15,588,653.

                                                                Figure 24--Revenue Needed
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   District One                    District Two                   District Three
                                                         -----------------------------------------------------------------------------------------------
                                                            Designated     Undesignated    Undesignated     Designated     Undesignated     Designated
--------------------------------------------------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)....................        $715,274        $508,486        $594,913        $892,370      $1,474,855        $491,620
Total Target Pilot Compensation (Step 4)................       2,282,799       1,630,571       1,630,571       2,282,799       2,935,028       1,304,457
Return on Investment (Step 5)...........................         127,118          90,696          94,361         134,627         186,979          76,154
                                                         -----------------------------------------------------------------------------------------------
    Total Revenue Needed (Total = $17,453,678)..........       3,125,192       2,229,753       2,319,844       3,309,797       4,596,861       1,872,230
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Set initial base rates (Sec.  404.107). Figure 25 shows how we set
initial base rates using pilot hours worked in our multi-year base
period. This year, the base period includes data from the previous nine
full shipping seasons from 2007 to 2015. By the 2018 ratemaking, we
will have 10 year's data, and thereafter we will use the most recent 10
seasons for our base period.

                                         Figure 25--Hours Worked, 2007-2015, Designated and Undesignated Waters
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   District One                    District Two                   District Three
                                                         -----------------------------------------------------------------------------------------------
                                                            Designated     Undesignated    Undesignated     Designated     Undesignated     Designated
--------------------------------------------------------------------------------------------------------------------------------------------------------
2015....................................................            5743            6667            6535            5967           22824            2696
2014....................................................            6810            6853            7856            7001           25833            3835
2013....................................................            5864            5529            4603            4750           17115            2631

2012....................................................            4771            5121            3848            3922           15906            2163
2011....................................................            5045            5377            3708            3680           16012            1678
2010....................................................            4839            5649            5565            5235           20211            2461
2009....................................................            3511            3947            3386            3017           12520            1820
2008....................................................            5829            5298            4844            3956           14287            2286
2007....................................................            6099            5929            6223            6049           24811            5944
                                                         -----------------------------------------------------------------------------------------------
    Average.............................................            5390            5597            5174            4842           18835            2835
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Figure 26 shows our new initial rate calculations.

                                                            Figure 26--Rate Calculations \67\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   District One                    District Two                   District Three
                                                         -----------------------------------------------------------------------------------------------
                                                            Designated     Undesignated    Undesignated     Designated     Undesignated     Designated
--------------------------------------------------------------------------------------------------------------------------------------------------------
Revenue Needed (Step 6).................................      $3,125,192      $2,229,753      $2,319,844      $3,309,797      $4,596,861      $1,872,230
Average time on task 2007-2015..........................           5,390           5,597           5,174           4,842          18,835           2,835
Hourly Rate.............................................            $580            $398            $448            $684            $244            $660
--------------------------------------------------------------------------------------------------------------------------------------------------------

    District Three's rate for designated waters would be more than
twice its rate for undesignated waters. Therefore, as shown in Figure
27, we apply a ratio to balance those rates so that the rate for
designated waters is no more than twice the rate for undesignated
waters while maintaining the same overall revenue requirement for the
district.
---------------------------------------------------------------------------

    \6\ Rounded.

        Figure 27--District Three--Capped Designated Waters Rate
------------------------------------------------------------------------
                                                 District Three
                                       ---------------------------------
                                           Areas 6, 8         Area 7
                                          undesignated      designated
------------------------------------------------------------------------
Revenue Needed........................       $4,972,265       $1,496,827
Projected Pilotage Demand.............           18,835            2,835
Hourly Rate...........................             $264             $528
------------------------------------------------------------------------

    Review and finalize rates (Sec.  404.108). We are working with the
pilotage associations to close the gap between the 37 working pilots we
project for 2016 and the 54 pilots required to fulfill pilotage demand
by training 11 applicant pilots during 2016. This requires expensive
recruitment and training for these new pilots and ongoing training for
the working pilots. Our usual practice of reimbursing training expenses
only after they are incurred would delay that reimbursement for several
years and reduce association funds for other vital purposes. This is a
supportable circumstance for imposing a necessary and reasonable
temporary 2016 surcharge for 2016 training expenses, which we will
validate and adjust as necessary during our audit of actual 2016
association expenses. In the NPRM, we projected that the associations
would hire 6 new pilots in 2016 at a training cost of $150,000 per
pilot, for a total training cost of $900,000. We have modified pilot
strength based on the pilot association's guidance for the number of
registered and applicant pilots. This changed the revenue required for
the districts by shifting pilots from our registered pilot estimates to
applicants paid for by the surcharge. We project that the associations
will hire 11 new pilots in 2016, at a total training cost of about
$150,000 per pilot, as shown in Figure 28.

                                  Figure 28--Surcharge Calculation by District
----------------------------------------------------------------------------------------------------------------
                                                                 District One     District Two    District Three
----------------------------------------------------------------------------------------------------------------
Projected Needed Revenue.....................................       $5,354,945       $5,629,641       $6,469,092
Training Surcharge...........................................         $450,000         $300,000         $900,000
Percent Surcharge............................................               8%               5%              14%
----------------------------------------------------------------------------------------------------------------

VII. Regulatory Analyses

    We developed this final rule after considering numerous statutes
and Executive Orders related to rulemaking. Below we summarize our
analyses based on these statutes or Executive Orders.

