2012 Rates for Pilotage on the Great Lakes, 11752-11774 [2012-4453]

Download as PDF 11752 Federal Register / Vol. 77, No. 39 / Tuesday, February 28, 2012 / Rules and Regulations F. Executive Order 13175: Consultation and Coordination With Indian Tribal Governments Executive Order 13175, entitled ‘‘Consultation and Coordination with Indian Tribal Governments’’ (59 FR 22951, November 9, 2000), requires EPA to develop an accountable process to ensure ‘‘meaningful and timely input by tribal officials in the development of regulatory policies that have tribal implications.’’ This rule does not have tribal implications, as specified in Executive Order 13175 because EPA retains its authority over Indian Country. Thus, Executive Order 13175 does not apply to this rule. G. Executive Order 13045: Protection of Children From Environmental Health and Safety Risks EPA interprets Executive Order 13045 (62 FR 19885, April 23, 1997) as applying only to those regulatory actions that concern health or safety risks, such that the analysis required under section 5–501 of the Executive Order has the potential to influence the regulation. This action is not subject to Executive Order 13045 because it approves a state program. H. Executive Order 13211: Actions That Significantly Affect Energy Supply, Distribution, or Use This rule is not subject to Executive Order 13211, ‘‘Actions Concerning Regulations that Significantly Affect Energy Supply, Distribution, or Use’’ (66 FR 28355, May 22, 2001) because it is not a ‘‘significant regulatory action’’ as defined under Executive Order 12866. erowe on DSK2VPTVN1PROD with RULES I. National Technology Transfer and Advancement Act Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (‘‘NTTAA’’), Public Law 104–113, 12(d) (15 U.S.C. 272), directs EPA to use voluntary consensus standards in its regulatory activities unless to do so would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards (e.g., materials specifications, test methods, sampling procedures, and business practices) that are developed or adopted by voluntary consensus bodies. The NTTAA directs EPA to provide Congress, through OMB, explanations when the Agency decides not to use available and applicable voluntary consensus standards. This rulemaking does not involve technical standards. Therefore, EPA is not considering the use of any voluntary consensus standards. VerDate Mar<15>2010 14:48 Feb 27, 2012 Jkt 226001 J. Executive Order 12898: Federal Actions To Address Environmental Justice in Minority Populations and Low Income Populations DEPARTMENT OF HOMELAND SECURITY Executive Order 12898 (59 FR 7629, February 16, 1994) establishes Federal executive policy on environmental justice. Its main provision directs Federal agencies, to the greatest extent practicable and permitted by law, to make environmental justice part of their mission by identifying and addressing, as appropriate, disproportionately high and adverse human health or environmental effects of their programs, policies, and activities on minority populations and low-income populations in the United States. EPA has determined that this rule will not have disproportionately high and adverse human health or environmental effects on minority or low-income populations. This rule does not affect the level of protection provided to human health or the environment because this rule authorizes pre-existing State rules which are no less stringent than existing Federal requirements. 46 CFR Part 401 K. Submission to Congress and the General Accounting Office Under 5 U.S.C. 801(a)(1)(A) as added by the Small Business Regulatory Enforcement Fairness Act of 1996, EPA submitted a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives and the Comptroller General of the General Accounting Office prior to publication of the rule in today’s Federal Register. This rule is not a ‘‘major rule’’ as defined by 5 U.S.C. 804(2). List of Subjects in 40 CFR Part 281 Environmental protection, administrative practice and procedure, hazardous materials, state program approval, and underground storage tanks. Authority: This document is issued under the authority of section 9004 of the Resource Conservation and Recovery Act, 42 U.S.C. 6991c. Dated: February 14, 2012. Dennis J. McLerran, Regional Administrator, Region 10. [FR Doc. 2012–4657 Filed 2–27–12; 8:45 am] BILLING CODE 6560–50–P PO 00000 Frm 00016 Fmt 4700 Sfmt 4700 Coast Guard [USCG–2011–0328] RIN 1625–AB70 2012 Rates for Pilotage on the Great Lakes Coast Guard, DHS. Final rule. AGENCY: ACTION: 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 Todd.A.Haviland@uscg.mil, or fax 202–372–1909. If you have questions on viewing the docket, call Renee V. Wright, Program Manager, Docket Operations, telephone 202–366–9826. SUPPLEMENTARY INFORMATION: SUMMARY: 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 E:\FR\FM\28FER1.SGM 28FER1 Federal Register / Vol. 77, No. 39 / Tuesday, February 28, 2012 / Rules and Regulations 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 § Section symbol U.S.C. United States Code erowe on DSK2VPTVN1PROD with RULES 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 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. VerDate Mar<15>2010 14:48 Feb 27, 2012 Jkt 226001 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’’). 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. 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. 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. PO 00000 Frm 00017 Fmt 4700 Sfmt 4700 11753 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 E:\FR\FM\28FER1.SGM 28FER1 11754 Federal Register / Vol. 77, No. 39 / Tuesday, February 28, 2012 / Rules and Regulations erowe on DSK2VPTVN1PROD with RULES 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 VerDate Mar<15>2010 14:48 Feb 27, 2012 Jkt 226001 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 7year rolling average of actual bridge hours to project bridge hours for future rates to the proposed bridge hour study. PO 00000 Frm 00018 Fmt 4700 Sfmt 4700 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 thirdparty 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. E:\FR\FM\28FER1.SGM 28FER1 erowe on DSK2VPTVN1PROD with RULES Federal Register / Vol. 77, No. 39 / Tuesday, February 28, 2012 / Rules and Regulations 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 VerDate Mar<15>2010 14:48 Feb 27, 2012 Jkt 226001 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 PO 00000 Frm 00019 Fmt 4700 Sfmt 4700 11755 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 E:\FR\FM\28FER1.SGM 28FER1 erowe on DSK2VPTVN1PROD with RULES 11756 Federal Register / Vol. 77, No. 39 / Tuesday, February 28, 2012 / Rules and Regulations 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 VerDate Mar<15>2010 14:48 Feb 27, 2012 Jkt 226001 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 PO 00000 Frm 00020 Fmt 4700 Sfmt 4700 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 If pilotage service is required in: Area 1 (Designated Waters) Area 2 (Undesignated Waters) .............................. Area 4 (Undesignated Waters) .............................. Area 5 (Designated Waters) Area 6 (Undesignated Waters) .............................. Area 7 (Designated Waters) Area 8 (Undesignated Waters) .............................. Then the percent change over the current rate is: 3.59 ¥3.10 ¥3.90 ¥3.03 ¥3.73 ¥3.08 ¥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 E:\FR\FM\28FER1.SGM 28FER1 Federal Register / Vol. 77, No. 39 / Tuesday, February 28, 2012 / Rules and Regulations 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 11757 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 Other Pilot Costs: Pilot subsistence/travel ................................................................................................... License insurance ........................................................................................................... Other ............................................................................................................................... Pilot Boat and Dispatch Expenses: Pilot boat expense .......................................................................................................... Administrative Expenses: Legal ............................................................................................................................... Depreciation/auto leasing/other ...................................................................................... Dues and subscriptions .................................................................................................. Bad debt expense .......................................................................................................... Utilities ............................................................................................................................ Accounting/professional Fees ........................................................................................ Bookkeeping and Administration .................................................................................... Other ............................................................................................................................... Total Recognizable .................................................................................................. Area 2 St. Lawrence River Reported expenses for 2009 Lake Ontario Total $164,782 28,428 980 $131,436 18,952 857 $296,218 47,380 1,837 101,612 82,506 184,118 10,450 8,917 13,717 9,302 478 2,182 77,730 762 8,685 7,283 10,678 1,004 346 1,818 66,121 582 19,135 16,200 24,395 10,306 824 4,000 143,851 1,344 419,340 330,268 749,608 Adjustments: Other Pilot Costs: Pilotage Subsistence/Travel .................................................................................... Payroll taxes ............................................................................................................ Other ........................................................................................................................ Administrative Expenses: Legal ............................................................................................................................... Dues and subscriptions .................................................................................................. Bad debt expense .......................................................................................................... Other ............................................................................................................................... (4,624) 48,508 (589) (3,641) 38,204 (463) (8,265) 86,712 (1,052) (270) (13,647) (5,765) (120) (212) (10,748) (4,540) (94) (482) (24,395) (10,305) (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 Lake Erie Southeast Shoal to Port Huron, MI erowe on DSK2VPTVN1PROD with RULES Reported expenses for 2009 Other Pilot Costs Pilot subsistence/travel ................................................................................................... License insurance ........................................................................................................... Payroll taxes ................................................................................................................... Other ............................................................................................................................... Pilot Boat and Dispatch Expenses: Pilot boat expense .......................................................................................................... Dispatch expense ........................................................................................................... Payroll taxes ................................................................................................................... Administrative Expenses: Legal ............................................................................................................................... Office rent ....................................................................................................................... Insurance ........................................................................................................................ Employee benefits .......................................................................................................... Payroll taxes ................................................................................................................... Other taxes ..................................................................................................................... Depreciation/auto leasing/other ...................................................................................... Interest ............................................................................................................................ Dues and subscriptions .................................................................................................. Salaries ........................................................................................................................... Accounting/professional Fees ........................................................................................ Bookkeeping and Administration .................................................................................... VerDate Mar<15>2010 17:21 Feb 27, 2012 Jkt 226001 PO 00000 Frm 00021 Fmt 4700 Sfmt 4700 Total $67,580 6,254 19,453 12,697 $101,371 9,380 43,770 28,662 $168,951 15,634 63,223 41,359 28,026 12,975 0 179,577 0 7,154 207,603 12,975 7,154 30,052 30,275 10,408 26,483 3,821 9,815 27,383 16,314 4,450 12,164 43,071 9,400 45,079 45,413 15,611 39,725 5,731 14,723 41,075 24,471 6,675 18,245 64,607 14,100 75,131 75,688 26,019 66,208 9,552 24,538 68,458 40,785 11,125 30,409 107,678 23,500 E:\FR\FM\28FER1.SGM 28FER1 11758 Federal Register / Vol. 77, No. 39 / Tuesday, February 28, 2012 / Rules and Regulations TABLE 3—RECOGNIZED EXPENSES FOR DISTRICT TWO—Continued Area 4 Area 5 Lake Erie Southeast Shoal to Port Huron, MI Reported expenses for 2009 Total Other ............................................................................................................................... 9,427 14,140 23,567 Total Recognizable .................................................................................................. 380,048 719,509 1,099,557 (1,338) (2,533) (3,871) Adjustments: Other Pilot Costs: Pilotage Subsistence/Travel .................................................................................... Pilot Boat and Dispatch Expenses: Pilot boat expense .......................................................................................................... Administrative Expenses: Legal ............................................................................................................................... Employee benefits .......................................................................................................... Other taxes ..................................................................................................................... Depreciation/auto leasing/other ...................................................................................... Interest ............................................................................................................................ Dues and subscriptions .................................................................................................. Salaries ........................................................................................................................... Other ............................................................................................................................... 