[Federal Register Volume 77, Number 39 (Tuesday, February 28, 2012)]
[Rules and Regulations]
[Pages 11752-11774]
[FR Doc No: 2012-4453]

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DEPARTMENT OF HOMELAND SECURITY

Coast Guard

46 CFR Part 401

[USCG-2011-0328]
RIN 1625-AB70

2012 Rates for Pilotage on the Great Lakes

AGENCY: Coast Guard, DHS.

ACTION: Final rule.

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SUMMARY: The Coast Guard is adjusting the rates for pilotage services
on the Great Lakes, which were last amended in February 2011. The
adjustments establish new base rates and are made in accordance with a
required full ratemaking procedure. They result in an average decrease
of approximately 2.62 percent from the rates established in February
2011. This final rule promotes the Coast Guard's strategic goal of
maritime safety.

DATES: This final rule is effective August 1, 2012.

ADDRESSES: Comments and material received from the public, as well as
documents mentioned in this preamble as being available in the docket,
are part of docket USCG-2011-0328 and are available for inspection or
copying at the Docket Management Facility (M-30), U.S. Department of
Transportation, West Building Ground Floor, Room W12-140, 1200 New
Jersey Avenue SE., Washington, DC 20590, between 9 a.m. and 5 p.m.,
Monday through Friday, except Federal holidays. You may also find this
docket on the Internet by going to http://www.regulations.gov,
inserting USCG-2011-0328 in the ``Keyword'' box, and then clicking
``Search.''

FOR FURTHER INFORMATION CONTACT: If you have questions on this rule,
call or email Mr. Todd Haviland, Management & Program Analyst, Office
of Great Lakes Pilotage, Commandant (CG-5522), Coast Guard; telephone
202-372-2037, email<EMAIL_ADDRESS>or fax<PHONE_NUMBER>. If
you have questions on viewing the docket, call Renee V. Wright, Program
Manager, Docket Operations, telephone<PHONE_NUMBER>.

SUPPLEMENTARY INFORMATION:

Table of Contents for Preamble

I. Abbreviations
II. Regulatory History
III. Basis and Purpose
IV. Background
V. Discussion of Comments and Changes
VI. Discussion of the Final Rule
    A. Summary
    B. Calculating the Rate Adjustment

VII. Regulatory Analyses
    A. Regulatory Planning and Review
    B. Small Entities
    C. Assistance for Small Entities
    D. Collection of Information
    E. Federalism
    F. Unfunded Mandates Reform Act
    G. Taking of Private Property
    H. Civil Justice Reform
    I. Protection of Children
    J. Indian Tribal Governments
    K. Energy Effects
    L. Technical Standards
    M. Environment

I. Abbreviations

AMOU American Maritime Officers Union
CFR Code of Federal Regulations
COBRA Consolidated Omnibus Budget Reconciliation Act
CPA Certified public accountant
CPI Consumer Price Index
FR Federal Register
GLPAC Great Lakes Pilotage Advisory Committee
NAICS North American Industry Classification System
NPRM Notice of proposed rulemaking
OMB Office of Management and Budget
ROI Return on Investment
Sec.  Section symbol
U.S.C. United States Code

II. Regulatory History

    On August 4, 2011, we published a notice of proposed rulemaking
(NPRM) entitled ``2012 Rates for Pilotage on the Great Lakes'' in the
Federal Register (76 FR 47095). We received 10 comments on the proposed
rule. No public meeting was requested and none was held.

III. Basis and Purpose

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

IV. Background

    The vessels affected by this rule traverse the U.S. waters of the
Great Lakes and are engaged in foreign trade. United States and
Canadian lake freighters, or ``lakers,'' \2\ which account for most
commercial shipping on the Great Lakes, are not affected. 46 U.S.C.
9302.
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    \2\ A ``laker'' is a commercial cargo vessel especially designed
for and generally limited to use on the Great Lakes, engaged in
trade across the Great Lakes region, including trade between the
U.S. and Canada.
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    The U.S. waters of the Great Lakes and the St. Lawrence Seaway are
divided into three pilotage districts. Pilotage in each district is
provided by an association certified by the Coast Guard Director of
Great Lakes Pilotage. It is important to note that, while we set rates,
we do not control the actual number of pilots an association maintains,
as long as the association is able to provide safe, efficient, and
reliable pilotage service. We also do not control the actual
compensation that pilots receive. The actual compensation is determined
by each of the three district associations, which use different
compensation practices.
    District One, consisting of Areas 1 and 2, includes all U.S. waters
of the St. Lawrence River and Lake Ontario. District Two, consisting of
Areas 4 and 5, includes all U.S. waters of Lake Erie, the Detroit
River, Lake St. Clair, and the St. Clair River. District Three,
consisting of Areas 6, 7, and 8, includes all U.S. waters of the St.
Mary's River, Sault Ste. Marie Locks, and Lakes Michigan, Huron, and
Superior. Area 3 is the Welland Canal, which is serviced exclusively by
the Canadian Great Lakes Pilotage Authority and, accordingly, is not
included in the U.S. rate structure. Areas 1, 5, and 7 have been
designated by Presidential Proclamation, pursuant to the Act, to be
waters in which pilots must at all times be fully engaged in the
navigation of vessels in their charge. Areas 2, 4, 6, and 8 have not
been so designated because they are open bodies of water. While working
in those undesignated areas, pilots must only ``be on board and
available to direct the navigation of the vessel at the discretion of
and subject to the customary authority of the master.'' 46 U.S.C.
9302(a)(1)(B).
    This rule is a full ratemaking to establish new base pilotage rates
using the Appendix A methodology. Among other things, the Appendix A
methodology requires us to review detailed pilot association financial
information, and we contract with independent accountants to assist in
that review. The last full ratemaking established the current base
rates in 2006 (final rule, 71 FR 16501, April 3, 2006). Following the
2006 full ratemaking, and for the first time since 1996 when the
Appendix A and Appendix C methodologies were established, we began a
series of five annual Appendix C rate reviews and adjustments, each of
which produced overall rate increases. The most recent Appendix C
annual review was concluded on February 4, 2011 (76 FR 6351), and
adjusted pilotage rates effective August 1, 2011.
    We intended to establish new base rates within 5 years of the 2006
full ratemaking, or by March 1, 2011. In order to meet that deadline,
we started our ratemaking process early and were using 2007 financial
data reported by the pilot associations as audited by our independent
accountant. However, the independent accountant's report on pilot
association financial information proved to be incomplete and
inadequate for ratemaking purposes due to inconsistent financial data
collection. We went to great lengths and expended significant time and
resources to resolve these inadequacies with the independent
accountant, to no avail. We finally concluded, as we previously
announced last year (2011 NPRM, 75 FR 51191 at 51192, col. 3), that we
would need to contract with a new independent accountant, which delayed
this Appendix A ratemaking. The second independent accountant used the
most recent available data, which was for 2009. This year's NPRM and
this final rule both are based on our review of the second independent
accountant's financial report of 2009 data. We discuss the comments by
the pilot associations on that report and the independent accountant's
final findings in our ``Summary--Independent Accountant's Report on
Pilot Association Expenses, with Pilot Association Comments and
Accountant's Responses,'' which

appears in the docket for this rulemaking.

V. Discussion of Comments and Changes

    We received public comments on our NPRM from 10 commenters. Some
commenters submitted multiple comments. Nine commenters were groups or
individuals representing pilots; the remaining commenter was an
association representing the agents, owners, and operators of ocean
ships trading to or from the U.S. Great Lakes. As a result of these
comments and as summarized in part VII.A of this preamble, when the
rate adjustments shown in Tables 35 through 37 of this preamble are
averaged, the average decrease in rates for 2012 will be 2.62 percent
and not 4 percent as we proposed in the NPRM.
    The 2009 audit base year. Nine commenters questioned the Coast
Guard's use of 2009 as the auditing base year for this ratemaking. They
pointed out that the Coast Guard originally stated (see, for example,
the 2007 final rule, 72 FR 53158 at 53159 col. 3, Sep. 18, 2007) that
we would base the next Appendix A ratemaking on audited data ``at the
completion of the 2007 navigation season.'' Some commenters felt we had
not adequately explained why our original audit was unusable, or why we
did not have the second auditor work with the same data that was
available to the first auditor. All of the commenters noted that 2009
was historically their ``all time lowest season by traffic volume,''
and hence not representative. One commenter suggested that we
``apparently selected [2009] solely for the effect that it would have
on the outcome of the rate calculation.'' Some commenters also felt
that the use of a historically low-traffic season as the auditing base
year ``flies in the face of reason'' and freezes the expense base at
2009 levels even though the NPRM projects that 2012 traffic levels will
be 56 percent higher overall than they were in 2009.
    As discussed in part IV of this preamble, the first independent
accountant's report was based on improperly collected 2007 financial
data, and proved unusable for ratemaking. We discussed the issue in
greater detail at the Great Lakes Pilotage Advisory Committee (GLPAC)
meeting held on October 18, 2011, which was attended by most of the
nine commenters or their representatives. A transcript of that meeting
appears in the docket. It is true that 2009 was a historically low base
year, but we have traditionally and consistently used the most recent
financial data available for ratemaking purposes and there was no
legitimate basis to depart from this precedent. As we explained at the
GLPAC meeting, we intend to use the Appendix A ratemaking methodology
annually, beginning next year, so that year-to-year variations in
financial conditions can be more quickly reflected in the rates. The
impact of using the 2009 data is somewhat ameliorated by the
adjustments we are making in this final rule, in response to comments
on the NPRM. Also, the improved conditions pilots experienced in 2010
should be reflected in the next ratemaking cycle.
    Demand projections. Four commenters cited the Coast Guard's
``consistent over-projection of traffic'' as the main reason pilots
consistently fail to meet target compensation, have the lowest
compensation of any pilots in America, and are leaving Great Lakes
piloting for other work. These commenters also said traffic falls short
of projection, so sufficient revenue is not generated. One commenter
suggested that the Coast Guard deliberately overestimates projected
traffic levels to harm the pilots. Other commenters suggested that we
should be more transparent in revealing our sources for these
projections.
    We would like to be more transparent in publicizing these sources
and the weight we assign to each source. However, we know of no single
source that projects either demand for pilotage service or Great Lakes
traffic that will require a U.S. pilot. Therefore, we must rely on
historic data, input from pilots and industry, periodicals and trade
magazines, and information from conferences to project demand for
pilotage services. We reduced our projections for pilotage service
demand by nearly 27 percent between 2006 and 2011. For this 2012
ratemaking, we anticipate an additional 4.3 percent decrease in demand
for pilotage services. At the May 20, 2011, GLPAC meeting, a transcript
of which also appears in the docket, we presented an analysis of
projected bridge hours to actual bridge hours. The analysis
demonstrates that the projected and actual bridge hours values converge
between 2006 and 2010. This convergence shows that our ability to
project demand has improved, and we expect that improvement to
continue.
    We discussed the issue of pilotage demand and traffic projection
again at the October 2011 GLPAC meeting. GLPAC recommended that we
consider adding a review of using a 3-, 5-, or 7-year rolling average
of actual bridge hours to project bridge hours for future rates to the
proposed bridge hour study. We agreed to include this recommendation in
the proposed study.
    Work standards and bridge hours. Three commenters said that the
current workload standard of 1,000 bridge hours in designated waters
and 1,800 bridge hours in undesignated waters is unrealistically high
and jeopardizes safe, efficient, and reliable pilotage service. This
issue was discussed at GLPAC's October 2011 meeting and GLPAC approved
our outline for a third-party study of bridge hours and the workload
standard. We are currently preparing the necessary documentation to
select a suitable third party to conduct the study. While there is
general consensus that a more accurate bridge hour standard needs to be
developed, there is no evidence that the current standard is
``unrealistically high and jeopardizes safe, efficient, and reliable
pilotage service.'' We will continue to use the current established
standard until a new study provides an alternate standard.
    Another commenter said that we had departed from the ``previous
Appendix A procedure'' in calculating revenue per bridge hour. However
this commenter did not provide any further explanation. This commenter
said we should ``revert to the prior more reasonable practice'' of
using revenue and bridge hours from the audited year, adjusted for
changes in the interim period between the audited year and the base
year. We have never performed the procedure outlined by this commenter.
We followed the same procedure we used for the last Appendix A review
(71 FR 16501 at 16509, paragraph H), and the steps required by the
methodology to calculate projected revenue by multiplying the projected
demand for bridge hours by the rates currently in effect.
    Coast Guard discretionary authority. Two commenters who represent
pilots said without further explanation that we should use our broad
Appendix A authority to revise the proposed 2012 rates and make them
``fairer, more reasonable, and indicative of actual expected traffic
levels.'' We disagree with the underlying premise of this comment that
the Appendix A methodology provides us with broad authority to revise
rates. The Appendix A methodology requires strict adherence to a series
of steps and equations that leads to consistent ratemaking results. As
previously stated, we rely on historic data, input from pilots and
industry, periodicals and trade magazines, and information from
conferences to project demand for pilotage services and traffic levels.