A. Regulatory Planning and Review

    Executive Orders 13563 and 12866 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 effects, and equity). Executive
Order 13563 emphasizes the importance of quantifying both costs and
benefits, of reducing costs, of harmonizing rules, and of promoting
flexibility.
    This rule has not been designated a ``significant regulatory
action'' under section 3(f) of Executive Order 12866. Accordingly, this
rule has not been reviewed by the Office of Management and Budget
(OMB).
    We developed an analysis of the costs and benefits of the final
rule to ascertain its probable impacts on industry. The following
figure summarizes the affected population, costs, and benefits of the
final rule.

                                Figure 29--Summary of Regulatory Economic Impacts
----------------------------------------------------------------------------------------------------------------
                                                      Affected
         Category               Description          population          2016 Costs              Benefits
----------------------------------------------------------------------------------------------------------------
Rate Changes..............  Under the Great      126 vessels         $3,515,025........  --New rates cover an
                             Lakes Pilotage Act   journeying the                          association's
                             of 1960, Coast       Great Lakes                             necessary and
                             Guard is required    system annually.                        reasonable operating
                             to review and                                                expenses.
                             adjust base                                                 --Provides fair
                             pilotage rates                                               compensation, adequate
                             annually.                                                    training, and
                                                                                sufficient rest
                                                                                periods for pilots.
                                                                                --Ensures the
                                                                                association makes
                                                                                enough money to fund
                                                                                future improvements.
Procedural Changes........  Changes to the       3 pilot             No direct cost for  --Provide maximum
                             annual ratemaking    associations.       procedural          transparency and
                             methodology.                             changes but         simplicity in the
                                                                      indirect costs      ratemaking
                                                                      could be changed    methodology.
                                                                      in annual rate     --Make submitting data
                                                                      changes due to      easier for pilots and
                                                                      procedure           more accurate.
                                                                      revision.
----------------------------------------------------------------------------------------------------------------

    The Coast Guard is required to review and adjust pilotage rates on
the Great Lakes annually. See Parts III and IV of this preamble for
detailed discussions of the Coast Guard's legal basis and purpose for
this rulemaking and for background information on Great Lakes pilotage
ratemaking. Based on our annual review for this rulemaking, we are
adjusting the pilotage rates for the 2016 shipping season so pilot
associations can generate sufficient revenues to reimburse their
necessary and reasonable operating expenses, fairly compensate trained
and rested pilots, and provide an appropriate profit to use for
improvements. The rate changes in this rule would lead to an increase
in the cost per unit of service to shippers in all three districts, and
result in an estimated annual cost increase to shippers of
approximately $1,865,025 across all three districts over 2015 payments
(Figure 27).
    In addition to the increase in payments that would be incurred by
shippers in all three districts from the previous year as a result of
the rate changes, we are authorizing a temporary surcharge to allow the
pilotage associations to recover training expenses that would be
incurred in 2016. We estimate that District One will incur $450,000,
District Two will incur $300,000, and District Three will incur
$900,000 in training expenses. These temporary surcharges would
generate a combined $1,650,000 in revenue for the pilotage associations
across all three districts. Note that in the NPRM, we projected that
the associations would hire 6 new pilots in 2016 at a training cost of
$150,000 per pilot, for a total training cost of $900,000. We have
modified pilot strength based on the pilot association's guidance for
the number of registered and applicant pilots and project that the
associations will hire 11 new pilots in 2016.
    Therefore, after accounting for the implementation of the temporary
surcharges across all three districts, the annual payments made by
shippers during the 2016 shipping season are estimated to be
approximately $3,515,025 more than the payments that were made in 2015
(Figure 27).\68\
---------------------------------------------------------------------------

    \68\ Total payments across all three districts are equal to the
increase in payments incurred by shippers as a result of the rate
changes plus the temporary surcharges applied to traffic in
Districts One, Two, and Three.
---------------------------------------------------------------------------

    A regulatory analysis follows.
    This rulemaking proposes revisions to the annual ratemaking
methodology (procedural changes), and applies the ratemaking
methodology to increase Great Lakes pilotage rates and surcharges from
the current rates set in the 2015 final rule (rate changes). The
methodology is discussed and applied in detail in Parts V and VI of
this preamble. The last full ratemaking was concluded in 2015. The last
annual rate review, conducted under 46 CFR part 404, appendix C, was
completed early in 2011. Figure 29 summarizes the changes in the
regulatory analysis (RA) from the NPRM to the final rule. These changes
were the result of public comments received after publication of the
NPRM. Figure 30 presents the elements in our analysis that changed
along with the resultant change in the RA.

                              Figure 30--Summary of Changes From NPRM to Final Rule
----------------------------------------------------------------------------------------------------------------
       Element of the analysis                   NPRM                  Final rule         Resulting change in RA
----------------------------------------------------------------------------------------------------------------
Number of historic years of demand     5 years of data,         Final rule uses data     Data indirectly affects
 data used to establish the hourly      excluding data from      from 2007-2015, future   the calculation of
 rate.                                  2009.                    ratemakings will use     projected revenues.
                                                                 most recent 10 years
                                                                 of data.
Mandatory change point at Iroquois     Proposed additional      Final rule removes the   No change.
 Lock.                                  change point at          mandatory change point
                                        Iroquois Lock.           at Iroquois Lock.
Target pilot compensation............  $312,500...............  $326,114...............  Data indirectly affects
                                                                                the calculation of
                                                                                projected revenues.
Projected revenues...................  2015 revenues projected  2015 revenues projected  Cost increase to
                                        at $12,289,193, 2016     at $15,588,653, 2016     shippers decreases
                                        revenues projected at    revenues projected at    from $6,268,152 to
                                        $18,557,345.             $17,453,678.             $1,865,025.
Pilot strength for registered and      42 registered working    37 registered working    Training expenses
 applicant pilots.                      pilots and 6 applicant   pilots and 11            increased from
                                        pilots in 2016.          applicant pilots in      $900,000 to
                                                                 2016.                    $1,650,000.
----------------------------------------------------------------------------------------------------------------