2,907 5,504 8,411 (4,915) 1,177 (238) 2,398 (10,379) (3,807) 417 (833) (9,305) 2,228 (450) 4,540 (19,649) (7,208) 789 (1,577) (14,220) 3,405 (688) 6,938 (30,028) (11,015) 1,206 (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 Other Pilot Costs: Pilot subsistence/Travel .................................................................... License insurance ............................................................................. Other ................................................................................................. Pilot Boat and Dispatch Expenses: Pilot boat costs ................................................................................. Dispatch expense ............................................................................. Payroll taxes ..................................................................................... Administrative Expenses: Legal ................................................................................................. Office Rent ........................................................................................ Insurance .......................................................................................... Employee benefits ............................................................................ Payroll taxes ..................................................................................... Other taxes ....................................................................................... Depreciation/auto Leasing ................................................................ Interest .............................................................................................. Dues and Subscriptions ................................................................... Utilities .............................................................................................. Salaries ............................................................................................. Accounting/professional fees ............................................................ Other ................................................................................................. erowe on DSK2VPTVN1PROD with RULES Total Recognizable .................................................................... Adjustments: Other Pilot Costs:. Pilotage Subsistence/Travel ...................................................... Payroll taxes .............................................................................. Other .......................................................................................... Pilot Boat and Dispatch Expenses: Dispatch costs .................................................................................. Administrative Expenses: Legal ................................................................................................. Employee benefits ............................................................................ Depreciation/auto leasing/other ........................................................ Dues and Subscriptions ................................................................... Other ................................................................................................. VerDate Mar<15>2010 14:48 Feb 27, 2012 Jkt 226001 PO 00000 Frm 00022 Fmt 4700 Area 7 Area 8 Lakes Huron and Michigan Reported expenses for 2009 St. Mary’s River Lake Superior $144,081 10,577 1,025 $75,501 5,543 537 $95,005 6,975 675 $314,587 23,095 2,237 156,031 46,365 5,846 81,763 24,296 3,064 102,885 30,572 3,855 340,679 101,233 12,765 16,462 4,534 6,730 50,668 4,774 11,599 17,396 2,417 15,594 15,182 35,110 8,588 6,852 8,626 2,376 3,527 26,551 2,502 6,078 9,116 1,267 8,172 7,956 18,398 4,500 3,591 10,855 2,990 4,438 33,410 3,148 7,648 11,471 1,594 10,283 10,011 23,151 5,663 4,518 35,943 9,900 14,695 110,629 10,424 25,325 37,983 5,278 34,049 33,149 76,659 18,751 14,961 559,831 293,364 369,147 1,222,342 (1,102) 28,842 (196) (578) 15,114 (103) (727) 19,018 (129) (2,407) 62,973 (428) (3,367) (1,764) (2,220) (7,352) (1,447) (1,380) 599 (15,594) (528) (758) (723) 314 (8,172) (277) (954) (910) 395 (10,283) (348) (3,159) (3,013) 1,307 (34,049) (1,153) Sfmt 4700 Total E:\FR\FM\28FER1.SGM 28FER1 Federal Register / Vol. 77, No. 39 / Tuesday, February 28, 2012 / Rules and Regulations 11759 TABLE 4—RECOGNIZED EXPENSES FOR DISTRICT THREE—Continued Area 6 Area 7 Area 8 Lakes Huron and Michigan St. Mary’s River Lake Superior Total CPA Adjustments ............................................................. 5,825 3,053 3,841 12,719 Total Expenses .................................................................. 565,656 296,417 372,988 1,235,061 Reported expenses for 2009 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 Total ‘‘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 Total Expenses .............................................................................................. 2010 change in the Consumer Price Index (CPI) for the North Central Region of the United States .......................................................................................... Inflation Adjustment .............................................................................................. Area 2 St. Lawrence River Reported expenses for 2009 Lake Ontario Total $442,835 × = .02 $8,857 $348,772 × = .02 $6,975 $791,607 × = .02 $15,832 TABLE 6—INFLATION ADJUSTMENT, DISTRICT TWO Area 4 Area 5 Lake Erie Southeast Shoal to Port Huron, MI Reported expenses for 2009 Total Expenses .............................................................................................. 2010 change in the Consumer Price Index (CPI) for the North Central Region of the United States .......................................................................................... Inflation Adjustment .............................................................................................. $365,437 × = .02 $7,309 Total $691,848 × = .02 $13,837 $1,057,285 × = .02 $21,146 TABLE 7—INFLATION ADJUSTMENT, DISTRICT THREE Area 6 Total Expenses .......................................................... 2010 change in the Consumer Price Index (CPI) for the North Central Region of the United States ................... Inflation Adjustment ........................................................... erowe on DSK2VPTVN1PROD with RULES 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 VerDate Mar<15>2010 14:48 Feb 27, 2012 Jkt 226001 Area 7 Area 8 Lakes Huron and Michigan Reported expenses for 2009 St. Mary’s River Lake Superior $565,656 × = .02 $11,313 $296,417 × = .02 $5,928 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 PO 00000 Frm 00023 Fmt 4700 Total Sfmt 4700 $372,988 × = .02 $7,460 $1,235,061 × = .02 $24,701 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. E:\FR\FM\28FER1.SGM 28FER1 11760 Federal Register / Vol. 77, No. 39 / Tuesday, February 28, 2012 / Rules and Regulations TABLE 8—PROJECTED OPERATING EXPENSES, DISTRICT ONE Area 1 Total expenses before foreseeable circumstances .............................................. Inflation adjustment 2% ........................................................................................ Foreseeable circumstances (Director’s adjustment): Pilot boat mortgage payments ...................................................................... Pilot boat insurance ....................................................................................... Dock renovation and boat lift project ............................................................ Total projected expenses for 2012 pilotage season .............................. Area 2 St. Lawrence River Reported expenses for 2009 Lake Ontario + $442,835 $8,857 + $348,772 $6,975 + $791,607 $15,832 + + + $39,643 $10,831 $72,486 + + + $31,222 $8,531 $57,089 + + + $70,865 $19,362 $129,575 = $574,652 = $452,590 = $1,027,242 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 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 Total 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 Lake Erie Southeast Shoal to Port Huron, MI Reported expenses for 2009 Total expenses ..................................................................................................... Inflation adjustment 2% ........................................................................................ Foreseeable circumstances (Director’s adjustment): Huron Maid upgrade ...................................................................................... Annual mortgage expense ............................................................................ Property tax expense .................................................................................... American Recovery and Reinvestment Act of 2009 COBRA subsidy .......... Total projected expenses for 2012 pilotage season .............................. Because we are not now aware of any such foreseeable circumstances for Total + $365,437 $7,309 + $691,848 $13,837 + $1,057,285 $21,146 + + + + = $27,104 $7,804 $1,693 ($39,997) $369,351 + + + + = $40,657 $11,706 $2,540 ($59,996) $700,592 + + + + = $67,761 $19,511 $4,233 ($99,993) $1,069,943 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 erowe on DSK2VPTVN1PROD with RULES Total .................................................................................. Inflation Adjustment 2% .................................................... Total projected expenses 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. VerDate Mar<15>2010 14:48 Feb 27, 2012 Jkt 226001 + = Area 7 Area 8 Lakes Huron and Michigan Reported expenses for 2009 St. Mary’s River Lake Superior $565,656 $11,313 $576,969 + = $296,417 $5,928 $302,345 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 PO 00000 Frm 00024 Fmt 4700 Sfmt 4700 Total $372,988 $7,460 $380,448 + = + = $1,235,061 $24,701 $1,259,762 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 E:\FR\FM\28FER1.SGM 28FER1 Federal Register / Vol. 77, No. 39 / Tuesday, February 28, 2012 / Rules and Regulations 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 3percent 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 11761 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 undesignated waters Monthly component Agreement A: $287.09 daily rate × 54.5 days ......................................................................................................................... Monthly total × 9 months = total wages ........................................................................................................... Agreement B: $353.90 daily rate × 49.5 days ......................................................................................................................... Monthly total × 9 months = total wages ........................................................................................................... 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 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 Pilots on designated waters $15,646 140,818 $23,470 211,226 17,518 157,662 26,277 236,494 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 undesignated waters Monthly component Agreement A: Employer contribution, 401K plan (Monthly wages × 5%) ............................................................................... Pension = $33.35 × 45.5 days ......................................................................................................................... Health = $107.40 × 45.5 days .......................................................................................................................... Monthly total benefits ....................................................................................................................................... Monthly total benefits × 9 months .................................................................................................................... Agreement B: Employer contribution, 401K plan (Monthly wages × 5%) ............................................................................... Pension = $43.55 × 45.5 days ......................................................................................................................... Health = $107.40 × 45.5 days .......................................................................................................................... Monthly total benefits ....................................................................................................................................... Monthly total benefits × 9 months .................................................................................................................... Pilots on designated waters $782.32 1,517.43 4,886.70 7,186.45 64,678 $1,173.48 1,517.43 4,886.70 7,577.61 68,198 875.90 1,981.53 4,886.70 7,744.13 69,697 1,313.85 1,981.53 4,886.70 8,182.08 73,639 Table 13 combines our projected wage and benefit components of annual target pilot compensation. TABLE 13—PROJECTED WAGE AND BENEFITS COMPONENTS, COMBINED erowe on DSK2VPTVN1PROD with RULES Pilots on undesignated waters Agreement A: Wages ............................................................................................................................................................... Benefits ............................................................................................................................................................. Total .................................................................................................................................................................. Agreement B: Wages ............................................................................................................................................................... VerDate Mar<15>2010 14:48 Feb 27, 2012 Jkt 226001 PO 00000 Frm 00025 Fmt 4700 Sfmt 4700 E:\FR\FM\28FER1.SGM 28FER1 Pilots on designated waters $140,818 64,678 $211,226 68,198 205,496 279,425 157,662 236,494 11762 Federal Register / Vol. 77, No. 39 / Tuesday, February 28, 2012 / Rules and Regulations TABLE 13—PROJECTED WAGE AND BENEFITS COMPONENTS, COMBINED—Continued Pilots on undesignated waters Pilots on designated waters 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 ....................................................... Mittal Steel USA, Inc. ...................................................................... Key Lakes, Inc. ................................................................................ ............................................................ ............................................................ 361,385 815,600 38,826 ............................................................ Total tonnage, each agreement ............................................... Percent tonnage, each agreement .................................................. 