    Other comments relating to methodology. An industry commenter said
we consistently ignore the actual cost to the industry of pilotage
services in the United States and that our ratemaking methodology only
makes reference to projected or required revenues and never includes
any mention of actual costs for previous years. We disagree. Operating
expenses represent one of the primary drivers of the current ratemaking
methodology. The operating expenses reported in the pilot association
financial statements and the independent accountant's audits are actual
expenses that are used in developing the ``projection of operating
expenses'' for the coming year. This is the first step of an Appendix A
ratemaking. In addition, the expenses of pilot compensation and
benefits that must be recovered in the rate are also included in the
calculation using past years' data to project the cost into the coming
year. The Appendix A methodology similarly dictates how we project
revenues for ratemaking purposes which also require an examination of
historical data. The commenter states that no where does the
methodology mention ``total costs for previous years.'' While true, as
discussed, the methodology does take into consideration total prior
costs and expenses in the ratemaking process. In addition, our shift to
conducting Appendix A rulemakings on an annual basis will also
recognize ``necessary and reasonable'' operating expenses in a more
timely manner, allow us to use a more accurate operating expense base
when we establish rates, and better reflect the operating expenses
associated with providing pilotage on the Great Lakes.
    A pilot association commenter said that our inflation/deflation and
payroll tax adjustments should account for the 3 years between the 2009
base year and conditions that can be projected for the 2012 navigation
season. We disagree. The Appendix A methodology clearly states that the
inflation/deflation adjustment must be based on the single year between
the base year and the succeeding navigation season, and payroll expense
adjustments must be based on actual base year expenses.
    The same commenter said that because most rate adjustment factors
are unrelated to the benchmark union contract changes that take effect
in August, those unrelated factors should be recognized in rate changes
that take effect at the beginning of the 2012 shipping season, and not
be delayed until August. We disagree. These benchmark changes, though
perhaps few in number compared to the many factors our ratemaking
methodology takes into account, continue to be the substantial portion
of the rate adjustment. We will continue this practice for the 2012
Appendix A rulemaking, as in every year since 2009 when the rate became
effective August 1, consistent with the date when the benchmark
contract changes take effect.
    One commenter, representing all three Great Lakes pilotage
associations, said that membership dues for the American Pilots'
Association (APA) should not be viewed as discretionary or personal to
pilots, but as necessary and reasonable expenses of each association,
and that except for the portion directly attributable to lobbying
expenses, these dues should be included in the rate base. The issue of
pilot association dues arose in our last Appendix A ratemaking. 71 FR
16501 at 16507, col. 3. Our regulations provide clear guidance
concerning this issue and state, ``[each] expense item included in the
rate base is evaluated to determine if it is necessary for the
provision of pilotage service, and if so, what dollar amount is
reasonable for the expense.'' 46 CFR 404.5(a)(1). Recognizable expenses
must be both ``reasonable and necessary for the provision of
pilotage.'' This topic is analogous to a licensure issue. Expenditures
associated with obtaining and maintaining one's pilot's license
represent ``necessary'' expenses that are recognized. Membership in a
voluntary special interest association, like the APA, is not necessary
for the provision of pilotage. Therefore, we found then, and continue
to find, that American Pilots' Association membership dues are not
necessary and thus are excluded from the rate's expense base. 71 FR at
16506, col. 3.
    Another commenter representing pilots said it is very frustrating
to address the same issues year after year in connection with the
ratemaking process with no progress made on what are clearly identified
problems. We understand the commenter's frustration, but the progress
the commenter seeks cannot take place within the annual ratemakings
that simply apply the existing ratemaking methodology. The upcoming
third-party study of the bridge hour definition and the workload
standard, and our decision to begin annual Appendix A reviews, are all
efforts to address these issues and should alleviate stakeholder
concerns. In addition, these issues have been the subject of discussion
at the May and October 2011 GLPAC meetings, both of which were open to
the public.
    District One-specific comments. Commenters representing pilots in
District One raised comments specific to that district. Some of the
following comments were made by the local pilotage association and
others were made by the association's controller.
    First, the pilots said that to derive the full cost of their
operating expenses and return on investment, we should include the
operating expenses and assets of the service corporation affiliated
with the pilots' association. Our ratemaking is based on the financial
information provided by each association, Appendix A, Sub-step 1.A. The
independent accountant's draft financial report included expenses of
the service corporation and the association did not raise this issue
when it reviewed the draft report. The draft report's findings, the
association's comments on those findings, and the final findings are
all discussed in the ``Summary--Independent Accountant's Report on
Pilot Association Expenses, with Pilot Association Comments and
Accountant's Responses,'' which appear in the docket for this
rulemaking.
    However, the independent accountant's financial reports did not
include the investment base calculation. We coordinated with the
independent accountant and used the financial information provided by
District One to calculate the investment base for this rulemaking. The
independent accountant's financial reports will include the investment
base calculation for future rulemakings.
    Second, the pilots raised a number of questions about the expenses
they are now incurring for a new pilot boat that entered service after
the close of the 2009 base year. Under the ratemaking methodology, we
can recognize ``foreseeable circumstances'' that could affect operating
expenses in the upcoming year, but we cannot recognize foreseeable
circumstances that might affect the calculation of the association's
2012 investment base (Appendix A, Sub-steps 1.D, 4). We consider
significant capital expenditures and the fixed costs associated with
those capital expenditures as ``foreseeable circumstances.'' The rest
of the expenses that fluctuate due to market forces and the variance in
demand for pilot services will be reimbursed when they are recognized
in the independent accountant's financial reports that we will use in
future ratemaking. Thus, for 2012, and for the duration of the pilot
boat mortgage contract, we will recognize the association's mortgage
payments on the boat as a foreseeable circumstance affecting their
operating expenses. Also, we will recognize the current insurance costs
for the boat as a one-time expense for 2012. We will not recognize the
boat's depreciation

because we are already recognizing the payment of the mortgage
principle. Recognizing the payment of the mortgage principal and
depreciation would be double counting for the same expense.
    Third, the pilots raised questions about a new dock and boatlift
they plan to acquire in 2012. Based on the agreement the association
has entered into for the performance of this work, we will recognize
the association's cost as a foreseeable circumstance affecting their
operating expenses in 2012. We will adjust for any expense shortfalls
or overages in the following year's ratemaking.
    Fourth, the association's controller said we should adjust
projected operating expenses for pilot subsistence and travel, in
recognition of projected 2012 traffic levels for Areas 1 and 2 that are
62 percent and 50 percent higher, respectively, than 2009 levels. The
controller also said we should raise the adjustment for license
insurance because the association is adding a new pilot, and that 2012
projections should discount the layoffs that economic conditions forced
in 2009 that consequently lowered the association's 2009 operating
expenses. We believe that each of the proposed adjustments rests on
assumptions that by themselves are too speculative to constitute
``foreseeable circumstances'' for 2012 within the meaning of Appendix
A, Step 1.D. Our planned use of Appendix A for future annual
ratemakings will allow demonstrated changes in each of these factors to
be recognized beginning in 2013.
    District Two-specific issues. Commenters representing pilots in
District Two raised comments specific to that district. Some of the
following comments were made by the local pilotage association and
others were made by the association's certified public accountant
(CPA).
    The association said we should adjust the 2012 rates in recognition
that several unusual factors of the 2009 base year are unlikely to
reoccur in 2012. In 2009, the commenter claimed that there were
significant layoffs, the association eliminated one pilot's position,
health plan coverage was temporarily suspended for retirees, pilots'
subsistence and travel expenses were decreased, the American Pilots'
Association temporarily reduced the association's dues because of
economic hardship, and the association moved out of temporary
headquarters into a more costly new headquarters late in the year. We
are recognizing the mortgage and tax payments the association is making
on its new headquarters as ``foreseeable circumstances'' affecting 2012
operating expenses, but the other proposed adjustments rest on
assumptions that, by themselves, are too speculative to constitute
foreseeable circumstances for 2012 within the meaning of Appendix A,
Step 1.D. Our use of the Appendix A methodology for annual ratemakings
will account for demonstrated changes in each of these factors, which
will be recognized beginning in 2013.
    The association's CPA said the association's interest expenses
increased in 2011 due to motor and interior upgrades on two pilot boats
in this rulemaking. We are recognizing those expenses for one of the
boats. For the other, we still lack sufficient documentation to treat
any increase as a foreseeable circumstance affecting 2012 operating
expenses because the association is still negotiating the contract
related to the financing of the upgrades.
    The same CPA also said that the association's investment base
should be increased by the cost of constructing the association's new
headquarters and to reflect the fair market value of the upgraded pilot
boat. Changes to the investment base cannot be treated on the same
``foreseeable circumstances'' basis we use for operating expenses, but
these impacts, once they are actually felt by the association and
reported, should be captured in future annual Appendix A ratemakings,
perhaps as early as next year.
    Annual Appendix A reviews. One commenter, representing all three
pilotage associations, encouraged us to follow through with annual
Appendix A reviews beginning next year, noting that this would be
fairer to all parties than our past practice of using the Appendix A
methodology once every 5 years and relying on the Appendix C
methodology in interim years. We agree and have already begun the audit
of 2010 expenses in preparation for next year's Appendix A ratemaking.
The associations will have an opportunity to review, question, and
comment on the independent accountant's draft reports. The independent
accountant will consider the questions and comments and draft the final
financial reports, which we will then use as the basis for next year's
NPRM and final rule.

