FR Doc E7-3061

[Federal Register: February 23, 2007 (Volume 72, Number 36)]
[Rules and Regulations]
[Page 8115-8132]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23fe07-12]

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DEPARTMENT OF HOMELAND SECURITY

Coast Guard

46 CFR Part 401

[USCG-2006-24414]
RIN 1625-AB05

Rates for Pilotage on the Great Lakes

AGENCY: Coast Guard, DHS.

ACTION: Interim rule with request for comments.

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

SUMMARY: The Coast Guard is updating the rates for pilotage service on
the Great Lakes for the 2007 navigation season. This increases pilotage
rates an average of 22.62% across all three pilotage districts over the
last ratemaking that was completed in April of 2006. Annual reviews of
pilotage rates are required by law to ensure that sufficient revenues
are generated to cover the annual projected allowable expenses, target
pilot compensation, and returns on investment of the pilot
associations. The Coast Guard requests public comment on its
calculation of these rate increases.

DATES: This interim rule is effective March 26, 2007. Comments and
related material must reach the Docket Management Facility on or before
April 24, 2007.

ADDRESSES: You may submit comments identified by Coast Guard docket
number USCG-2006-24414 to the Docket Management Facility at the U.S.
Department of Transportation. To avoid duplication, please use only one
of the following methods:
(1) Web site: http://dms.dot.gov.

(2) Mail: Docket Management Facility, U.S. Department of
Transportation, 400 Seventh Street SW., Washington, DC 20590-0001.
(3) Fax: 202-493-2251.
(4) Delivery: Room PL-401 on the Plaza level of the Nassif
Building, 400 Seventh Street SW., Washington, DC, between 9 a.m. and 5
p.m., Monday through Friday, except Federal holidays. The telephone
number is 202-366-9329.
(5) Federal eRulemaking Portal: http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: For questions on this interim rule,
call Mr. Michael Sakaio, Program Analyst, Office of Great Lakes
Pilotage, Commandant (CG-3PWM), U.S. Coast Guard, at 202-372-1538, by
fax 202-372-1929, or by e-mail at michael.sakaio@uscg.mil. For
questions on viewing or submitting material to the docket, call Renee
V. Wright, Chief, Dockets, Department of Transportation, telephone 202-
493-0402.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Public Participation and Request for Comments
II. Background
III. Discussion of Comments and Changes
IV. Discussion of the Interim Rule
A. Pilotage Rate Changes--Summarized
B. Calculating the Rate Adjustment
Step 1: Calculating the Base Period Total Economic Cost (Cost
per Bridge Hour by Area for the Base Period)
Step 2. Calculating the Expense Multiplier
Step 3. Calculating the new annual ``projection of target pilot
compensation'' using the same procedures found in Step 2 of Appendix
A to 46 CFR part 404
Step 4: Increase the new total target pilot compensation in Step
3 by the expense multiplier in Step 2
Step 5(a): Adjust the result in Step 4, as required, for
inflation or deflation
Step 5(b): Calculate Projected Total Economic Costs
Step 6: Divide the Result in Step 5(b) by Projected Bridge Hours
to Determine

[[Page 8116]]

Total Unit Costs (Adjusted Cost per Bridge Hour by Area)
Step 7: Divide prospective unit costs in Step 6 by the base
period unit costs in Step 1
Step 8: Adjust the base period rates by the percentage change in
unit costs in Step 7
V. Regulatory Evaluation
A. Small Entities
B. Assistance for Small Entities
C. Collection of Information
D. Federalism
E. Unfunded Mandates Reform Act
F. Taking of Private Property
G. Civil Justice Reform
H. Protection of Children
I. Indian Tribal Governments
J. Energy Effects
K. Technical Standards
L. Environment
VI. Regulatory Text

SUPPLEMENTARY INFORMATION:

I. Public Participation and Request for Comments

We invite public comment on our calculation of the rate increases
made in this interim rule, specifically with respect to Step 3 of the
methodology. All comments received will be posted, without change, to
http://dms.dot.gov and will include any personal information you have

provided. We have an agreement with the Department of Transportation
(DOT) to use the Docket Management Facility. Please see DOT's ``Privacy
Act'' paragraph below.
Submitting comments: If you submit a comment, please include your
name and address, identify the docket number for this rulemaking (USCG-
2006-24414), indicate the specific section of this document to which
each comment applies, and give the reason for each comment. You may
submit your comments and material by electronic means, mail, fax, or
delivery to the Docket Management Facility at the address under
ADDRESSES; but please submit your comments and material by only one
means. If you submit them by mail or delivery, submit them in an
unbound format, no larger than 8\1/2\ by 11 inches, suitable for
copying and electronic filing. If you submit them by mail and would
like to know that they reached the Facility, please enclose a stamped,
self-addressed postcard or envelope. We will consider all comments and
material received during the comment period. We may change this rule in
view of them.
Viewing comments and documents: To view comments, as well as
documents mentioned in this preamble as being available in the docket,
go to http://dms.dot.gov at any time, click on ``Simple Search,'' enter

the last five digits of the docket number for this rulemaking, and
click on ``Search.'' You may also visit the Docket Management Facility
in room PL-401 on the Plaza level of the Nassif Building, 400 Seventh
Street SW., Washington, DC, between 9 a.m. and 5 p.m., Monday through
Friday, except Federal holidays.
Privacy Act: Anyone can search the electronic form of all comments
received into any of our dockets by the name of the individual
submitting the comment (or signing the comment, if submitted on behalf
of an association, business, labor union, etc.). You may review the
Department of Transportation's Privacy Act Statement in the Federal
Register published on April 11, 2000 (65 FR 19477), or you may visit
http://dms.dot.gov.

Public Meeting: We do not now plan to hold a public meeting. But
you may submit a request for one to the Docket Management Facility at
the address under ADDRESSES explaining why one would be beneficial. If
we determine that one would aid this rulemaking, we will hold one at a
time and place announced by a later notice in the Federal Register.

II. Background

The Great Lakes Pilotage Act of 1960, codified in Title 46, Chapter
93, of the United States Code (U.S.C.), requires foreign-flag vessels
and U.S.-flag vessels in foreign trade to use federal Great Lakes
registered pilots while transiting the St. Lawrence Seaway and the
Great Lakes system. 46 U.S.C. 9302, 9308. The Coast Guard is
responsible for administering this pilotage program, which includes
setting rates for pilotage service.
The Coast Guard pilotage regulations require annual reviews of
pilotage rates and the creation of a new rate at least once every five
years, or sooner, if annual reviews show a need. 46 CFR part 404. 46
U.S.C. 9303(f) requires these reviews and, where deemed appropriate,
adjustments be established by March 1 of every season.
To assist in calculating pilotage rates, the three Great Lakes
pilotage associations are required to submit to the Coast Guard annual
financial statements prepared by certified public accounting firms. In
addition, every fifth year, in connection with the full ratemaking, the
Coast Guard contracts with an independent accounting firm to conduct
audits of the accounts and records of the pilotage associations and to
submit financial reports relevant to the ratemaking process. In those
years when a full ratemaking is conducted, the Coast Guard generates
the pilotage rates using Appendix A to 46 CFR Part 404. Between the
five-year full ratemaking intervals, the Coast Guard annually reviews
the pilotage rates using Appendix C to 46 CFR Part 404, and adjusts
rates as appropriate.
The last full ratemaking was published in the Federal Register on
April 3, 2006 (71 FR 16501). On July 13, 2006, we published a Notice of
Proposed Rulemaking (NPRM; 71 FR 39629), thus beginning the first
annual review and adjustment following that full ratemaking. By law,
this review must be completed by March 1, 2007.