Affected Population
    The shippers affected by these rate changes are those owners and
operators of domestic vessels operating on register (employed in
foreign trade) and owners and operators of foreign vessels on routes
within the Great Lakes system. These owners and operators must have
pilots or pilotage service as required by 46 U.S.C. 9302. There is no
minimum tonnage limit or exemption for these vessels. The statute
applies only to commercial vessels and not to recreational vessels.
Owners and operators of other vessels that are not affected by this
final rule, such as recreational boats and vessels operating within the
Great Lakes system, may elect to purchase pilotage services. However,
this election is voluntary and does not affect the Coast Guard's
calculation of the rate increase and is not a part of our estimated
cost to shippers.
    We used 2012-2014 vessel arrival data from the Coast Guard's SANS
to estimate the average annual number of vessels affected by the rate
adjustment. Using that period, we found that a mean of 126 vessels
journeyed into the Great Lakes system annually from the years 2012-
2014. These vessels entered the Great Lakes by transiting at least one
of the three pilotage districts before leaving the Great Lakes system.
These vessels often make more than one distinct stop, docking, loading,
and unloading at facilities in Great Lakes ports. Of the total trips
for the 126 vessels, there were 396 annual U.S. port arrivals before
the vessels left the Great Lakes system, based on 2012-2014 vessel data
from SANS.
Costs
    The procedural changes are the revisions to the annual ratemaking
methodology and several Great Lakes pilotage regulations. The
procedural changes include all changes to the annual ratemaking
methodology as discussed in Section IV. These procedural changes are
intended to clarify and simplify the current methodology, and increase
the accuracy of collecting information on each pilot association's
expenses and revenues in order to lower the variance between projected
revenue and actual revenue. These procedural changes do not impose any
direct costs, but indirectly affect the annual rate change. We capture
these indirect impacts of procedural changes in the rate change impact.
The rate changes resulting from the new methodology would generate
costs on industry in the form of higher payments for shippers. The
effect of the rate changes on shippers is estimated from the District
pilotage revenues. These revenues represent the costs that shippers
must pay for pilotage services. The Coast Guard sets rates so that
revenues equal the estimated cost of pilotage for these services.
    We estimate the effect of the rate changes by comparing the total
projected revenues needed to cover costs in 2015 with the figures for
2016, plus the temporary surcharges authorized by the Coast Guard. The
last full year for which we have reported and audited financial
information for the pilot association expenses is 2014, as discussed in
Section VI of this preamble. Figure 31 shows the audited revenues and
the revenue projections.

                                         Figure 31--Revenue Projections
----------------------------------------------------------------------------------------------------------------
                                                2013 Revenue     2014 Revenue                     2016 Projected
                    Area                         (audited)        (audited)       2015 Revenue       revenue
----------------------------------------------------------------------------------------------------------------
D1 Designated...............................       $1,990,865       $2,504,809       $2,725,255       $3,125,192
D1 Undesignated.............................        1,415,299        1,991,313        2,166,567        2,229,753
                                             -------------------------------------------------------------------
    Total, District 1.......................        3,406,164        4,496,122        4,891,822        5,354,945
D2 Undesignated.............................        1,267,750        2,196,822        2,099,600        2,319,844
D2 Designated...............................        1,901,627        3,295,230        3,149,396        3,309,797
                                             -------------------------------------------------------------------
    Total, District 2.......................        3,169,377        5,492,052        5,248,996        5,629,641
D3 Undesignated.............................        3,242,971        5,165,165        4,085,869        4,596,861
D3 Designated...............................        1,080,994        1,721,731        1,361,964        1,872,230
                                             -------------------------------------------------------------------
    Total, District 3.......................        4,323,965        6,886,899        5,447,835        6,469,092
                                             -------------------------------------------------------------------
        System Total........................       10,899,506       16,875,073       15,588,653       17,453,678
----------------------------------------------------------------------------------------------------------------
* Values may not sum due to rounding.

    Figure 32 details the additional cost increases to shippers by area
and district as a result of the rate changes and temporary surcharges
on traffic in Districts One, Two, and Three.

                                                Figure 32--Effect of the Final Rule by Area and District
                                                                 [$U.S.; non-discounted]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                       Projected revenue   Projected revenue   Total costs 2015        Temporary       Additional costs
                        Area                            needed in 2015      needed in 2016        (2016-2015)          surcharge      of this final rule
--------------------------------------------------------------------------------------------------------------------------------------------------------
D1 Designated.......................................          $2,725,255          $3,125,192            $399,936
D1 Undesignated.....................................           2,166,567           2,229,753              63,187
                                                     ---------------------------------------------------------------------------------------------------
    Total, District 1...............................           4,891,822           5,354,945             463,123            $450,000            $913,123
D2 Undesignated.....................................           2,099,600           2,319,844             220,244
D2 Designated.......................................           3,149,396           3,309,797             160,401
                                                     ---------------------------------------------------------------------------------------------------
    Total, District 2...............................           5,248,996           5,629,641             380,645             300,000             680,645
D3 Undesignated.....................................           4,085,869           4,596,861             510,992
D3 Designated.......................................           1,361,964           1,872,230             510,267
                                                     ---------------------------------------------------------------------------------------------------
    Total, District 3...............................           5,447,835           6,469,092           1,021,257             900,000           1,921,257
                                                     ---------------------------------------------------------------------------------------------------
        System Total................................          15,588,653          17,453,678           1,865,025           1,650,000           3,515,025
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Values may not sum due to rounding.