361,385 361,395 ÷ 1,215,811 = 29.7238% 854,426 854,426 ÷ 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 waters Agreement A: Total wages and benefits .................................................................................................................. Percent tonnage ................................................................................................................................ Designated waters $205,496 29.7238% × $279,425 29.7238% Total ........................................................................................................................................... Agreement B: Total wages and benefits .................................................................................................................. Percent tonnage ................................................................................................................................ = $61,081 = $83,056 × $227,360 70.2762% × $310,132 70.2762% Total ........................................................................................................................................... Projected Target Rate of Compensation: Agreement A total weighted average wages and benefits ............................................................... Agreement B total weighted average wages and benefits ............................................................... = $159,780 = $217,949 + $61,081 $159,780 + $83,056 $217,949 Total ........................................................................................................................................... erowe on DSK2VPTVN1PROD with RULES × = $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 VerDate Mar<15>2010 14:48 Feb 27, 2012 Jkt 226001 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 PO 00000 Frm 00026 Fmt 4700 Sfmt 4700 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. E:\FR\FM\28FER1.SGM 28FER1 11763 Federal Register / Vol. 77, No. 39 / Tuesday, February 28, 2012 / Rules and Regulations TABLE 16—NUMBER OF PILOTS NEEDED Pilotage area AREA AREA AREA AREA AREA AREA AREA 1 2 4 5 6 7 8 Divided by 1,000 (designated aters) or 1,800 undesignated aters) Projected 2012 bridge hours (Designated Waters) ............................................................... (Undesignated Waters) ........................................................... (Undesignated Waters) ........................................................... (Designated Waters) ............................................................... (Undesignated Waters) ........................................................... (Designated Waters) ............................................................... (Undesignated Waters) ........................................................... Sub-step 2.C: Projection of Target Pilot Compensation. In Table 17 we project total target pilot compensation 5,114 5,401 6,680 5,002 11,187 3,160 9,353 ÷ ÷ ÷ ÷ ÷ ÷ ÷ Calculated value of pilot demand 1,000 1,800 1,800 1,000 1,800 1,000 1,800 separately for each area by multiplying the number of pilots needed in each = = = = = = = Pilots needed (total = 38) 5.114 3.001 3.711 5.002 6.215 3.160 5.196 6 5 4 6 7 4 6 area, as shown in Table 16, by the target pilot compensation shown in Table 15. TABLE 17—PROJECTION OF TARGET PILOT COMPENSATION BY AREA AREA AREA AREA AREA AREA AREA AREA 1 2 4 5 6 7 8 (Designated Waters) ...................................................................................... (Undesignated Waters) .................................................................................. (Undesignated Waters) .................................................................................. (Designated Waters) ...................................................................................... (Undesignated Waters) .................................................................................. (Designated Waters) ...................................................................................... (Undesignated Waters) .................................................................................. Step 3 and Sub-step 3.A: Projection of Revenue. In these steps, we project the revenue that would be received in 2012 Target rate of pilot compensation Pilots needed (total = 38) Pilotage area 6 5 4 6 7 4 6 if demand for pilotage services matches the bridge hours we projected in Table 16 and 2011 pilotage rates are left × × × × × × × $301,005 220,861 220,861 301,005 220,861 301,005 220,861 Projected target pilot compensation = = = = = = = $1,806,030 1,104,304 883,443 1,806,030 1,546,026 1,204,020 1,325,165 unchanged. Table 18 shows this calculation. TABLE 18—PROJECTION OF REVENUE BY AREA Projected 2012 bridge hours Pilotage area AREA AREA AREA AREA AREA AREA AREA 1 2 4 5 6 7 8 (Designated Waters) ...................................................................................... (Undesignated Waters) .................................................................................. (Undesignated Waters) .................................................................................. (Designated Waters) ...................................................................................... (Undesignated Waters) .................................................................................. (Designated Waters) ...................................................................................... (Undesignated Waters) .................................................................................. 5,114 5,401 6,680 5,002 11,187 3,160 9,353 Total ....................................................................................................................... × × × × × × × ........................ 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. Revenue projection for 2012 2011 Pilotage rates $451.38 298.98 196.19 519.89 199.12 495.54 193.72 = = = = = = = $2,308,357 1,614,791 1,310,549 2,600,490 2,227,555 1,565,906 1,811,863 ........................ 13,439,512 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 erowe on DSK2VPTVN1PROD with RULES Area 1 Recognized Assets: Total Current Assets ................................................................................................................................. Total Current Liabilities ............................................................................................................................. Current Notes Payable .............................................................................................................................. Total Property and Equipment (NET) ....................................................................................................... Land .......................................................................................................................................................... VerDate Mar<15>2010 14:48 Feb 27, 2012 Jkt 226001 PO 00000 Frm 00027 Fmt 4700 Sfmt 4700 E:\FR\FM\28FER1.SGM ¥ + + ¥ 28FER1 $233,316 20,091 0 0 0 Area 2 ¥ + + ¥ $174,705 15,044 0 0 0 11764 Federal Register / Vol. 77, No. 39 / Tuesday, February 28, 2012 / Rules and Regulations TABLE 19—TOTAL SOURCES OF FUNDS, DISTRICT ONE—Continued Area 1 Area 2 Total Other Assets .................................................................................................................................... + 0 + 0 Total Recognized Assets ................................................................................................................... Non-Recognized Assets: Total Investments and Special Funds ...................................................................................................... = 213,225 = 159,661 + 0 + 0 Total Non-Recognized Assets ........................................................................................................... Total Assets: Total Recognized Assets .......................................................................................................................... Total Non-Recognized Assets .................................................................................................................. = 0 = 0 + 213,225 0 + 159,661 0 = 213,225 = 159,661 + + + + 213,225 0 0 0 0 + + + + 159,661 0 0 0 0 = 213,225 = 159,661 + + + 0 0 0 0 + + + 0 0 0 0 Total Non-Recognized Sources ......................................................................................................... Total Sources of Funds: Total Recognized Sources ........................................................................................................................ Total Non-Recognized Sources ................................................................................................................ = 0 = 0 + 213,225 0 + 159,661 0 Total Sources of Funds ..................................................................................................................... = 213,225 = 159,661 Total Assets ....................................................................................................................................... Recognized Sources of Funds: Total Stockholder Equity ........................................................................................................................... Long-Term Debt ........................................................................................................................................ Current Notes Payable .............................................................................................................................. Advances from Affiliated Companies ........................................................................................................ Long-Term Obligations—Capital Leases .................................................................................................. Total Recognized Sources ................................................................................................................. Non-Recognized Sources of Funds: Pension Liability ........................................................................................................................................ Other Non-Current Liabilities .................................................................................................................... Deferred Federal Income Taxes ............................................................................................................... Other Deferred Credits .............................................................................................................................. TABLE 20—TOTAL SOURCES OF FUNDS, DISTRICT TWO Area 4 Recognized Assets: Total Current Assets ................................................................................................................................. Total Current Liabilities ............................................................................................................................. Current Notes Payable .............................................................................................................................. Total Property and Equipment (NET) ....................................................................................................... Land .......................................................................................................................................................... Total Other Assets .................................................................................................................................... Area 5 ¥ + + ¥ + $228,212 214,412 23,063 321,550 269,122 0 ¥ + + ¥ + $515,150 484,000 52,061 725,847 607,500 0 Total Recognized Assets ................................................................................................................... Non-Recognized Assets: Total Investments and Special Funds ...................................................................................................... = 89,290 = 201,559 + 0 + 0 Total Non-Recognized Assets ........................................................................................................... Total Assets: Total Recognized Assets .......................................................................................................................... Total Non-Recognized Assets .................................................................................................................. = 0 = 0 + 89,290 0 + 201,559 0 = 89,290 = 201,559 + + + + 53,061 282,288 23,063 0 0 + + + + 119,778 637,220 52,061 0 0 = 358,413 = 809,058 + + + 0 0 0 0 + + + 0 0 0 0 = 0 = 0 erowe on DSK2VPTVN1PROD with RULES Total Assets ....................................................................................................................................... Recognized Sources of Funds: Total Stockholder Equity ........................................................................................................................... Long-Term Debt ........................................................................................................................................ Current Notes Payable .............................................................................................................................. Advances from Affiliated Companies ........................................................................................................ Long-Term Obligations—Capital Leases .................................................................................................. Total Recognized Sources ................................................................................................................. Non-Recognized Sources of Funds: Pension Liability ........................................................................................................................................ Other Non-Current Liabilities .................................................................................................................... Deferred Federal Income Taxes ............................................................................................................... Other Deferred Credits .............................................................................................................................. Total Non-Recognized Sources ......................................................................................................... Total Sources of Funds: Total Recognized Sources ........................................................................................................................ VerDate Mar<15>2010 14:48 Feb 27, 2012 Jkt 226001 PO 00000 Frm 00028 Fmt 4700 Sfmt 4700 E:\FR\FM\28FER1.SGM 28FER1 358,413 809,058 Federal Register / Vol. 77, No. 39 / Tuesday, February 28, 2012 / Rules and Regulations 11765 TABLE 20—TOTAL SOURCES OF FUNDS, DISTRICT TWO—Continued Area 4 Area 5 Total Non-Recognized Sources ................................................................................................................ + 0 + 0 Total Sources of Funds ..................................................................................................................... = 358,413 = 809,058 TABLE 21—TOTAL SOURCES OF FUNDS, DISTRICT THREE Area 6 Recognized Assets: Total Current Assets .................................................................................................. Total Current Liabilities .............................................................................................. Current Notes Payable .............................................................................................. Total Property and Equipment (NET) ........................................................................ Land ........................................................................................................................... Total Other Assets ..................................................................................................... Area 7 Area 8 ¥ + + ¥ + $439,799 61,507 13,525 42,019 0 343 ¥ + + ¥ + $230,463 32,231 7,087 22,019 0 180 ¥ + + ¥ + $289,999 40,557 8,918 27,707 0 227 Total Recognized Assets ................................................................................... Non-Recognized Assets: Total Investments and Special Funds ....................................................................... = 434,180 = 227,518 = 286,293 + 0 + 0 + 0 Total Non-Recognized Assets ............................................................................ Total Assets: Total Recognized Assets ........................................................................................... Total Non-Recognized Assets ................................................................................... = 0 = 0 = 0 + 434,180 0 + 227,518 0 + 286,293 0 Total Assets ........................................................................................................ Recognized Sources of Funds: Total Stockholder Equity ........................................................................................... Long-Term Debt ........................................................................................................ Current Notes Payable .............................................................................................. Advances from Affiliated Companies ........................................................................ Long-Term Obligations–Capital Leases .................................................................... = 434,180 = 227,518 = 286,293 + + + + 417,721 2,934 13,525 0 0 + + + + 218,893 1,537 7,087 0 0 + + + + 275,441 1,935 8,918 0 0 Total Recognized Sources ................................................................................. Non-Recognized Sources of Funds: Pension Liability ......................................................................................................... Other Non-Current Liabilities ..................................................................................... Deferred Federal Income Taxes ............................................................................... Other Deferred Credits .............................................................................................. = 434,180 = 227,518 = 286,293 + + + 0 0 0 0 + + + 0 0 0 0 + + + 0 0 0 0 Total Non-Recognized Sources ......................................................................... Total Sources of Funds: Total Recognized Sources ........................................................................................ Total Non-Recognized Sources ................................................................................ = 0 = 0 = 0 + 434,180 0 + 227,518 0 + 286,293 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 erowe on DSK2VPTVN1PROD with RULES District Total recognized assets ($) Area Recognized sources of funds ($) Total sources of funds ($) Multiplier (ratio of recognized to total sources) Investment base ($) 1 One ...................................................................... 1 2 213,225 159,661 213,225 159,661 213,225 159,661 1 1 213,225 159,661 Total .............................................................. ............ ........................ ........................ ........................ ........................ 372,886 Two 2 .................................................................... 4 89,290 358,413 358,413 1 89,290 VerDate Mar<15>2010 14:48 Feb 27, 2012 Jkt 226001 PO 00000 Frm 00029 Fmt 4700 Sfmt 4700 E:\FR\FM\28FER1.SGM 28FER1 11766 Federal Register / Vol. 77, No. 39 / Tuesday, February 28, 2012 / Rules and Regulations TABLE 22—INVESTMENT BASE BY AREA AND DISTRICT—Continued District Total recognized assets ($) Area Recognized sources of funds ($) Total sources of funds ($) Multiplier (ratio of recognized to total sources) Investment base ($) 1 5 201,559 809,058 809,058 1 201,559 Total .............................................................. ............ ........................ ........................ ........................ ........................ 290,849 Three .................................................................... 6 7 8 434,180 227,518 286,293 434,180 227,518 286,293 434,180 227,518 286,293 1 1 1 434,180 227,518 286,293 Total .............................................................. ............ ........................ ........................ ........................ ........................ 947,991 1 Note: ‘‘Investment base’’ = ‘‘Total recognized assets’’ x ‘‘Multiplier (ratio of recognized to Total sources)’’ 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. 2 Note: Step 5: Determination of Target Rate of Return. We determine a marketequivalent 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 Revenue (from Step 3) ............................................................................................................................. Operating Expenses (from Step 1) .......................................................................................................... Pilot Compensation (from Step 2) ............................................................................................................ Operating Profit/(Loss) ............................................................................................................................. Interest Expense (from audits) ................................................................................................................. Earnings Before Tax ................................................................................................................................ Federal Tax Allowance ............................................................................................................................. Net Income ............................................................................................................................................... Return Element (Net Income + Interest) .................................................................................................. Investment Base (from Step 4) ................................................................................................................ Projected Return on Investment .............................................................................................................. + ¥ ¥ = ¥ = ¥ = ÷ = $2,308,357 574,652 1,806,030 (72,324) 0 (72,324) 0 (72,324) (72,324) 213,225 (0.34) Area 2 + ¥ ¥ = ¥ = ¥ = ÷ = $1,614,791 452,590 1,104,304 57,897 0 57,897 0 57,897 57,897 159,661 0.36 TABLE 24—PROJECTED ROI, AREAS IN DISTRICT TWO Area 4 Revenue (from Step 3) ............................................................................................................................. Operating Expenses (from Step 1) .......................................................................................................... Pilot Compensation (from Step 2) ............................................................................................................ Operating Profit/(Loss) ............................................................................................................................. Interest Expense (from audits) ................................................................................................................. Earnings Before Tax ................................................................................................................................ Federal Tax Allowance ............................................................................................................................. Net Income ............................................................................................................................................... Return Element (Net Income + Interest) .................................................................................................. Investment Base (from Step 4) ................................................................................................................ Projected Return on Investment .............................................................................................................. + ¥ ¥ = ¥ = ¥ = ÷ = $1,310,549 369,351 883,443 57,755 3,302 54,453 2,210 52,243 55,545 89,290 0.62 Area 5 + ¥ ¥ = ¥ = ¥ = ÷ = $2,600,490 700,592 1,806,030 93,868 7,455 86,414 4,990 81,424 88,879 201,559 0.44 erowe on DSK2VPTVN1PROD with RULES TABLE 25—PROJECTED ROI, AREAS IN DISTRICT THREE Area 6 Revenue (from Step 3) ......................................................................................... Operating Expenses (from Step 1) ....................................................................... Pilot Compensation (from Step 2) ........................................................................ Operating Profit/(Loss) .......................................................................................... VerDate Mar<15>2010 14:48 Feb 27, 2012 Jkt 226001 PO 00000 Frm 00030 Fmt 4700 + ¥ ¥ = Sfmt 4700 $2,227,555 576,969 1,546,026 104,560 Area 7 + ¥ ¥ = E:\FR\FM\28FER1.SGM $1,565,906 302,345 1,204,020 59,542 28FER1 Area 8 + ¥ ¥ = $1,811,863 380,448 1,325,165 106,250 11767 Federal Register / Vol. 77, No. 39 / Tuesday, February 28, 2012 / Rules and Regulations TABLE 25—PROJECTED ROI, AREAS IN DISTRICT THREE—Continued Area 6 Interest Expense (from audits) ............................................................................. Earnings Before Tax ............................................................................................. Federal Tax Allowance ......................................................................................... Net Income ........................................................................................................... Return Element (Net Income + Interest) .............................................................. Investment Base (from Step 4) ............................................................................ Projected Return on Investment ........................................................................... The second sub-step required for Step 6 compares the results of Tables 23 through 25 with the target ROI ¥ = ¥ = Area 7 2,417 102,143 0 102,143 104,560 434,180 0.24 ÷ = (approximately 4.94 percent) we obtained in Step 5 to determine if an adjustment to the base pilotage rate is ¥ = ¥ = Area 8 1,267 58,275 0 58,275 59,542 227,518 0.26 ÷ = ¥ = ¥ = 1,594 104,656 0 104,656 106,250 286,293 0.37 ÷ = 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 St. Lawrence River Lake Ontario Lake Erie Southeast Shoal to Port Huron, MI Lakes Huron and Michigan St. Mary’s River Lake Superior Projected return on investment ................ Target return on investment .................... Difference in return on investment .......... (0.339) 0.049 (0.389) 0.363 0.049 0.313 0.622 0.049 0.573 0.441 0.049 0.392 0.241 0.049 0.191 0.262 0.049 0.212 0.371 0.049 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 AREA AREA AREA AREA AREA AREA AREA 1 2 4 5 6 7 8 Target pilot compensation (Step 2) Operating expenses (Step 1) Pilotage area Investment base (Step 4) times; 4.94% (Target ROI) (Step 5) Federal tax allowance Revenue needed (Designated Waters) ............................... (Undesignated Waters) ........................... (Undesignated Waters) ........................... (Designated Waters) ............................... (Undesignated Waters) ........................... (Designated Waters) ............................... (Undesignated Waters) ........................... $574,652 452,590 369,351 700,592 576,969 302,345 380,448 + + + + + + + $1,806,030 1,104,304 883,443 1,806,030 1,546,026 1,204,020 1,325,165 + + + + + + + $10,540 7,893 4,414 9,964 21,463 11,247 14,152 + + + + .... .... + .................... .................... 2,210 4,990 .................... .................... .................... = = = = = = = $2,391,222 1,564,786 1,259,418 2,521,575 2,144,458 1,517,612 1,719,765 Total ............................................................... 3,356,946 + 9,675,017 + 79,673 + 7,200 = 13,118,836 erowe on DSK2VPTVN1PROD with RULES 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 Revenue Needed ..................................................................................................................................... Operating Expenses (from Step 1) .......................................................................................................... VerDate Mar<15>2010 14:48 Feb 27, 2012 Jkt 226001 PO 00000 Frm 00031 Fmt 4700 Sfmt 4700 + ¥ E:\FR\FM\28FER1.SGM $2,391,222 574,652 28FER1 Area 2 + ¥ $1,564,786 452,590 11768 Federal Register / Vol. 77, No. 39 / Tuesday, February 28, 2012 / Rules and Regulations TABLE 28—BALANCING REVENUE NEEDED AND TARGET ROI, DISTRICT ONE—Continued Area 1 Pilot Compensation (from Step 2) ............................................................................................................ Operating Profit/(Loss) ............................................................................................................................. Interest Expense (from audits) ................................................................................................................. Earnings Before Tax ................................................................................................................................ Federal Tax Allowance ............................................................................................................................. Net Income ............................................................................................................................................... Return Element (Net Income + Interest) .................................................................................................. Investment Base (from Step 4) ................................................................................................................ Return on Investment ............................................................................................................................... ¥ = ¥ = ¥ = 1,806,030 10,540 0 $10,540 $0 $10,540 $10,540 $213,225 0.0494 ÷ = Area 2 ¥ = ¥ = ¥ = ÷ = 1,104,304 7,893 0 $7,893 $0 $7,893 $7,893 $159,661 0.0494 TABLE 29—BALANCING REVENUE NEEDED AND TARGET ROI, DISTRICT TWO Area 4 Revenue Needed ..................................................................................................................................... Operating Expenses (from Step 1) .......................................................................................................... Pilot Compensation (from Step 2) ............................................................................................................ Operating Profit/(Loss) ............................................................................................................................. Interest Expense (from audits) ................................................................................................................. Earnings Before Tax ................................................................................................................................ Federal Tax Allowance ............................................................................................................................. Net Income ............................................................................................................................................... Return Element (Net Income + Interest) .................................................................................................. Investment Base (from Step 4) ................................................................................................................ Return on Investment ............................................................................................................................... + ¥ ¥ = ¥ = ¥ = ÷ = $1,259,418 $369,351 $883,443 $6,624 $3,302 $3,322 $2,210 $1,112 $4,414 $89,290 0.0494 Area 5 + ¥ ¥ = ¥ = ¥ = ÷ = $2,521,575 $700,592 $1,806,030 $14,953 $7,455 $7,499 $4,990 $2,509 $9,964 $201,559 0.0494 TABLE 30—BALANCING REVENUE NEEDED AND TARGET ROI, DISTRICT THREE Area 6 Revenue Needed .................................................................................................. Operating Expenses (from Step 1) ....................................................................... Pilot Compensation (from Step 2) ........................................................................ Operating Profit/(Loss) .......................................................................................... Interest Expense (from audits) ............................................................................. Earnings Before Tax ............................................................................................. Federal Tax Allowance ......................................................................................... Net Income ........................................................................................................... Return Element (Net Income + Interest) .............................................................. Investment Base (from Step 4) ............................................................................ Return on Investment ........................................................................................... Step 7: Adjustment of Pilotage Rates. Finally, and subject to the requirements of the Memorandum of Arrangements with Canada or adjustment for other + ¥ ¥ = ¥ = ¥ = ÷ = Area 7 $2,144,458 $576,969 $1,546,026 $21,463 $2,417 $19,046 $0 $19,046 $21,463 $434,180 0.0494 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 + ¥ ¥ = ¥ = ¥ = ÷ = $1,517,612 $302,345 $1,204,020 $11,247 $1,267 $9,980 $0 $9,980 $11,247 $227,518 0.0494 Area 8 + ¥ ¥ = ¥ = ¥ = ÷ = $1,719,765 $380,448 $1,325,165 $14,152 $1,594 $12,558 $0 $12,558 $14,152 $286,293 0.0494 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. Lawrence River Ratemaking projections Revenue Needed (from Step 6) ............................................................................................................... Revenue (from Step 3) ............................................................................................................................. Rate Multiplier .......................................................................................................................................... ÷ = $2,391,222 $2,308,357 1.036 Area 2 Lake Ontario ÷ = $1,564,786 $1,614,791 0.969 erowe on DSK2VPTVN1PROD with RULES TABLE 32—RATE MULTIPLIER, AREAS IN DISTRICT TWO Revenue Needed (from Step 6) ............................................................................................................... Revenue (from Step 3) ............................................................................................................................. VerDate Mar<15>2010 17:17 Feb 27, 2012 Jkt 226001 PO 00000 Frm 00032 Area 5 Southeast Shoal to Port Huron, MI Area 4 Lake Erie Ratemaking projections Fmt 4700 Sfmt 4700 E:\FR\FM\28FER1.SGM ÷ $1,259,418 $1,310,549 28FER1 ÷ $2,521,575 $2,600,490 11769 Federal Register / Vol. 77, No. 39 / Tuesday, February 28, 2012 / Rules and Regulations TABLE 32—RATE MULTIPLIER, AREAS IN DISTRICT TWO—Continued Area 5 Southeast Shoal to Port Huron, MI Area 4 Lake Erie Ratemaking projections Rate Multiplier .......................................................................................................................................... = 0.961 = 0.970 TABLE 33—RATE MULTIPLIER, AREAS IN DISTRICT THREE Area 6 Lakes Huron and Michigan Ratemaking projections Revenue Needed (from Step 6) ........................................................................... Revenue (from Step 3) ......................................................................................... Rate Multiplier ....................................................................................................... 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, Area 7 St. Mary’s River $2,144,458 $2,227,555 0.963 ÷ = 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 $1,517,612 $1,565,906 0.969 ÷ = Area 8 Lake Superior ÷ = $1,719,765 $1,811,863 0.949 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) ........................................................................................................................................... Total revenue (from Step 3) ........................................................................................................................................................ Rate Multiplier .............................................................................................................................................................................. 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 ÷ = $13,118,836 $13,439,512 0.976 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 multiplier 2011 rate Adjusted rate for 2012 Area 1—St. Lawrence River Basic Pilotage ..................................................................... Each lock transited ............................................................. Harbor movage ................................................................... Minimum basic rate, St. Lawrence River ............................ Maximum rate, through trip ................................................. $18.36/km, $32.50/mi .......... 407 ....................................... 1,333 .................................... 889 ....................................... 3,901 .................................... × × × × × 1.036 1.036 1.036 1.036 1.036 = = = = = $19.02/km, $33.67/mi 422 1,381 921 4,041 $893 ..................................... 852 ....................................... × × 0.969 0.969 = = $865 826 Area 2—Lake Ontario 6 hour period ....................................................................... Docking or Undocking ......................................................... TABLE 36—ADJUSTMENT OF PILOTAGE RATES, AREAS IN DISTRICT TWO erowe on DSK2VPTVN1PROD with RULES 2011 Rate Adjusted rate for 2012 Rate multiplier Area 4—Lake Erie 6 hour period ............................................................................................................................................ Docking or undocking ............................................................................................................................... Any point on Niagara River below Black Rock Lock ............................................................................... VerDate Mar<15>2010 14:48 Feb 27, 2012 Jkt 226001 PO 00000 Frm 00033 Fmt 4700 Sfmt 4700 E:\FR\FM\28FER1.SGM $791 609 1,554 28FER1 × × × 0.961 0.961 0.961 = = = $760 585 1,493 11770 Federal Register / Vol. 77, No. 39 / Tuesday, February 28, 2012 / Rules and Regulations TABLE 36—ADJUSTMENT OF PILOTAGE RATES, AREAS IN DISTRICT TWO—Continued 2011 Rate Area 5—Southeast Shoal to Port Huron, MI, between any point on or in Toledo or any point on Lake Erie west of Southeast Shoal .................................................................... Toledo or any point on Lake Erie west of Southeast Shoal & Southeast Shoal ..................................... Toledo or any point on Lake Erie west of Southeast Shoal & Detroit River ........................................... Toledo or any point on Lake Erie west of Southeast Shoal & Detroit Pilot Boat .................................... Port Huron Change Point & Southeast Shoal (when pilots are not changed at the Detroit Pilot Boat) Port Huron Change Point & Toledo or any point on Lake Erie west of Southeast Shoal (when pilots are not changed at the Detroit Pilot Boat) ............................................................................................ Port Huron Change Point & Detroit River ................................................................................................ Port Huron Change Point & Detroit Pilot Boat ......................................................................................... Port Huron Change Point & St. Clair River .............................................................................................. St. Clair River ........................................................................................................................................... St. Clair River & Southeast Shoal (when pilots are not changed at the Detroit Pilot Boat) ................... St. Clair River & Detroit River/Detroit Pilot Boat ...................................................................................... Detroit, Windsor, or Detroit River ............................................................................................................. Detroit, Windsor, or Detroit River & Southeast Shoal .............................................................................. Detroit, Windsor, or Detroit River & Toledo or any point on Lake Erie west of Southeast Shoal .......... Detroit, Windsor, or Detroit River & St. Clair River .................................................................................. Detroit Pilot Boat & Southeast Shoal ....................................................................................................... Detroit Pilot Boat & Toledo or any point on Lake Erie west of Southeast Shoal .................................... Detroit Pilot Boat & St. Clair River ........................................................................................................... Adjusted rate for 2012 Rate multiplier 1,412 2,389 3,102 2,389 4,162 × × × × × 0.970 0.970 0.970 0.970 0.970 = = = = = 1,369 2,317 3,008 2,317 4,036 4,821 3,126 2,432 1,729 1,412 4,162 3,126 1,412 2,389 3,102 3,126 1,729 2,389 3,126 × × × × × × × × × × × × × × 0.970 0.970 0.970 0.970 0.970 0.970 0.970 0.970 0.970 0.970 0.970 0.970 0.970 0.970 = = = = = = = = = = = = = = 4,675 3,031 2,358 1,677 1,369 4,036 3,031 1,369 2,317 3,008 3,031 1,677 2,317 3,031 TABLE 37—ADJUSTMENT OF PILOTAGE RATES, AREAS IN DISTRICT THREE 2011 rate Area 6—Lakes Huron and Michigan: 6 hour period ..................................................................................................................................... Docking or undocking ........................................................................................................................ Area 7—St. Mary’s River between any point on or in: Gros Cap & De Tour ......................................................................................................................... Algoma Steel Corp. Wharf, Sault Ste. Marie, Ont. & De Tour ......................................................... Algoma Steel Corp. Wharf, Sault. Ste. Marie, Ont. & Gros Cap ...................................................... Any point in Sault St. Marie, Ont., except the Algoma Steel Corp. Wharf & De Tour ..................... Any point in Sault St. Marie, Ont., except the Algoma Steel Corp. Wharf & Gros Cap .................. Sault Ste. Marie, MI & De Tour ........................................................................................................ Sault Ste. Marie, MI & Gros Cap ...................................................................................................... Harbor movage .................................................................................................................................. Area 8—Lake Superior: 6 hour period ..................................................................................................................................... Docking or undocking ........................................................................................................................ erowe on DSK2VPTVN1PROD with RULES 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 VerDate Mar<15>2010 14:48 Feb 27, 2012 Jkt 226001 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: PO 00000 Frm 00034 Fmt 4700 Sfmt 4700 Adjusted rate for 2012 Rate multiplier $688 653 × × 0.963 0.963 = = $662 629 2,650 2,650 998 2,221 998 2,221 998 998 × × × × × × × × 0.969 0.969 0.969 0.969 0.969 0.969 0.969 0.969 = = = = = = = = 2,568 2,568 967 2,153 967 2,153 967 967 608 578 × × 0.949 0.949 = = 577 549 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 E:\FR\FM\28FER1.SGM 28FER1 Federal Register / Vol. 77, No. 39 / Tuesday, February 28, 2012 / Rules and Regulations 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 11771 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 revenue needed in 2011* Projected revenue needed in 2012** Additional costs or savings of this rule Area 1 ............................................................................................................................ Area 2 ............................................................................................................................ $2,348,516 1,689,246 $2,391,222 1,564,786 $42,706 (124,460) Total, District One ................................................................................................... 4,037,763 3,956,008 (81,755) Area 4 ............................................................................................................................ Area 5 ............................................................................................................................ 1,436,140 2,649,876 1,259,418 2,521,575 (176,722) (128,301) Total, District Two ................................................................................................... 4,086,016 3,780,993 (305,023) Area 6 ............................................................................................................................ Area 7 ............................................................................................................................ Area 8 ............................................................................................................................ 2,311,006 1,614,974 1,904,237 2,144,458 1,517,612 1,719,765 (166,548) (97,362) (184,472) Total, District Three ................................................................................................ 