III. Discussion of Comments and Changes

The Coast Guard received four comments in response to the July 2006
NPRM. One comment was received from the American Maritime Officers'
(AMO) union, two comments were received from the Lakes Pilots'
Association (LPA), and one comment was received from the legal
representative of the pilots' associations. This last commenter
prefaced his discussion of several issues by stating that ``the pilots
are willing to have the Coast Guard defer action on [these issues] to
the earliest possible time at which they will not delay the issuance of
the updated rate pursuant to the current NPRM proceeding.'' We agree
that timely completion of this annual rate update is of paramount
importance.
Contract modifications. All four comments stated that AMO union
contracts with one or more of the shipping companies on the Great Lakes
had changed prior to the publication of the NPRM on July 13, 2006, and
requested that the final rule reflect this change. After reviewing the
submissions and researching the issue to confirm the accuracy of the
comments, the Coast Guard has concluded that these comments are
partially correct.
The AMO union contracts with six shipping companies on the Great
Lakes. On August 1, 2003, the union negotiated collective bargaining
agreements with these six companies establishing, among other things,
wages and benefits for mariners effective until July 31, 2006. Three of
those companies, based on our research, have subsequently entered into
Memorandums of Understanding dated July 23, 2004, March 11, 2005, and
May 1, 2005, extending the termination dates of these collective
bargaining agreements to July 31, 2007, and modifying the wage and
benefit portions of the underlying collective bargaining agreements.
These modifications initially became effective May 1, 2005, with
additional modifications becoming effective August 1, 2005. The
remaining three companies have not signed Memorandums of Understanding

[[Page 8117]]

extending and modifying the collective bargaining agreements.
Accordingly, they continue to operate under the terms of the original
2003 contracts previously used by the Coast Guard to approximate first
mates wages and benefits.
The Coast Guard agrees that, since these contract modifications
went into effect prior to the date the NPRM was published, weight
should be given to these updated contracts. However, the Coast Guard
also believes that to properly approximate current first mates wages
and benefits, we must also give consideration to the August 1, 2003,
AMO union contracts that remain in effect with three of the six
shipping companies. Accordingly, we have calculated first mates wages
and benefits under both versions of the AMO union contracts and, using
the deadweight tonnage (mid-summer capacity tonnage) of vessels
operating under each of these contracts, apportioned target pilot
compensation based on the percentage of tonnage represented by each of
the contracts to arrive at a weighted average target pilot
compensation. This calculation is discussed in greater detail under
Step 3 of this Appendix C Ratemaking Methodology. We specifically
request public comment on this calculation.
Calculation of projected bridge hours. One commenter pointed out
that we rounded up the bridge hour projections shown in Step 2.B of the
Appendix A calculations for the 2006 final rule and in Step 3 of the
Appendix C calculations for this rulemaking's NPRM. The commenter
stated, correctly, that this was a departure from our past practice,
and that the resulting artificial overstatement of traffic projections
lowers rates. Because we now agree with this comment, we have corrected
Step 3 in our Appendix C computations, to show actual projected bridge
hours rather than rounded-up projections. This affects subsequent
computations made under Appendix C, and raises rates an average of 3%
over what we proposed in the NPRM. We also note by this commenter's
remark that the impact of our error was most notable in District One,
which has suffered the cessation of fast ferry service that accounted
for 1,144 projected bridge hours in the 2006 ratemaking. This interim
rule removes those hours from the District One projection.
Delay and detention. One commenter alleged that our 2006 ratemaking
``changes, without explanation'' our ``longstanding practice'' of
counting ``delay and detention'' hours in the pilots'' workload, and
that this rulemaking's NPRM perpetuates this alleged error.
The comment is incorrect. The Coast Guard has never considered
delay, detention, or travel time to be included in the definition of
bridge hours and has never knowingly included these items in its bridge
hour computations. The Appendix A, Step 2.B definition of bridge hours
as the ``number of hours a pilot is aboard a vessel providing basic
pilotage service'' has never changed. We have consistently and publicly
stated that this excludes detention, delay, or travel time: See, for
example, 65 FR 55206 at 55208 (Sep. 13, 2000), 66 FR 36484 (Jul. 12,
2001). In 2002, we reiterated this policy at the same time as we
acknowledged a possible inadvertent departure from the policy in 2001.
67 FR 47464 (Jul. 19, 2002). The policy has been expressed and followed
in all our ratemaking documents since 2002.
The commenter further cited Rear Admiral J. Timothy Riker's March
4, 2003 report on Great Lakes pilotage, in which he recommended
including delay and detention in calculating bridge hours. The
commenter expressed concern over the ``slow pace'' of the Coast Guard's
response to the Riker report and asked us to implement its
recommendations promptly. The report can be found at http://dms.dot.gov
, under Docket USCG-2002-13191 where it appears as item 85.

The Riker report presented a series of recommendations for Coast
Guard consideration. We are, and have been, actively engaged in
reviewing these recommendations. This will be the subject of a separate
Federal Register notice.
150% factor for designated waters. One commenter alleged that we
have improperly calculated target pilot compensation for pilots
servicing designated waters. The Coast Guard's standard practice under
Appendix A, Step 2.A(1) and (2), is to calculate this compensation by
multiplying first mates wages by 150%, and then adding benefits. The
commenter believes that, instead, we should multiply the total of first
mates wages and benefits by 150%. The rationale for the Coast Guard's
method of calculation was given in the Saint Lawrence Seaway
Development Corporation's 1997 final rule (62 FR 5917, 5920; Feb. 10,
1997). Further discussion can be found in the docket for the 1997 rule;
see http://www.dms.dot.gov, Docket SLSDC-1996-1781, item 22.

This issue was the subject of litigation between the Lakes Pilots
Association and the Coast Guard. In an unpublished Memorandum Opinion
(Lakes Pilots' Association v. United States Coast Guard, Civil Action
No. 01-1721(RBW); Apr. 4, 2003), which we have placed in the docket for
this rulemaking, the U.S. District Court for the District of Columbia
upheld the Coast Guard's interpretation of the applicable regulations
and the method used to calculate target pilot compensation for pilots
servicing designated waters. It is the Coast Guard's view that this
matter has been resolved by the court's decision.
Rate adjustment with Canada. One commenter stated that U.S.
pilotage rates must be identical to rates charged by the Canadian
pilotage authority, in keeping with provisions of the January 18, 1977
Memorandum of Arrangements (MOA) regarding Great Lakes pilotage, which
was signed by the U.S. Secretary of Transportation and the Canadian
Minister of Transport, and which remains in effect. Paragraph 7 of the
MOA states that ``the Secretary and the Minister will arrange for the
establishment of regulations imposing identical rates, charges and any
other conditions or terms being annexed hereto from time to time as a
Rate Supplement and to be deemed as part of this Memorandum of
Arrangements'' (emphasis added). The MOA is enforceable only between
the two sovereign nations that are party to it. No private right of
action is created by which individuals might seek to enforce the MOA
for their own benefit.
This comment is beyond the scope of this rulemaking, which merely
applies existing U.S. regulations. Those regulations reflect the MOA,
in that they allow for rate adjustment after U.S. consultation with
Canada, but they do not automatically adjust U.S. rates to reflect
Canadian rates, nor do they require U.S. rates to be identical to
Canadian rates. We infer that the commenter's intent is to encourage
consultation between the U.S. and Canada so that rates will be made
identical. Due to vast differences in the pilotage systems and
ratemaking methodologies of the two nations, and to frequent economic
fluctuations that affect the two nations dissimilarly, it may not be
practicable, or desirable from the perspective of the U.S. pilots, to
set identical rates. However, we have been discussing with the Canadian
Great Lakes Pilotage Authority ways to achieve rate parity.

IV. Discussion of the Interim Rule

A. Pilotage Rate Changes--Summarized

This interim rule adjusts the rates for Federal pilots on the Great
Lakes, contained in 46 CFR 401.405, 401.407, and 401.410, in accordance
with

[[Page 8118]]

Appendix C of 46 CFR part 404. Using this methodology, the rate
adjustment results in an average increase of 22.62% across all
Districts over the last pilotage rate adjustment. Fourteen and seven-
tenths percent (14.7%) of the increase is attributable to increases in
wages and benefits contained in the most recent American Maritime
Officers' union contracts that were not included in the NPRM; 5% of the
increase is attributable to increased traffic projections based upon
changes in traffic levels between 2005 and 2006; 3% of the increase is
attributable to adjustments made in the rate computation returning
projected bridge hours to unrounded values; and 0.5% of the increase is
attributable to non-wage inflation.

2007 Area Rate Changes
------------------------------------------------------------------------
Then the
percentage
increases
If pilotage service is required in: over the
current
rate is:
------------------------------------------------------------------------
Area 1 (Designated waters)................................. 21.04
Area 2 (Undesignated waters)............................... 29.51
Area 4 (Undesignated waters)............................... 22.07
Area 5 (Designated waters)................................. 25.32
Area 6 (Undesignated waters)............................... 14.97
Area 7 (Designated waters)................................. 18.33
Area 8 (Undesignated waters)............................... 27.08
------------------------------------------------------------------------

Rates for ``Cancellation, delay or interruption in rendering
services (Sec. 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 (Sec. 401.428)'' have been increased by
22.62%. These changes are the same in every Area.