    The resulting difference between the projected revenue in 2015 and
the projected revenue in 2016 is the annual change in payments from
shippers to pilots as a result of the rate change. This figure is
equivalent to the total additional payments from the previous year that
shippers would incur for pilotage services from this final rule.
    The effect of the rate change in this final rule on shippers varies
by area and district. The rate changes would lead to affected shippers
operating in District One, District Two, and District Three
experiencing an increase in payments of $463,123, $380,645, and
$1,021,257, respectively, from the previous year.
    In addition to the rate changes, temporary surcharges on traffic in
District One, District Two, and District Three would be applied for the
duration of the 2016 season in order for the pilotage associations to
recover training expenses incurred. We estimate that these surcharges
would generate an additional $450,000, $300,000, and $900,000 in
revenue for the pilotage associations in District One, District Two,
and District Three, respectively, for a total additional revenue of
$1,650,000.
    To calculate an exact cost or savings per vessel is difficult
because of the variation in vessel types, routes, port arrivals,
commodity carriage, time of season, conditions during navigation, and
preferences for the extent of pilotage services on designated and
undesignated portions of the Great Lakes system. Some owners and
operators would pay more and some would pay less, depending on the
distance travelled and the number of port arrivals by their vessels.
However, the increase in costs reported earlier in this rulemaking does
capture the adjustment in payments that shippers would experience from
the previous year. The overall adjustment in payments, after taking
into account the increase in pilotage rates and the addition of
temporary surcharges would be an increase in payments by shippers of
approximately $3,515,025 across all three districts.
Benefits
    This rule will allow the Coast Guard to meet the requirements in 46
U.S.C. 9303 to review the rates for pilotage services on the Great
Lakes. The rate changes will promote safe, efficient, and reliable
pilotage service on the Great Lakes by ensuring rates cover an
association's operating expenses; provide fair pilot compensation,
adequate training, and sufficient rest periods for pilots; and ensures
the association makes enough money to fund future improvements. The
rate changes will also help recruit and retain pilots, which will
ensure a sufficient number of pilots to meet peak shipping demand,
which would help reduce delays caused by pilot shortages. During the
2014 shipping season, shippers reported over $5 million in delay
related costs (lost charter hire and fuel spent idling) from ships
having to wait for pilots.\69\ The procedural changes will increase the
accuracy of pilotage data by utilizing a uniform financial reporting
system (see discussion of 46 CFR 403.300 in Part V of the preamble).
The procedural changes will also promote greater transparency and
simplicity in the ratemaking methodology through annual revenue audits
(see discussion of 46 CFR 404.1 in Part V of the preamble).
---------------------------------------------------------------------------

    \69\ See July 18, 2014 letter from the Shipping Federation of
Canada and the United States Great Lakes Shipping Association to
Admiral Zukunft.
---------------------------------------------------------------------------

B. Small Entities

    As required by the Regulatory Flexibility Act,\70\ we have
considered whether this final rule would have a significant economic
impact on a substantial number of small entities. The term ``small
entities'' comprises small businesses, not-for-profit organizations
that are independently owned and operated and are not dominant in their
fields, and governmental jurisdictions with populations of less than
50,000 people.
---------------------------------------------------------------------------

    \70\ 5 U.S.C. 601-612.
---------------------------------------------------------------------------

    We expect that entities affected by this rule would be classified
under the North American Industry Classification System (NAICS) code
subsector 483--Water Transportation, which includes the following 6-
digit NAICS codes for freight transportation: 483111--Deep Sea Freight
Transportation, 483113--Coastal and Great Lakes Freight Transportation,
and 483211--Inland Water Freight Transportation. According to the Small
Business Administration's definition, a U.S. company with these NAICS
codes and employing less than 500 employees is considered a small
entity.
    For this rule, we reviewed recent company size and ownership data
for the period 2012 through 2014 in the Coast Guard's Marine
Information for Safety and Law Enforcement database,

and we reviewed business revenue and size data provided by publicly
available sources such as MANTA \71\ and Cortera.\72\ We found that
large, foreign-owned shipping conglomerates or their subsidiaries owned
or operated all vessels engaged in foreign trade on the Great Lakes.
---------------------------------------------------------------------------

    \71\ See http://www.manta.com/.
    \72\ See https://www.cortera.com/.
---------------------------------------------------------------------------

    There are three U.S. entities affected by the final rule that
receive revenue from pilotage services. These are the three pilot
associations that provide and manage pilotage services within the Great
Lakes districts. Two of the associations operate as partnerships and
one operates as a corporation. These associations are designated with
the same NAICS industry classification and small-entity size standards
described above, but they have fewer than 500 employees; combined, they
have approximately 65 total employees. We expect no adverse effect to
these entities from this final rule because all associations receive
enough revenue to balance the projected expenses associated with the
projected number of bridge hours and pilots.
    Therefore, the Coast Guard certifies under 5 U.S.C. 605(b) that
this rule will not have a significant economic effect on a substantial
number of small entities.

