Great Lakes Pilotage Rates-2019 Annual Review and Revisions to Methodology, 52355-52375 [2018-22513]

Download as PDF Federal Register / Vol. 83, No. 201 / Wednesday, October 17, 2018 / Proposed Rules DEPARTMENT OF HOMELAND SECURITY Coast Guard 46 CFR Parts 401 and 404 [USCG–2018–0665] RIN 1625–AC49 Great Lakes Pilotage Rates—2019 Annual Review and Revisions to Methodology Coast Guard, DHS. Notice of proposed rulemaking. AGENCY: ACTION: In accordance with the Great Lakes Pilotage Act of 1960, the Coast Guard is proposing new base pilotage rates and surcharges for the 2019 shipping season. This rule would adjust the pilotage rates to account for anticipated traffic, an increase in the number of pilots, anticipated inflation, and surcharges for applicant pilots. The result is an increase in pilotage rates, due to adjustment for inflation and the addition of two pilots. DATES: Comments and related material must be received by the Coast Guard on or before November 16, 2018. ADDRESSES: You may submit comments identified by docket number USCG– 2018–0665 using the Federal eRulemaking Portal at https:// www.regulations.gov. See the ‘‘Public Participation and Request for Comments’’ portion of the SUPPLEMENTARY INFORMATION section for further instructions on submitting comments. SUMMARY: For information about this document, call or email Mr. Brian Rogers, Commandant (CG–WWM–2), Coast Guard; telephone 202–372–1535, email Brian.Rogers@ uscg.mil, or fax 202–372–1914. SUPPLEMENTARY INFORMATION: FOR FURTHER INFORMATION CONTACT: daltland on DSKBBV9HB2PROD with PROPOSALS Table of Contents for Preamble I. Public Participation and Request for Comments II. Abbreviations III. Executive Summary IV. Basis and Purpose V. Background VI. Discussion of Proposed Methodological and Other Changes VII. Discussion of Proposed Rate Adjustment A. Step 1: Recognition of Operating Expenses B. Step 2: Projection of Operating Expenses C. Step 3: Estimate Number of Working Pilots D. Step 4: Determine Target Pilot Compensation E. Step 5: Calculate Working Capital Fund F. Step 6: Calculate Revenue Needed G. Step 7: Calculate Initial Base Rates VerDate Sep<11>2014 17:34 Oct 16, 2018 Jkt 247001 H. Step 8: Calculate Weighting Factors by Area I. Step 9: Calculate Revised Base Rates J. Step 10: Review and Finalize Rates K. Surcharges VIII. 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. Public Participation and Request for Comments The Coast Guard views public participation as essential to effective rulemaking, and will consider all comments and material received during the comment period. Your comment can help shape the outcome of this rulemaking. If you submit a comment, please include the docket number for this rulemaking, indicate the specific section of this document to which each comment applies, and provide a reason for each suggestion or recommendation. We encourage you to submit comments through the Federal eRulemaking Portal at https:// www.regulations.gov. If your material cannot be submitted using https:// www.regulations.gov, contact the person in the FOR FURTHER INFORMATION CONTACT section of this proposed rule for alternate instructions. Documents mentioned in this proposed rule, and all public comments, are available in our online docket at https:// www.regulations.gov, and can be viewed by following that website’s instructions. Additionally, if you visit the online docket and sign up for email alerts, you will be notified when comments are posted or a final rule is published. We accept anonymous comments. All comments received will be posted without change to https:// www.regulations.gov and will include any personal information you have provided. For more about privacy and the docket, visit https:// www.regulations.gov/privacyNotice. We do not plan to hold a public meeting, but we will consider doing so if public comments indicate a meeting would be helpful. We would issue a separate Federal Register notice to announce the date, time, and location of such a meeting. II. Abbreviations APA American Pilots Association BLS Bureau of Labor Statistics PO 00000 Frm 00023 Fmt 4702 Sfmt 4702 52355 CAD Canadian dollars CFR Code of Federal Regulations CPA Certified public accountant DHS Department of Homeland Security FOMC Federal Open Market Committee FR Federal Register GLPA Great Lakes Pilotage Authority (Canadian) GLPAC Great Lakes Pilotage Advisory Committee GLPMS Great Lakes Pilotage Management System NAICS North American Industry Classification System NPRM Notice of proposed rulemaking NTSB National Transportation Safety Board OMB Office of Management and Budget PCE Personal Consumption Expenditures RA Regulatory analysis SBA Small Business Administration § Section symbol SLSMC Saint Lawrence Seaway Management Corporation U.S.C. United States Code USD United States dollars III. Executive Summary Pursuant to the Great Lakes Pilotage Act of 1960 (‘‘the Act’’),1 the Coast Guard regulates pilotage for oceangoing vessels on the Great Lakes—including setting the rates for pilotage services and adjusting them on an annual basis. The rates, which currently range from $271 to $653 per pilot hour (depending on the specific area where pilotage service is provided), are paid by shippers to pilot associations. The three pilot associations, which are the exclusive U.S. source of registered pilots on the Great Lakes, use this revenue to cover operating expenses, maintain infrastructure, compensate working pilots, and train new pilots. We use a ratemaking methodology that we have developed since 2016 in accordance with our statutory requirements and regulations. Our ratemaking methodology calculates the revenue needed for each pilotage association (including operating expenses, compensation, and infrastructure needs), and then divides that amount by the expected shipping traffic over the course of the year to produce an hourly rate. This process is currently effected through a 10-step methodology and supplemented with surcharges, which are explained in detail in this notice of proposed rulemaking (NPRM). In this NPRM, we are proposing new pilotage rates for 2019 based on the existing methodology. As part of our annual review, we are proposing in this NPRM new rates for the 2019 shipping season. Based on the ratemaking model discussed in this NPRM, we are proposing the rates shown in table 1. The result is an increase in rates, due to 1 46 U.S.C. Chapter 93; Public Law 86–555, 74 Stat. 259, as amended. E:\FR\FM\17OCP1.SGM 17OCP1 52356 Federal Register / Vol. 83, No. 201 / Wednesday, October 17, 2018 / Proposed Rules adjustment for inflation and the addition of two pilots. TABLE 1—CURRENT AND PROPOSED PILOTAGE RATES ON THE GREAT LAKES Area District District District District One: One: Two: Two: Designated ......................................... Undesignated ..................................... Undesignated ..................................... Designated ......................................... District Three: Undesignated .................................. District Three: Designated ...................................... This proposed rule is not economically significant under Executive Order 12866. This proposed rule would impact 51 U.S. Great Lakes pilots, 3 pilot associations, and the owners and operators of an average of 256 oceangoing vessels that transit the Great Lakes annually. The estimated overall annual regulatory economic impact of this rate change is a net increase of $2,066,143 in payments made by shippers from the 2018 shipping season. Because we must review, and, if necessary, adjust rates each year, we analyze these as single year costs and do not annualize them over 10 years. This rule does not affect the Coast Guard’s budget or increase Federal spending. Section VIII of this preamble provides the regulatory impact analyses of this proposed rule. IV. Basis and Purpose daltland on DSKBBV9HB2PROD with PROPOSALS The legal basis of this rulemaking is the Great Lakes Pilotage Act of 1960 (‘‘the Act’’),2 which requires U.S. vessels operating ‘‘on register’’ and foreign vessels to use U.S. or Canadian registered pilots while transiting the U.S. waters of the St. Lawrence Seaway and the Great Lakes system.3 For the U.S. registered Great Lakes pilots (‘‘pilots’’), the Act requires the Secretary to ‘‘prescribe by regulation rates and charges for pilotage services, giving consideration to the public interest and the costs of providing the services.’’ 4 The Act requires that rates be established or reviewed and adjusted each year, not later than March 1. The Act requires that base rates be established by a full ratemaking at least 2 46 U.S.C. Chapter 93; Public Law 86–555, 74 Stat. 259, as amended. 3 46 U.S.C. 9302(a)(1). 4 46 U.S.C. 9303(f). VerDate Sep<11>2014 17:34 Oct 16, 2018 Final 2018 pilotage rate Name Jkt 247001 St. Lawrence River ................................................. Lake Ontario ........................................................... Lake Erie ................................................................ Navigable waters from Southeast Shoal to Port Huron, MI. Lakes Huron, Michigan, and Superior ................... St. Mary’s River ...................................................... once every 5 years, and in years when base rates are not established, they must be reviewed and, if necessary, adjusted. The Secretary’s duties and authority under the Act have been delegated to the Coast Guard.5 The purpose of this NPRM is to propose new pilotage rates and surcharges for the 2019 shipping season. The Coast Guard believes that the new rates would promote pilot retention, ensure safe, efficient, and reliable pilotage services on the Great Lakes, and provide adequate funds to upgrade and maintain infrastructure. V. Background Pursuant to the Great Lakes Pilotage Act of 1960, the Coast Guard, in conjunction with the Canadian Great Lakes Pilotage Authority, regulates shipping practices and rates on the Great Lakes. Under the Coast Guard regulations, all vessels engaged in foreign trade (often referred to as ‘‘salties’’) are required to engage U.S. or Canadian pilots during their transit through the regulated waters.6 United States and Canadian ‘‘lakers,’’ which account for most commercial shipping on the Great Lakes, are not affected.7 Generally, vessels are assigned a U.S. or Canadian pilot depending on the order in which they transit a particular area of the Great Lakes and do not choose the pilot they receive. If a vessel is assigned a U.S. pilot, that pilot will be assigned by the pilotage association responsible for the particular district in which the vessel is operating, and the vessel operator will pay the pilotage association for the pilotage services. 5 Department of Homeland Security (DHS) Delegation No. 0170.1, para. II (92.f). 6 See 46 CFR part 401. 7 46 U.S.C. 9302(f). A ‘‘laker’’ is a commercial cargo vessel especially designed for and generally limited to use on the Great Lakes. PO 00000 Frm 00024 Fmt 4702 Sfmt 4702 Proposed 2019 pilotage rate $653 435 497 593 $698 492 530 632 271 600 304 602 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’s Director of the Great Lakes Pilotage (‘‘the Director’’) to operate a pilotage pool. The Saint Lawrence Seaway Pilotage Association provides pilotage services in District One, which includes all U.S. waters of the St. Lawrence River and Lake Ontario. The Lakes Pilotage Association provides pilotage services in District Two, which includes all U.S. waters of Lake Erie, the Detroit River, Lake St. Clair, and the St. Clair River. Finally, the Western Great Lakes Pilotage Association provides pilotage services in District Three, which includes all U.S. waters of the St. Mary’s River; Sault Ste. Marie Locks; and Lakes Huron, Michigan, and Superior. Each pilotage district is further divided into ‘‘designated’’ and ‘‘undesignated’’ areas. Designated areas are classified as such by Presidential Proclamation 8 to be waters in which pilots must, at all times, be fully engaged in the navigation of vessels in their charge. Undesignated areas, on the other hand, are open bodies of water, and thus are not subject to the same pilotage requirements. While working in those undesignated areas, pilots must ‘‘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.’’ 