B. Calculating the Rate Adjustment

The ratemaking analyses and methodology contained in Appendix C to
46 CFR part 404 comprises eight steps. These steps are:
1. Calculating the Base Period Total Economic Cost (Cost Per Bridge
Hour by Area for the Base Period);
2. Calculating the Expense Multiplier;
3. Calculating the Annual Projection of Target Pilot Compensation;
4. Increasing the Projected Pilot Compensation in Step 3 by the
Expense Multiplier;
5. Adjusting the Result for Inflation or Deflation;
6. Dividing the Result in Step 5 by Projected Bridge Hours to
Determine Total Unit Costs (Adjusted Cost per Bridge Hour by Area);
7. Dividing Prospective Unit Costs (Total Unit Cost) in Step 6 by
the Base Period Unit Costs in Step 1; and
8. Adjusting the Base Period rates by the Percentage Changes in
Unit Cost in Step 7.
The base data used to calculate each of the eight steps comes from
the last full ratemaking, as indicated in the April 3, 2006 final rule.
Target pilot compensation is calculated based upon the most recent
contracts between the American Maritime Officers'(AMO) union and vessel
owners and operators on the Great Lakes. Bridge hour projections for
the 2007 season are based on historical data and data provided by the
St. Lawrence Seaway Development Corporation. Bridge hours are the
number of hours a pilot is aboard a vessel providing pilotage service
and do not include delay, detention, or travel time. All documents and
records used in this rate calculation mentioned in this preamble as
being available in the docket have been placed in the public docket for
this rulemaking and are available for review at the addresses listed
under ADDRESSES.
Some values may not total exactly due to format rounding for
presentation in charts and explanations in this section. The rounding
does not affect the integrity or truncate the real value of all
calculations in the ratemaking methodology described below.
Step 1: Calculating the Base Period Total Economic Cost (Cost per
Bridge Hour by Area for the Base Period)
The base period numbers used in all calculations are those that
were set by the last full ratemaking in 2006. The data used for this
first step is obtained from the 2006 final rule's tables containing the
base operating expense, base target pilot compensation, and base return
element computations. This first step requires that we calculate the
total economic cost for the base period by taking from these tables,
and adding together, the recognized expenses, the total cost of target
pilot compensation, and the return element in each Area. We then take
this sum and divide it by the total bridge hours used in each Area in
setting the base period rates. This calculation gives us the cost of
providing pilotage service per bridge hour by Area for the base period.
The following tables summarize the Step 1 computations:

Table 1.--Base Period Total Economic Cost (Cost Per Bridge Hour)--District One
----------------------------------------------------------------------------------------------------------------
Area 1 St. Area 2 Lake Total district
Lawrence River Ontario one
----------------------------------------------------------------------------------------------------------------
Base Operating Expenses......................................... $368,186 $372,911 $741,097
Base Target Pilot compensation.................................. +$1,207,209 +$725,848 +1,933,057
Base Return Element \1\......................................... +$8,087 +$10,185 +$18,272
-----------------------------------------------
Subtotal........................................................ =$1,583,482 =$1,108,944 =$2,692,426
-----------------------------------------------
Base Bridge Hours............................................... /6,000 /9,000 /15,000
Base Cost per Bridge Hour....................................... =$263.91 =$123.22 =$179.50
----------------------------------------------------------------------------------------------------------------
\1\ The return element is defined at Appendix B to 46 CFR part 404 as the sum of net income and interest
expense. The return element can be considered the sum of the return to equity capital (net increase), and the
return to debt (the interest expense).

Table 2.--Base Period Total Economic Cost (Cost Per Bridge Hour)--District Two
----------------------------------------------------------------------------------------------------------------
Area 5
Area 4 Lake Southeast Total district
Erie Shoal to Port two
Huron, MI
----------------------------------------------------------------------------------------------------------------
Base Operating Expenses......................................... $427,333 $632,117 $1,059,450
Base Target Pilot compensation.................................. +$725,848 +$1,408,410 +$2,134,258
Base Return Element............................................. +$20,354 +$24,275 +$44,629
-----------------------------------------------

[[Page 8119]]

Subtotal........................................................ =$1,173,535 =$2,064,802 =$3,238,337
-----------------------------------------------
Base Bridge Hours............................................... /9,000 /7,000 /16,000
Base Cost per Bridge Hour....................................... =$130.39 =$294.97 =$202.40
----------------------------------------------------------------------------------------------------------------

Table 3.--Base Period Total Economic Cost (Cost Per Bridge Hour)--District Three
----------------------------------------------------------------------------------------------------------------
Area 6 Lakes
Huron and Area 7 St. Area 8 Lake Total district
Michigan Mary's River Superior three
----------------------------------------------------------------------------------------------------------------
Base Operating Expenses......................... $693,924 $271,563 $433,484 $1,398,971
Base Target Pilot compensation.................. +$1,451,696 +$804,806 +$1,016,187 +$3,272,689
Base Return Element............................. +$25,283 +$9,768 +$15,451 +$50,502
---------------------------------------------------------------
Subtotal........................................ =$2,170,903 =$1,086,137 =$1,465,122 =$4,722,162
---------------------------------------------------------------
Base Bridge Hours............................... /18,000 /4,000 /12,600 /34,600
Base Cost per Bridge Hour....................... =$120.61 =$271.53 =$116.28 =$136.48
----------------------------------------------------------------------------------------------------------------

Step 2. Calculating the Expense Multiplier
The expense multiplier is the ratio of both the base operating
expenses and the base return element to the base target pilot
compensation by Area. This step requires that we add together the base
operating expense and the base return element. Then we divide the sum
by the base target pilot compensation to get the expense multiplier for
each Area. The following tables show the calculations:

1. Expense Multiplier for District One
----------------------------------------------------------------------------------------------------------------
Area 1 St. Area 2 Lake Total district
Lawrence River Ontario one
----------------------------------------------------------------------------------------------------------------
Base Operating Expense.......................................... $368,186 $372,911 $741,097
Base Return Element............................................. +$8,087 +$10,185 +$18,272
-----------------------------------------------
Subtotal........................................................ =$376,273 =$383,096 =$759,369
-----------------------------------------------
Base Target Pilot Compensation.................................. /$1,207,209 /$725,848 /$1,933,057
Expense Multiplier.............................................. =.31169 =.52779 =.39283
----------------------------------------------------------------------------------------------------------------

2. Expense Multiplier for District Two
----------------------------------------------------------------------------------------------------------------
Area 5
Area 4 Lake Southeast Total district
Erie Shoal to Port two
Huron, MI
----------------------------------------------------------------------------------------------------------------
Base Operating Expense.......................................... $427,333 $632,117 $1,059,450
Base Return Element............................................. +$20,354 +$24,275 +$44,629
-----------------------------------------------
Subtotal........................................................ =$447,687 =$656,392 =$1,104,079
-----------------------------------------------
Base Target Pilot Compensation.................................. /$725,848 /$1,408,410 /$2,134,258
Expense Multiplier.............................................. =.61678 =.46605 =.51731
----------------------------------------------------------------------------------------------------------------

3. Expense Multiplier for District Three
----------------------------------------------------------------------------------------------------------------
Area 6 Lakes
Huron and Area 7 St. Area 8 Lake Total district
Michigan Mary's River Superior three
----------------------------------------------------------------------------------------------------------------
Base Operating Expense.......................... $693,924 $271,563 $433,484 $1,398,971
Base Return Element............................. +$25,283 +$9,768 +$15,451 +$50,502
---------------------------------------------------------------
Subtotal........................................ =$719,207 =$281,331 =$448,935 =$1,449,473
---------------------------------------------------------------
Base Target Pilot Compensation.................. /$1,451,696 /$804,806 /$1,016,187 /$3,272,689

[[Page 8120]]

Expense Multiplier.............................. =.49543 =.34956 =.44178 =.44290
----------------------------------------------------------------------------------------------------------------