C. Assistance for Small Entities

    Under the Small Business Regulatory Enforcement Fairness Act of
1996 \73\ we want to assist small entities in understanding this final
rule so that they can better evaluate its effects on them and
participate in the rulemaking. If the final rule would affect your
small business, organization, or governmental jurisdiction and you have
questions concerning its provisions or options for compliance, please
consult Mr. Todd Haviland, Director, Great Lakes Pilotage, Commandant
(CG-WWM-2), Coast Guard; telephone<PHONE_NUMBER>, email
<EMAIL_ADDRESS>or fax<PHONE_NUMBER>. The Coast Guard will not
retaliate against small entities that question or complain about this
rule or any policy or action of the Coast Guard.
---------------------------------------------------------------------------

    \73\ Public Law 104-121, sec. 213(a).
---------------------------------------------------------------------------

    Small businesses may send comments on the actions of Federal
employees who enforce, or otherwise determine compliance with, Federal
regulations to the Small Business and Agriculture Regulatory
Enforcement Ombudsman and the Regional Small Business Regulatory
Fairness Boards. The Ombudsman evaluates these actions annually and
rates each agency's responsiveness to small business. If you wish to
comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR
(1-888-734-3247).

D. Collection of Information

    This rule calls for no new collection of information under the
Paperwork Reduction Act of 1995 \74\ but adjusts the burden for an
existing COI number 1625-0086, as described below.
---------------------------------------------------------------------------

    \74\ 44 U.S.C. 3501-3520.
---------------------------------------------------------------------------

    Title: Great Lakes Pilotage.
    OMB Control Number: 1625-0086.
    Summary of the Collection of Information: The rule requires
continued submission of data to an electronic collection system,
identified as the Great Lakes Pilotage Management System, which will
eventually replace the manual paper submissions currently used to
collect data on bridge hours, vessel delay, vessel detention, vessel
cancellation, vessel movage, pilot travel, revenues, pilot
availability, and related data. Further, the rule requires pilot
associations to provide copies of their paper source forms, or billing
forms, until the transfer to electronic submission is available later
in 2016. The pilot associations currently provide these documents to
the Coast Guard each month.
    Need for Information: This information is needed in order to more
accurately set future rates.
    Proposed Use of Information: We use this information to comply with
the statutory and regulatory requirements for the Coast Guard's
ratemaking and oversight functions.
    Description of Respondents: The respondents represent the three
U.S. Great Lakes pilotage associations whose 37 pilots provide pilotage
service, as well as an estimated 11 applicants for 2016 pilot
positions.
    Number of Respondents: The rule increases the estimated number of
respondents from 9 to 51 per year: The 3 pilot association
representatives, 6 applicants, and 42 current pilots.
    Frequency of Response: Frequency is dictated by marine traffic
levels and association staffing.
    Burden of Response: We estimate the burden will vary from 15
minutes for a pilot to complete the source form to one hour for the
pilot association to transmit those forms to the Coast Guard.
    Estimate of Annual Burden: We estimate the total annual burden will
increase from 19 to 2,129.5 hours. You need not respond to a collection
of information unless it displays a currently valid control number from
OMB. The Coast Guard must have OMB's approval before it can enforce
collection of information requirements.

E. Federalism

    A rule has implications for federalism under Executive Order 13132,
Federalism, if it has a substantial direct effect on the States, on the
relationship between the national government and the States, or on the
distribution of power and responsibilities among the various levels of
government. We have analyzed this rule under that order and have
determined that it is consistent with the fundamental federalism
principles and preemption requirements described in Executive Order
13132. Our analysis is explained below.
    Congress directed the Coast Guard to establish ``rates and charges
for pilotage services.'' \75\ This regulation is issued pursuant to
that requirement and is preemptive of state law.\76\ Therefore, the
rule is consistent with the principles of federalism and preemption
requirements in Executive Order 13132.
---------------------------------------------------------------------------

    \75\ 46 U.S.C. 9303(f).
    \76\ See 46 U.S.C. 9306: A ``State or political subdivision of a
State may not regulate or impose any requirement on pilotage on the
Great Lakes.'' As a result, States or local governments are
expressly prohibited from regulating within this category.
---------------------------------------------------------------------------

F. Unfunded Mandates Reform Act

    The Unfunded Mandates Reform Act of 1995 \77\ requires Federal
agencies to assess the effects of their discretionary regulatory
actions. In particular, the Act addresses actions that may result in
the expenditure by a State, local, or Tribal Government, in the
aggregate, or by the private sector of $100,000,000 (adjusted for
inflation) or more in any one year. Though this rule will not result in
such an expenditure, we discuss its effects elsewhere in this preamble.
---------------------------------------------------------------------------

    \77\ 2 U.S.C. 1531-1538.
---------------------------------------------------------------------------

G. Taking of Private Property

    This rule does not cause a taking of private property or otherwise
have taking implications under Executive Order 12630, Governmental
Actions and Interference with Constitutionally Protected Property
Rights.

H. Civil Justice Reform

    This rule meets applicable standards in sections 3(a) and 3(b)(2)
of Executive Order 12988, Civil Justice Reform, to minimize litigation,
eliminate ambiguity, and reduce burden.

I. Protection of Children

    We have analyzed this rule under Executive Order 13045, Protection
of Children from Environmental Health Risks and Safety Risks. It is not
an economically significant rule and creates no environmental risk to
health

or risk to safety that might disproportionately affect children.

J. Indian Tribal Governments

    This rule has no tribal implications under Executive Order 13175,
Consultation and Coordination with Indian Tribal Governments, because
it has no substantial direct effect on one or more Indian tribes, on
the relationship between the Federal Government and Indian tribes, or
on the distribution of power and responsibilities between the Federal
Government and Indian tribes.

K. Energy Effects

    We have analyzed this rule under Executive Order 13211, Actions
Concerning Regulations That Significantly Affect Energy Supply,
Distribution, or Use. We have determined that it is not a ``significant
energy action'' under that order because it is not a ``significant
regulatory action'' under Executive Order 12866 and is not likely to
have a significant adverse effect on the supply, distribution, or use
of energy. The Administrator of the Office of Information and
Regulatory Affairs has not designated it as a significant energy
action. Therefore, it does not require a Statement of Energy Effects
under Executive Order 13211.