VI. Discussion of the Final Rule

A. Summary

    We are decreasing base pilotage rates in accordance with the
Appendix A methodology. The new rates will be established by March 1,
2012, and effective August 1, 2012. Table 1 shows the percent change
for the new rates for each area. Overall, rates will average
approximately 2.62 percent less than the February 2011 rate
adjustments, not 4 percent as we proposed in the NPRM.

                  Table 1--Summary of rate Adjustments
------------------------------------------------------------------------
                                                             Then the
                                                          percent change
           If pilotage service is required in:               over the
                                                           current rate
                                                                is:
------------------------------------------------------------------------
Area 1 (Designated Waters)..............................            3.59
Area 2 (Undesignated Waters)............................           -3.10
Area 4 (Undesignated Waters)............................           -3.90
Area 5 (Designated Waters)..............................           -3.03
Area 6 (Undesignated Waters)............................           -3.73
Area 7 (Designated Waters)..............................           -3.08
Area 8 (Undesignated Waters)............................           -5.08
------------------------------------------------------------------------

B. Calculating the Rate Adjustment

    Appendix A provides seven steps, with sub-steps, for calculating
rate adjustments. The following discussion describes those steps and
sub-steps and includes tables showing how we applied them to the 2009
detailed pilot financial information.
    Step 1: Projection of Operating Expenses. In this step, we project
the amount of vessel traffic annually. Based on that projection, we
forecast the amount of fair and reasonable operating expenses that
pilotage rates should recover.
    Sub-step 1.A: Submission of Financial Information. This sub-step
requires each pilot association to provide us with detailed financial
information in accordance with 46 CFR part 403. The associations
complied with this requirement, supplying 2009 financial information in
2010.
    Sub-step 1.B: Determination of Recognizable Expenses. This sub-step
requires us to determine which reported association expenses will be
recognized for ratemaking purposes, using the guidelines shown in 46
CFR 404.5. We contracted with an independent accountant to review the
reported expenses and submit findings with recommendations on which
reported expenses should be recognized. The accountant also reviewed
which reported expenses should be adjusted prior to recognition and
which, if any, should be denied for ratemaking purposes. The
independent accountant made preliminary findings; these findings were
sent to the pilot associations, and the pilot associations reviewed and
provided comments. Then, the independent accountant made final
findings. The Coast Guard Director

of Great Lakes Pilotage reviewed and accepted those final findings,
resulting in the determination of recognizable expenses. The
preliminary findings, the associations' comments on those findings, and
the final findings are all discussed in the ``Summary--Independent
Accountant's Report on Pilot Association Expenses, with Pilot
Association Comments and Accountant's Responses,'' which appear in the
docket for this rulemaking. Tables 2 through 4 show each association's
recognized expenses.

                                  Table 2--Recognized Expenses for District One
----------------------------------------------------------------------------------------------------------------
                                                                    Area 1           Area 2
                                                              ----------------------------------
                  Reported expenses for 2009                     St. Lawrence                         Total
                                                                    River         Lake Ontario
----------------------------------------------------------------------------------------------------------------
Other Pilot Costs:
    Pilot subsistence/travel.................................        $164,782         $131,436         $296,218
    License insurance........................................          28,428           18,952           47,380
    Other....................................................             980              857            1,837
Pilot Boat and Dispatch Expenses:
    Pilot boat expense.......................................         101,612           82,506          184,118
Administrative Expenses:
    Legal....................................................          10,450            8,685           19,135
    Depreciation/auto leasing/other..........................           8,917            7,283           16,200
    Dues and subscriptions...................................          13,717           10,678           24,395
    Bad debt expense.........................................           9,302            1,004           10,306
    Utilities................................................             478              346              824
    Accounting/professional Fees.............................           2,182            1,818            4,000
    Bookkeeping and Administration...........................          77,730           66,121          143,851
    Other....................................................             762              582            1,344
                                                              --------------------------------------------------
        Total Recognizable...................................         419,340          330,268          749,608
----------------------------------------------------------------------------------------------------------------
Adjustments:
    Other Pilot Costs:
        Pilotage Subsistence/Travel..........................          (4,624)          (3,641)          (8,265)
        Payroll taxes........................................          48,508           38,204           86,712
        Other................................................            (589)            (463)          (1,052)
Administrative Expenses:
    Legal....................................................            (270)            (212)            (482)
    Dues and subscriptions...................................         (13,647)         (10,748)         (24,395)
    Bad debt expense.........................................          (5,765)          (4,540)         (10,305)
    Other....................................................            (120)             (94)            (214)
                                                              --------------------------------------------------
        Total CPA Adjustments................................          23,495           18,504           41,999
                                                              --------------------------------------------------
            Total Expenses...................................         442,835          348,772          791,607
----------------------------------------------------------------------------------------------------------------

                                  Table 3--Recognized Expenses for District Two
----------------------------------------------------------------------------------------------------------------
                                                                    Area 4           Area 5
                                                              ----------------------------------
                  Reported expenses for 2009                                    Southeast Shoal       Total
                                                                  Lake Erie      to Port Huron,
                                                                                MI
----------------------------------------------------------------------------------------------------------------
Other Pilot Costs
    Pilot subsistence/travel.................................         $67,580         $101,371         $168,951
    License insurance........................................           6,254            9,380           15,634
    Payroll taxes............................................          19,453           43,770           63,223
    Other....................................................          12,697           28,662           41,359
Pilot Boat and Dispatch Expenses:
    Pilot boat expense.......................................          28,026          179,577          207,603
    Dispatch expense.........................................          12,975                0           12,975
    Payroll taxes............................................               0            7,154            7,154
Administrative Expenses:
    Legal....................................................          30,052           45,079           75,131
    Office rent..............................................          30,275           45,413           75,688
    Insurance................................................          10,408           15,611           26,019
    Employee benefits........................................          26,483           39,725           66,208
    Payroll taxes............................................           3,821            5,731            9,552
    Other taxes..............................................           9,815           14,723           24,538
    Depreciation/auto leasing/other..........................          27,383           41,075           68,458
    Interest.................................................          16,314           24,471           40,785
    Dues and subscriptions...................................           4,450            6,675           11,125
    Salaries.................................................          12,164           18,245           30,409
    Accounting/professional Fees.............................          43,071           64,607          107,678
    Bookkeeping and Administration...........................           9,400           14,100           23,500

    Other....................................................           9,427           14,140           23,567
                                                              --------------------------------------------------
        Total Recognizable...................................         380,048          719,509        1,099,557
----------------------------------------------------------------------------------------------------------------
Adjustments:
    Other Pilot Costs:
        Pilotage Subsistence/Travel..........................          (1,338)          (2,533)          (3,871)
Pilot Boat and Dispatch Expenses:
    Pilot boat expense.......................................           2,907            5,504            8,411
Administrative Expenses:
    Legal....................................................          (4,915)          (9,305)         (14,220)
    Employee benefits........................................           1,177            2,228            3,405
    Other taxes..............................................            (238)            (450)            (688)
    Depreciation/auto leasing/other..........................           2,398            4,540            6,938
    Interest.................................................         (10,379)         (19,649)         (30,028)
    Dues and subscriptions...................................          (3,807)          (7,208)         (11,015)
    Salaries.................................................             417              789            1,206
    Other....................................................            (833)          (1,577)          (2,410)
                                                              --------------------------------------------------
        Total CPA Adjustments................................         (14,611)         (27,661)         (42,272)
                                                              --------------------------------------------------
            Total Expenses...................................         365,437          691,848        1,057,285
----------------------------------------------------------------------------------------------------------------

                                 Table 4--Recognized Expenses for District Three
----------------------------------------------------------------------------------------------------------------
                                                   Area 6           Area 7           Area 8
                                             ---------------------------------------------------
         Reported expenses for 2009           Lakes Huron and     St. Mary's                          Total
                                                  Michigan          River        Lake Superior
----------------------------------------------------------------------------------------------------------------
Other Pilot Costs:
    Pilot subsistence/Travel................        $144,081          $75,501          $95,005         $314,587
    License insurance.......................          10,577            5,543            6,975           23,095
    Other...................................           1,025              537              675            2,237
Pilot Boat and Dispatch Expenses:
    Pilot boat costs........................         156,031           81,763          102,885          340,679
    Dispatch expense........................          46,365           24,296           30,572          101,233
    Payroll taxes...........................           5,846            3,064            3,855           12,765
Administrative Expenses:
    Legal...................................          16,462            8,626           10,855           35,943
    Office Rent.............................           4,534            2,376            2,990            9,900
    Insurance...............................           6,730            3,527            4,438           14,695
    Employee benefits.......................          50,668           26,551           33,410          110,629
    Payroll taxes...........................           4,774            2,502            3,148           10,424
    Other taxes.............................          11,599            6,078            7,648           25,325
    Depreciation/auto Leasing...............          17,396            9,116           11,471           37,983
    Interest................................           2,417            1,267            1,594            5,278
    Dues and Subscriptions..................          15,594            8,172           10,283           34,049
    Utilities...............................          15,182            7,956           10,011           33,149
    Salaries................................          35,110           18,398           23,151           76,659
    Accounting/professional fees............           8,588            4,500            5,663           18,751
    Other...................................           6,852            3,591            4,518           14,961
                                             -------------------------------------------------------------------
        Total Recognizable..................         559,831          293,364          369,147        1,222,342
----------------------------------------------------------------------------------------------------------------
Adjustments:
    Other Pilot Costs:......................
        Pilotage Subsistence/Travel.........          (1,102)            (578)            (727)          (2,407)
        Payroll taxes.......................          28,842           15,114           19,018           62,973
        Other...............................            (196)            (103)            (129)            (428)
Pilot Boat and Dispatch Expenses:
    Dispatch costs..........................          (3,367)          (1,764)          (2,220)          (7,352)
Administrative Expenses:
    Legal...................................          (1,447)            (758)            (954)          (3,159)
    Employee benefits.......................          (1,380)            (723)            (910)          (3,013)
    Depreciation/auto leasing/other.........             599              314              395            1,307
    Dues and Subscriptions..................         (15,594)          (8,172)         (10,283)         (34,049)
    Other...................................            (528)            (277)            (348)          (1,153)

        Total CPA Adjustments...............           5,825            3,053            3,841           12,719
                                             -------------------------------------------------------------------
            Total Expenses..................         565,656          296,417          372,988        1,235,061
----------------------------------------------------------------------------------------------------------------

    Sub-step 1.C: Adjustment for Inflation or Deflation. In this sub-
step we project rates of inflation or deflation for the succeeding
navigation season. Because we used 2009 financial information, the
``succeeding navigation season'' for this ratemaking is 2010. We based
our inflation adjustment of 2 percent on the 2010 change in the
Consumer Price Index (CPI) for the North Central Region of the United
States, which can be found at: http://www.bls.gov/xg_shells/ro5xg01.htm. This adjustment appears in Tables 5 through 7.