Step 3. Calculating the New Annual ``Projection of Target Pilot
Compensation'' Using the Same Procedures Found in Step 2 of Appendix A
to 46 CFR Part 404
Step 2 of Appendix A requires the Director of Great Lakes Pilotage
to:
1. Determine the new target rate of compensation;
2. Determine the new number of pilots needed in each pilotage Area;
and
3. Multiply new target compensation by the new number of pilots
needed to project total new target pilot compensation needed in each
Area.
Each step is detailed as follows:
1. Determination of New Target Pilot Compensation
Target pilot compensation for pilots providing services in
undesignated waters approximates the average annual compensation for
first mates on U.S. Great Lakes vessels. Target pilot compensation for
pilots providing services in designated waters approximates the average
annual compensation for masters on U.S. Great Lakes vessels. The Office
of Great Lakes Pilotage has consistently calculated compensation for
masters on the Great Lakes by first multiplying first mates' salaries
by 150% and then adding benefits, since this is the best approximation
of the average annual compensation for masters.
For this interim rule, the average annual compensation for first
mates has been partially revised, based on comments to the docket, and
confirming research performed by the Coast Guard, to reflect changes in
the AMO union contracts on the Great Lakes. The AMO union contracts
with six shipping companies on the Great Lakes. On August 1, 2003, the
union negotiated collective bargaining agreements with these six
companies establishing, among other things, wages and benefits for
mariners effective until July 31, 2006. Three of those companies, based
on our research, have subsequently entered into Memorandums of
Understanding dated July 23, 2004, March 11, 2005 and May 1, 2005,
extending the termination dates of these collective bargaining
agreements to July 31, 2007, and modifying the wage and benefit
portions of the underlying collective bargaining agreements. These
modifications initially became effective May 1, 2005, with additional
modifications becoming effective August 1, 2005. The remaining three
companies have not signed Memorandums of Understanding extending and
modifying the collective bargaining agreements and they, accordingly,
continue to operate under the terms of the original 2003 contracts the
Coast Guard previously used to approximate first mates' wages and
benefits.
In light of the foregoing and to effectuate these changes, the
Coast Guard has calculated target pilot compensation under both
versions of the AMO union contracts and, using the deadweight tonnages
(mid-summer capacity) of vessels operating under each of these
contracts, apportioned target pilot compensation based on the
percentage of tonnage represented by each of the contracts, to arrive
at a weighted average target pilot compensation accurately
approximating compensation of first mates on the Great Lakes. We
specifically request public comment on this calculation.
The following tables (1, 2, and 3) summarize how target pilot
compensation is determined for undesignated and designated waters based
on the AMO union contracts in effect on August 1, 2003. Data from these
AMO union contracts were used in the NPRM published on July 13, 2006.

Table 1.--Wages
------------------------------------------------------------------------
(First mate) (Master)
pilots on pilots on
Monthly component undesignated designated
waters waters
------------------------------------------------------------------------
$226.96 (Daily Rate) x 54 (Days)........ $12,256 N/A
-------------------------------
Monthly Total x 9 Months = Total 110,303 N/A
Wages..............................
Wages: $226.96 (Daily Rate) x 54 x 1.5.. N/A 18,384
-------------------------------
Monthly Total x 9 Months = Total N/A 165,454
Wages..............................
------------------------------------------------------------------------

Table 2.--Benefits
------------------------------------------------------------------------
(First mate) (Master)
pilots on pilots on
Monthly component undesignated designated
waters waters
------------------------------------------------------------------------
Employer Contribution--401(K) Plan...... $612.79 $919.19
Clerical................................ +$340.44 +$340.44
Health.................................. +$2,512.51 +$2,512.51
Pension................................. +$1,283.10 +$1,283.10
-------------------------------
Monthly Total Benefits.............. =$4,748.84 =$5,055.24
-------------------------------

[[Page 8121]]

Monthly Total Benefits x 9 =$42,740 =$45,497
months.........................
------------------------------------------------------------------------

Table 3.--Wages and Benefits
------------------------------------------------------------------------
(First Mate) (Master)
pilots on pilots on
undesignated designated
waters waters
------------------------------------------------------------------------
Wages................................... $110,303 $165,454
Benefits................................ +$42,740 +$45,497
-------------------------------
Total Wages and Benefits............ =$153,042 =$210,951
------------------------------------------------------------------------

Under the AMO union contracts in effect on August 1, 2003, the
monthly component for wages is derived by multiplying the daily rate of
pay by 54 days, instead of 30 days, based upon the following
formulation provided by the AMO union:
a. Average Working Days per month--30.5.
b. Vacation Days per month--15.0.
c. Weekend Days per month--4.0.
d. Holidays per month--1.5.
e. Bonus per month--3.0.
Monthly Multiplier--54.0.
Additionally, we use a nine-month multiplier in computing annual
wages and benefits because the season is nine months in duration, not
12 months.
Effective August 1, 2002, the matching benefit increased to 50% for
each participating 401(k) employee up to a maximum of 5% of a
participating employee's compensation. For purposes of this benefit,
the AMO union contracts interpret ``employee compensation'' to mean
base wages. District Two has a pension plan, while District Three has a
401(k) plan. District One does not provide either a 401(k) or pension
plan for its members. Therefore, to conform to the 401(k) matching
benefit provision under the AMO union contracts, pilot compensation for
Districts Two and Three is increased. The increase in undesignated
waters is $5,515.20 and for designated waters is $8,272.80 per pilot.
These increases are 5% of compensation, respectively.
District One does not administer any form of 401(k) or retirement
plan. At the recommendation of the independent accountant, the Coast
Guard has determined that the District One pilots should receive the
same employer matching benefits as Districts Two and Three.
Accordingly, the compensation base of District One is adjusted to
include an amount equivalent to an employer's contribution under the
AMO 401(k) matching plan, which increases pilot compensation in
undesignated waters by $5,515.20 and for designated waters by $8,272.80
per pilot.
The following tables (4, 5, and 6) summarize how target pilot
compensation is determined for undesignated and designated waters under
the modified AMO union contracts effective August 1, 2005:

Table 4.--Wages
------------------------------------------------------------------------
(First Mate) (Master)
pilots on pilots on
Monthly component undesignated designated
waters waters
------------------------------------------------------------------------
$279.55 (Daily Wage Rate) x 49.5 (Days). $13,838 N/A
-------------------------------
Monthly Total x 9 Months = Total 124,540 N/A
Wages..............................
$279.55 (Daily Wage Rate) x 49.5 (Days) N/A $20,757
X 1.5..................................
-------------------------------
Monthly Total x 9 Months = Total N/A 186,809
Wages..............................
------------------------------------------------------------------------

Table 5.--Benefits
------------------------------------------------------------------------
(First Mate) (Master)
pilots on pilots on
Monthly component undesignated designated
waters waters
------------------------------------------------------------------------
Employer Contribution--401(K) Plan...... $691.89 $1,037.83
Clerical................................ N/A N/A
Health.................................. 2,512.51 2,512.51
Pension................................. 1,981.53 1,981.53
-------------------------------
Monthly Total Benefits.............. 5,185.92 5,531.86
-------------------------------
Monthly Total Benefits x 9...... 46,673 49,787
------------------------------------------------------------------------

[[Page 8122]]

Table 6.--Total Wages and Benefits
------------------------------------------------------------------------
(First Mate) (Master)
pilots on pilots on
undesignated designated
waters waters
------------------------------------------------------------------------
Wages................................... $124,540 $186,809
Benefits................................ 46,673 49,787
-------------------------------
Total Wages and Benefits............ 171,213 236,596
------------------------------------------------------------------------

Under the modified AMO union contracts effective August 1, 2005,
the daily wage rate was a flat $279.55. This daily wage rate is
multiplied by a new monthly multiplier component of 49.5, instead of
the 54 days used under the August 1, 2003, AMO union contracts, based
upon the following formulation provided by the AMO union:
a. Average Working Days per month--30.5.
b. Vacation Days per month--16.0.
c. Bonus per month--3.0.
Monthly Multiplier--49.5.
Additionally, we use a nine-month multiplier in computing annual
wages and benefits because the season is nine months in duration, not
12 months.
Benefits under the modified AMO union contracts include a health
contribution rate of $55.22 per man-day and a pension plan contribution
rate of $43.55 per man-day. The AMO 401K employer matching rate
remained at 5% of compensation (wages) while the clerical contributions
were eliminated.
To accurately reflect the compensation received by masters and
mates serving on the Great Lakes, we have taken a weighted average of
wages and benefits under the two sets of AMO union contracts. The
following tables (7, 8, 9, and 10) show how this operation was
performed.