5,830,218 5,381,835 (448,383) erowe on DSK2VPTVN1PROD with RULES * 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. VerDate Mar<15>2010 14:48 Feb 27, 2012 Jkt 226001 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 difficult because of the variation in vessel types, PO 00000 Frm 00035 Fmt 4700 Sfmt 4700 routes, port arrivals, commodity carriage, time of season, conditions during navigation, and preferences for the extent of pilotage services on designated and undesignated portions of the Great Lakes system. Some owners and operators would pay more and some would pay less depending on the distance and port arrivals of their vessels’ trips. However, the additional savings reported above captures the adjustment the shippers would E:\FR\FM\28FER1.SGM 28FER1 11772 Federal Register / Vol. 77, No. 39 / Tuesday, February 28, 2012 / Rules and Regulations erowe on DSK2VPTVN1PROD with RULES experience as a result of the rate adjustment in this rule. As Table 38 indicates, shippers operating in all areas would experience an annual savings due to this rule. The overall impact of the rule would be a cost savings to shippers of approximately $835,000 across all three districts. The effects of a rate adjustment on costs and savings vary by year and area. A decrease in projected expenses for individual areas or districts is common in past pilotage rate adjustments. Most recently, in the 2011 ratemaking, District Three experienced a decrease in projected expenses due to an adjustment in bridge hours from the 2010 final rule. That decrease led to a savings for that district and yielded a net savings for the system. This rule will allow the Coast Guard to meet the statutory requirements to review the rates for pilotage services on the Great Lakes. B. Small Entities Under the Regulatory Flexibility Act (5 U.S.C. 601–612), we have considered whether this rule would have a significant economic impact on a substantial number of small entities. The term ‘‘small entities’’ comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000 people. We expect that entities affected by this rule would be classified under the North American Industry Classification System (NAICS) code subsector 483– Water Transportation, which includes the following 6-digit NAICS codes for freight transportation: 483111-Deep Sea Freight Transportation, 483113-Coastal and Great Lakes Freight Transportation, and 483211-Inland Water Freight Transportation. According to the Small Business Administration’s definition, a U.S. company with these NAICS codes and employing less than 500 employees is considered a small entity. We reviewed recent company size and ownership data from 2008–2010 Coast Guard MISLE data and business revenue and size data provided by publicly available sources such as Manta and ReferenceUSA. We found that large, mostly foreign-owned shipping conglomerates or their subsidiaries owned or operated all vessels engaged in foreign trade on the Great Lakes. We assume that new industry entrants would be comparable in ownership and size to these shippers. There are three U.S. entities affected by this rule that receive revenue from pilotage services. These are the three VerDate Mar<15>2010 14:48 Feb 27, 2012 Jkt 226001 pilot associations that provide and manage pilotage services within the Great Lakes districts. Two of the associations operate as partnerships and one operates as a corporation. These associations are designated using the same NAICS industry classification and small entity size standards described above, but they have far fewer than 500 employees—approximately 65 combined. We expect no adverse impact to these entities from this rule because all associations receive enough revenue to balance the projected expenses associated with the projected number of bridge hours and pilots. Therefore, the Coast Guard certifies under 5 U.S.C. 605(b) that this final rule will not have a significant economic impact on a substantial number of small entities. C. Assistance for Small Entities Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104–121), we offered to assist small entities in understanding this rule so that they could better evaluate its effects on them and participate in the rulemaking. If the rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please consult Mr. Todd Haviland, Management & Program Analyst, Office of Great Lakes Pilotage, Commandant (CG–5522), Coast Guard; telephone 202–372–2037, email Todd.A.Haviland@uscg.mil, or fax 202– 372–1909. The Coast Guard will not retaliate against small entities that question or complain about this rule or any policy or action of the Coast Guard. Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations, to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency’s responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1–888–REG–FAIR (1–888–734–3247). D. Collection of Information This rule calls for no new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501– 3520). This rule does not change the burden in the collection currently approved by the Office of Management and Budget under OMB Control Number 1625–0086, Great Lakes Pilotage Methodology. PO 00000 Frm 00036 Fmt 4700 Sfmt 4700 E. Federalism A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on State or local governments and would either preempt State law or impose a substantial direct cost of compliance on them. Congress directed the Coast Guard to establish ‘‘rates and charges for pilotage services.’’ 46 U.S.C. 9303(f). This regulation is issued pursuant to that statute and is preemptive of state law as outlined in 46 U.S.C. 9306. Under 46 U.S.C. 9306, a ‘‘State or political subdivision of a State may not regulate or impose any requirement on pilotage on the Great Lakes.’’ Because States may not promulgate rules within this category, preemption is not an issue under Executive Order 13132. Additionally, President Barack Obama’s memorandum of May 20, 2009, titled ‘‘Preemption,’’ states that ‘‘preemption of State law by executive departments and agencies should be undertaken only with full consideration of the legitimate prerogatives of the States and with a sufficient legal basis for preemption.’’ To that end, when a department or agency intends to preempt State law, it should do so only if justified under legal principles governing preemption, including those outlined in Executive Order 13132, and it should also include preemption provisions in the codified regulation. As currently stated in 46 CFR § 401.120, states, municipalities, and other local authorities are prohibited from requiring ‘‘the use of pilots or [regulating] any aspect of pilotage in any of the waters specified in the Act.’’ Therefore, this regulation complies with the requirements of the memorandum. F. Unfunded Mandates Reform Act The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531–1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 (adjusted for inflation) or more in any one year. Though this rule will not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble. G. Taking of Private Property This rule will not cause a taking of private property or otherwise have taking implications under Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights. E:\FR\FM\28FER1.SGM 28FER1 11773 Federal Register / Vol. 77, No. 39 / Tuesday, February 28, 2012 / Rules and Regulations H. Civil Justice Reform This rule meets applicable standards in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden. energy. The Administrator of the Office of Information and Regulatory Affairs has not designated it as a significant energy action. Therefore, it does not require a Statement of Energy Effects under Executive Order 13211. I. Protection of Children We have analyzed this rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. This rule is not an economically significant rule and does not create an environmental risk to health or risk to safety that may disproportionately affect children. J. Indian Tribal Governments This rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it does not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes. L. Technical Standards The National Technology Transfer and Advancement Act (NTTAA) (15 U.S.C. 272 note) directs agencies to use voluntary consensus standards in their regulatory activities unless the agency provides Congress, through the Office of Management and Budget, with an explanation of why using these standards would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards (e.g., specifications of materials, performance, design, or operation; test methods; sampling procedures; and related management systems practices) that are developed or adopted by voluntary consensus standards bodies. This rule does not use technical standards. Therefore, we did not consider the use of voluntary consensus standards. K. Energy Effects We have analyzed this rule under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use. We have determined that it is not a ‘‘significant energy action’’ under that order because it is not a ‘‘significant regulatory action’’ under Executive Order 12866 and is not likely to have a significant adverse effect on the supply, distribution, or use of M. Environment We have analyzed this rule under Department of Homeland Security Management Directive 023–01 and Commandant Instruction M16475.lD, which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321–4370f), and have concluded that this action is one of a category of actions that do not individually or cumulatively have a Service List of Subjects in 46 CFR Part 401 Administrative practice and procedure, Great Lakes, Navigation (water), Penalties, Reporting and recordkeeping requirements, Seamen. For the reasons discussed in the preamble, the Coast Guard amends 46 CFR part 401 as follows: PART 401—GREAT LAKES PILOTAGE REGULATIONS 1. The authority citation for part 401 continues to read as follows: ■ Authority: 46 U.S.C. 2104(a), 6101, 7701, 8105, 9303, 9304; Department of Homeland Security Delegation No. 0170.1; 46 CFR 401.105 also issued under the authority of 44 U.S.C. 3507. 2. In § 401.405, revise paragraphs (a) and (b), including the footnote to Table (a), to read as follows: ■ § 401.405 Basic rates and charges on the St. Lawrence River and Lake Ontario. * * * * * (a) Area 1 (Designated Waters): St. Lawrence River Basic Pilotage ........................................................................................... Each Lock Transited ................................................................................. Harbor Movage ......................................................................................... 1 The significant effect on the human environment. This rule is categorically excluded under section 2.B.2, figure 2– 1, paragraph (34)(a) of the Instruction. Paragraph 34(a) pertains to minor regulatory changes that are editorial or procedural in nature. This rule adjusts rates in accordance with applicable statutory and regulatory mandates. An environmental analysis checklist and a categorical exclusion determination are available in the docket where indicated under ADDRESSES. 1 $19.02 per kilometer or $33.67 per mile. 1 $422. 1 $1,381. minimum basic rate for assignment of a pilot in the St. Lawrence River is $921, and the maximum basic rate for a through trip is $4,041. (b) Area 2 (Undesignated Waters): Lake Ontario Service Six-hour Period ........................................................................................................................................................................................ Docking or Undocking ............................................................................................................................................................................. 3. In § 401.407, revise paragraphs (a) and (b), including the footnote to Table (b), to read as follows: erowe on DSK2VPTVN1PROD with RULES ■ § 401.407 Basic rates and charges on Lake Erie and the navigable waters from Southeast Shoal to Port Huron, MI. * VerDate Mar<15>2010 14:48 Feb 27, 2012 Jkt 226001 PO 00000 * * Frm 00037 * Fmt 4700 (a) Area 4 (Undesignated Waters): * Sfmt 4700 E:\FR\FM\28FER1.SGM 28FER1 $865 826 11774 Federal Register / Vol. 77, No. 39 / Tuesday, February 28, 2012 / Rules and Regulations Lake Erie (East of Southeast Shoal) Service Six-hour Period ................................................................................................................................................................ Docking or Undocking ..................................................................................................................................................... Any Point on the Niagara River Below the Black Rock Lock ......................................................................................... Buffalo $760 585 N/A $760 585 1,493 (b) Area 5 (Designated Waters): Southeast Shoal Any point on or in Toledo or any port on Lake Erie west of Southeast Shoal ..................... Port Huron Change Point ........................................................................ St. Clair River ........................................................................................... Detroit or Windsor or the Detroit River .................................................... Detroit Pilot Boat ...................................................................................... 1 When Toledo or any point on Lake Erie west of Southeast Shoal $2,317 $3,008 3,031 3,031 1,369 N/A $2,317 2,317 3,031 N/A N/A 1 4,675 1 4,036 Detroit Pilot Boat $1,369 1 4,036 Detroit River N/A 3,008 2,317 2,317 1,677 St. Clair River N/A $1,677 1,369 3,031 3,031 pilots are not changed at the Detroit Pilot Boat. 4. In § 401.410, revise paragraphs (a), (b), and (c) to read as follows: ■ § 401.410 Basic rates and charges on Lakes Huron, Michigan and Superior, and the St Mary’s River. * * * * (a) Area 6 (Undesignated Waters): * Lakes Huron and Michigan Service Six-hour Period ........................................................................................................................................................................................ Docking or Undocking ............................................................................................................................................................................. $662 629 (b) Area 7 (Designated Waters): Area De Tour Gros Cap ................................................................................................................................................. Algoma Steel Corporation Wharf at Sault Ste. Marie, Ontario ............................................................... Any point in Sault Ste. Marie, Ontario, except the Algoma Steel Corporation Wharf ............................ Sault Ste. Marie, MI ................................................................................................................................. Harbor Movage ........................................................................................................................................ Gros Cap $2,568 2,568 2,153 2,153 N/A Any Harbor N/A $967 967 967 N/A N/A N/A N/A N/A $967 (c) Area 8 (Undesignated Waters): Lake Superior Service Six-hour Period ........................................................................................................................................................................................ Docking or Undocking ............................................................................................................................................................................. § 401.420 [Amended] 5. Amend § 401.420 as follows: a. In paragraphs (a) and (b), remove the text ‘‘$127’’ and add, in its place, the text ‘‘$124’’; and remove the text ‘‘$1,989’’ and add, in its place, the text ‘‘$1,942’’; and ■ b. In paragraph (c)(1), remove the text ‘‘$751’’ and add, in its place, the text ‘‘$733’’; and in paragraph (c)(3), remove the text ‘‘$127’’ and add, in its place, the ■ erowe on DSK2VPTVN1PROD with RULES ■ VerDate Mar<15>2010 14:48 Feb 27, 2012 Jkt 226001 text ‘‘$124’’, and remove the text ‘‘$1,989’’ and add, in its place, the text ‘‘$1,942.’’ § 401.428 [Amended] [FR Doc. 2012–4453 Filed 2–27–12; 8:45 am] 6. In § 401.428, remove the text ‘‘$766’’ and add, in its place, the text ‘‘$748.’’ ■ PO 00000 Frm 00038 Fmt 4700 Dated: February 9, 2012. Dana A. Goward, Director, Marine Transportation Systems Management, U.S. Coast Guard. Sfmt 9990 BILLING CODE 9110–04–P E:\FR\FM\28FER1.SGM 28FER1 $577 549