                                   Table 5--Inflation Adjustment, District One
----------------------------------------------------------------------------------------------------------------
                                                            Area 1               Area 2
                                                       ----------------     ----------------
            Reported expenses for 2009                   St. Lawrence                                  Total
                                                             River            Lake Ontario
----------------------------------------------------------------------------------------------------------------
    Total Expenses...............................             $442,835             $348,772             $791,607
2010 change in the Consumer Price Index (CPI) for   x              .02   x              .02   x              .02
 the North Central Region of the United States...
Inflation Adjustment.............................   =           $8,857   =           $6,975   =          $15,832
----------------------------------------------------------------------------------------------------------------

                                   Table 6--Inflation Adjustment, District Two
----------------------------------------------------------------------------------------------------------------
                                                            Area 4               Area 5
                                                       ----------------     ----------------
            Reported expenses for 2009                                          Southeast              Total
                                                           Lake Erie          Shoal to Port
                                                                                Huron, MI
----------------------------------------------------------------------------------------------------------------
    Total Expenses...............................             $365,437             $691,848           $1,057,285
2010 change in the Consumer Price Index (CPI) for   x              .02   x              .02   x              .02
 the North Central Region of the United States...
Inflation Adjustment.............................   =           $7,309   =          $13,837   =          $21,146
----------------------------------------------------------------------------------------------------------------

                                  Table 7--Inflation Adjustment, District Three
----------------------------------------------------------------------------------------------------------------
                                       Area 6               Area 7               Area 8
                                  ----------------     ----------------     ----------------
 Reported expenses for 2009          Lakes Huron          St. Mary's                                   Total
                                    and Michigan             River            Lake Superior
----------------------------------------------------------------------------------------------------------------
    Total Expenses..........             $565,656             $296,417             $372,988           $1,235,061
2010 change in the Consumer    x              .02   x              .02   x              .02   x              .02
 Price Index (CPI) for the
 North Central Region of the
 United States..............
Inflation Adjustment........   =          $11,313   =           $5,928   =           $7,460   =          $24,701
----------------------------------------------------------------------------------------------------------------

    Step 1.D: Projection of Operating Expenses. The final sub-step of
Step 1 is to project the operating expenses for each pilotage area on
the basis of the preceding sub-steps and any other foreseeable
circumstances that could affect the accuracy of the projection. We
received comments and supporting material and determined that
foreseeable circumstances exist in Districts One and Two that could
affect the accuracy of the projection. As previously stated, we
consider only significant capital expenses and the fixed costs
associated with the expenses as foreseeable circumstances.
    District One's pilot boat mortgage payments, pilot boat insurance,
and dock renovation and boat lift project qualify as foreseeable
circumstances. For District One, the projected operating expenses are
based on the calculations from Sub-steps 1.A through 1.C and the
aforementioned foreseeable circumstances. Table 8 shows these
projections.

                               Table 8--Projected Operating Expenses, District One
----------------------------------------------------------------------------------------------------------------
                                                            Area 1               Area 2
                                                       ----------------     ----------------
            Reported expenses for 2009                   St. Lawrence                                  Total
                                                             River            Lake Ontario
----------------------------------------------------------------------------------------------------------------
Total expenses before foreseeable circumstances..             $442,835             $348,772             $791,607
Inflation adjustment 2%..........................   +           $8,857   +           $6,975   +          $15,832
Foreseeable circumstances (Director's
 adjustment):
    Pilot boat mortgage payments.................   +          $39,643   +          $31,222   +          $70,865
    Pilot boat insurance.........................   +          $10,831   +           $8,531   +          $19,362
    Dock renovation and boat lift project........   +          $72,486   +          $57,089   +         $129,575
                                                  --------------------------------------------------------------
        Total projected expenses for 2012           =         $574,652   =         $452,590   =       $1,027,242
         pilotage season.........................
----------------------------------------------------------------------------------------------------------------

    District Two's pilot boat (HURON MAID) upgrade, annual mortgage
expense, and property tax expense qualify as foreseeable circumstances.
During the audit for next year's 2013 Appendix A rulemaking, the
independent accountant informed us that District Two applied for and
received a Consolidated Omnibus Budget Reconciliation Act (COBRA)
subsidy for the third and fourth quarter of 2009. The American Recovery
and Reinvestment Act of 2009 provided for a temporary premium subsidy
for COBRA continuation coverage. The amount of the COBRA insurance
subsidy for the period 2009 was $99,993.02. For District Two, the
projected operating expenses are based on the calculations from Sub-
steps 1.A through 1.C, the aforementioned foreseeable circumstances,
and the COBRA subsidy. Table 9 shows these projections.

                               Table 9--Projected Operating Expenses, District Two
----------------------------------------------------------------------------------------------------------------
                                                            Area 4               Area 5
                                                       ----------------     ----------------
            Reported expenses for 2009                                          Southeast              Total
                                                           Lake Erie          Shoal to Port
                                                                                Huron, MI
----------------------------------------------------------------------------------------------------------------
Total expenses...................................             $365,437             $691,848           $1,057,285
Inflation adjustment 2%..........................   +           $7,309   +          $13,837   +          $21,146
Foreseeable circumstances (Director's
 adjustment):
    Huron Maid upgrade...........................   +          $27,104   +          $40,657   +          $67,761
    Annual mortgage expense......................   +           $7,804   +          $11,706   +          $19,511
    Property tax expense.........................   +           $1,693   +           $2,540   +           $4,233
    American Recovery and Reinvestment Act of       +        ($39,997)   +        ($59,996)   +        ($99,993)
     2009 COBRA subsidy..........................
        Total projected expenses for 2012           =         $369,351   =         $700,592   =       $1,069,943
         pilotage season.........................
----------------------------------------------------------------------------------------------------------------

    Because we are not now aware of any such foreseeable circumstances
for District 3, the projected operating expenses are based exclusively
on the calculations from Sub-steps 1.A through 1.C. Table 10 shows
these projections.

                             Table 10--Projected Operating Expenses, District Three
----------------------------------------------------------------------------------------------------------------
                                       Area 6               Area 7               Area 8
                                  ----------------     ----------------     ----------------
 Reported expenses for 2009          Lakes Huron          St. Mary's                                   Total
                                    and Michigan             River            Lake Superior
----------------------------------------------------------------------------------------------------------------
Total.......................             $565,656             $296,417             $372,988           $1,235,061
Inflation Adjustment 2%.....   +          $11,313   +           $5,928   +           $7,460   +          $24,701
    Total projected expenses   =         $576,969   =         $302,345   =         $380,448   =       $1,259,762
     for 2012 pilotage
     season.................
----------------------------------------------------------------------------------------------------------------

    Step 2: Projection of Target Pilot Compensation. In Step 2, we
project the annual amount of target pilot compensation that pilotage
rates should provide in each area. These projections are based on our
latest information on the conditions that will prevail in 2012.
    Sub-step 2.A: Determination of Target Rate of Compensation. We
first explained the methodology we consistently used for this sub-step
in the interim rule for our last Appendix A ratemaking (68 FR 69564 at
69571 col. 3; December 12, 2003), and most recently restated this
explanation in our 2011 Appendix C final rule (76 FR 6351 at 6354 col.
3; February 4, 2011). Target pilot compensation for pilots in
undesignated waters approximates the average annual compensation for
first mates on U.S. Great Lakes vessels. Compensation is determined
based on the most current union contracts and includes wages and
benefits received by first mates. We calculate target pilot
compensation for pilots on designated waters by multiplying the average
first mates' wages by 150 percent and then adding the average first
mates' benefits.
    The most current union contracts available to us are American
Maritime Officers Union (AMOU) contracts with three U.S. companies
engaged in Great Lakes shipping. There are two separate AMOU contracts
available--we refer to them as Agreements A and B and apportion the
compensation provided by each agreement according to the percentage of
tonnage represented by

companies under each agreement. Agreement A applies to vessels operated
by Key Lakes, Inc., and Agreement B applies to all vessels operated by
American Steamship Co. and Mittal Steel USA, Inc.
    Agreements A and B both expired on July 31, 2011, and AMOU did not
reach an agreement on new contracts in time for us to incorporate them
into this ratemaking. However, based on past contract increases and on
the current contracts, we can project that any new contracts would
provide for annual 3-percent wage increases. Under Agreement A, we
project that the daily wage rate would increase from $278.73 to
$287.09. Under Agreement B, we project that the daily wage rate would
increase from $343.59 to $353.90.
    Because we are interested in annual compensation, we must convert
these daily rates. Agreements A and B both use monthly multipliers to
convert daily rates into monthly figures that represent actual working
days and vacation, holiday, weekend, or bonus days. The monthly
multiplier for Agreement A is 54.5 days and the monthly multiplier for
Agreement B is 49.5 days. We multiply the monthly figures by 9, which
represents the average length (in months) of the Great Lakes shipping
season. Table 11 shows our calculations.

                   Table 11--Projected Wage Components
------------------------------------------------------------------------
                                             Pilots on       Pilots on
            Monthly component              undesignated     designated
                                              waters          waters
------------------------------------------------------------------------
Agreement A:
    $287.09 daily rate x 54.5 days......         $15,646         $23,470
    Monthly total x 9 months = total             140,818         211,226
     wages..............................
Agreement B:
    $353.90 daily rate x 49.5 days......          17,518          26,277
    Monthly total x 9 months = total             157,662         236,494
     wages..............................
------------------------------------------------------------------------

    Based on increases over the 5-year history of the current
contracts, we project that both Agreements A and B will increase their
health benefits contributions and leave 401K plan and pension
contributions unchanged. On average, health benefits contribution rates
have increased 10 percent annually. Thus, we project that both
Agreements A and B will increase this benefit from $97.64 to $107.40
per day. The multiplier that both agreements use to calculate monthly
benefits from daily rates is currently 45.5 days, and we project that
this figure will remain unchanged. We use a 9-month multiplier to
calculate the annual value of these benefits. Table 12 shows our
calculations.