Table 7.--Total Wages and Benefits by AMO Union Contracts
------------------------------------------------------------------------
Modified AMO
Unmodified AMO union
union contracts eff:
contracts eff: August 1,
August 1, 2003 2005
------------------------------------------------------------------------
Total Wages and Benefits for Designated $210,951 $236,596
Waters.................................
Total Wages and Benefits for Un- 153,042 171,213
Designated Waters......................
------------------------------------------------------------------------

Table 8.--Deadweight Tonnage by AMO Union Contract
------------------------------------------------------------------------
Modified AMO
Unmodified AMO union
Great Lakes vessel operators union contracts eff:
contracts eff: August 1,
August 1, 2003 2005
------------------------------------------------------------------------
American Steamship Company.............. .............. 664,215
Central Marine Logistics (Formerly .............. 96,544
Inland/ISPAT, Inc).....................
Oglebay Norton Marine Services.......... .............. 0
HMC Ship Management..................... 12,656 ..............
Key Lakes, Inc (Formerly USS Great Lakes 303,145 ..............
Fleet).................................
Interlake Leasing III................... 64,960 ..............
-------------------------------
Total Tonnage by each AMO contract.. 380,761 760,759
-------------------------------
Percent Tonnage by each AMO contract.... 380,761 / 760,759 /
1,141,520 = 1,141,520 =
33.3556% 66.6444%
------------------------------------------------------------------------

Table 9.--Weighted Average Wages and Benefits Based on AMO Union
Contracts
------------------------------------------------------------------------
Unmodified AMO Modified AMO
union contract union
eff: August 1, contract eff:
2003 August 1, 2005
------------------------------------------------------------------------
Weighted Wages and Benefits (Designated $210,953 $236,600
Waters)................................ x .333556 x .666444
= $70,364 = $157,678
Weighted Wages and Benefits (Un- $153,042 $171,213
Designated Waters)..................... x .333556 x .666444
= $51,048 = $114,104
------------------------------------------------------------------------

[[Page 8123]]

Table 10.--Total Weighted Average Wages and Benefits
------------------------------------------------------------------------
Designated Un-designated
waters waters
------------------------------------------------------------------------
August 1, 2003 Contract................. $70,364 $51,048
August 1, 2005 Contract................. 157,678 114,104
-------------------------------
Total Weighted Wages and Benefits... 228,042 165,152
------------------------------------------------------------------------

In calculating the average wages and benefits used in determining
target pilot compensation, we first determine the total wages and
benefits for designated and undesignated waters under each of the two
sets of AMO union contracts (Table 7). Next, we add the total gross
deadweight tonnage of vessels under each version of the AMO contracts
and calculate the percentage of tonnage represented under each version
(Table 8). Based on these calculations, we have estimated current total
tonnage at approximately 1.2 million. Of this total, approximately 66%
of the tonnage is controlled by shipping companies operating under the
modified AMO union contracts, and approximately 33% of the tonnage is
controlled by shipping companies operating under the unmodified AMO
union contracts.
Next, we take the total wages and benefits for designated and
undesignated waters under the unmodified AMO union contracts (Table 3)
and multiply by approximately 33% and we take the total wages and
benefits for designated and undesignated waters under the modified AMO
union contract (Table 6) and multiply these by approximately 66%. The
results of these computations are added together to arrive at the
weighted average target pilot compensation (Table 10).
2. Determination of New Number of Pilots Needed
The number of pilots needed in each Area of designated waters is
established by dividing the total projected number of bridge hours for
that Area by 1,000. The number of pilots needed in each Area of
undesignated waters is established by dividing the total number of
projected bridge hours for that Area by 1,800. Under the ratemaking
methodology, a pilot in designated waters must work 1,000 bridge hours
per season to earn projected target pilot compensation. In undesignated
waters a pilot must work 1,800 bridge hours to earn target pilot
compensation. A bridge hour is defined as an hour of time in which a
pilot is aboard a vessel providing basic pilotage service.
Dividing the total projected number of bridge hours per Area by the
number of bridge hours a pilot needs to work to earn target pilot
compensation yields the number of pilots that will be needed in each
area to service vessel traffic. Projected bridge hours are based on the
vessel traffic that pilots are expected to serve.
As previously discussed, the Coast Guard has adjusted the bridge
hour calculations contained in the NPRM to reflect actual projected
hours for each Area as opposed to the rounded bridge hours previously
used to correct for overestimations of projected revenue, expenses, and
returns on investment. The Coast Guard has also revised upward its
projection of traffic for the 2007 navigation season based upon data
received showing an upward trend in tonnage moved within the system,
and increases in both vessel transits and bridge hours between 2004 and
2006. The revised projections are made based upon historical data,
recent data obtained from the St. Lawrence Seaway Development
Corporation, and relevant information provided by pilots and industry.
The data analyzed by the Coast Guard has been conflicting. It
consists of changes in annual tonnage throughput, numbers of vessel
transits, and changing bridge hour requirements from 1999 through 2006.
Despite the conflicting data, measurable increases in traffic have
occurred between 2004 and 2006 in Area 1 (St. Lawrence Seaway), Area 2
(Lake Ontario), and Area 4 (Lake Erie). No discernable increases have
occurred in the remaining Areas. Depending how the data is analyzed the
results vary significantly. A regression analysis performed for the
period 1999 to 2006 shows that while traffic has fluctuated over this
period of time, current levels of traffic are about equal to average
long term traffic loads. If just recent bridge hour data is analyzed,
however, it appears that traffic has increased approximately 13% in
Area 1, 19% in Area 2, and 4% in Area 4 between 2005 and 2006. Based
upon the data available to us, we project that these traffic levels
will continue into the 2007 season. Accordingly, we have adjusted
projected bridge hour totals to reflect these recent trends in traffic.
As previously indicated, the bridge hour projection appearing in
the NPRM for Area 2 of District One was reduced to reflect unrounded
projected bridge hour numbers and reduced again by 1144 bridge hours
reflecting the loss of traffic due to the fast ferry going out of
business. After performing these adjustments, the 19% projected
increase in traffic was applied.
The following table, ``Number of Pilots Needed,'' shows the
projection of bridge hours by area and the calculation of the number of
pilots needed in each Area for the 2007 navigation season rounded to
the next whole pilot:

Number of Pilots Needed
----------------------------------------------------------------------------------------------------------------
Divided by
Pilotage area Projected 2007 bridge-hour Pilots needed
bridge hours target
----------------------------------------------------------------------------------------------------------------
AREA 1.......................................................... 5,661 1,000 6
AREA 2.......................................................... 7,993 1,800 5
AREA 4.......................................................... 8,490 1,800 5
AREA 5.......................................................... 6,395 1,000 7
AREA 6.......................................................... 18,000 1,800 10
AREA 7.......................................................... 3,863 1,000 4
AREA 8.......................................................... 11,390 1,800 7
-----------------------------------------------

[[Page 8124]]

Total Pilots Needed......................................... .............. .............. 44
----------------------------------------------------------------------------------------------------------------

3. Projection of New Total Target Pilot Compensation
The projection of new total target pilot compensation is determined
separately for each pilotage Area by multiplying the number of pilots
needed in each Area by the target pilot compensation for pilots working
in that Area.
The results for each pilotage Area are set out as follows:

Step 4: Increase the New Total Target Pilot Compensation in Step 3 by
the Expense Multiplier in Step 2
The increase in Step 4 refers to the proportional increase of
operating expense when new total target pilot compensation is
multiplied by the expense multiplier. The calculations for Step 4
appear as follows:

District One
----------------------------------------------------------------------------------------------------------------
Area 1 St. Area 2 Lake Total district
Lawrence River Ontario one
----------------------------------------------------------------------------------------------------------------
Pilot Compensation.............................................. $1,368,253 $825,760 $2,194,013
Expense Multiplier.............................................. x 31169 x 52779 x 39283
-----------------------------------------------
Projected Increase in Operating Expense..................... =$426,468 =$435,829 =$861,881
----------------------------------------------------------------------------------------------------------------

District Two
----------------------------------------------------------------------------------------------------------------
Area 5
Area 4 Lake southeast Total district
Erie Shoal to Port two
Huron, MI
----------------------------------------------------------------------------------------------------------------
Pilot Compensation.............................................. $825,760 $1,596,295 $2,422,055
Expense Multiplier.............................................. x 61678 x 46605 x 51731
-----------------------------------------------
Projected increase in Operating Expense..................... =$509,310 =$743,956 =$1,252,960
----------------------------------------------------------------------------------------------------------------

[[Page 8125]]

District Three
----------------------------------------------------------------------------------------------------------------
Area 6 Lakes
Huron and Area 7 St. Area 8 Lake Total district
Michigan Mary's River Superior three
----------------------------------------------------------------------------------------------------------------
Pilot Compensation.............................. $1,651,520 $912,168 $1,156,064 $3,719,752
Expense Multiplier.............................. x 49543 x 34956 x 44178 x 44290
---------------------------------------------------------------
Projected Increase in Operating Expense..... =$818,205 =$318,861 =$510,730 =$1,647,478
----------------------------------------------------------------------------------------------------------------

Step 5(a): Adjust the Result in Step 4, as Required, for Inflation or
Deflation
The calculations for Step 5(a) appear below. Inflation rates were
obtained from the U.S. Department of Labor, Bureau of Labor Statistics,
``Midwest Economy--Consumer Prices,'' using the years 2004 to 2005
annual average in the amount of 3.2% per year.