9 For pilotage purposes, rates in designated areas are significantly higher than those in undesignated areas for these reasons. 8 Presidential Proclamation 3385, Designation of restricted waters under the Great Lakes Pilotage Act of 1960, December 22, 1960. 9 46 U.S.C. 9302(a)(1)(B). E:\FR\FM\17OCP1.SGM 17OCP1 Federal Register / Vol. 83, No. 201 / Wednesday, October 17, 2018 / Proposed Rules 52357 TABLE 2—AREAS OF THE GREAT LAKES AND SAINT LAWRENCE SEAWAY Area name 11 Pilotage association Designation One ........... Saint Lawrence Seaway Pilotage Association. Lake Pilotage Association ............... Designated ....................................... Undesignated ................................... Designated ....................................... 1 2 5 Western Great Lakes Pilotage Association. Undesignated ................................... Designated ....................................... Undesignated ................................... Undesignated ................................... 4 7 6 8 Two ........... Three ........ daltland on DSKBBV9HB2PROD with PROPOSALS Area No.10 District Each pilot association is an independent business and is the sole provider of pilotage services in the district in which it operates. Each pilot association is responsible for funding its own operating expenses, maintaining infrastructure, acquiring and implementing technological advances, training personnel/partners and pilot compensation. We developed a 10-step ratemaking methodology to derive a pilotage rate that covers these expenses based on the estimated amount of traffic. In short, the methodology is designed to measure how much revenue each pilotage association will need to cover expenses and provide competitive compensation to working pilots. The Coast Guard then divides that amount by the historical average traffic transiting through the district. We recognize that in years where traffic is above average, pilot associations will take in more revenue than projected, while in years where traffic is below average, they will take in less. We believe that over the long term, however, this system ensures that infrastructure will be maintained and that pilots will receive adequate compensation and work a reasonable number of hours with adequate rest between assignments to ensure retention of highly-trained personnel. Over the past 3 years, the Coast Guard has made adjustments to the Great Lakes pilotage ratemaking methodology. In 2016, we made significant changes to the methodology, moving to an hourly billing rate for pilotage services and changing the compensation benchmark to a more transparent model. In 2017, we added additional steps to the ratemaking methodology, including new steps that accurately account for the additional revenue produced by the application of weighting factors (discussed in detail in Steps 7 through 9 of this preamble). In 2018, we revised 10 Area 3 is the Welland Canal, which is serviced exclusively by the Canadian GLPA and, accordingly, is not included in the United States pilotage rate structure. 11 The areas are listed by name in the Code of Federal Regulations, see 46 CFR 401.405. VerDate Sep<11>2014 17:34 Oct 16, 2018 Jkt 247001 the methodology by which we develop the compensation benchmark, based upon the rate of U.S. mariners, rather than Canadian registered pilots. The 2018 methodology, which was finalized in the June 5, 2018 final rule (83 FR 26162) and is the current methodology, is designed to accurately capture all of the costs and revenues associated with Great Lakes pilotage requirements and produce an hourly rate that adequately and accurately compensates pilots and covers expenses. The current methodology is summarized in the section below. Summary of Ratemaking Methodology As stated above, the ratemaking methodology, currently outlined in 46 CFR 404.101 through 404.110, consists of 10 steps that are designed to account for the revenues needed and total traffic expected in each district. The result is an hourly rate (determined separately for each of the areas administered by the Coast Guard). In Step 1, ‘‘Recognize previous operating expenses,’’ (§ 404.101) the Director reviews audited operating expenses from each of the three pilotage associations. This number forms the baseline amount that each association is budgeted. Because of the time delay between when the association submits raw numbers and the Coast Guard receives audited numbers, this number is 3 years behind the projected year of expenses. So in calculating the 2019 rates in this proposal, we are beginning with the audited expenses from fiscal year 2016. While each pilotage association operates in an entire district, the Coast Guard tries to determine costs by area. Thus, with regard to operating expenses, we allocate certain operating expenses to undesignated areas, and certain expenses to designated areas. In some cases (e.g., insurance for applicant pilots who operate in undesignated areas only), we can allocate the costs based on where they are actually accrued. In other situations (e.g., general legal expenses), expenses are distributed between designated and undesignated PO 00000 Frm 00025 Fmt 4702 Sfmt 4702 St. Lawrence River. Lake Ontario. Navigable waters from Southeast Shoal to Port Huron, MI. Lake Erie. St. Mary’s River. Lakes Huron and Michigan. Lake Superior. waters on a pro rata basis, based upon the proportion of income forecasted from the respective portions of the district. In Step 2, ‘‘Project operating expenses, adjusting for inflation or deflation,’’ (§ 404.102) the Director develops the 2018 projected operating expenses. To do this, we apply inflation adjustors for 3 years to the operating expense baseline received in Step 1. The inflation factors used are from the Bureau of Labor Statistics’ Consumer Price Index for the Midwest Region, or if not available, the Federal Open Market Committee (FOMC) median economic projections for Personal Consumption Expenditures (PCE) inflation. This step produces the total operating expenses for each area and district. In Step 3, ‘‘Estimate number of working pilots,’’ (§ 404.103) the Director calculates how many pilots are needed for each district. To do this, we employ a ‘‘staffing model,’’ described in § 401.220, paragraphs (a)(1) through (a)(3), to estimate how many pilots would be needed to handle shipping during the beginning and close of the season. This number is helpful in providing guidance to the Director of the Coast Guard Great Lakes Pilotage Office in approving an appropriate number of credentials for pilots. For the purpose of the ratemaking calculation, we determine the number of working pilots provided by the pilotage associations (see § 404.103) which is what we use to determine how many pilots need to be compensated via the pilotage fees collected. In Step 4, ‘‘Determine target pilot compensation benchmark,’’ (§ 404.104) the Director determines the revenue needed for pilot compensation in each area and district. This step contains two processes. In the first process, we calculate the total compensation for each pilot using a ‘‘compensation benchmark.’’ Next, we multiply the individual pilot compensation by the number of working pilots for each area and district (from Step 3), producing a figure for total pilot compensation. E:\FR\FM\17OCP1.SGM 17OCP1 daltland on DSKBBV9HB2PROD with PROPOSALS 52358 Federal Register / Vol. 83, No. 201 / Wednesday, October 17, 2018 / Proposed Rules Because pilots are paid by the associations, but the costs of pilotage is divided up by area for accounting purposes, we assign a certain number of pilots for the designated areas and a certain number of pilots for the undesignated areas for purposes of determining the revenues needed for each area. To make the determination of how many pilots to assign, we use the staffing model designed to determine the total number of pilots, described in Step 3, above. In the second process of Step 4, set forth in § 404.104(c), the Director determines the total compensation figure for each District. To do this, the Director multiplies the compensation benchmark by the number of working pilots for each area and district (from Step 3), producing a figure for total pilot compensation. In Step 5, ‘‘Project working capital fund,’’ (§ 404.105) the Director calculates a value that is added to pay for needed capital improvements. This value is calculated by adding the total operating expenses (derived in Step 2) and the total pilot compensation (derived in Step 4), and multiply that figure by the preceding year’s average annual rate of return for new issues of high-grade corporate securities. This figure constitutes the ‘‘working capital fund’’ for each area and district. In Step 6, ‘‘Project needed revenue,’’ (§ 404.106) the Director simply adds up the totals produced by the preceding steps. For each area and district, we add the projected operating expense (from Step 2), the total pilot compensation (from Step 4), and the working capital fund contribution (from Step 5). The total figure, calculated separately for each area and district, is the ‘‘revenue needed.’’ In Step 7, ‘‘Calculate initial base rates,’’ (§ 404.107) the Director calculates an hourly pilotage rate to cover the revenue needed calculated in Step 6. This step consists of first calculating the 10-year traffic average for each area. Next, we divide the revenue needed in each area (calculated in Step 6) by the 10-year traffic average to produce an initial base rate. An additional element, the ‘‘weighting factor,’’ is required under § 401.400. Pursuant to that section, ships pay a multiple of the ‘‘base rate’’ as calculated in Step 7 by a number ranging from 1.0 (for the smallest ships, or ‘‘Class I’’ vessels) to 1.45 (for the largest ships, or ‘‘Class IV’’ vessels). As this significantly increases the revenue collected, we need to account for the added revenue produced by the weighting factors to ensure that shippers are not overpaying for pilotage services. VerDate Sep<11>2014 17:34 Oct 16, 2018 Jkt 247001 In Step 8, ‘‘Calculate average weighting factors by area,’’ (§ 404.108) the Director calculates how much extra revenue, as a percentage of total revenue, has historically been produced by the weighting factors in each area. We do this by using a historical average of applied weighting factors for each year since 2014 (the first year the current weighting factors were applied). In Step 9, ‘‘Calculate revised base rates,’’ (§ 404.109) the Director calculates how much extra revenue, as a percentage of total revenue, has historically been produced by the weighting factors in each area. We do this by using a historical average of applied weighting factors for each year since 2014 (the first year the current weighting factors were applied). In Step 10, ‘‘Review and finalize rates,’’ (§ 404.110) often referred to informally as ‘‘director’s discretion,’’ the Director reviews the revised base rates (from Step 9) to ensure that they meet the goals set forth in the Act and 46 CFR 404.1(a), which include promoting efficient, safe, and reliable pilotage service on the Great Lakes; generating sufficient revenue for each pilotage association to reimburse necessary and reasonable operating expenses; compensating pilots fairly, who are trained and rested; and providing appropriate profit for improvements. Because it is our goal to be as transparent as possible in our ratemaking procedure, we use this step sparingly to adjust rates. Finally, after the base rates are set, § 401.401 permits the Coast Guard to apply surcharges. Currently, we use surcharges to pay for the training of new pilots, rather