                 Table 12--Projected Benefits Components
------------------------------------------------------------------------
                                             Pilots on       Pilots on
            Monthly component              undesignated     designated
                                              waters          waters
------------------------------------------------------------------------
Agreement A:
    Employer contribution, 401K plan             $782.32       $1,173.48
     (Monthly wages x 5%)...............
    Pension = $33.35 x 45.5 days........        1,517.43        1,517.43
    Health = $107.40 x 45.5 days........        4,886.70        4,886.70
    Monthly total benefits..............        7,186.45        7,577.61
    Monthly total benefits x 9 months...          64,678          68,198
Agreement B:
    Employer contribution, 401K plan              875.90        1,313.85
     (Monthly wages x 5%)...............
    Pension = $43.55 x 45.5 days........        1,981.53        1,981.53
    Health = $107.40 x 45.5 days........        4,886.70        4,886.70
    Monthly total benefits..............        7,744.13        8,182.08
    Monthly total benefits x 9 months...          69,697          73,639
------------------------------------------------------------------------

    Table 13 combines our projected wage and benefit components of
annual target pilot compensation.

       Table 13--Projected Wage and Benefits Components, Combined
------------------------------------------------------------------------
                                             Pilots on       Pilots on
                                           undesignated     designated
                                              waters          waters
------------------------------------------------------------------------
Agreement A:
    Wages...............................        $140,818        $211,226
    Benefits............................          64,678          68,198
                                         -------------------------------
    Total...............................         205,496         279,425
Agreement B:
    Wages...............................         157,662         236,494

    Benefits............................          69,697          73,639
                                         -------------------------------
    Total...............................         227,360         310,132
------------------------------------------------------------------------

    Agreements A and B affect three companies. Of the tonnage operating
under those three companies, approximately 30 percent operates under
Agreement A and approximately 70 percent operates under Agreement B.
Table 14 provides detail.

                               Table 14--Shipping Tonnage Apportioned by Contract
----------------------------------------------------------------------------------------------------------------
                 Company                              Agreement A                         Agreement B
----------------------------------------------------------------------------------------------------------------
American Steamship Company..............  ..................................                             815,600
Mittal Steel USA, Inc...................  ..................................                              38,826
Key Lakes, Inc..........................                             361,385  ..................................
                                         -----------------------------------------------------------------------
    Total tonnage, each agreement.......                             361,385                             854,426
Percent tonnage, each agreement.........      361,395 / 1,215,811 = 29.7238%      854,426 / 1,215,811 = 70.2962%
----------------------------------------------------------------------------------------------------------------

    We use the percentages from Table 14 to apportion the projected
wage and benefit components from Table 13. This gives us a single
tonnage-weighted set of figures. Table 15 shows our calculations.

         Table 15--Tonnage-Weighted Wage and Benefit Components
------------------------------------------------------------------------
                                      Undesignated          Designated
                                         waters               waters
------------------------------------------------------------------------
Agreement A:
    Total wages and benefits..             $205,496             $279,425
    Percent tonnage...........   x         29.7238%   x         29.7238%
                               -----------------------------------------
        Total.................   =          $61,081   =          $83,056
Agreement B:
    Total wages and benefits..             $227,360             $310,132
    Percent tonnage...........   x         70.2762%   x         70.2762%
                               -----------------------------------------
        Total.................   =         $159,780   =         $217,949
Projected Target Rate of
 Compensation:
    Agreement A total weighted              $61,081              $83,056
     average wages and
     benefits.................
    Agreement B total weighted   +         $159,780   +         $217,949
     average wages and
     benefits.................
                               -----------------------------------------
        Total.................   =         $220,861   =         $301,005
------------------------------------------------------------------------

    Sub-step 2.B: Determination of Number of Pilots Needed. Subject to
adjustment by the Coast Guard Director of Great Lakes Pilotage to
ensure uninterrupted service or for other reasonable circumstances, we
determine the number of pilots needed for ratemaking purposes in each
area by dividing projected bridge-hours for each area by either 1,000
(designated waters) or 1,800 (undesignated waters). We round the
mathematical results and express our determination as whole pilots.
    Bridge hours are ``the number of hours a pilot is aboard a vessel
providing pilotage service.'' 46 CFR part 404, Appendix A, Sub-step
2.B(1). For that reason, and as we explained most recently in the 2011
ratemaking's final rule, we do not include, and never have included,
pilot delay or detention in calculating bridge hours. 76 FR 6351 at
6352 col. 3 (February 4, 2011). Projected bridge-hours are based on the
vessel traffic that pilots are expected to serve. We use historical
data, input from the pilots and industry, periodicals and trade
magazines, and information from conferences to project demand for
pilotage services for the coming year.
    In our 2011 final rule, we determined that 38 pilots would be
needed for ratemaking purposes. We have determined that 38 remains the
proper number to use for ratemaking purposes in 2012. This includes 5
pilots in Area 2, where rounding up alone would result in only 4
pilots. For the same reasons we explained at length in the final rule
for the 2008 ratemaking, 74 FR 220 at 221-22 (January 5, 2009), we have
determined that this adjustment is essential for ensuring uninterrupted
pilotage service in Area 2. Table 16 shows the bridge hours we project
will be needed for each area and our calculations to determine the
number of whole pilots needed for ratemaking purposes.

                                        Table 16--Number of Pilots Needed
----------------------------------------------------------------------------------------------------------------
                                                                  Divided by
                                                                     1,000
                                                                  (designated          Calculated       Pilots
              Pilotage area                Projected 2012         waters) or         value of pilot     needed
                                            bridge hours             1,800               demand        (total =
                                                                 (undesignated                           38)
                                                                    waters)
----------------------------------------------------------------------------------------------------------------
AREA 1 (Designated Waters)...............           5,114   /            1,000   =            5.114            6
AREA 2 (Undesignated Waters).............           5,401   /            1,800   =            3.001            5
AREA 4 (Undesignated Waters).............           6,680   /            1,800   =            3.711            4
AREA 5 (Designated Waters)...............           5,002   /            1,000   =            5.002            6
AREA 6 (Undesignated Waters).............          11,187   /            1,800   =            6.215            7
AREA 7 (Designated Waters)...............           3,160   /            1,000   =            3.160            4
AREA 8 (Undesignated Waters).............           9,353   /            1,800   =            5.196            6
----------------------------------------------------------------------------------------------------------------

    Sub-step 2.C: Projection of Target Pilot Compensation. In Table 17
we project total target pilot compensation separately for each area by
multiplying the number of pilots needed in each area, as shown in Table
16, by the target pilot compensation shown in Table 15.

                            Table 17--Projection of Target Pilot Compensation by Area
----------------------------------------------------------------------------------------------------------------
                                                                             Target rate of          Projected
                     Pilotage area                       Pilots needed            pilot            target pilot
                                                         (total = 38)         compensation         compensation
----------------------------------------------------------------------------------------------------------------
AREA 1 (Designated Waters)............................               6   x         $301,005   =       $1,806,030
AREA 2 (Undesignated Waters)..........................               5   x          220,861   =        1,104,304
AREA 4 (Undesignated Waters)..........................               4   x          220,861   =          883,443
AREA 5 (Designated Waters)............................               6   x          301,005   =        1,806,030
AREA 6 (Undesignated Waters)..........................               7   x          220,861   =        1,546,026
AREA 7 (Designated Waters)............................               4   x          301,005   =        1,204,020
AREA 8 (Undesignated Waters)..........................               6   x          220,861   =        1,325,165
----------------------------------------------------------------------------------------------------------------

    Step 3 and Sub-step 3.A: Projection of Revenue. In these steps, we
project the revenue that would be received in 2012 if demand for
pilotage services matches the bridge hours we projected in Table 16 and
2011 pilotage rates are left unchanged. Table 18 shows this
calculation.

                                     Table 18--Projection of Revenue by Area
----------------------------------------------------------------------------------------------------------------
                                                                                Revenue
                     Pilotage area                      Projected 2012        2011 Pilotage       projection for
                                                         bridge hours             rates                2012
----------------------------------------------------------------------------------------------------------------
AREA 1 (Designated Waters)............................           5,114   x          $451.38   =       $2,308,357
AREA 2 (Undesignated Waters)..........................           5,401   x           298.98   =        1,614,791
AREA 4 (Undesignated Waters)..........................           6,680   x           196.19   =        1,310,549
AREA 5 (Designated Waters)............................           5,002   x           519.89   =        2,600,490
AREA 6 (Undesignated Waters)..........................          11,187   x           199.12   =        2,227,555
AREA 7 (Designated Waters)............................           3,160   x           495.54   =        1,565,906
AREA 8 (Undesignated Waters)..........................           9,353   x           193.72   =        1,811,863
                                                       ---------------------------------------------------------
    Total.............................................  ..............       ..............           13,439,512
----------------------------------------------------------------------------------------------------------------

    Step 4: Calculation of Investment Base. This step calculates each
association's investment base, which is the recognized capital
investment in the assets employed by the association that is required
to support pilotage operations. This step uses a formula set out in 46
CFR part 404, Appendix B. The first part of the formula identifies each
association's total sources of funds. Tables 19 through 21 follow the
formula up to that point.

             Table 19--Total Sources of Funds, District One
------------------------------------------------------------------------
                                              Area 1            Area 2
------------------------------------------------------------------------
Recognized Assets:
    Total Current Assets............          $233,316          $174,705
    Total Current Liabilities.......   -        20,091   -        15,044
    Current Notes Payable...........   +             0   +             0
    Total Property and Equipment       +             0   +             0
     (NET)..........................
    Land............................   -             0   -             0

    Total Other Assets..............   +             0   +             0
                                     -----------------------------------
        Total Recognized Assets.....   =       213,225   =       159,661
Non-Recognized Assets:
    Total Investments and Special      +             0   +             0
     Funds..........................
                                     -----------------------------------
        Total Non-Recognized Assets.   =             0   =             0
Total Assets:
    Total Recognized Assets.........           213,225           159,661
    Total Non-Recognized Assets.....   +             0   +             0
                                     -----------------------------------
        Total Assets................   =       213,225   =       159,661
Recognized Sources of Funds:
    Total Stockholder Equity........           213,225           159,661
    Long-Term Debt..................   +             0   +             0
    Current Notes Payable...........   +             0   +             0
    Advances from Affiliated           +             0   +             0
     Companies......................
    Long-Term Obligations--Capital     +             0   +             0
     Leases.........................
                                     -----------------------------------
        Total Recognized Sources....   =       213,225   =       159,661
Non-Recognized Sources of Funds:
    Pension Liability...............                 0                 0
    Other Non-Current Liabilities...   +             0   +             0
    Deferred Federal Income Taxes...   +             0   +             0
    Other Deferred Credits..........   +             0   +             0
                                     -----------------------------------
        Total Non-Recognized Sources   =             0   =             0
Total Sources of Funds:
    Total Recognized Sources........           213,225           159,661
    Total Non-Recognized Sources....   +             0   +             0
                                     -----------------------------------
        Total Sources of Funds......   =       213,225   =       159,661
------------------------------------------------------------------------