District One
----------------------------------------------------------------------------------------------------------------
Area 1 St. Area 2 Lake Total district
Lawrence River Ontario one
--------------------------------------------------------------------------------------------------
Projected Increase in Operating Expense........... $426,468 $435,829 $861,881
Inflation Rate.................................... x 1.032 x 1.032 x 1.032
-------------------------------------------------------------
Adjusted Projected Increase in Operating =$440,115 =$449,776 =$889,461
Expense......................................
----------------------------------------------------------------------------------------------------------------

District Two
----------------------------------------------------------------------------------------------------------------
Area 5
Area 4 Lake Southeast Total district
Erie Shoal to Port two
Huron, MI
----------------------------------------------------------------------------------------------------------------
Projected Increase in Operating Expense......................... $509,310 $743,956 $1,252,960
Inflation Rate.................................................. x 1.032 x 1.032 x 1.032
-----------------------------------------------
Adjusted Projected Increase in Operating Expense............ =$525,608 =$767,763 =$1,293,055
----------------------------------------------------------------------------------------------------------------

District Three
----------------------------------------------------------------------------------------------------------------
Area 6 Lakes
Huron and Area 7 St. Area 8 Lake Total district
Michigan Mary's River Superior three
----------------------------------------------------------------------------------------------------------------
Projected Increase in Operating Expense......... $818,205 $318,861 $510,730 $1,647,478
Inflation Rate.................................. x 1.032 x 1.032 x 1.032 x 1.032
---------------------------------------------------------------
Adjusted Projected Increase in Operating =$844,388 =$329,065 =$527,074 =$1,700,197
Expense....................................
----------------------------------------------------------------------------------------------------------------

Step 5(b): Calculate Projected Total Economic Costs
After the inflation adjustments are made to the Operating Expenses
in Step 5(a), the adjusted amount (Adjusted Projected Increase in
Operating Expense) is added to the New Total Target Pilot Compensation,
as determined in Step 3, to arrive at a Projected Total Economic Cost.
The Total Economic Cost is necessary to determine the Total Unit Cost
in Step 6. The calculations for Step 5(b) appear as follows:

District One
----------------------------------------------------------------------------------------------------------------
Area 1 St. Area 2 Lake Total district
Lawrence River Ontario one
----------------------------------------------------------------------------------------------------------------
Adjusted Projected Increase in Operating Expense................ $440,115 $449,776 $889,461
Projected Target Pilot Compensation............................. +$1,368,253 +$825,760 +$2,194,013
-----------------------------------------------
Projected Total Economic Cost............................... =$1,808,368 =$1,275,535 =$3,083,474
----------------------------------------------------------------------------------------------------------------

[[Page 8126]]

District Two
----------------------------------------------------------------------------------------------------------------
Area 5
Area 4 Lake Southeast Total district
Erie Shoal to Port two
Huron, MI
----------------------------------------------------------------------------------------------------------------
Adjusted Projected Increase in Operating Expense................ $525,608 $767,763 $1,293,055
Projected Target Pilot Compensation............................. +$825,760 +$1,596,295 +$2,422,055
-----------------------------------------------
Projected Total Economic Cost............................... =$1,351,368 =$2,364,058 =$3,715,109
----------------------------------------------------------------------------------------------------------------

District Three
----------------------------------------------------------------------------------------------------------------
Area 6 Lakes
Huron and Area 7 St. Area 8 Lake Total district
Michigan Mary's River Superior three
----------------------------------------------------------------------------------------------------------------
Adjusted Projected Increase in Operating Expense $844,388 $329,065 $527,074 $1,700,197
Projected Target Pilot Compensation............. +$1,651,520 +$912,168 +$1,156,064 +$3,719,752
---------------------------------------------------------------
Projected Total Economic Cost............... =$2,495,907 =$1,241,233 =$1,683,138 =$5,419,949
----------------------------------------------------------------------------------------------------------------

Step 6: Divide the Result in Step 5(b) by Projected Bridge Hours to
Determine Total Unit Costs (Adjusted Cost per Bridge Hour by Area)

District One
----------------------------------------------------------------------------------------------------------------
Area 1 St. Area 2 Lake Total district
Lawrence River Ontario one
----------------------------------------------------------------------------------------------------------------
Projected Total Economic Costs.................................. $1,808,368 $1,275,535 $3,083,474
Projected Bridge Hours.......................................... /5,661 /7,993 /13,654
-----------------------------------------------
Total Unit Costs............................................ =$319.44 =$159.58 =$225.83
----------------------------------------------------------------------------------------------------------------

District Two
----------------------------------------------------------------------------------------------------------------
Area 5
Area 4 Lake Southeast Total district
Erie Shoal to Port two
Huron, MI
----------------------------------------------------------------------------------------------------------------
Projected Total Economic Costs.................................. $1,351,368 $2,364,058 $3,715,109
Projected Bridge Hours.......................................... /8,490 /6,395 /14,885
-----------------------------------------------
Total Unit Costs............................................ =$159.17 =$369.67 =$249.59
----------------------------------------------------------------------------------------------------------------

District Three
----------------------------------------------------------------------------------------------------------------
Area 6 Lakes
Huron and Area 7 St. Area 8 Lake Total district
Michigan Mary's River Superior three
----------------------------------------------------------------------------------------------------------------
Projected Total Economic Costs.................. $2,495,907 $1,241,233 $1,683,138 $5,419,949
Projected Bridge Hours.......................... /18,000 /3,863 /11,390 /33,253
---------------------------------------------------------------
Total Unit Costs............................ =$138.66 =$321.31 =$147.77 =$162.99
----------------------------------------------------------------------------------------------------------------

Step 7: Divide Prospective Unit Costs in Step 6 by the Base Period Unit
Costs in Step 1
This step calculates the percent change in unit cost from the base
period to the prospective unit cost.

[[Page 8127]]

District One
----------------------------------------------------------------------------------------------------------------
Area 1 St. Area 2 Lake Total district
Lawrence River Ontario one
----------------------------------------------------------------------------------------------------------------
Prospective Unit Cost (Total Unit Cost)......................... $319.44 $159.58 $225.83
Base Period Unit Cost........................................... /$263.91 /$123.22 /$179.50
-----------------------------------------------
Percentage Change in Unit Cost (Rate Adjustment)............ =1.2104 =1.2951 =1.2581
----------------------------------------------------------------------------------------------------------------

District Two
----------------------------------------------------------------------------------------------------------------
Area 5
Area 4 Lake Southeast Total district
Erie Shoal to Port two
Huron, MI
----------------------------------------------------------------------------------------------------------------
Prospective Unit Cost (Total Unit Cost)......................... $159.17 $369.67 $249.59
Base Period Unit Cost........................................... /$130.39 /$294.97 /$202.40
-----------------------------------------------
Percentage Change in Unit Cost (Rate Adjustment)............ =1.2207 =1.2532 =1.2332
----------------------------------------------------------------------------------------------------------------

District Three
----------------------------------------------------------------------------------------------------------------
Area 6 Lakes
Huron and Area 7 St. Area 8 Lake Total district
Michigan Mary's River Superior three
----------------------------------------------------------------------------------------------------------------
Prospective Unit Cost (Total Unit Cost)......... $138.66 $321.31 $147.77 $162.99
Base Period Unit Cost........................... /$120.61 /$271.53 /$116.28 /$136.48
---------------------------------------------------------------
Percentage Change in Unit Cost (Rate =1.1497 =1.1833 =1.2708 =1.1943
Adjustment)................................
----------------------------------------------------------------------------------------------------------------

Step 8: Adjust the Base Period Rates by the Percentage Change in Unit
Costs in Step 7
The ``Percentage Change in Unit Cost'' in Step 7 represents the
percentage change or rate adjustment that will be applied to existing
base period rates and charges in Subpart D of 46 CFR part 401. The
average increase in rates overall three Districts is 22.62% above the
2006 final rule. The rate adjustments are summarized by Areas in the
following table. The actual adjustments are shown in the proposed
amendments to regulatory text that follow this preamble. Each of the
Area rates listed in part 401 has been adjusted according to this
table. Results are rounded to nearest whole dollar.