than incorporating training costs into the overall ‘‘revenue needed’’ that is used in the calculation of the base rates. In recent years, we have allocated $150,000 per applicant pilot to be collected via surcharges. This amount is calculated as a percentage of total revenue for each district, and that percentage is applied to each bill. When the total amount of the surcharge has been collected, the pilot associations are prohibited from collecting further surcharges. Thus, in years where traffic is heavier than expected, shippers early in the season could pay more than shippers employing pilots later in the season, after the surcharge cap has been met. VI. Discussion of Proposed Methodological and Other Changes For 2019, the Coast Guard is not proposing any new methodological changes to the ratemaking model. We believe that the revised methodology laid out in the 2018 Annual Review will PO 00000 Frm 00026 Fmt 4702 Sfmt 4702 produce rates for the 2019 shipping season that will ensure safe and reliable pilotage services are available on the Great Lakes. In previous years, several commenters have raised issues regarding the working capital fund. While the Coast Guard is not proposing specific changes in this NPRM (for example, in the text of part 401), we note that we are working with stakeholders to develop the necessary policy framework. These include measures relating to financial segregation of working capital fund, proper disbursement, and accounting, to ensure these monies are appropriately accounted for and utilized. This issue was an agenda item for the September 2018 Great Lakes Pilotage Advisory Committee Meeting. We also invite interested parties to provide their input and recommendations on the issue. We seek to ensure that the working capital fund is an appropriate vehicle to pay for needed capital expenses. We are also proposing to correct a typographical error in the regulatory text of section 104. Currently, § 404.104(c) contains a reference to § 404.103(d), which before the publication of the 2018 final rule (83 FR 26162), contained the calculation for the estimated number of pilots. The 2018 final rule amended section 103 so that the calculation is now located in § 404.103, not 404.103(d), and so we propose to correct the reference in section 104 to point to the correct section. VII. Discussion of Proposed Rate Adjustments In this NPRM, based on the current methodology described in the previous section, we are proposing new pilotage rates for 2019. This section discusses the proposed rate changes using the ratemaking steps provided in 46 CFR part 404. We will detail each step of the ratemaking procedure to show how we arrived at the proposed new rates. We propose to conduct the 2019 ratemaking as an ‘‘interim year,’’ rather than a full ratemaking, such as was conducted in 2018. Thus, for this purpose, the Coast Guard proposes to adjust the compensation benchmark pursuant to § 404.104(b) rather than § 404.104(a). A. Step 1: Recognition of Operating Expenses Step 1 in our ratemaking methodology requires that the Coast Guard review and recognize the previous year’s operating expenses (§ 404.101). To do so, we begin by reviewing the independent accountant’s financial reports for each association’s 2016 E:\FR\FM\17OCP1.SGM 17OCP1 Federal Register / Vol. 83, No. 201 / Wednesday, October 17, 2018 / Proposed Rules expenses and revenues.12 For accounting purposes, the financial reports divide expenses into designated and undesignated areas. In certain instances, for example, costs are applied to the undesignated or designated area based on where they were actually accrued. For example, costs for ‘‘Applicant pilot license insurance’’ in District One are assigned entirely to the undesignated areas, as applicant pilots work exclusively in those areas. For costs that accrued to the pilot associations generally, for example, insurance, the cost is divided between the designated and undesignated areas on a pro rata basis. The recognized operating expenses for the three districts are laid out in tables 3 through 5. As noted above, in 2016, the Coast Guard began authorizing surcharges to cover the training costs of applicant pilots. The surcharges were intended to reimburse pilot associations for training applicants in a more timely fashion than if those costs were listed as operating expenses, which would have required three years to reimburse. The rationale for using surcharges to cover these expenses, rather than including the costs as operating expenses, was so that retiring pilots would not have to cover the costs of training their replacements. Because operating expenses incurred are not actually recouped for a period of three years, beginning in 2016, the Coast Guard added a $150,000 surcharge per applicant pilot to recoup those costs in the year incurred. To ensure that the ratepayers are not double-billed for the same expense(s), we need to deduct the amount collected via surcharges from the operating expenses. For that reason, the Coast Guard is proposing a ‘‘surcharge adjustment from 2016’’ as part of its proposed adjustment for each pilotage district. This surcharge adjustment reflects the additional monies that were collected by the surcharge collected that year. We note that in 2016, there was no mechanism to prevent the collection of surcharges 52359 above the authorized amounts, and so the amounts we propose to deduct from each association’s operating expenses are equal to the actual amount of surcharges collected in the 2016 shipping season, which are in excess of $150,000 per applicant pilot. We also propose to deduct 3 percent of the ‘‘shared counsel’’ expenses for each district, to account for lobbying expenditures. Pursuant to 33 CFR 404.2(c)(3), lobbying expenses are not permitted to be recouped as operating expenses. For each of the analyses of the operating expenses below, we explain why we are proposing to make the Director’s adjustments, other than the surcharge adjustments and lobbying expenses, described above. Other adjustments have been made by the auditors and are explained in the auditor’s reports, which are available in the docket for this rulemaking. Numbers by the entries are references to descriptions in the auditor’s reports. TABLE 3—2016 RECOGNIZED EXPENSES FOR DISTRICT ONE District One daltland on DSKBBV9HB2PROD with PROPOSALS Reported expenses for 2016 Designated Undesignated St. Lawrence River Lake Ontario Total Costs relating to pilots: Pilot subsistence/travel ......................................................................................................... Subsistence/Travel—Pilots (D1–16–01) ............................................................................... License insurance ................................................................................................................. Payroll taxes ......................................................................................................................... Payroll taxes—Pilots (D1–16–03) ........................................................................................ Training ................................................................................................................................. Training—Pilots (D1–16–04) ................................................................................................ Other ..................................................................................................................................... $421,749 ¥70,224 40,464 111,279 0 17,198 ¥594 842 $336,384 ¥34,846 28,269 90,179 ¥2,509 13,717 0 672 $758,133 ¥105,070 68,733 201,458 ¥2,509 30,915 ¥594 1,514 Total costs relating to pilots .......................................................................................... 520,714 431,866 952,580 Applicant Pilots: Wages ................................................................................................................................... Wages (D1–16–02) .............................................................................................................. Subsistence/Travel ............................................................................................................... Subsistence/Travel—Trainees (D1–16–02) ......................................................................... Benefits ................................................................................................................................. Payroll taxes ......................................................................................................................... Payroll taxes—Trainees (D1–16–03) ................................................................................... Surcharge Offset—Director’s Adjustment ............................................................................ 70,700 0 0 ¥12,283 0 8,039 0 ¥318,117 90,000 28,054 146,219 ¥20,589 0 11,123 ¥5,115 ¥253,649 160,700 28,054 146,219 ¥32,872 0 19,162 ¥5,115 ¥571,766 Total applicant pilot costs .............................................................................................. ¥251,661 ¥3,957 ¥255,618 Pilot Boat and Dispatch Costs: Pilot boat expense ................................................................................................................ Dispatch expense ................................................................................................................. Payroll taxes ......................................................................................................................... 209,800 51,240 16,007 167,335 31,705 12,767 377,135 82,945 28,774 Total pilot and dispatch costs ....................................................................................... 277,047 211,807 488,854 Administrative Expenses: Legal—general counsel ........................................................................................................ Legal—shared (K&L Gates) (D1–16–05) ............................................................................. Legal—shared (K&L Gates) (D1–16–05) ............................................................................. 4,565 20,558 ¥713 3,641 16,397 ¥713 8,206 36,955 ¥1,426 12 These reports are available in the docket for this rulemaking (see Docket # USCG–2018–0665). VerDate Sep<11>2014 17:34 Oct 16, 2018 Jkt 247001 PO 00000 Frm 00027 Fmt 4702 Sfmt 4702 E:\FR\FM\17OCP1.SGM 17OCP1 52360 Federal Register / Vol. 83, No. 201 / Wednesday, October 17, 2018 / Proposed Rules TABLE 3—2016 RECOGNIZED EXPENSES FOR DISTRICT ONE—Continued District One Reported expenses for 2016 Designated Undesignated St. Lawrence River Lake Ontario Total Legal—shared counsel 3% lobbying fee (K&L Gates) (Director’s Adjustment) .................. Office rent ............................................................................................................................. Insurance .............................................................................................................................. Employee benefits—Admin .................................................................................................. Payroll taxes—Admin ........................................................................................................... Other taxes ........................................................................................................................... Admin Travel ........................................................................................................................ Depreciation/Auto leasing/Other ........................................................................................... Interest .................................................................................................................................. Dues and Subscriptions (incl. APA) (D1–16–05) ................................................................. Dues and Subscriptions (incl. APA) (D1–16–05) ................................................................. Utilities .................................................................................................................................. Salaries—Admin ................................................................................................................... Accounting/Professional fees ............................................................................................... Other ..................................................................................................................................... ¥617 0 21,869 9,428 6,503 274,503 2,346 65,971 20,688 29,687 ¥1,079 12,318 65,401 5,479 23,456 ¥492 0 17,443 7,519 5,187 218,941 1,871 52,618 16,501 13,959 ¥1,079 9,578 52,163 3,921 18,708 ¥1,109 0 39,312 16,947 11,690 493,444 4,217 118,589 37,189 43,646 ¥2,158 21,896 117,564 9,400 42,164 Total Administrative Expenses ...................................................................................... 