             Table 20--Total Sources of Funds, District Two
------------------------------------------------------------------------
                                              Area 4            Area 5
------------------------------------------------------------------------
Recognized Assets:
    Total Current Assets............          $228,212          $515,150
    Total Current Liabilities.......   -       214,412   -       484,000
    Current Notes Payable...........   +        23,063   +        52,061
    Total Property and Equipment       +       321,550   +       725,847
     (NET)..........................
    Land............................   -       269,122   -       607,500
    Total Other Assets..............   +             0   +             0
                                     -----------------------------------
        Total Recognized Assets.....   =        89,290   =       201,559
Non-Recognized Assets:
    Total Investments and Special      +             0   +             0
     Funds..........................
                                     -----------------------------------
        Total Non-Recognized Assets.   =             0   =             0
Total Assets:
    Total Recognized Assets.........            89,290           201,559
    Total Non-Recognized Assets.....   +             0   +             0
                                     -----------------------------------
        Total Assets................   =        89,290   =       201,559
Recognized Sources of Funds:
    Total Stockholder Equity........            53,061           119,778
    Long-Term Debt..................   +       282,288   +       637,220
    Current Notes Payable...........   +        23,063   +        52,061
    Advances from Affiliated           +             0   +             0
     Companies......................
    Long-Term Obligations--Capital     +             0   +             0
     Leases.........................
                                     -----------------------------------
        Total Recognized Sources....   =       358,413   =       809,058
Non-Recognized Sources of Funds:
    Pension Liability...............                 0                 0
    Other Non-Current Liabilities...   +             0   +             0
    Deferred Federal Income Taxes...   +             0   +             0
    Other Deferred Credits..........   +             0   +             0
                                     -----------------------------------
        Total Non-Recognized Sources   =             0   =             0
Total Sources of Funds:
    Total Recognized Sources........           358,413           809,058

    Total Non-Recognized Sources....   +             0   +             0
                                     -----------------------------------
        Total Sources of Funds......   =       358,413   =       809,058
------------------------------------------------------------------------

                                Table 21--Total Sources of Funds, District Three
----------------------------------------------------------------------------------------------------------------
                                                                    Area 6            Area 7            Area 8
----------------------------------------------------------------------------------------------------------------
Recognized Assets:
    Total Current Assets..................................          $439,799          $230,463          $289,999
    Total Current Liabilities.............................   -        61,507   -        32,231   -        40,557
    Current Notes Payable.................................   +        13,525   +         7,087   +         8,918
    Total Property and Equipment (NET)....................   +        42,019   +        22,019   +        27,707
    Land..................................................   -             0   -             0   -             0
    Total Other Assets....................................   +           343   +           180   +           227
                                                           -----------------------------------------------------
        Total Recognized Assets...........................   =       434,180   =       227,518   =       286,293
Non-Recognized Assets:
    Total Investments and Special Funds...................   +             0   +             0   +             0
                                                           -----------------------------------------------------
        Total Non-Recognized Assets.......................   =             0   =             0   =             0
Total Assets:
    Total Recognized Assets...............................           434,180           227,518           286,293
    Total Non-Recognized Assets...........................   +             0   +             0   +             0
                                                           -----------------------------------------------------
        Total Assets......................................   =       434,180   =       227,518   =       286,293
Recognized Sources of Funds:
    Total Stockholder Equity..............................           417,721           218,893           275,441
    Long-Term Debt........................................   +         2,934   +         1,537   +         1,935
    Current Notes Payable.................................   +        13,525   +         7,087   +         8,918
    Advances from Affiliated Companies....................   +             0   +             0   +             0
    Long-Term Obligations-Capital Leases..................   +             0   +             0   +             0
                                                           -----------------------------------------------------
        Total Recognized Sources..........................   =       434,180   =       227,518   =       286,293
Non-Recognized Sources of Funds:
    Pension Liability.....................................                 0                 0                 0
    Other Non-Current Liabilities.........................   +             0   +             0   +             0
    Deferred Federal Income Taxes.........................   +             0   +             0   +             0
    Other Deferred Credits................................   +             0   +             0   +             0
                                                           -----------------------------------------------------
        Total Non-Recognized Sources......................   =             0   =             0   =             0
Total Sources of Funds:
    Total Recognized Sources..............................           434,180           227,518           286,293
    Total Non-Recognized Sources..........................   +             0   +             0   +             0
                                                           -----------------------------------------------------
        Total Sources of Funds............................   =       434,180   =       227,518   =       286,293
----------------------------------------------------------------------------------------------------------------

    Tables 19 through 21 relate to the second part of the formula for
calculating the investment base. The second part establishes a ratio
between recognized sources of funds and total sources of funds. Since
non-recognized sources of funds (sources we do not recognize as
required to support pilotage operations) do not exist for any of the
pilot associations for this year's rulemaking, the ratio between
recognized sources of funds and total sources of funds is 1:1 (or a
multiplier of 1) in all cases. Table 22 applies the multiplier of 1,
and shows that the investment base for each association equals its
total recognized assets. Table 22 also expresses these results by area,
because area results are needed in subsequent steps.

                                                     Table 22--Investment Base by Area and District
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Multiplier
                                                                               Total        Recognized     Total sources     (ratio of      Investment
                            District                               Area     recognized      sources of     of funds  ($)   recognized to   base  ($) \1\
                                                                            assets  ($)     funds  ($)                    total sources)
--------------------------------------------------------------------------------------------------------------------------------------------------------
One............................................................        1         213,225         213,225         213,225               1         213,225
                                                                       2         159,661         159,661         159,661               1         159,661
                                                                ----------------------------------------------------------------------------------------
    Total......................................................  .......  ..............  ..............  ..............  ..............         372,886
                                                                ----------------------------------------------------------------------------------------
Two \2\........................................................        4          89,290         358,413         358,413               1          89,290

                                                                       5         201,559         809,058         809,058               1         201,559
                                                                ----------------------------------------------------------------------------------------
    Total......................................................  .......  ..............  ..............  ..............  ..............         290,849
--------------------------------------------------------------------------------------------------------------------------------------------------------
Three..........................................................        6         434,180         434,180         434,180               1         434,180
                                                                       7         227,518         227,518         227,518               1         227,518
                                                                       8         286,293         286,293         286,293               1         286,293
                                                                ----------------------------------------------------------------------------------------
    Total......................................................  .......  ..............  ..............  ..............  ..............         947,991
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Note: ``Investment base'' = ``Total recognized assets'' x ``Multiplier (ratio of recognized to Total sources)''
\2\ Note: The pilot associations that provide pilotage services in Districts One and Three operate as partnerships. The pilot association that provides
  pilotage service for District Two operates as a corporation. As shown in Table 20, Total Recognized Assets do not equal Total Sources of Funds due to
  the level of long-term debt in District Two.

    Step 5: Determination of Target Rate of Return. We determine a
market-equivalent return on investment (ROI) that will be allowed for
the recognized net capital invested in each association by its members.
We do not recognize capital that is unnecessary or unreasonable for
providing pilotage services. There are no non-recognized investments in
this year's calculations. The allowed ROI is based on the preceding
year's average annual rate of return for new issues of high-grade
corporate securities. For 2010, the allowed ROI was a little more than
4.94 percent, based on the average rate of return that year on Moody's
AAA corporate bonds which can be found at: http://research.stlouisfed.org/fred2/series/AAA/downloaddata?cid=119.
    Step 6: Adjustment Determination. The first sub-step in the
adjustment determination requires an initial calculation that applies a
formula described in Appendix A. The formula uses the results from
Steps 1, 2, 3, and 4 to project the ROI that can be expected in each
area if no further adjustments are made. This calculation is shown in
Tables 23 through 25.

             Table 23--Projected ROI, Areas in District One
------------------------------------------------------------------------
                                         Area 1               Area 2
------------------------------------------------------------------------
Revenue (from Step 3).........   +       $2,308,357   +       $1,614,791
Operating Expenses (from Step    -          574,652   -          452,590
 1)...........................
Pilot Compensation (from Step    -        1,806,030   -        1,104,304
 2)...........................
Operating Profit/(Loss).......   =         (72,324)   =           57,897
Interest Expense (from audits)   -                0   -                0
Earnings Before Tax...........   =         (72,324)   =           57,897
Federal Tax Allowance.........   -                0   -                0
Net Income....................   =         (72,324)   =           57,897
Return Element (Net Income +    ...        (72,324)  ...          57,897
 Interest)....................
Investment Base (from Step 4).   /          213,225   /          159,661
Projected Return on Investment   =           (0.34)   =             0.36
------------------------------------------------------------------------

             Table 24--Projected ROI, Areas in District Two
------------------------------------------------------------------------
                                         Area 4               Area 5
------------------------------------------------------------------------
Revenue (from Step 3).........   +       $1,310,549   +       $2,600,490
Operating Expenses (from Step    -          369,351   -          700,592
 1)...........................
Pilot Compensation (from Step    -          883,443   -        1,806,030
 2)...........................
Operating Profit/(Loss).......   =           57,755   =           93,868
Interest Expense (from audits)   -            3,302   -            7,455
Earnings Before Tax...........   =           54,453   =           86,414
Federal Tax Allowance.........   -            2,210   -            4,990
Net Income....................   =           52,243   =           81,424
Return Element (Net Income +                 55,545               88,879
 Interest)....................
Investment Base (from Step 4).   /           89,290   /          201,559
Projected Return on Investment   =             0.62   =             0.44
------------------------------------------------------------------------

                                Table 25--Projected ROI, Areas in District Three
----------------------------------------------------------------------------------------------------------------
                                                            Area 6               Area 7               Area 8
----------------------------------------------------------------------------------------------------------------
Revenue (from Step 3)............................   +       $2,227,555   +       $1,565,906   +       $1,811,863
Operating Expenses (from Step 1).................   -          576,969   -          302,345   -          380,448
Pilot Compensation (from Step 2).................   -        1,546,026   -        1,204,020   -        1,325,165
Operating Profit/(Loss)..........................   =          104,560   =           59,542   =          106,250

Interest Expense (from audits)...................   -            2,417   -            1,267   -            1,594
Earnings Before Tax..............................   =          102,143   =           58,275   =          104,656
Federal Tax Allowance............................   -                0   -                0   -                0
Net Income.......................................   =          102,143   =           58,275   =          104,656
Return Element (Net Income + Interest)...........  ...         104,560  ...          59,542  ...         106,250
Investment Base (from Step 4)....................   /          434,180   /          227,518   /          286,293
Projected Return on Investment...................   =             0.24   =             0.26   =             0.37
----------------------------------------------------------------------------------------------------------------

    The second sub-step required for Step 6 compares the results of
Tables 23 through 25 with the target ROI (approximately 4.94 percent)
we obtained in Step 5 to determine if an adjustment to the base
pilotage rate is necessary. Table 26 shows this comparison for each
area.