Agencies

[Federal Register Volume 77, Number 39 (Tuesday, February 28, 2012)]
[Rules and Regulations]
[Pages 11752-11774]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[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 Todd.A.Haviland@uscg.mil, or fax 202-372-1909. If 
you have questions on viewing the docket, call Renee V. Wright, Program 
Manager, Docket Operations, telephone 202-366-9826.

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

[[Page 11753]]

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

[[Page 11754]]

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.

[[Page 11755]]

    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

[[Page 11756]]

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

[[Page 11757]]

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

[[Page 11758]]

 
    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)

[[Page 11759]]

 
        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.

[[Page 11760]]



                               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

[[Page 11761]]

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

[[Page 11762]]

 
    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.

[[Page 11763]]



                                        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

[[Page 11764]]

 
    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

[[Page 11765]]

 
    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

[[Page 11766]]

 
                                                                       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

[[Page 11767]]

 
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)...........................

[[Page 11768]]

 
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

[[Page 11769]]

 
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................
------------------------------------------------------------------------

[[Page 11770]]

 
 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

[[Page 11771]]

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 
difficult because of the variation in vessel types, routes, port 
arrivals, commodity carriage, time of season, conditions during 
navigation, and preferences for the extent of pilotage services on 
designated and undesignated portions of the Great Lakes system. Some 
owners and operators would pay more and some would pay less depending 
on the distance and port arrivals of their vessels' trips. However, the 
additional savings reported above captures the adjustment the shippers 
would

[[Page 11772]]

experience as a result of the rate adjustment in this rule. As Table 38 
indicates, shippers operating in all areas would experience an annual 
savings due to this rule. The overall impact of the rule would be a 
cost savings to shippers of approximately $835,000 across all three 
districts.
    The effects of a rate adjustment on costs and savings vary by year 
and area. A decrease in projected expenses for individual areas or 
districts is common in past pilotage rate adjustments. Most recently, 
in the 2011 ratemaking, District Three experienced a decrease in 
projected expenses due to an adjustment in bridge hours from the 2010 
final rule. That decrease led to a savings for that district and 
yielded a net savings for the system.
    This rule will allow the Coast Guard to meet the statutory 
requirements to review the rates for pilotage services on the Great 
Lakes.

B. Small Entities

    Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we have 
considered whether this rule would have a significant economic impact 
on a substantial number of small entities. The term ``small entities'' 
comprises small businesses, not-for-profit organizations that are 
independently owned and operated and are not dominant in their fields, 
and governmental jurisdictions with populations of less than 50,000 
people.
    We expect that entities affected by this rule would be classified 
under the North American Industry Classification System (NAICS) code 
subsector 483-Water Transportation, which includes the following 6-
digit NAICS codes for freight transportation: 483111-Deep Sea Freight 
Transportation, 483113-Coastal and Great Lakes Freight Transportation, 
and 483211-Inland Water Freight Transportation. According to the Small 
Business Administration's definition, a U.S. company with these NAICS 
codes and employing less than 500 employees is considered a small 
entity.
    We reviewed recent company size and ownership data from 2008-2010 
Coast Guard MISLE data and business revenue and size data provided by 
publicly available sources such as Manta and ReferenceUSA. We found 
that large, mostly foreign-owned shipping conglomerates or their 
subsidiaries owned or operated all vessels engaged in foreign trade on 
the Great Lakes. We assume that new industry entrants would be 
comparable in ownership and size to these shippers.
    There are three U.S. entities affected by this rule that receive 
revenue from pilotage services. These are the three pilot associations 
that provide and manage pilotage services within the Great Lakes 
districts. Two of the associations operate as partnerships and one 
operates as a corporation. These associations are designated using the 
same NAICS industry classification and small entity size standards 
described above, but they have far fewer than 500 employees--
approximately 65 combined. We expect no adverse impact to these 
entities from this rule because all associations receive enough revenue 
to balance the projected expenses associated with the projected number 
of bridge hours and pilots.
    Therefore, the Coast Guard certifies under 5 U.S.C. 605(b) that 
this final rule will not have a significant economic impact on a 
substantial number of small entities.

C. Assistance for Small Entities

    Under section 213(a) of the Small Business Regulatory Enforcement 
Fairness Act of 1996 (Pub. L. 104-121), we offered to assist small 
entities in understanding this rule so that they could better evaluate 
its effects on them and participate in the rulemaking. If the rule 
would affect your small business, organization, or governmental 
jurisdiction and you have questions concerning its provisions or 
options for compliance, please consult Mr. Todd Haviland, Management & 
Program Analyst, Office of Great Lakes Pilotage, Commandant (CG-5522), 
Coast Guard; telephone 202-372-2037, email Todd.A.Haviland@uscg.mil, or 
fax 202-372-1909. The Coast Guard will not retaliate against small 
entities that question or complain about this rule or any policy or 
action of the Coast Guard.
    Small businesses may send comments on the actions of Federal 
employees who enforce, or otherwise determine compliance with, Federal 
regulations, to the Small Business and Agriculture Regulatory 
Enforcement Ombudsman and the Regional Small Business Regulatory 
Fairness Boards. The Ombudsman evaluates these actions annually and 
rates each agency's responsiveness to small business. If you wish to 
comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR 
(1-888-734-3247).