560,363 436,163 996,526 Total Operating Expenses ..................................................................................... 1,106,463 1,075,879 2,182,342 In District One, we do not propose any additional Director’s adjustments. TABLE 4—2016 RECOGNIZED EXPENSES FOR DISTRICT TWO District Two daltland on DSKBBV9HB2PROD with PROPOSALS Reported expenses for 2016 Undesignated Designated Lake Erie SES to Port Huron Total Pilot-related expenses: Pilot subsistence/travel ......................................................................................................... Pilot subsistence/travel CPA Adjustment (D2–16–01) ......................................................... License insurance ................................................................................................................. License Insurance CPA Adjustment (D2–16–03) ................................................................ Payroll taxes ......................................................................................................................... $131,956 ¥44,955 10,095 ¥635 77,306 $197,935 ¥67,433 15,142 ¥953 115,958 $329,891 ¥112,388 25,237 ¥1,588 193,264 Total Pilot-related expenses .......................................................................................... 173,767 260,649 434,416 Expenses related to applicant pilots: Wages (from supplemental form) ......................................................................................... Wages—Director’s Adjustment ............................................................................................. Benefits (from supplemental form) ....................................................................................... Applicant pilot Subsistence/Travel ....................................................................................... Applicant Pilot subsistence/travel CPA Adjustment (D2–16–02) ......................................... Housing Allowance CPA Adjustment (D2–16–02) ............................................................... Payroll taxes ......................................................................................................................... 2016 Surcharge Offset Director’s Adjustment ...................................................................... 228,499 ¥125,472 9,736 43,905 ¥14,940 14,940 15,144 ¥158,640 342,749 ¥188,209 14,605 65,858 ¥22,410 22,410 22,717 ¥277,106 571,248 ¥313,681 24,341 109,763 ¥37,350 37,350 37,861 ¥435,746 Total applicant pilot expenses ....................................................................................... 13,172 ¥19,386 ¥6,214 Pilot Boat and Dispatch Costs: Pilot boat expense ................................................................................................................ Dispatch expense ................................................................................................................. Employee benefits ................................................................................................................ Payroll taxes ......................................................................................................................... 205,572 8,520 75,405 10,305 308,359 12,780 113,107 15,457 513,931 21,300 188,512 25,762 Total pilot and dispatch costs ............................................................................................... 299,802 449,703 749,505 Administrative Expenses: Office rent ............................................................................................................................. Office Rent CPA Adjustment (D2–16–08) ............................................................................ Legal—general counsel ........................................................................................................ Legal—shared counsel (K&L Gates) .................................................................................... Legal—shared counsel CPA Adjustment (D2–16–04) ......................................................... 26,275 4,766 1,624 13,150 ¥526 39,413 7,150 2,437 19,725 ¥789 65,688 11,916 4,061 32,875 ¥1,315 VerDate Sep<11>2014 17:34 Oct 16, 2018 Jkt 247001 PO 00000 Frm 00028 Fmt 4702 Sfmt 4702 E:\FR\FM\17OCP1.SGM 17OCP1 Federal Register / Vol. 83, No. 201 / Wednesday, October 17, 2018 / Proposed Rules 52361 TABLE 4—2016 RECOGNIZED EXPENSES FOR DISTRICT TWO—Continued District Two Reported expenses for 2016 Undesignated Designated Lake Erie SES to Port Huron Total Legal—shared counsel 3% lobbying fee (K&L Gates) (Director’s Adjustment) .................. Employee Benefits—Admin Employees ............................................................................... Employee benefits (Director’s Adjustment) .......................................................................... Workman’s compensation—pilots ........................................................................................ Payroll taxes—admin employees ......................................................................................... Insurance .............................................................................................................................. Other taxes ........................................................................................................................... Administrative Travel ............................................................................................................ Administrative Travel (D2–16–06) ........................................................................................ Depreciation/auto leasing/other ............................................................................................ Depreciation/Auto leasing/Other CPA Adjustment (D2–16–03) ........................................... Interest .................................................................................................................................. APA Dues ............................................................................................................................. APA Dues CPA Adjustment (D2–16–04) ............................................................................. Utilities .................................................................................................................................. Salaries ................................................................................................................................. Accounting/Professional fees ............................................................................................... Other ..................................................................................................................................... Other CPA Adjustment (D2–16–07) ..................................................................................... ¥395 59,907 ¥30,200 74,561 5,688 10,352 9,149 18,205 ¥153 39,493 ¥221 6,224 17,145 ¥815 16,748 55,426 12,520 128,093 ¥221 ¥592 89,861 ¥60,400 111,841 8,532 15,529 13,723 27,307 ¥229 59,239 ¥332 9,336 25,717 ¥1,223 25,121 83,139 18,780 192,139 ¥332 ¥987 149,768 ¥90,600 186,402 14,220 25,881 22,872 45,512 ¥382 98,732 ¥553 15,560 42,862 ¥2,038 41,869 138,565 31,300 320,232 ¥553 Total Administrative Expenses ...................................................................................... 435,975 638,861 1,074,836 Total Operating Expenses ..................................................................................... 922,716 1,329,827 2,252,543 In District Two, we propose two additional Director’s adjustments. First, we note that we initially received inaccurate information from District Two regarding applicant pilot wages.13 In response to our inquiries, District Two provided updated information about wages and benefits paid to applicant pilots and asserted that wages for two applicant pilots were $571,248 combined. Because this number is far out of line from wages paid to applicant pilots in other districts, as well as the Coast Guard’s estimate of approximately $150,000 per pilot to pay for wages, benefits, and training, the Director proposes only allowing a portion of these expenses to be recouped as reasonable operating expenses. Therefore, we propose an adjustment of ¥$313,681 to the allowed recoupable operating expenses for District Two. This results in a total wage of $257,567, or approximately $128,783 per applicant, which is equal to the wages for applicant pilots in District Three. Given that the Coast Guard estimated the total cost for each applicant pilot to be $150,000, we believe this is a reasonable adjustment and the Director will allow the full amount. We also deducted a total of $90,600 from the employee benefits costs of District Two. This is based on a note from the auditor that this money had been used for ‘‘health insurance expenses . . . paid to retired pilots who performed pilotage services for the District in 2016.’’ 14 While pilot associations are free to hire additional pilots to assist with workloads, money paid to them comes from the general monies used to pay pilot compensation. Unlike payroll taxes, we consider health benefits to be ‘‘compensation,’’ and compensation paid to pilots cannot be recouped as operating expenses, as health care expenses were part of the calculations of the compensation benchmark rate set forth in the 2018 final rule. TABLE 5—2016 RECOGNIZED EXPENSES FOR DISTRICT THREE District Three daltland on DSKBBV9HB2PROD with PROPOSALS Reported expenses for 2016 Pilotage Costs: Pilot subsistence/travel ......................................................................................................... Pilot subsistence/Travel (D3–16–01) ................................................................................... Pilot subsistence/Travel director’s adjustment (housing allowance) .................................... License insurance ................................................................................................................. Payroll taxes ......................................................................................................................... Other ..................................................................................................................................... 13 District Two initially reported paying $1,772,213 in compensation to 5 applicant pilots, VerDate Sep<11>2014 17:34 Oct 16, 2018 Jkt 247001 although they were authorized only two applicants in 2016. See docket # USCG–2018–0665–0003, p. 8. PO 00000 Frm 00029 Fmt 4702 Sfmt 4702 Undesignated Designated Lakes Huron and Michigan and Lake Superior St. Mary’s River $378,014 ¥50,285 0 21,446 194,159 19,193 14 Docket E:\FR\FM\17OCP1.SGM $100,485 ¥13,367 ¥36,900 5,701 51,612 72,202 Total $478,499 ¥63,652 ¥36,900 27,147 245,771 91,395 # USCG–2018–0665–0003, p. 8. 