                                            Table 26--Comparison of Projected ROI and Target ROI, by Area \1\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                  Area 1       Area 2       Area 4       Area 5       Area 6       Area 7       Area 8
                                                              ------------------------------------------------------------------------------------------
                                                                                Southeast
                                                                   St.          Lake                    Shoal to   Lakes Huron   St. Mary's      Lake
                                                                 Lawrence     Ontario     Lake Erie   Port Huron,      and         River       Superior
                                                                  River                                    MI        Michigan
--------------------------------------------------------------------------------------------------------------------------------------------------------
Projected return on investment...............................      (0.339)        0.363        0.622        0.441        0.241        0.262        0.371
Target return on investment..................................        0.049        0.049        0.049        0.049        0.049        0.049        0.049
Difference in return on investment...........................      (0.389)        0.313        0.573        0.392        0.191        0.212        0.322
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Note: Decimalization and rounding of the target ROI affects the display in this table but does not affect our calculations, which are based on the
  actual figure.

    Because Table 26 shows a significant difference between the
projected and target ROIs, an adjustment to the base pilotage rates is
necessary. Step 6 now requires us to determine the pilotage revenues
that are needed to make the target return on investment equal to the
projected return on investment. This calculation is shown in Table 27.
It adjusts the investment base we used in Step 4, multiplying it by the
target ROI from Step 5, and applies the result to the operating
expenses and target pilot compensation determined in Steps 1 and 2.

                                                 Table 27--Revenue Needed To Recover Target ROI, by Area
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Investment
                                                                                base  (Step
                                                                  Operating        Target pilot       4)  x 4.94%       Federal tax
                         Pilotage area                             expenses        compensation          (Target         allowance        Revenue needed
                                                                   (Step 1)           (Step 2)        ROI)  (Step
                                                                                5)
--------------------------------------------------------------------------------------------------------------------------------------------------------
AREA 1 (Designated Waters).....................................     $574,652   +     $1,806,030   +       $10,540   +   ...........   =       $2,391,222
AREA 2 (Undesignated Waters)...................................      452,590   +      1,104,304   +         7,893   +   ...........   =        1,564,786
AREA 4 (Undesignated Waters)...................................      369,351   +        883,443   +         4,414   +         2,210   =        1,259,418
AREA 5 (Designated Waters).....................................      700,592   +      1,806,030   +         9,964   +         4,990   =        2,521,575
AREA 6 (Undesignated Waters)...................................      576,969   +      1,546,026   +        21,463  ...  ...........   =        2,144,458
AREA 7 (Designated Waters).....................................      302,345   +      1,204,020   +        11,247  ...  ...........   =        1,517,612
AREA 8 (Undesignated Waters)...................................      380,448   +      1,325,165   +        14,152   +   ...........   =        1,719,765
                                                                ----------------------------------------------------------------------------------------
    Total......................................................    3,356,946   +      9,675,017   +        79,673   +         7,200   =       13,118,836
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The ``Revenue Needed'' column of Table 27 is less than the revenue
we projected in Table 18 with the exception of Area 1. For purposes of
transparency, we verify the calculations in Table 27 by rerunning the
first part of Step 6 using the ``revenue needed'' from Table 27 instead
of the Table 18 revenue projections we used in Tables 23 through 25.
Tables 28 through 30 show that attaining the Table 27 revenue needed is
sufficient to recover target ROI.

     Table 28--Balancing Revenue Needed and Target ROI, District One
------------------------------------------------------------------------
                                         Area 1               Area 2
------------------------------------------------------------------------
Revenue Needed................   +       $2,391,222   +       $1,564,786
Operating Expenses (from Step    -          574,652   -          452,590
 1)...........................

Pilot Compensation (from Step    -        1,806,030   -        1,104,304
 2)...........................
Operating Profit/(Loss).......   =           10,540   =            7,893
Interest Expense (from audits)   -                0   -                0
Earnings Before Tax...........   =          $10,540   =           $7,893
Federal Tax Allowance.........   -               $0   -               $0
Net Income....................   =          $10,540   =           $7,893
Return Element (Net Income +    ...         $10,540  ...          $7,893
 Interest)....................
Investment Base (from Step 4).   /         $213,225   /         $159,661
Return on Investment..........   =           0.0494   =           0.0494
------------------------------------------------------------------------

     Table 29--Balancing Revenue Needed and Target ROI, District Two
------------------------------------------------------------------------
                                         Area 4               Area 5
------------------------------------------------------------------------
Revenue Needed................   +       $1,259,418   +       $2,521,575
Operating Expenses (from Step    -         $369,351   -         $700,592
 1)...........................
Pilot Compensation (from Step    -         $883,443   -       $1,806,030
 2)...........................
Operating Profit/(Loss).......   =           $6,624   =          $14,953
Interest Expense (from audits)   -           $3,302   -           $7,455
Earnings Before Tax...........   =           $3,322   =           $7,499
Federal Tax Allowance.........   -           $2,210   -           $4,990
Net Income....................   =           $1,112   =           $2,509
Return Element (Net Income +    ...          $4,414  ...          $9,964
 Interest)....................
Investment Base (from Step 4).   /          $89,290   /         $201,559
Return on Investment..........   =           0.0494   =           0.0494
------------------------------------------------------------------------

                        Table 30--Balancing Revenue Needed and Target ROI, District Three
----------------------------------------------------------------------------------------------------------------
                                                            Area 6               Area 7               Area 8
----------------------------------------------------------------------------------------------------------------
Revenue Needed...................................   +       $2,144,458   +       $1,517,612   +       $1,719,765
Operating Expenses (from Step 1).................   -         $576,969   -         $302,345   -         $380,448
Pilot Compensation (from Step 2).................   -       $1,546,026   -       $1,204,020   -       $1,325,165
Operating Profit/(Loss)..........................   =          $21,463   =          $11,247   =          $14,152
Interest Expense (from audits)...................   -           $2,417   -           $1,267   -           $1,594
Earnings Before Tax..............................   =          $19,046   =           $9,980   =          $12,558
Federal Tax Allowance............................   -               $0   -               $0   -               $0
Net Income.......................................   =          $19,046   =           $9,980   =          $12,558
Return Element (Net Income + Interest)...........  ...         $21,463  ...         $11,247  ...         $14,152
Investment Base (from Step 4)....................   /         $434,180   /         $227,518   /         $286,293
Return on Investment.............................   =           0.0494   =           0.0494   =           0.0494
----------------------------------------------------------------------------------------------------------------

    Step 7: Adjustment of Pilotage Rates. Finally, and subject to the
requirements of the Memorandum of Arrangements with Canada or
adjustment for other supportable circumstances, we calculate rate
adjustments by dividing the Step 6 revenue needed (Table 27) by the
Step 3 revenue projection (Table 18), to give us a rate multiplier for
each area. Tables 31 through 33 show these calculations.

            Table 31--Rate Multiplier, Areas in District One
------------------------------------------------------------------------
                                       Area 1 St.           Area 2 Lake
    Ratemaking projections           Lawrence River           Ontario
------------------------------------------------------------------------
Revenue Needed (from Step 6)..  ...      $2,391,222  ...      $1,564,786
Revenue (from Step 3).........   /       $2,308,357   /       $1,614,791
Rate Multiplier...............   =            1.036   =            0.969
------------------------------------------------------------------------

            Table 32--Rate Multiplier, Areas in District Two
------------------------------------------------------------------------
                                                              Area 5
                                       Area 4 Lake           Southeast
    Ratemaking projections                Erie             Shoal to Port
                                                             Huron, MI
------------------------------------------------------------------------
Revenue Needed (from Step 6)..  ...      $1,259,418  ...      $2,521,575
Revenue (from Step 3).........   /       $1,310,549   /       $2,600,490

Rate Multiplier...............   =            0.961   =            0.970
------------------------------------------------------------------------

                               Table 33--Rate Multiplier, Areas in District Three
----------------------------------------------------------------------------------------------------------------
                                                         Area 6 Lakes
              Ratemaking projections                       Huron and           Area 7 St.           Area 8 Lake
                                                           Michigan           Mary's River           Superior
----------------------------------------------------------------------------------------------------------------
Revenue Needed (from Step 6).....................  ...      $2,144,458  ...      $1,517,612  ...      $1,719,765
Revenue (from Step 3)............................   /       $2,227,555   /       $1,565,906   /       $1,811,863
Rate Multiplier..................................   =            0.963   =            0.969   =            0.949
----------------------------------------------------------------------------------------------------------------

    We calculate a rate multiplier for adjusting the basic rates and
charges described in 46 CFR 401.420 and 401.428 and applicable in all
areas. We divide total revenue needed (Step 6, Table 27) by total
projected revenue (Steps 3 & 3A, Table 18). Our rate changes for 46 CFR
401.420 and 401.428 reflect the multiplication of the rates we
established for those sections in our 2011 final rule by the rate
multiplier shown as the result of our calculation in Table 34.

 Table 34--Rate Multiplier for Basic Rates and Charges in 46 CFR 401.420
                               and 401.428
------------------------------------------------------------------------
               Ratemaking projections
------------------------------------------------------------------------
Total revenue Needed (from Step 6)..................  ..     $13,118,836
Total revenue (from Step 3).........................   /     $13,439,512
Rate Multiplier.....................................   =           0.976
------------------------------------------------------------------------

    Rates for cancellation, delay, or interruption in rendering
services (46 CFR 401.420) and basic rates and charges for carrying a
U.S. pilot beyond the normal change point, or for boarding at other
than the normal boarding point (46 CFR 401.428), will decrease by 2.39
percent in all areas.
    We multiply the existing rates we established in our 2011 final
rule by the rate multipliers from Tables 31 through 33 to calculate the
Area by Area rate changes we propose for 2012. Tables 35 through 37
show these calculations.