L. Technical Standards

    The National Technology Transfer and Advancement Act \78\ directs
agencies to use voluntary consensus standards in their regulatory
activities unless the agency provides Congress, through OMB, with an
explanation of why using these standards would be inconsistent with
applicable law or otherwise impractical. Voluntary consensus standards
are technical standards (e.g., specifications of materials,
performance, design, or operation; test methods; sampling procedures;
and related management systems practices) that are developed or adopted
by voluntary consensus standards bodies. This rule does not use
technical standards. Therefore, we did not consider the use of
voluntary consensus standards.
---------------------------------------------------------------------------

    \78\ 15 U.S.C. 272, note.
---------------------------------------------------------------------------

M. Environment

    We have analyzed this rule under Department of Homeland Security
Management Directive 023-01 and Commandant Instruction M16475.lD, which
guide the Coast Guard in complying with the National Environmental
Policy Act of 1969,\79\ and have determined that it is one of a
category of actions that do not individually or cumulatively have a
significant effect on the human environment. An environmental analysis
checklist and categorical exclusion supporting this determination are
available in the docket. This rule is categorically excluded under
section 2.B.2, figure 2-1, paragraph 34(a) of the Instruction, which
pertains to minor regulatory changes that are editorial or procedural
in nature. This rule adjusts rates in accordance with applicable
statutory and regulatory mandates.
---------------------------------------------------------------------------

    \79\ 42 U.S.C. 4321-4370f.
---------------------------------------------------------------------------

List of Subjects

46 CFR Part 401

    Administrative practice and procedure, Great Lakes, Navigation
(water), Penalties, Reporting and recordkeeping requirements, Seamen.

46 CFR Part 403

    Great Lakes, Navigation (water), Reporting and recordkeeping
requirements, Seamen, Uniform System of Accounts.

46 CFR Part 404

    Great Lakes, Navigation (water), Seamen.

    For the reasons discussed in the preamble, the Coast Guard amends
46 CFR parts 401, 403, and 404 as follows:

Title 46--Shipping

PART 401--GREAT LAKES PILOTAGE REGULATIONS

0
1. The authority citation for part 401 is revised to read as follows:

    Authority:  46 U.S.C. 2103, 2104(a), 6101, 7701, 8105, 9303,
9304; Department of Homeland Security Delegation No.
0170.1(II)(92.a), (92.d), (92.e), (92.f).

0
2. Revise Sec.  401.405 to read as follows:

Sec.  401.405  Pilotage rates and charges.

    (a) The hourly rate for pilotage service on--
    (1) The St. Lawrence River is $580;
    (2) Lake Ontario is $398;
    (3) Lake Erie is $448;
    (4) The navigable waters from Southeast Shoal to Port Huron, MI is
$684;
    (5) Lakes Huron, Michigan, and Superior is $264; and
    (6) The St. Mary's River is $528.
    (b) The pilotage charge is calculated by multiplying the hourly
rate by the hours or fraction thereof (rounded to the nearest 15
minutes) that the registered pilot is on the bridge or available to the
master of the vessel, multiplied by the weighting factor shown in Sec.
401.400 of this part.

Sec.  401.407  [Removed]

0
3. Remove Sec.  401.407.

Sec.  401.410  [Removed]

0
4. Remove Sec.  401.410.

0
5. Revise Sec.  401.420 to read as follows:

Sec.  401.420  Cancellation, delay, or interruption in rendition of
services.

    (a) Except as otherwise provided in this section, a vessel can be
charged as authorized in Sec.  401.405 of this part for the waters in
which the event takes place, if--
    (1) A U.S. pilot is retained on board while a vessel's passage is
interrupted;
    (2) A U.S. pilot's departure from the vessel after the end of an
assignment is delayed, and the pilot is detained on board, for the
vessel's convenience; or
    (3) A vessel's departure or movage is delayed, for the vessel's
convenience, beyond the time that a U.S. pilot is scheduled to report
for duty, or reports for duty as ordered, whichever is later.
    (b) When an order for a U.S. pilot's service is cancelled after
that pilot has begun traveling to the designated pickup place, the
vessel can be charged for the pilot's reasonable travel expenses to and
from the pilot's base; and the vessel can be charged for the time
between the pilot's scheduled arrival, or the pilot's reporting for
duty as ordered, whichever is later, and the time of cancellation.
    (c) Between May 1 and November 30, a vessel is not liable for
charges under paragraphs (a)(1) or (2) of this section, if the
interruption or detention was caused by ice, weather, or traffic.
    (d) A pilotage charge made under this section takes the place and
precludes payment of any charge that otherwise could be made under
Sec.  401.405 of this part.

0
6. Revise Sec.  401.428 to read as follows:

Sec.  401.428  Boarding or discharging a pilot other than at designated
points.

    For a situation in which a vessel boards or discharges a U.S. pilot
at a point not designated in Sec.  401.450 of this part, it could incur
additional charges as follows:
    (a) Charges for the pilot's reasonable travel expenses to or from
the pilot's base, if the situation occurs for reasons outside of the
vessel's control, for example for a reason listed in Sec.  401.420(c)
of this part; or
    (b) Charges for associated hourly charges under Sec.  401.405 of
this part, as well as the pilot's travel expenses as described in
paragraph (a), if the situation takes place for the convenience of the
vessel.

PART 403--GREAT LAKES PILOTAGE UNIFORM ACCOUNTING SYSTEM

0
7. The authority citation for part 403 is revised to read as follows:

    Authority:  46 U.S.C. 2103, 2104(a), 9303, 9304; Department of
Homeland Security Delegation No. 0170.1(II)(92.a), (92.f).