17OCP1 52362 Federal Register / Vol. 83, No. 201 / Wednesday, October 17, 2018 / Proposed Rules TABLE 5—2016 RECOGNIZED EXPENSES FOR DISTRICT THREE—Continued District Three Reported expenses for 2016 Designated Lakes Huron and Michigan and Lake Superior St. Mary’s River Total Total Pilotage Costs ...................................................................................................... 562,527 179,733 742,260 Applicant Pilots: Wages ................................................................................................................................... Benefits ................................................................................................................................. Subsistence/travel ................................................................................................................ Payroll taxes ......................................................................................................................... Training ................................................................................................................................. Surcharge Adjustment .......................................................................................................... 610,433 100,234 170,089 50,561 11,642 ¥1,106,339 162,267 26,644 45,214 13,440 3,095 ¥235,673 772,700 126,878 215,303 64,001 14,737 ¥1,342,012 Total applicant pilotage costs ........................................................................................ ¥163,380 14,987 ¥148,393 Pilot Boat and Dispatch Costs: Pilot boat costs ..................................................................................................................... Pilot boat costs (D3–16–02) ................................................................................................. Dispatch costs ...................................................................................................................... Employee benefits ................................................................................................................ Payroll taxes ......................................................................................................................... 580,822 ¥72,724 146,220 6,517 15,745 154,396 ¥19,332 38,868 1,733 4,186 735,218 ¥92,056 185,088 8,250 19,931 Total pilot boat and dispatch costs ............................................................................... 676,580 179,851 856,431 Administrative Expenses: Legal—general counsel ........................................................................................................ Legal—shared counsel (K&L Gates) .................................................................................... Legal—shared counsel 3% (Director’s Adjustment) ............................................................ Office rent ............................................................................................................................. Insurance .............................................................................................................................. Employee benefits ................................................................................................................ Payroll Taxes (administrative employees) ........................................................................... Other taxes ........................................................................................................................... Depreciation/auto leasing/other ............................................................................................ Interest .................................................................................................................................. APA Dues ............................................................................................................................. Utilities .................................................................................................................................. Administrative Salaries ......................................................................................................... Accounting/Professional fees ............................................................................................... Pilot Training ......................................................................................................................... Other ..................................................................................................................................... Other expenses (D3–16–03) ................................................................................................ 22,196 34,020 ¥1,021 6,978 14,562 103,322 6,540 1,338 46,016 2,775 24,760 38,763 94,371 31,877 35,516 13,619 ¥2,054 5,900 9,043 ¥271 1,855 3,871 27,465 1,739 356 12,232 738 6,582 10,304 25,086 8,474 9,441 3,621 ¥546 28,096 43,063 ¥1,292 8,833 18,433 130,787 8,279 1,694 58,248 3,513 31,342 49,067 119,457 40,351 44,957 17,240 ¥2,600 Total Administrative Expenses ...................................................................................... 473,578 125,890 599,468 Total Operating Expenses ..................................................................................... 1,549,305 500,461 2,049,766 For District Three, the Director proposes to disallow $36,900 in ‘‘housing allowance’’ expenditures. At this time, we do not know if these funds were for properties that were available to all of the association partners/ daltland on DSKBBV9HB2PROD with PROPOSALS Undesignated VerDate Sep<11>2014 17:34 Oct 16, 2018 Jkt 247001 members (and thus recoverable as operating expenses) or if these funds were used for properties that were exclusively used by a single member and his family (and therefore not recoverable as operating expenses). We PO 00000 Frm 00030 Fmt 4702 Sfmt 4702 invite the pilot association to provide the receipts that could help to determine if these are recoverable operating expenses. E:\FR\FM\17OCP1.SGM 17OCP1 Federal Register / Vol. 83, No. 201 / Wednesday, October 17, 2018 / Proposed Rules B. Step 2: Projection of Operating Expenses Having identified the recognized 2016 operating expenses in Step 1, the next step is to estimate the current year’s operating expenses by adjusting those expenses for inflation over the 3-year period. We calculated inflation using the Bureau of Labor Statistics’ data from 52363 the Consumer Price Index for the Midwest Region of the United States 15 and reports from the Federal Reserve.16 Based on that information, the calculations for Step 1 are as follows: TABLE 6—2016 ADJUSTED OPERATING EXPENSES FOR DISTRICT ONE Designated Total 2017 2018 2019 Undesignated Total Operating Expenses (Step 1) ............................................................................................. Inflation Modification (@1.7%) ........................................................................................... Inflation Modification (@2.1%) ........................................................................................... Inflation Modification (@2.1%) ........................................................................................... $1,106,463 18,810 23,631 24,127 $1,075,879 18,290 22,978 23,460 $2,182,342 37,100 46,609 47,587 Adjusted 2019 Operating Expenses ..................................................................................... 1,173,031 1,140,607 2,313,638 TABLE 7—ADJUSTED OPERATING EXPENSES FOR DISTRICT TWO Undesignated Total 2017 2018 2019 Designated Total Operating Expenses (Step 1) ............................................................................................. Inflation Modification (@1.7%) ........................................................................................... Inflation Modification (@2.1%) ........................................................................................... Inflation Modification (@2.1%) ........................................................................................... $922,716 15,686 19,706 20,120 $1,329,827 22,607 28,401 28,998 $2,252,543 38,293 48,107 49,118 Adjusted 2019 Operating Expenses ..................................................................................... 978,228 1,409,833 2,388,061 TABLE 8—ADJUSTED OPERATING EXPENSES FOR DISTRICT THREE Undesignated Total 2017 2018 2019 Designated Total Operating Expenses (Step 1) ............................................................................................. Inflation Modification (@1.7%) ........................................................................................... Inflation Modification (@2.1%) ........................................................................................... Inflation Modification (@2.1%) ........................................................................................... $1,549,305 26,338 33,089 33,783 $500,461 8,508 10,688 10,913 $2,049,766 34,846 43,777 44,696 Adjusted 2019 Operating Expenses ..................................................................................... 1,642,515 530,570 2,173,085 C. Step 3: Estimate Number of Working Pilots In accordance with the text in § 404.103, we estimated the number of working pilots in each district. Based on input from the Saint Lawrence Seaway Pilots Association, we estimate that there will be 17 working pilots in 2019 in District One. Based on input from the Lakes Pilots Association, we estimate there will be 14 working pilots in 2019 in District Two. Based on input from the Western Great Lakes Pilots Association, we estimate there will be 20 working pilots in 2019 in District Three. Furthermore, based on the staffing model employed to develop the total number of pilots needed, we assign a certain number of pilots to designated waters and a certain number to undesignated waters. These numbers are used to determine the amount of revenue needed in their respective areas. TABLE 9—AUTHORIZED PILOTS District One Maximum number of pilots (per § 401.220(a)) 17 ........................................................................ 2019 Authorized pilots (total) ....................................................................................................... Pilots assigned to designated areas ........................................................................................... Pilots assigned to undesignated areas ....................................................................................... daltland on DSKBBV9HB2PROD with PROPOSALS D. Step 4: Determine Target Pilot Compensation In this step, we determine the total pilot compensation for each area. Because we are proposing an ‘‘interim’’ 15 Available at https://www.bls.gov/regions/ midwest/data/consumerpriceindexhistorical_ midwest_table.pdf. VerDate Sep<11>2014 17:34 Oct 16, 2018 Jkt 247001 17 17 10 7 District Two District Three 15 14 7 7 22 20 4 16 ratemaking this year, we propose to follow the procedure outlined in paragraph (b) of § 404.104, which adjusts the existing compensation benchmark by inflation. Because we do not have a value for the employment cost index for 2019, we multiply last year’s compensation benchmark by the Median PCE Inflation of 2.1 percent.18 Based on the projected 2019 inflation estimate, the proposed compensation 16 https://www.federalreserve.gov/ monetarypolicy/files/fomcprojtabl20180613.pdf. 17 For a detailed calculation of the staffing model, see 82 FR 41466, table 6 at 41480 (August 31, 2017). 