D. Collection of Information

    This rule calls for no new collection of information under the 
Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). This rule does 
not change the burden in the collection currently approved by the 
Office of Management and Budget under OMB Control Number 1625-0086, 
Great Lakes Pilotage Methodology.

E. Federalism

    A rule has implications for federalism under Executive Order 13132, 
Federalism, if it has a substantial direct effect on State or local 
governments and would either preempt State law or impose a substantial 
direct cost of compliance on them. Congress directed the Coast Guard to 
establish ``rates and charges for pilotage services.'' 46 U.S.C. 
9303(f). This regulation is issued pursuant to that statute and is 
preemptive of state law as outlined in 46 U.S.C. 9306. Under 46 U.S.C. 
9306, a ``State or political subdivision of a State may not regulate or 
impose any requirement on pilotage on the Great Lakes.'' Because States 
may not promulgate rules within this category, preemption is not an 
issue under Executive Order 13132.
    Additionally, President Barack Obama's memorandum of May 20, 2009, 
titled ``Preemption,'' states that ``preemption of State law by 
executive departments and agencies should be undertaken only with full 
consideration of the legitimate prerogatives of the States and with a 
sufficient legal basis for preemption.'' To that end, when a department 
or agency intends to preempt State law, it should do so only if 
justified under legal principles governing preemption, including those 
outlined in Executive Order 13132, and it should also include 
preemption provisions in the codified regulation. As currently stated 
in 46 CFR Sec.  401.120, states, municipalities, and other local 
authorities are prohibited from requiring ``the use of pilots or 
[regulating] any aspect of pilotage in any of the waters specified in 
the Act.'' Therefore, this regulation complies with the requirements of 
the memorandum.

F. Unfunded Mandates Reform Act

    The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) 
requires Federal agencies to assess the effects of their discretionary 
regulatory actions. In particular, the Act addresses actions that may 
result in the expenditure by a State, local, or tribal government, in 
the aggregate, or by the private sector of $100,000,000 (adjusted for 
inflation) or more in any one year. Though this rule will not result in 
such an expenditure, we do discuss the effects of this rule elsewhere 
in this preamble.

G. Taking of Private Property

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

[[Page 11773]]

H. Civil Justice Reform

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

I. Protection of Children

    We have analyzed this rule under Executive Order 13045, Protection 
of Children from Environmental Health Risks and Safety Risks. This rule 
is not an economically significant rule and does not create an 
environmental risk to health or risk to safety that may 
disproportionately affect children.

J. Indian Tribal Governments

    This rule does not have tribal implications under Executive Order 
13175, Consultation and Coordination with Indian Tribal Governments, 
because it does not have a substantial direct effect on one or more 
Indian tribes, on the relationship between the Federal Government and 
Indian tribes, or on the distribution of power and responsibilities 
between the Federal Government and Indian tribes.

K. Energy Effects

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

L. Technical Standards

    The National Technology Transfer and Advancement Act (NTTAA) (15 
U.S.C. 272 note) directs agencies to use voluntary consensus standards 
in their regulatory activities unless the agency provides Congress, 
through the Office of Management and Budget, with an explanation of why 
using these standards would be inconsistent with applicable law or 
otherwise impractical. Voluntary consensus standards are technical 
standards (e.g., specifications of materials, performance, design, or 
operation; test methods; sampling procedures; and related management 
systems practices) that are developed or adopted by voluntary consensus 
standards bodies. This rule does not use technical standards. 
Therefore, we did not consider the use of voluntary consensus 
standards.

M. Environment

    We have analyzed this rule under Department of Homeland Security 
Management Directive 023-01 and Commandant Instruction M16475.lD, which 
guide the Coast Guard in complying with the National Environmental 
Policy Act of 1969 (NEPA) (42 U.S.C. 4321-4370f), and have concluded 
that this action is one of a category of actions that do not 
individually or cumulatively have a significant effect on the human 
environment. This rule is categorically excluded under section 2.B.2, 
figure 2-1, paragraph (34)(a) of the Instruction. Paragraph 34(a) 
pertains to minor regulatory changes that are editorial or procedural 
in nature. This rule adjusts rates in accordance with applicable 
statutory and regulatory mandates. An environmental analysis checklist 
and a categorical exclusion determination are available in the docket 
where indicated under ADDRESSES.

List of Subjects in 46 CFR Part 401

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

    For the reasons discussed in the preamble, the Coast Guard amends 
46 CFR part 401 as follows:

PART 401--GREAT LAKES PILOTAGE REGULATIONS

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

    Authority: 46 U.S.C. 2104(a), 6101, 7701, 8105, 9303, 9304; 
Department of Homeland Security Delegation No. 0170.1; 46 CFR 
401.105 also issued under the authority of 44 U.S.C. 3507.

0
2. In Sec.  401.405, revise paragraphs (a) and (b), including the 
footnote to Table (a), to read as follows:


Sec.  401.405  Basic rates and charges on the St. Lawrence River and 
Lake Ontario.

* * * * *
    (a) Area 1 (Designated Waters):

------------------------------------------------------------------------
                Service                         St. Lawrence River
------------------------------------------------------------------------
Basic Pilotage.........................  \1\ $19.02 per kilometer or
                                          $33.67 per mile.
Each Lock Transited....................  \1\ $422.
Harbor Movage..........................  \1\ $1,381.
------------------------------------------------------------------------
\1\ The minimum basic rate for assignment of a pilot in the St. Lawrence
  River is $921, and the maximum basic rate for a through trip is
  $4,041.

    (b) Area 2 (Undesignated Waters):

------------------------------------------------------------------------
                                                                 Lake
                          Service                              Ontario
------------------------------------------------------------------------
Six-hour Period............................................         $865
Docking or Undocking.......................................          826
------------------------------------------------------------------------


0
3. In Sec.  401.407, revise paragraphs (a) and (b), including the 
footnote to Table (b), to read as follows:


Sec.  401.407  Basic rates and charges on Lake Erie and the navigable 
waters from Southeast Shoal to Port Huron, MI.

* * * * *
    (a) Area 4 (Undesignated Waters):

[[Page 11774]]



------------------------------------------------------------------------
                                                 Lake Erie
                                                  (East of
                    Service                      Southeast     Buffalo
                                                   Shoal)
------------------------------------------------------------------------
Six-hour Period...............................         $760         $760
Docking or Undocking..........................          585          585
Any Point on the Niagara River Below the Black          N/A        1,493
 Rock Lock....................................
------------------------------------------------------------------------

    (b) Area 5 (Designated Waters):

----------------------------------------------------------------------------------------------------------------
                                                               Toledo or
                                                               any point
                                                                on Lake
               Any point on or in                 Southeast    Erie west     Detroit      Detroit     St. Clair
                                                    Shoal          of         River      Pilot Boat     River
                                                               Southeast
                                                                 Shoal
----------------------------------------------------------------------------------------------------------------
Toledo or any port on Lake Erie west of               $2,317       $1,369       $3,008       $2,317          N/A
 Southeast Shoal...............................
Port Huron Change Point........................    \1\ 4,036    \1\ 4,675        3,031        2,317       $1,677
St. Clair River................................    \1\ 4,036          N/A        3,031        3,031        1,369
Detroit or Windsor or the Detroit River........        2,317        3,008        1,369          N/A        3,031
Detroit Pilot Boat.............................        1,677        2,317          N/A          N/A        3,031
----------------------------------------------------------------------------------------------------------------
\1\ When pilots are not changed at the Detroit Pilot Boat.


0
4. In Sec.  401.410, revise paragraphs (a), (b), and (c) to read as 
follows:


Sec.  401.410  Basic rates and charges on Lakes Huron, Michigan and 
Superior, and the St Mary's River.

* * * * *
    (a) Area 6 (Undesignated Waters):

------------------------------------------------------------------------
                                                             Lakes Huron
                          Service                                and
                                                               Michigan
------------------------------------------------------------------------
Six-hour Period............................................         $662
Docking or Undocking.......................................          629
------------------------------------------------------------------------

    (b) Area 7 (Designated Waters):

------------------------------------------------------------------------
               Area                  De Tour      Gros Cap    Any Harbor
------------------------------------------------------------------------
Gros Cap.........................       $2,568          N/A          N/A
Algoma Steel Corporation Wharf at        2,568         $967          N/A
 Sault Ste. Marie, Ontario.......
Any point in Sault Ste. Marie,           2,153          967          N/A
 Ontario, except the Algoma Steel
 Corporation Wharf...............
Sault Ste. Marie, MI.............        2,153          967          N/A
Harbor Movage....................          N/A          N/A         $967
------------------------------------------------------------------------

    (c) Area 8 (Undesignated Waters):

------------------------------------------------------------------------
                                                                 Lake
                          Service                              Superior
------------------------------------------------------------------------
Six-hour Period............................................         $577
Docking or Undocking.......................................          549
------------------------------------------------------------------------

Sec.  401.420  [Amended]

0
5. Amend Sec.  401.420 as follows:
0
a. In paragraphs (a) and (b), remove the text ``$127'' and add, in its 
place, the text ``$124''; and remove the text ``$1,989'' and add, in 
its place, the text ``$1,942''; and
0
b. In paragraph (c)(1), remove the text ``$751'' and add, in its place, 
the text ``$733''; and in paragraph (c)(3), remove the text ``$127'' 
and add, in its place, the text ``$124'', and remove the text 
``$1,989'' and add, in its place, the text ``$1,942.''


Sec.  401.428  [Amended]

0
6. In Sec.  401.428, remove the text ``$766'' and add, in its place, 
the text ``$748.''

    Dated: February 9, 2012.
Dana A. Goward,
Director, Marine Transportation Systems Management, U.S. Coast Guard.
[FR Doc. 2012-4453 Filed 2-27-12; 8:45 am]
BILLING CODE 9110-04-P