Sec.  403.120  [Removed]

0
8. Remove Sec.  403.120.

0
9. Revise Sec.  403.300 to read as follows:

Sec.  403.300  Financial reporting requirements.

    (a) Each association must maintain records for dispatching,
billing, and invoicing, and make them available for Director's
inspection, using the system currently approved by the Director.
    (b) Each association must submit the compiled financial data and
any other required statistical data, and written certification of the
data's accuracy signed by an officer of the association, to the
Director within 30 days of the end of the annual reporting period,
unless otherwise authorized by the Director.
    (c) By April 1 of each year, each association must obtain an
unqualified audit report for the preceding year, audited and prepared
in accordance with generally accepted accounting standards by an
independent certified public accountant, and electronically submit that
report with any associated settlement statements to the Director by
April 7.

0
10. Revise Sec.  403.400 to read as follows:

Sec.  403.400  Uniform pilot's source form.

    (a) Each association must record pilotage transactions using the
system currently approved by the Director.
    (b) Each pilot must complete a source form in detail as soon as
possible after completion of an assignment, with adequate support for
reimbursable travel expenses.
    (c) Upon receipt, each association must complete the source form by
inserting the rates and charges specified in 46 CFR part 401.

0
11. Revise part 404 to read as follows:

PART 404--GREAT LAKES PILOTAGE RATEMAKING

Sec.
404.1 General ratemaking provisions.
404.2 Procedure and criteria for recognizing association expenses.
404.3 through 404.99 [Reserved].
404.100 Ratemaking and annual reviews in general.
404.101 Ratemaking step 1: Recognize previous operating expenses.
404.102 Ratemaking step 2: Project operating expenses, adjusting for
inflation or deflation.
404.103 Ratemaking step 3: Determine number of pilots needed.
404.104 Ratemaking step 4: Determine target pilot compensation.
404.105 Ratemaking step 5: Project return on investment.
404.106 Ratemaking step 6: Project needed revenue.
404.107 Ratemaking step 7: Initially calculate base rates.
404.108 Ratemaking step 8: Review and finalize rates.

    Authority:  46 U.S.C. 2103, 2104(a), 9303, 9304; Department of
Homeland Security Delegation No. 0170.1(II)(92.a), (92.f).

Sec.  404.1  General ratemaking provisions.

    (a) The goal of ratemaking is to promote safe, efficient, and
reliable pilotage service on the Great Lakes, by generating for each
pilotage association sufficient revenue to reimburse its necessary and
reasonable operating expenses, fairly compensate trained and rested
pilots, and provide an appropriate profit to use for improvements.
    (b) Annual reviews of pilotage association expenses and revenue
will be conducted in conjunction with an independent party, and data
from completed reviews will be used in ratemaking under this part.
    (c) Full ratemakings to establish multi-year base rates and interim
year reviews and adjustments will be conducted in accordance with Sec.
404.100 of this part.

Sec.  404.2  Procedure and criteria for recognizing association
expenses.

    (a) A pilotage association must report each expense item for which
it seeks reimbursement through the charging of pilotage rates, and make
supporting information available to the Director. The Director must
recognize the item as both necessary for providing pilotage service,
and reasonable as to its amount when compared to similar expenses paid
by others in the maritime or other comparable industry, or when
compared with Internal Revenue Service guidelines. The association will
be given an opportunity to contest any preliminary determination that a
reported item should not be recognized.
    (b) The Director applies the following criteria to recognize an
expense item as necessary and reasonable within the meaning of
paragraph (a) of this section:
    (1) Operating or capital lease costs. Conformity to market rates,
or in the absence of a comparable market, conformity to depreciation
plus an allowance for return on investment, computed as if the asset
had been purchased with equity capital.
    (2) Return-on-investment. A market equivalent return-on-investment
is allowed for the net capital invested in the association by its
members, if that investment is necessary for providing pilotage
service.
    (3) Transactions not directly related to providing pilotage
services. Revenues and expenses generated from these transactions are
included in ratemaking calculations as long as the revenues exceed the
expenses. If these transactions adversely affect providing pilotage
services, the Director may make rate adjustments or take other steps to
ensure pilotage service is provided.
    (4) Pilot benefits. Association-paid benefits, including medical
and pension benefits and profit sharing, are treated as pilot
compensation.
    (5) Profit sharing for non-pilot association employees. These
association expenses are recognizable.
    (6) Legal expenses. These association expenses are recognizable
except for any and all expenses associated with legal action against
the U.S. government or its agents.
    (c) The Director does not recognize the following expense items as
necessary and reasonable within the meaning of paragraph (a) of this
section:
    (1) Unreported or undocumented expenses, and expenses that are not
reasonable in their amounts or not reasonably related to providing
safe, efficient, and reliable pilotage service;
    (2) Revenues and expenses from Canadian pilots that are commingled
with revenues and expenses from U.S. pilots;
    (3) Lobbying expenses; or
    (4) Expenses for personal matters.

Sec. Sec.  404.3 through 404.99   [Reserved]

Sec.  404.100  Ratemaking and annual reviews in general.

    (a) The Director establishes base pilotage rates by a full
ratemaking pursuant to Sec.  404.101-404.108 of this part, conducted at
least once every 5 years and completed by March 1 of the first year for
which the base rates will be in effect. Base rates will be set to meet
the goal specified in Sec.  404.1(a) of this part.
    (b) In the interim years preceding the next scheduled full rate
review, the Director will review the existing rates to ensure that they
continue to meet the goal specified in Sec.  404.1(a) of this part. If
interim-year adjustments are needed, they will be set according to one
of the following procedures, selected as the Director deems best suited
to adjust the rates to meet that goal--
    (1) Automatic annual adjustments, set during the previous full rate
review in anticipation of economic trends over the term of the rates
set by that review;

    (2) Annual adjustments reflecting consumer price changes as
documented in the U.S. Bureau of Labor Statistics Midwest Region
Consumer Price Index (CPI-U); or
    (3) A new full ratemaking.