18 https://www.federalreserve.gov/ monetarypolicy/files/fomcprojtabl20180613.pdf. PO 00000 Frm 00031 Fmt 4702 Sfmt 4702 E:\FR\FM\17OCP1.SGM 17OCP1 52364 Federal Register / Vol. 83, No. 201 / Wednesday, October 17, 2018 / Proposed Rules benchmark for 2019 is $359,887 per pilot. Next, we certify that the number of pilots estimated for 2019 is less than or equal to the number permitted under the staffing model in § 401.220(a). The staffing model suggests that the number of pilots needed is 17 pilots for District One, 15 pilots for District Two, and 22 pilots for District Three,19 which is more than or equal to the numbers of working pilots provided by the pilot associations. Thus, in accordance with proposed § 404.104(c), we use the revised target individual compensation level to derive the total pilot compensation by multiplying the individual target compensation by the estimated number of working pilots for each district, as shown in tables 10–12. TABLE 10—TARGET COMPENSATION FOR DISTRICT ONE Designated Undesignated Total Target Pilot Compensation .......................................................................................................... Number of Pilots .......................................................................................................................... $359,887 10 $359,887 7 $359,887 17 Total Target Pilot Compensation .......................................................................................... 3,598,870 2,519,209 6,118,079 TABLE 11—TARGET COMPENSATION FOR DISTRICT TWO Undesignated Designated Total Target Pilot Compensation .......................................................................................................... Number of Pilots .......................................................................................................................... $359,887 7 $359,887 7 $359,887 14 Total Target Pilot Compensation .......................................................................................... 2,519,209 2,519,209 5,038,418 TABLE 12—TARGET COMPENSATION FOR DISTRICT THREE Undesignated Designated Total Target Pilot Compensation .......................................................................................................... Number of Pilots .......................................................................................................................... $359,887 16 $359,887 4 $359,887 20 Total Target Pilot Compensation .......................................................................................... 5,758,192 1,439,548 7,197,740 E. Step 5: Calculate Working Capital Fund Next, we calculate the working capital fund revenues needed for each area. First, we add the figures for projected operating expenses and total pilot compensation for each area. Next, we find the preceding year’s average annual rate of return for new issues of high grade corporate securities. Using Moody’s data, that number is 3.74 percent.20 By multiplying the two figures, we get the working capital fund contribution for each area, as shown in tables 13–15. TABLE 13—WORKING CAPITAL FUND CALCULATION FOR DISTRICT ONE Designated Undesignated Total Adjusted Operating Expenses (Step 2) ....................................................................................... Total Target Pilot Compensation (Step 4) ................................................................................... $1,173,031 3,598,870 $1,140,607 2,519,209 $2,313,638 6,118,079 Total 2019 Expenses ............................................................................................................ 4,771,901 3,659,816 8,431,717 Working Capital Fund (3.74%) .................................................................................................... 178,469 136,877 315,346 TABLE 14—WORKING CAPITAL FUND CALCULATION FOR DISTRICT TWO daltland on DSKBBV9HB2PROD with PROPOSALS Undesignated Designated Total Adjusted Operating Expenses (Step 2) ....................................................................................... Total Target Pilot Compensation (Step 4) ................................................................................... $978,228 2,519,209 $1,409,833 2,519,209 $2,388,061 5,038,418 Total 2019 Expenses ............................................................................................................ 3,497,437 3,929,042 7,426,479 Working Capital Fund (3.74%) .................................................................................................... 130,804 146,946 277,750 19 See Table 6 of the 2017 final rule, 82 FR 41466 at 41480 (August 31, 2017). The methodology of the staffing model is discussed at length in the final VerDate Sep<11>2014 17:34 Oct 16, 2018 Jkt 247001 rule (see pages 41476–41480 for a detailed analysis of the calculations). 20 Moody’s Seasoned Aaa Corporate Bond Yield, average of 2017 monthly data. The Coast Guard uses PO 00000 Frm 00032 Fmt 4702 Sfmt 4702 the most recent complete year of data. See https:// research.stlouisfed.org/fred2/series/AAA/ downloaddata?cid=119. E:\FR\FM\17OCP1.SGM 17OCP1 Federal Register / Vol. 83, No. 201 / Wednesday, October 17, 2018 / Proposed Rules 52365 TABLE 15—WORKING CAPITAL FUND CALCULATION FOR DISTRICT THREE Undesignated Designated Total Adjusted Operating Expenses (Step 2) ....................................................................................... Total Target Pilot Compensation (Step 4) ................................................................................... $1,642,515 5,758,192 $530,570 1,439,548 $2,173,085 7,197,740 Total 2019 Expenses ............................................................................................................ 7,400,707 1,970,118 9,370,825 Working Capital Fund (3.74%) .................................................................................................... 276,786 73,682 350,468 F. Step 6: Calculate Revenue Needed revenue needed for each area. These expenses include the projected operating expenses (from Step 2), the total pilot compensation (from Step 4), In this step, we add up all the expenses accrued to derive the total and the working capital fund contribution (from Step 5). The calculations are shown in tables 15–17. TABLE 15—REVENUE NEEDED FOR DISTRICT ONE Designated Undesignated Total Adjusted Operating Expenses (Step 2) ....................................................................................... Total Target Pilot Compensation (Step 4) ................................................................................... Working Capital Fund (Step 5) .................................................................................................... $1,173,031 3,598,870 178,469 $1,140,607 2,519,209 136,877 $2,313,638 6,118,079 315,346 Total Revenue Needed ........................................................................................................ 4,950,370 3,796,693 8,747,063 TABLE 16—REVENUE NEEDED FOR DISTRICT TWO Undesignated Designated Total Adjusted Operating Expenses (Step 2) ....................................................................................... Total Target Pilot Compensation (Step 4) ................................................................................... Working Capital Fund (Step 5) .................................................................................................... $978,228 2,519,209 130,804 $1,409,833 2,519,209 146,946 $2,388,061 5,038,418 277,750 Total Revenue Needed ........................................................................................................ 3,628,241 4,075,988 7,704,229 TABLE 17—REVENUE NEEDED FOR DISTRICT THREE Undesignated Designated Total Adjusted Operating Expenses (Step 2) ....................................................................................... Total Target Pilot Compensation (Step 4) ................................................................................... Working Capital Fund (Step 5) .................................................................................................... $1,642,515 5,758,192 276,786 $530,570 1,439,548 73,682 $2,173,085 7,197,740 350,468 Total Revenue Needed ........................................................................................................ 7,677,493 2,043,800 9,721,293 G. Step 7: Calculate Initial Base Rates Having determined the revenue needed for each area in the previous six steps, we divide that number by the expected number of hours of traffic to develop an hourly rate. Step 7 is a twopart process. In the first part, we calculate the 10-year average of traffic in each district. Because we are calculating separate figures for designated and undesignated waters, there are two parts for each calculation. The calculations are shown in tables 18–20. TABLE 18—TIME ON TASK FOR DISTRICT ONE daltland on DSKBBV9HB2PROD with PROPOSALS Year Designated 2017 ......................................................................................................................................................................... 2016 ......................................................................................................................................................................... 2015 ......................................................................................................................................................................... 2014 ......................................................................................................................................................................... 2013 ......................................................................................................................................................................... 2012 ......................................................................................................................................................................... 2011 ......................................................................................................................................................................... 2010 ......................................................................................................................................................................... 2009 ......................................................................................................................................................................... 2008 ......................................................................................................................................................................... Average .................................................................................................................................................................... VerDate Sep<11>2014 17:34 Oct 16, 2018 Jkt 247001 PO 00000 Frm 00033 Fmt 4702 Sfmt 4702 E:\FR\FM\17OCP1.SGM 17OCP1 7605 5434 5743 6810 5864 4771 5045 4839 3511 5829 5545 Undesignated 8679 6217 6667 6853 5529 5121 5377 5649 3947 5298 5934 52366 Federal Register / Vol. 83, No. 201 / Wednesday, October 17, 2018 / Proposed Rules TABLE 19—TIME ON TASK FOR DISTRICT TWO Year Undesignated 2017 ......................................................................................................................................................................... 2016 ......................................................................................................................................................................... 2015 ......................................................................................................................................................................... 2014 ......................................................................................................................................................................... 2013 ......................................................................................................................................................................... 2012 ......................................................................................................................................................................... 2011 ......................................................................................................................................................................... 2010 ......................................................................................................................................................................... 