V. Regulatory Evaluation

Executive Order 12866, ``Regulatory Planning and Review,'' 58 FR
51735, October 4, 1993, requires a determination whether a regulatory
action is ``significant'' and therefore subject to review by the Office
of Management and Budget (OMB) and subject to the requirements of the
Executive Order. This rulemaking is not significant under Executive
Order 12866 and has been reviewed by OMB.
The Coast Guard is required to conduct an annual review of pilotage
rates on the Great Lakes and, if necessary, adjust these rates to align
compensation levels between Great Lakes pilots and industry. (See the
``Background'' section for a detailed explanation of the legal
authority and requirements for the Coast Guard to conduct an annual
review and provide possible adjustments of pilotage rates on the Great
Lakes.) Based on our review, we are adjusting the pilotage rates for
the 2007 shipping season to generate sufficient revenue to cover
allowable expenses, target pilot compensation, and returns on
investment.
This interim rule implements a 22.62% average rate adjustment for
the Great Lakes system over the rate adjustment found in the 2006 final
rule. This adjustment has increased from the proposed 6% published in
the NPRM due to changes made to address public comments. (See the
``Discussion of Comments and Changes'' section for a discussion of the
changes made from public comments.) The additional consideration of the
wage and benefit increases under three of six union contracts, updating
the inflation index, and modifying the projected bridge hours all added
to the increased rate adjustment. Changes to AMO union contracts
contributed the largest part of the change by increasing the target
pilot compensation, resulting in the higher rate adjustment for the
interim rule. (See the ``Calculating the Rate Adjustment'' section of
this rulemaking for a detailed explanation of the ratemaking
methodology).
These adjustments to Great Lakes pilotage rates meet the
requirements set forth in 46 CFR part 404 for similar compensation
levels between Great Lakes pilots and industry. They also include
adjustments for inflation and changes in association expenses to
maintain these compensation levels.
The increase in pilotage rates will be an additional cost for
shippers to transit the Great Lakes system. This interim rule results
in a distributional effect that transfers payments (income) from vessel
owners and operators to the Great Lakes' pilot associations through
Coast Guard regulated pilotage rates.
The shippers affected by these rate adjustments are those owners
and

[[Page 8128]]

operators of domestic vessels operating on register (employed in the
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. However, the
Coast Guard issued a policy position several years ago stating 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
interim rule, such as recreational boats and vessels only operating
within the Great Lakes system, may elect to purchase pilotage services.
However, this election is voluntary and does not affect the Coast
Guard's calculation of the rate increase and is not a part of our
estimated national cost to shippers.
We reviewed a sample of pilot source forms, which are the forms
used to record pilotage transactions on vessels, and discovered very
few cases of U.S. Great Lakes vessels (i.e., domestic vessels without
registry operating only in the Great Lakes) that purchased pilotage
services. There was one case where the vessel operator purchased
pilotage service in District One to presumably leave the Great Lakes
system. We assume some vessel owners and operators may also choose to
purchase pilotage services if their vessels are carrying hazardous
substances or were navigating the Great Lakes system with inexperienced
personnel. Based on information from the Coast Guard Office of Great
Lakes Pilotage, we have determined that these vessels voluntarily chose
to use pilots and, therefore, are exempt from pilotage requirements.
We updated our estimates of affected vessels for the interim rule
by using recent vessel characteristics, documentation, and arrival
data. We used 2004-2005 vessel arrival data from the National Vessel
Movement Center (NVMC) and the Coast Guard's Marine Inspection, Safety,
and Law Enforcement (MISLE) system to estimate the average annual
number of vessels affected by the rate adjustment to be 269 vessels
that journey into the Great Lakes system. These vessels entered 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, offloading, and
onloading at facilities in Great Lakes ports. Of the total trips for
the 269 vessels, there were approximately 1,040 annual U.S. port
arrivals before the vessels left the Great Lakes system, based on 2004-
2005 vessel data from the NVMC and MISLE.
We used district pilotage revenues from the independent
accountant's reports of the Districts' financial statements to estimate
the additional cost to shippers of the rate adjustments in this interim
rule. These revenues represent the direct and indirect pilotage costs
that shippers must pay for pilotage services in order to transit their
vessels in the Great Lakes. Table 1 shows historical pilotage revenues
by District.

Table 1.--District Revenues ($U.S.)
----------------------------------------------------------------------------------------------------------------
Year District one District two District three Total
----------------------------------------------------------------------------------------------------------------
1998............................................ 2,127,577 3,202,374 4,026,802 9,356,753
1999............................................ 2,009,180 2,727,688 3,599,993 8,336,861
2000............................................ 1,890,779 2,947,798 4,036,354 8,874,931
2001............................................ 1,676,578 2,375,779 3,657,756 7,710,113
2002............................................ 1,686,655 2,089,348 3,460,560 7,236,563
----------------------------------------------------------------------------------------------------------------
Source: Annual independent accountant's reports of the Districts to the Coast Guard's Office of Great Lake
Pilotage.

While the revenues have decreased over time, the Coast Guard
adjusts pilotage rates to achieve a target pilot compensation similar
to masters and first mates working on U.S. vessels engaged in the Great
Lakes trade. Table 2 details the revenue adjustment from the 2006 full
rate adjustment final rule (71 FR 16501). This interim rule uses the
total adjusted revenue from the 2006 final rule as a baseline to
estimate the revenue needed for the 2007 shipping season.

Table 2.--Revenues From the 2006 Full Rate Adjustment ($U.S.) \1\
----------------------------------------------------------------------------------------------------------------
District District one District two District three Total \2\
----------------------------------------------------------------------------------------------------------------
2002 District Revenues.......................... 1,686,655 2,089,348 3,460,560 7,236,563
2006 Projected Revenue.......................... 2,231,940 2,375,920 3,908,363 8,516,223
2006 Total Adjusted Revenue..................... 2,643,732 3,125,036 4,722,162 10,490,930
----------------------------------------------------------------------------------------------------------------
\1\ For the calculation of the 2006 projected and adjusted pilotage revenues, see the ``Discussion of Rule''
section of the 2006 final rule published in the Federal Register (71 FR 16501).
\2\ Some values may not total due to rounding.

We estimate the additional cost of the rate adjustment in this rule
to be the difference between the total revenue needed based on the 2006
rate adjustment and the rate adjustment (change) revenue in this
interim rule. These revenue values and adjustments are described and
calculated in the ``Calculating the Rate Adjustment'' section of this
rulemaking. Table 3 compares projected and adjusted revenues and costs
of the rule to industry by district.

Table 3.--Revenues, Rate Adjustment Factors and Additional Cost of This Rule ($U.S.)
----------------------------------------------------------------------------------------------------------------
District District one District two District three Total \1\
----------------------------------------------------------------------------------------------------------------
Total Adjusted Revenue \2\...................... 2,643,732 3,125,036 4,722,162 10,490,930

[[Page 8129]]

Proposed Rate Change \3\........................ 1.2581 1.2332 1.1943 1.2262
Revenue Needed \4\.............................. 3,326,079 3,853,794 5,639,678 12,819,552
Additional Revenue or Cost of this Rulemaking 682,347 728,758 917,516 2,328,622
\5\............................................
----------------------------------------------------------------------------------------------------------------
\1\ Some values may not total due to rounding.
\2\ Total adjusted revenue = `2002 base revenue' + `2006 final rule rate adjustment revenue'.
\3\ See step 7 of the ``Calculating the Rate Adjustment'' section of this rule. We used the districts' percent
change in unit costs for the rate change.
\4\ Revenue needed = `total adjusted revenue' x `proposed rate change'.
\5\ Additional revenue or cost of this rule = 'revenue needed'-`total adjusted revenue'.

After applying the rate change in this interim rule, the resulting
difference between the revenue projected and the revenue needed is the
annual cost to shippers from this interim rule. This figure will be
equivalent to the total additional payments that shippers will make for
pilotage services from this interim rule.
The annual cost of the rate adjustment in this interim rule to
shippers is approximately $2.3 million (non-discounted). To calculate
an exact cost 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 will pay more and some will pay
less depending on the distance and port arrivals of their vessels'
trips. However, the annual cost reported above does capture all of the
additional cost the shippers face as a result of the rate adjustment in
this interim rule.
In addition to the annual reviews and possible partial rate
adjustment, the Coast Guard is required to determine and, if necessary,
perform a full adjustment of Great Lakes pilotage rates at a minimum of
once every five years. Due to the frequency of the rate adjustments, we
estimated the total cost to shippers of the rate adjustments in this
interim rule over a five-year period instead of a ten-year period. The
total five-year (2007-2011) present value cost estimate of this interim
rule to shippers is $10.2 million discounted at a 7% discount rate and
$11.0 million discounted at a 3% discount rate.
For the calculation of the total five-year present value cost
estimate, we chose not to discount first-year costs and instead began
discounting in the second year, because we anticipate that industry
will most likely begin to incur costs immediately upon publication of
this interim rule during the 2007 Great Lakes shipping season which is
generally less than a calendar year. We also considered a middle-of-
year discounting process to account for the payments occurring over the
course of the year but the difference was small considering the overall
cost of the interim rule.
The cost to shippers of this interim rule is minimal compared with
the travel cost shippers save when they use the Great Lakes system. The
alternative to Great Lakes waterborne transportation is to choose
coastal delivery, such as East Coast and Gulf Coast ports that are more
expensive, and extra-modal transportation overland, which is far less
practical and has additional transportation costs for all commodity
groups. See the docket for this rulemaking, USCG-2006-24414, for an
assessment of alternatives to Great Lakes waterborne transportation and
the associated costs entitled ``Analysis of Great Lakes Pilotage Costs
on Great Lakes Shipping and the Potential Impact of Pilotage Rate
Increases'' (October 1, 2004).