Sec.  404.101  Ratemaking step 1: Recognize previous operating
expenses.

    The Director uses an independent third party to review each
pilotage association's expenses, as reported and audited for the last
full year for which figures are available, and determines which expense
items to recognize for base ratemaking purposes in accordance with
Sec.  404.2 of this part.

Sec.  404.102  Ratemaking step 2: Project operating expenses, adjusting
for inflation or deflation.

    The Director projects the base year's non-compensation operating
expenses for each pilotage association, using recognized operating
expense items from Sec.  404.101. Recognized operating expense items
subject to inflation or deflation factors are adjusted for those
factors based on the subsequent year's U.S. government consumer price
index data for the Midwest, projected through the year in which the new
base rates take effect.

Sec.  404.103  Ratemaking step 3: Determine number of pilots needed.

    (a) The Director determines the base number of pilots needed by
dividing each area's peak pilotage demand data by its pilot work cycle.
The pilot work cycle standard includes any time that the Director finds
to be a necessary and reasonable component of ensuring that a pilotage
assignment is carried out safely, efficiently, and reliably for each
area. These components may include but are not limited to--
    (1) Amount of time a pilot provides pilotage service or is
available to a vessel's master to provide pilotage service;
    (2) Pilot travel time, measured from the pilot's base, to and from
an assignment's starting and ending points;
    (3) Assignment delays and detentions;
    (4) Administrative time for a pilot who serves as a pilotage
association's president;
    (5) Rest between assignments, as required by 46 CFR 401.451;
    (6) Ten days' recuperative rest per month from April 15 through
November 15 each year, provided that lesser rest allowances are
approved by the Director at the pilotage association's request, if
necessary to provide pilotage without interruption through that period;
and
    (7) Pilotage-related training.
    (b) Peak pilotage demand and the base seasonal work standard are
based on averaged available and reliable data, as so deemed by the
Director, for a multi-year base period. Normally, the multi-year period
is the 10 most recent full shipping seasons, and the data source is a
system approved under 46 CFR 403.300. Where such data are not available
or reliable, the Director also may use data, from additional past full
shipping seasons or other sources, that the Director determines to be
available and reliable.
    (c) The number of pilots needed in each district is calculated by
totaling the area results by district and rounding them to the nearest
whole integer. For supportable circumstances, the Director may make
reasonable and necessary adjustments to the rounded result to provide
for changes that the Director anticipates will affect the need for
pilots in the district over the period for which base rates are being
established.
    (d) The Director projects, based on the number of persons applying
under 46 CFR part 401 to become U.S. Great Lakes registered pilots, and
on information provided by the district's pilotage association, the
number of pilots expected to be fully working and compensated during
the first year of the period for which base rates are being
established.

Sec.  404.104  Ratemaking step 4: Determine target pilot compensation.

    The Director determines base individual target pilot compensation
using a compensation benchmark, set after considering the most relevant
currently available non-proprietary information. For supportable
circumstances, the Director may make necessary and reasonable
adjustments to the benchmark. The Director determines each pilotage
association's total target pilot compensation by multiplying individual
target pilot compensation by the number of pilots projected under Sec.
404.103(d) of this part.

Sec.  404.105  Ratemaking step 5: Project return on investment.

    The Director calculates each pilotage association's allowed base
return on investment by adding the projected adjusted operating
expenses from Sec.  404.102 and the total target pilot compensation
from Sec.  404.104 of this part, multiplied by the preceding year's
average annual rate of return for new issues of high grade corporate
securities.

Sec.  404.106  Ratemaking step 6: Project needed revenue.

    The Director calculates each pilotage association's base projected
needed revenue by adding the projected adjusted operating expenses from
Sec.  404.102 of this part, the total target pilot compensation from
Sec.  404.104 of this part, and the projected return on investment from
Sec.  404.105 of this part.

Sec.  404.107  Ratemaking step 7: Initially calculate base rates.

    (a) The Director initially calculates base hourly rates by dividing
the projected needed revenue from Sec.  404.106 of this part by
averages of past hours worked in each district's designated and
undesignated waters, using available and reliable data for a multi-year
period set in accordance with Sec.  404.103(b) of this part.
    (b) If the result of this calculation initially shows an hourly
rate for the designated waters of a district that would exceed twice
the hourly rate for undesignated waters, the initial designated-waters
rate will be adjusted so as not to exceed twice the hourly
undesignated-waters rate. The adjustment is a reallocation only and
will not increase or decrease the amount of revenue needed in the
affected district.

Sec.  404.108  Ratemaking step 8: Review and finalize rates.

    The Director reviews the base pilotage rates initially set in Sec.
404.107 of this part to ensure they meet the goal set in Sec.  404.1(a)
of this part, and either finalizes them or first makes necessary and
reasonable adjustments to them based on requirements of Great Lakes
pilotage agreements between the United States and Canada, or other
supportable circumstances. Adjustments will be made consistent with
Sec.  404.107(b) of this part.

    Dated: 1 March 2016.
J.G. Lantz,
Acting Assistant Commandant for Prevention Policy, U.S. Coast Guard.
[FR Doc. 2016-04894 Filed 3-1-16; 4:15 pm]
 BILLING CODE 9110-04-P