2009 ......................................................................................................................................................................... 2008 ......................................................................................................................................................................... Average .................................................................................................................................................................... 5139 6425 6535 7856 4603 3848 3708 5565 3386 4844 5191 Designated 6074 5615 5967 7001 4750 3922 3680 5235 3017 3956 4922 TABLE 20—TIME ON TASK FOR DISTRICT THREE Year Undesignated 2017 ......................................................................................................................................................................... 2016 ......................................................................................................................................................................... 2015 ......................................................................................................................................................................... 2014 ......................................................................................................................................................................... 2013 ......................................................................................................................................................................... 2012 ......................................................................................................................................................................... 2011 ......................................................................................................................................................................... 2010 ......................................................................................................................................................................... 2009 ......................................................................................................................................................................... 2008 ......................................................................................................................................................................... Average .................................................................................................................................................................... Next, we derive the initial hourly rate by dividing the revenue needed by the average number of hours for each area. This produces an initial rate needed to produce the revenue needed for each area, assuming the amount of traffic is 26183 23421 22824 25833 17115 15906 16012 20211 12520 14287 19431 Designated 3798 2769 2696 3835 2631 2163 1678 2461 1820 2286 2614 as expected. The calculations for each area are set forth in tables 21–23. TABLE 21—INITIAL RATE CALCULATIONS FOR DISTRICT ONE Designated Revenue needed (Step 6) ........................................................................................................................... Average time on task (hours) ...................................................................................................................... Initial rate ..................................................................................................................................................... $4,950,370 5,545 893 Undesignated $3,796,693 5,934 640 TABLE 22—INITIAL RATE CALCULATIONS FOR DISTRICT TWO Undesignated Revenue needed (Step 6) ........................................................................................................................... Average time on task (hours) ...................................................................................................................... Initial rate ..................................................................................................................................................... $3,628,241 5,191 699 Designated $4,075,988 4,922 828 TABLE 23—INITIAL RATE CALCULATIONS FOR DISTRICT THREE Undesignated daltland on DSKBBV9HB2PROD with PROPOSALS Revenue needed (Step 6) ........................................................................................................................... Average time on task (hours) ...................................................................................................................... Initial rate ..................................................................................................................................................... H. Step 8: Calculate Weighting Factors by Area In this step, we calculate the average weighting factor for each designated and VerDate Sep<11>2014 17:34 Oct 16, 2018 Jkt 247001 undesignated area. We collect the weighting factors, set forth in 46 CFR 401.400, for each vessel trip. Using this database, we calculate the average PO 00000 Frm 00034 Fmt 4702 Sfmt 4702 $7,677,493 19,431 395 Designated $2,043,800 2,614 782 weighting factor for each area using the data from each vessel transit from 2014 onward, as shown in tables 24–29. E:\FR\FM\17OCP1.SGM 17OCP1 Federal Register / Vol. 83, No. 201 / Wednesday, October 17, 2018 / Proposed Rules 52367 TABLE 24—AVERAGE WEIGHTING FACTOR FOR DISTRICT 1, DESIGNATED AREAS Number of transits Vessel class/year Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class 1 1 1 1 2 2 2 2 3 3 3 3 4 4 4 4 (2014) (2015) (2016) (2017) (2014) (2015) (2016) (2017) (2014) (2015) (2016) (2017) (2014) (2015) (2016) (2017) Weighting factor Weighted transits ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. 31 41 31 28 285 295 185 352 50 28 50 67 271 251 214 285 1 1 1 1 1.15 1.15 1.15 1.15 1.3 1.3 1.3 1.3 1.45 1.45 1.45 1.45 31 41 31 28 327.75 339.25 212.75 404.8 65 36.4 65 87.1 392.95 363.95 310.3 413.25 Total ...................................................................................................................................... 2464 ........................ 3149.5 Average weighting factor (weighted transits/number of transits) ................................................ ........................ 1.28 ........................ TABLE 25—AVERAGE WEIGHTING FACTOR FOR DISTRICT 1, UNDESIGNATED AREAS Number of transits Vessel class/year Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class 1 1 1 1 2 2 2 2 3 3 3 3 4 4 4 4 (2014) (2015) (2016) (2017) (2014) (2015) (2016) (2017) (2014) (2015) (2016) (2017) (2014) (2015) (2016) (2017) Weighting factor Weighted transits ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. 25 28 18 19 238 263 169 290 60 42 28 45 289 269 222 285 1 1 1 1 1.15 1.15 1.15 1.15 1.3 1.3 1.3 1.3 1.45 1.45 1.45 1.45 25 28 18 19 273.7 302.45 194.35 333.5 78 54.6 36.4 58.5 419.05 390.05 321.9 413.25 Total ...................................................................................................................................... 2290 ........................ 2965.75 Average weighting factor (weighted transits/number of transits) ................................................ ........................ 1.30 ........................ TABLE 26—AVERAGE WEIGHTING FACTOR FOR DISTRICT 2, UNDESIGNATED AREAS Number of transits daltland on DSKBBV9HB2PROD with PROPOSALS Vessel class/year Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class 1 1 1 1 2 2 2 2 3 3 3 3 4 4 4 4 (2014) (2015) (2016) (2017) (2014) (2015) (2016) (2017) (2014) (2015) (2016) (2017) (2014) (2015) (2016) (2017) VerDate Sep<11>2014 ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. 17:34 Oct 16, 2018 Jkt 247001 PO 00000 Frm 00035 Fmt 4702 Sfmt 4702 E:\FR\FM\17OCP1.SGM 31 35 32 21 356 354 380 222 20 0 9 12 636 560 468 319 17OCP1 Weighting factor 1 1 1 1 1.15 1.15 1.15 1.15 1.3 1.3 1.3 1.3 1.45 1.45 1.45 1.45 Weighted transits 31 35 32 21 409.4 407.1 437 255.3 26 0 11.7 15.6 922.2 812 678.6 462.55 52368 Federal Register / Vol. 83, No. 201 / Wednesday, October 17, 2018 / Proposed Rules TABLE 26—AVERAGE WEIGHTING FACTOR FOR DISTRICT 2, UNDESIGNATED AREAS—Continued Number of transits Vessel class/year Weighting factor Weighted transits Total ...................................................................................................................................... 3455 ........................ 4556.45 Average weighting factor (weighted transits/number of transits) ................................................ ........................ 1.32 ........................ TABLE 27—AVERAGE WEIGHTING FACTOR FOR DISTRICT 2, DESIGNATED AREAS Number of transits Vessel class/year Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class 1 1 1 1 2 2 2 2 3 3 3 3 4 4 4 4 (2014) (2015) (2016) (2017) (2014) (2015) (2016) (2017) (2014) (2015) (2016) (2017) (2014) (2015) (2016) (2017) Weighting factor Weighted transits ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. 20 15 28 15 237 217 224 127 8 8 4 4 359 340 281 185 1 1 1 1 1.15 1.15 1.15 1.15 1.3 1.3 1.3 1.3 1.45 1.45 1.45 1.45 20 15 28 15 272.55 249.55 257.6 146.05 10.4 10.4 5.2 5.2 520.55 493 407.45 268.25 Total ...................................................................................................................................... 2072 ........................ 2724.2 Average weighting factor (weighted transits/number of transits) ................................................ ........................ 1.31 ........................ TABLE 28—AVERAGE WEIGHTING FACTOR FOR DISTRICT 3, UNDESIGNATED AREAS Number of transits Vessel class/year daltland on DSKBBV9HB2PROD with PROPOSALS Area 6: Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class 45 56 136 148 274 207 236 264 15 8 10 19 394 375 332 367 1 1 1 1 1.15 1.15 1.15 1.15 1.3 1.3 1.3 1.3 1.45 1.45 1.45 1.45 45 56 136 148 315.1 238.05 271.4 303.6 19.5 10.4 13 24.7 571.3 543.75 481.4 532.15 Total for Area 6 ............................................................................................................. 2,886 ........................ 