                          Table 35--Adjustment of Pilotage Rates, Areas in District One
----------------------------------------------------------------------------------------------------------------
                                                                          Rate
                                               2011 rate               multiplier        Adjusted rate for 2012
----------------------------------------------------------------------------------------------------------------
      Area 1--St. Lawrence River
----------------------------------------------------------------------------------------------------------------
Basic Pilotage.......................  $18.36/km, $32.50/mi....   x         1.036   =   $19.02/km, $33.67/mi
Each lock transited..................  407.....................   x         1.036   =   422
Harbor movage........................  1,333...................   x         1.036   =   1,381
Minimum basic rate, St. Lawrence       889.....................   x         1.036   =   921
 River.
Maximum rate, through trip...........  3,901...................   x         1.036   =   4,041
----------------------------------------------------------------------------------------------------------------
         Area 2--Lake Ontario
----------------------------------------------------------------------------------------------------------------
6 hour period........................  $893....................   x         0.969   =   $865
Docking or Undocking.................  852.....................   x         0.969   =   826
----------------------------------------------------------------------------------------------------------------

      Table 36--Adjustment of Pilotage Rates, Areas in District Two
------------------------------------------------------------------------
                                                                Adjusted
                                    2011           Rate         rate for
                                    Rate        multiplier        2012
------------------------------------------------------------------------
        Area 4--Lake Erie
------------------------------------------------------------------------
6 hour period...................      $791   x     0.961     =      $760
Docking or undocking............       609   x     0.961     =       585
Any point on Niagara River below     1,554   x     0.961     =     1,493
 Black Rock Lock................
------------------------------------------------------------------------

 Area 5--Southeast Shoal to Port
 Huron, MI, between any point on
              or in
Toledo or any point on Lake Erie     1,412   x     0.970     =     1,369
 west of Southeast Shoal........
Toledo or any point on Lake Erie     2,389   x     0.970     =     2,317
 west of Southeast Shoal &
 Southeast Shoal................
Toledo or any point on Lake Erie     3,102   x     0.970     =     3,008
 west of Southeast Shoal &
 Detroit River..................
Toledo or any point on Lake Erie     2,389   x     0.970     =     2,317
 west of Southeast Shoal &
 Detroit Pilot Boat.............
Port Huron Change Point &            4,162   x     0.970     =     4,036
 Southeast Shoal (when pilots
 are not changed at the Detroit
 Pilot Boat)....................
Port Huron Change Point & Toledo     4,821   x     0.970     =     4,675
 or any point on Lake Erie west
 of Southeast Shoal (when pilots
 are not changed at the Detroit
 Pilot Boat)....................
Port Huron Change Point &            3,126   x     0.970     =     3,031
 Detroit River..................
Port Huron Change Point &            2,432   x     0.970     =     2,358
 Detroit Pilot Boat.............
Port Huron Change Point & St.        1,729   x     0.970     =     1,677
 Clair River....................
St. Clair River.................     1,412   x     0.970     =     1,369
St. Clair River & Southeast          4,162   x     0.970     =     4,036
 Shoal (when pilots are not
 changed at the Detroit Pilot
 Boat)..........................
St. Clair River & Detroit River/     3,126   x     0.970     =     3,031
 Detroit Pilot Boat.............
Detroit, Windsor, or Detroit         1,412   x     0.970     =     1,369
 River..........................
Detroit, Windsor, or Detroit         2,389   x     0.970     =     2,317
 River & Southeast Shoal........
Detroit, Windsor, or Detroit         3,102   x     0.970     =     3,008
 River & Toledo or any point on
 Lake Erie west of Southeast
 Shoal..........................
Detroit, Windsor, or Detroit         3,126   x     0.970     =     3,031
 River & St. Clair River........
Detroit Pilot Boat & Southeast       1,729   x     0.970     =     1,677
 Shoal..........................
Detroit Pilot Boat & Toledo or       2,389   x     0.970     =     2,317
 any point on Lake Erie west of
 Southeast Shoal................
Detroit Pilot Boat & St. Clair       3,126   x     0.970     =     3,031
 River..........................
------------------------------------------------------------------------

     Table 37--Adjustment of Pilotage Rates, Areas in District Three
------------------------------------------------------------------------
                                                                Adjusted
                                    2011           Rate         rate for
                                    rate        multiplier        2012
------------------------------------------------------------------------
Area 6--Lakes Huron and
 Michigan:
    6 hour period...............      $688   x       0.963   =      $662
    Docking or undocking........       653   x       0.963   =       629
Area 7--St. Mary's River between
 any point on or in:
    Gros Cap & De Tour..........     2,650   x       0.969   =     2,568
    Algoma Steel Corp. Wharf,        2,650   x       0.969   =     2,568
     Sault Ste. Marie, Ont. & De
     Tour.......................
    Algoma Steel Corp. Wharf,          998   x       0.969   =       967
     Sault. Ste. Marie, Ont. &
     Gros Cap...................
    Any point in Sault St.           2,221   x       0.969   =     2,153
     Marie, Ont., except the
     Algoma Steel Corp. Wharf &
     De Tour....................
    Any point in Sault St.             998   x       0.969   =       967
     Marie, Ont., except the
     Algoma Steel Corp. Wharf &
     Gros Cap...................
    Sault Ste. Marie, MI & De        2,221   x       0.969   =     2,153
     Tour.......................
    Sault Ste. Marie, MI & Gros        998   x       0.969   =       967
     Cap........................
    Harbor movage...............       998   x       0.969   =       967
Area 8--Lake Superior:
    6 hour period...............       608   x       0.949   =       577
    Docking or undocking........       578   x       0.949   =       549
------------------------------------------------------------------------

VII. Regulatory Analyses

    We developed this rule after considering numerous statutes and
executive orders related to rulemaking. Below we summarize our analyses
based on 14 of these statutes or executive orders.

A. Regulatory Planning and Review

    Executive Orders 12866 (``Regulatory Planning and Review'') and
13563 (``Improving Regulation and Regulatory Review'') direct agencies
to assess the costs and benefits of available regulatory alternatives
and, if regulation is necessary, to select regulatory approaches that
maximize net benefits (including potential economic, environmental,
public health and safety effects, distributive impacts, and equity).
Executive Order 13563 emphasizes the importance of quantifying both
costs and benefits, of reducing costs, of harmonizing rules, and of
promoting flexibility. This final rule has not been designated a
``significant regulatory action'' under section 3(f) of Executive Order
12866. Accordingly, the final rule has not been reviewed by the Office
of Management and Budget.
    Based on comments received, the Coast Guard is adjusting the
analysis from the NPRM to account for increased expenses in District
One, as well as a COBRA subsidy provided to District 2. These changes
reduced the overall savings to shippers from an estimated $1 million in
the NPRM to approximately $835,000 for this final rule. A final
Regulatory Assessment follows:
    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 rule and for background information on Great Lakes pilotage
ratemaking. Based on our annual review for this rule, we are adjusting
the pilotage rates for the 2012 shipping season to generate sufficient
revenue to cover allowable expenses, target pilot compensation, and
returns on investment. The rate adjustments in this final rule will
lead to a cost savings in six of the seven areas and all three
districts with an estimated cost savings to shippers of approximately
$835,000 across all three districts.
    This rule applies the 46 CFR part 404, Appendix A, full ratemaking

methodology and decreases Great Lakes pilotage rates, on average,
approximately 2.62 percent overall from the current rates set in the
2011 final rule. The Appendix A methodology is discussed and applied in
detail in Part VI of this preamble. Part VI reflects audited 2009
financial data from the pilotage associations (the most recent year
available for auditing), projected association expenses, and regional
inflation or deflation. The last full Appendix A ratemaking was
concluded in 2006 and used financial data from the 2002 base accounting
year. The last annual rate review, conducted under 46 CFR part 404,
Appendix C, was completed in early 2011.
    In general, we expect an increase in pilotage rates for a certain
area to result in additional costs for shippers using pilotage services
in that area, while a decrease in a specific area would result in a
cost reduction or savings for shippers in that area. The shippers
affected by these rate adjustments are those owners and operators of
domestic vessels operating on register (employed in foreign trade) and
owners and operators of foreign vessels on a route within the Great
Lakes system. These owners and operators must have pilots or pilotage
service as required by 46 U.S.C. 9302. There is no minimum tonnage
limit or exemption for these vessels. Our interpretation is that the
statute applies only to commercial vessels and not to recreational
vessels.
    Owners and operators of other vessels that are not affected by this
rule, such as recreational boats and vessels operating only within the
Great Lakes system may elect to purchase pilotage services. However,
this election is voluntary and does not affect our calculation of the
rate and is not a part of our estimated national cost to shippers. Our
sampling of pilot data suggests there are very few U.S. domestic
vessels, without registry and operating only in the Great Lakes that
voluntarily purchase pilotage services.
    We used 2008-2010 vessel arrival data from the Coast Guard's MISLE
system to estimate the average annual number of vessels affected by the
rate adjustment to be 204 vessels that journey into the Great Lakes
system. These vessels enter the Great Lakes by transiting through or in
part of 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 204 vessels, there were approximately
319 annual U.S. port arrivals before the vessels left the Great Lakes
system, based on 2008-2010 vessel data from MISLE.
    The impact of the rate adjustment to shippers is estimated from the
District pilotage revenues. These revenues represent the direct and
indirect costs (``economic costs'') that shippers must pay for pilotage
services. The Coast Guard sets rates so that revenues equal the
estimated cost of pilotage.
    We estimate the additional impact (costs or savings) of the rate
adjustment in this rule to be the difference between the total
projected revenue needed to cover costs in 2012, based on the 2011 rate
adjustment, and the total projected revenue needed to cover costs in
2012 as set forth in this rule. Table 38 details additional costs or
savings by area and district.

                Table 38--Rate Adjustment and Additional Impact of the Rule by Area and District
                                             [$U.S.; Non-discounted]
----------------------------------------------------------------------------------------------------------------
                                                               Projected         Projected      Additional costs
                                                            revenue needed    revenue needed     or savings of
                                                               in 2011*          in 2012**         this rule
----------------------------------------------------------------------------------------------------------------
Area 1...................................................        $2,348,516        $2,391,222           $42,706
Area 2...................................................         1,689,246         1,564,786          (124,460)
                                                          ------------------------------------------------------
    Total, District One..................................         4,037,763         3,956,008           (81,755)
----------------------------------------------------------------------------------------------------------------
Area 4...................................................         1,436,140         1,259,418          (176,722)
Area 5...................................................         2,649,876         2,521,575          (128,301)
                                                          ------------------------------------------------------
    Total, District Two..................................         4,086,016         3,780,993          (305,023)
----------------------------------------------------------------------------------------------------------------
Area 6...................................................         2,311,006         2,144,458          (166,548)
Area 7...................................................         1,614,974         1,517,612           (97,362)
Area 8...................................................         1,904,237         1,719,765          (184,472)
                                                          ------------------------------------------------------
    Total, District Three................................         5,830,218         5,381,835          (448,383)
----------------------------------------------------------------------------------------------------------------
* These 2011 estimates are detailed in Table 16 of the 2011 final rule (76 FR 6351).
** These 2012 estimates are detailed in Table 27 of this rulemaking.
Some values may not total due to rounding.
``Additional Revenue or Cost of this Rulemaking'' = ``Revenue needed in 2012'' minus ``Revenue needed in 2011.''

    After applying the rate change in this rule, the resulting
difference between the projected revenue in 2011 and the projected
revenue in 2012 is the annual impact to shippers from this rule. This
figure would be equivalent to the total additional payments or savings
that shippers would incur for pilotage services from this rule. As
discussed earlier, we consider a reduction in payments to be a cost
savings.
    The impact of the rate adjustment in this rule to shippers varies
by area and district. The rate adjustments would lead to a cost savings
in all seven areas and all three districts, with affected shippers
operating in District One, District Two, and District Three
experiencing savings of $82,000, $305,000, and $448,000, respectively
(values rounded). To calculate an exact cost or savings per vessel is