A. Small Entities

Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we have
considered whether this interim rule has 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.
We expect entities affected by the interim rule would be classified
under the North American Industry Classification System (NAICS) code
subsector 483--Water Transportation, which includes one or all of the
following 6-digit NAICS codes for freight transportation: 483111--Deep
Sea Freight Transportation, 483113--Coastal and Great Lakes Freight
Transportation, and 483211--Inland Water Freight Transportation.
According to the Small Business Administration's definition, a U.S.
company with these NAICS codes and employing less than 500 employees is
considered a small entity.
For the interim rule, we reviewed recent company size and ownership
data from 2004-2005 Coast Guard MISLE data and public and proprietary
business revenue and size data. We found that large foreign-owned
shipping conglomerates or their subsidiaries owned or operated all
vessels engaged in foreign trade on the Great Lakes. We found one U.S.
company operating vessels engaged in foreign trade in the Great Lakes
system that was owned by a large foreign company between 2004-2005. We
assume that new industry entrants will be comparable in ownership and
size to these shippers.
There are three U.S. entities affected by the interim rule that
will receive the additional revenues from the rate adjustment. These
are the three pilot associations that are the only entities providing
pilotage services within the Great Lakes districts. Two of the
associations operate as partnerships and one operates as a corporation.
These associations are classified with the same NAICS industry
classification and small entity size standards described above, but
they have far fewer than 500 employees: Approximately 65 total
employees combined. However, they are not adversely impacted with the
additional costs of the rate adjustments, but instead receive the
additional revenue benefits for operating expenses and pilot
compensation.
Therefore, the Coast Guard certifies under 5 U.S.C. Sec. 605(b)
that this interim rule does not have a significant economic impact on a
substantial number of U.S. small entities. If you think that your
business, organization, or governmental jurisdiction qualifies as a
small entity and that this interim rule will have a significant
economic impact on it, please submit a comment to the Docket Management
Facility at the address under ADDRESSES. In your comment, explain why
you think it qualifies and how and to what degree this rule will
economically affect it.

[[Page 8130]]

B. 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 the interim rule so that they could better
evaluate its effects on them and participate in the rulemaking. If the
interim rule affects your small business, organization, or governmental
jurisdiction and you have questions concerning its provisions or
options for compliance, please call Mike Sakaio, Office of Great Lakes
Pilotage, (CG-3PWM-2), U.S. Coast Guard, telephone 202-372-1538 or send
him e-mail at Michael.Sakaio@uscg.mil. The Coast Guard will not
retaliate against small entities that question or complain about this
interim 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).

C. Collection of Information

Under the Paperwork Reduction Act (44 U.S.C.3501-3520), the Office
of Management and Budget (OMB) reviews each rule that contains a
collection of information requirement to determine whether the
practical value of the information is worth the burden imposed by its
collection. Collection of information requirements include reporting,
record keeping, notification, and other similar requirements.
This interim rule calls for no new collection of information under
the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). It does not
change the burden in the collection currently approved by the Office of
Management and Budget (OMB) under OMB Control Number 1625-0086, Great
Lakes Pilotage Methodology.

D. 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. We have analyzed this interim rule
under that Order and have determined that it does not have implications
for federalism because there are no similar State regulations, and the
States do not have the authority to regulate and adjust rates for
pilotage services in the Great Lakes system.

E. 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 or more in any
one year. Though this interim rule will not result in such expenditure,
we do discuss the effects of this rule elsewhere in this preamble.

F. Taking of Private Property

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

G. Civil Justice Reform

This interim 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.

H. Protection of Children

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

I. Indian Tribal Governments

This interim 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.

J. Energy Effects

We have analyzed this interim 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.

K. 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 interim rule does not use technical standards.
Therefore, we did not consider the use of voluntary consensus
standards.

L. Environment

We have analyzed this interim rule under Commandant Instruction
M16475.lD and Department of Homeland Security Management Directive
5100.1, 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 there are no factors in this case that would limit
the use of a categorical exclusion under section 2.B.2 of the
Instruction. Therefore, this interim rule is categorically excluded,
under figure 2-1, paragraph (34)(a), of the Instruction, from further
environmental documentation. Paragraph 34(a) pertains to minor
regulatory changes that are editorial or procedural in nature. This
interim rule adjusts rates in accordance with applicable statutory and
regulatory mandates.

List of Subjects in 46 CFR Part 404

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

0
For the reasons set forth in the preamble, the Coast Guard amends part
401 of title 46 of the Code of Federal Regulations as follows:

[[Page 8131]]

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......................... $13 per Kilometer or $23 per
mile \1\
Each Lock Transited.................... $288 \1\
Harbor Movage.......................... $943 \1\
------------------------------------------------------------------------
\1\ The minimum basic rate for assignment of a pilot in the St. Lawrence
River is $629, and the maximum basic rate for a through trip is
$2,761.

(b) Area 2 (Undesignated Waters):

------------------------------------------------------------------------
Service Lake Ontario
------------------------------------------------------------------------
Six-Hour Period...................................... $477
Docking or Undocking................................. 455
------------------------------------------------------------------------

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):

----------------------------------------------------------------------------------------------------------------
Lake Erie (east
Service of Southeast Buffalo
Shoal)
----------------------------------------------------------------------------------------------------------------
Six-Hour Period Docking or................................................ $641 $641
Undocking................................................................. 494 494
Any Point on the Niagara River below the Black Rock Lock.................. N/A 1,261
----------------------------------------------------------------------------------------------------------------

(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 $1,699 $1,004 $2,206 $1,699 N/A
Southeast Shoal. Port Huron Change............
Point.......................................... \1\ 2,959 \1\ 3,428 2,223 1,729 1,229
St. Clair River................................ \1\ 2,959 N/A 2,223 2,223 1,004
Detroit or Windsor or the Detroit River........ 1,699 2,206 1,004 N/A 2,223
Detroit Pilot Boat............................. 1,229 1,699 N/A N/A 2,223
----------------------------------------------------------------------------------------------------------------
\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 and
Service Michigan
------------------------------------------------------------------------
Six-Hour Period...................................... $479
Docking or Undocking................................. 455
------------------------------------------------------------------------

(b) Area 7 (Designated Waters):

------------------------------------------------------------------------
Area De Tour Gros cap Any harbor
------------------------------------------------------------------------
Gros Cap......................... $1,718 N/A N/A

[[Page 8132]]

Algoma Steel Corporation Wharf at 1,718 $647 N/A
Sault Ste. Marie Ontario........
Any point in Sault Ste. Marie, 1,440 647 N/A
Ontario, except the Algoma Steel
Corporation Wharf...............
Sault Ste. Marie, MI............. 1,440 647 N/A
Harbor Movage.................... N/A N/A $647
------------------------------------------------------------------------

------------------------------------------------------------------------
Service Lake Superior
------------------------------------------------------------------------
Six-Hour Period...................................... $464
Docking or Undocking................................. 441
------------------------------------------------------------------------

Sec. 401.420 [Amended]

0
5. In Sec. 401.420--
0
a. In paragraph (a), remove the number ``$70'' and add, in its place,
the number ``$86''; and remove the number ``$1,100'' and add, in its
place, the number ``$1,349''.
0
b. In paragraph (b), remove the number ``$70'' and add, in its place,
the number ``$86''; and remove the number ``$1,100'' and add, in its
place, the number ``$1,349''.
0
c. In paragraph (c)(1), remove the number ``$416'' and add, in its
place, the number ``$510''; in paragraph (c)(3), remove the number
``$70'' and add, in its place, the number ``$86''; and, also in
paragraph (c)(3), remove the number ``$1,100'' and add, in its place,
the number ``$1,349''.

Sec. 401.428 [Amended]

0
6. In Sec. 401.428, remove the number ``$424'' and add, in its place,
the number ``$520''.

Dated: February 7, 2007.
C.E. Bone,
Rear Admiral, U.S. Coast Guard, Assistant Commandant for Prevention.
[FR Doc. E7-3061 Filed 2-22-07; 8:45 am]

BILLING CODE 4910-15-P