3,709.35 3 0 4 4 177 169 174 151 3 0 7 18 243 253 1 1 1 1 1.15 1.15 1.15 1.15 1.3 1.3 1.3 1.3 1.45 1.45 3 0 4 4 203.55 194.35 200.1 173.65 3.9 0 9.1 23.4 352.35 366.85 1 1 1 1 2 2 2 2 3 3 3 3 4 4 (2014) (2015) (2016) (2017) (2014) (2015) (2016) (2017) (2014) (2015) (2016) (2017) (2014) (2015) (2016) (2017) Weighted transits ...................................................................................................................... ...................................................................................................................... ...................................................................................................................... ...................................................................................................................... ...................................................................................................................... ...................................................................................................................... ...................................................................................................................... ...................................................................................................................... ...................................................................................................................... ...................................................................................................................... ...................................................................................................................... ...................................................................................................................... ...................................................................................................................... ...................................................................................................................... ...................................................................................................................... ...................................................................................................................... Area 8: Class Class Class Class Class Class Class Class Class Class Class Class Class Class 1 1 1 1 2 2 2 2 3 3 3 3 4 4 4 4 Weighting factor (2014) (2015) (2016) (2017) (2014) (2015) (2016) (2017) (2014) (2015) (2016) (2017) (2014) (2015) VerDate Sep<11>2014 ...................................................................................................................... ...................................................................................................................... ...................................................................................................................... ...................................................................................................................... ...................................................................................................................... ...................................................................................................................... ...................................................................................................................... ...................................................................................................................... ...................................................................................................................... ...................................................................................................................... ...................................................................................................................... ...................................................................................................................... ...................................................................................................................... ...................................................................................................................... 17:34 Oct 16, 2018 Jkt 247001 PO 00000 Frm 00036 Fmt 4702 Sfmt 4702 E:\FR\FM\17OCP1.SGM 17OCP1 Federal Register / Vol. 83, No. 201 / Wednesday, October 17, 2018 / Proposed Rules 52369 TABLE 28—AVERAGE WEIGHTING FACTOR FOR DISTRICT 3, UNDESIGNATED AREAS—Continued Number of transits Vessel class/year Weighting factor Weighted transits Class 4 (2016) ...................................................................................................................... Class 4 (2017) ...................................................................................................................... 204 269 1.45 1.45 295.8 390.05 Total for Area 8 ............................................................................................................. 1,679 ........................ 2224.1 Combined total ....................................................................................................... 4,565 ........................ 5,933.45 Average weighting factor (weighted transits/number of transits) ................................................ ........................ 1.30 ........................ TABLE 29—AVERAGE WEIGHTING FACTOR FOR DISTRICT 3, DESIGNATED AREAS Number of transits Vessel class/year Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class 1 1 1 1 2 2 2 2 3 3 3 3 4 4 4 4 (2014) (2015) (2016) (2017) (2014) (2015) (2016) (2017) (2014) (2015) (2016) (2017) (2014) (2015) (2016) (2017) Weighting factor Weighted transits ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. 27 23 55 62 221 145 174 170 4 0 6 14 321 245 191 234 1 1 1 1 1.15 1.15 1.15 1.15 1.3 1.3 1.3 1.3 1.45 1.45 1.45 1.45 27 23 55 62 254.15 166.75 200.1 195.5 5.2 0 7.8 18.2 465.45 355.25 276.95 339.3 Total ...................................................................................................................................... 1892 ........................ 2,451.65 Average weighting factor (weighted transits/number of transits) ................................................ ........................ 1.30 ........................ I. Step 9: Calculate Revised Base Rates In this step, we revise the base rates so that once the impact of the weighting factors are considered, the total cost of pilotage will be equal to the revenue needed. To do this, we divide the initial base rates, calculated in Step 7, by the average weighting factors calculated in Step 8, as shown in table 30. TABLE 30—REVISED BASE RATES Initial rate (Step 7) Area District District District District District District One: Designated .............................................................................................................. One: Undesignated .......................................................................................................... Two: Undesignated .......................................................................................................... Two: Designated .............................................................................................................. Three: Undesignated ....................................................................................................... Three: Designated ........................................................................................................... daltland on DSKBBV9HB2PROD with PROPOSALS J. Step 10: Review and Finalize Rates In this step, the Director reviews the rates set forth by the staffing model and ensures that they meet the goal of ensuring safe, efficient, and reliable pilotage. To establish that the proposed rates do meet the goal of ensuring safe, VerDate Sep<11>2014 17:34 Oct 16, 2018 Jkt 247001 efficient and reliable pilotage, the Director considered whether the proposed rates incorporate appropriate compensation for pilots to handle heavy traffic periods and whether there are sufficient pilots to handle those heavy traffic periods. Also, he considered whether the proposed rates would cover PO 00000 Frm 00037 Fmt 4702 Sfmt 4702 $893 640 699 828 395 782 Average weighting factor (Step 8) 1.28 1.30 1.32 1.31 1.30 1.30 Revised rate (initial rate/average weighting factor) $698 492 530 632 304 602 operating expenses and infrastructure costs, and took average traffic and weighting factors into consideration. Based on this information, the Director is not proposing any alterations to the rates in this step. We propose to modify the text in § 401.405(a) to reflect the final rates, also shown in table 31. E:\FR\FM\17OCP1.SGM 17OCP1 52370 Federal Register / Vol. 83, No. 201 / Wednesday, October 17, 2018 / Proposed Rules TABLE 31—PROPOSED FINAL RATES Area District District District District One: One: Two: Two: Final 2018 pilotage rate Name Designated .............................................. Undesignated .......................................... Undesignated .......................................... Designated .............................................. District Three: Undesignated ........................................ District Three: Designated ............................................ K. Surcharges Because there are several applicant pilots in 2019, we are proposing to levy surcharges to cover the costs needed for training expenses. Consistent with previous years, we are proposing to assign a cost of $150,000 per applicant pilot. To develop the surcharge, we multiply the number of applicant pilots by the average cost per pilot to develop a total amount of training costs needed, and then impose that amount as a surcharge to all areas in the respective St. Lawrence River ....................................................... Lake Ontario ................................................................. Lake Erie ...................................................................... Navigable waters from Southeast Shoal to Port Huron, MI. Lakes Huron, Michigan, and Superior .......................... St. Mary’s River ............................................................ district, consisting of a percentage of revenue needed. In this year, there are two applicant pilots for District One, one applicant pilot for District Two, and four applicant pilots for District Three. The calculations to develop the surcharges are shown in table 32. We note that while the percentages are rounded for simplicity, such rounding does not impact the revenue generated, as surcharges can no longer be collected once the surcharge total has been attained. Proposed 2019 pilotage rate $653 435 497 593 $698 492 530 632 271 600 304 602 Additionally, the Coast Guard is considering the necessity of continuing with the surcharge for applicant pilots in this or future rulemakings. As the vast majority of registered pilots are not scheduled to retire in the next 20 years, we believe that pilot associations are now able to plan for the costs associated with retirements without relying on the Coast Guard to impose surcharges. We invite comment on the necessity of continuing this practice. TABLE 32—SURCHARGE CALCULATIONS Number of applicant pilots ........................................................................................................... Total applicant training costs ....................................................................................................... Revenue needed (Step 6) ........................................................................................................... Total surcharge as percentage (total training costs/revenue) ..................................................... VIII. Regulatory Analyses We developed this proposed rule after considering numerous statutes and Executive orders related to rulemaking. A summary of our analyses based on these statutes or Executive orders follows. daltland on DSKBBV9HB2PROD with PROPOSALS 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. Executive Order 13771 (Reducing Regulation and Controlling Regulatory Costs) directs agencies to reduce regulation and control regulatory costs and provides VerDate Sep<11>2014 17:34 Oct 16, 2018 Jkt 247001 that ‘‘for every one new regulation issued, at least two prior regulations be identified for elimination, and that the cost of planned regulations be prudently managed and controlled through a budgeting process.’’ The Office of Management and Budget (OMB) has not designated this proposed rule a significant regulatory action under section 3(f) of Executive Order 12866. Accordingly, OMB has not reviewed it. Because this proposed rule is not a significant regulatory action, it is exempt from the requirements of Executive Order 13771. See the OMB’s Memorandum titled, ‘‘Guidance Implementing Executive Order 13771, titled ‘Reducing Regulation and Controlling Regulatory Costs’ ’’ (April 5, 2017). A regulatory analysis (RA) follows. The purpose of this rulemaking is to propose new base pilotage rates and surcharges for training. The last full ratemaking was concluded in June of 2018. The Coast Guard is required to review and adjust pilotage rates on the Great Lakes annually. See sections IV and V of this preamble for detailed discussions PO 00000 Frm 00038 Fmt 4702 Sfmt 4702 District one District two District three 2 $300,000 $8,747,063 3% 1 $150,000 $7,704,229 2% 4 $600,000 $9,721,293 6% of the legal basis and purpose for this rulemaking and for background information on Great Lakes pilotage ratemaking. Based on our annual review for this proposed rulemaking, we propose adjusting the pilotage rates for the 2019 shipping season to generate sufficient revenues for each district to reimburse its necessary and reasonable operating expenses, fairly compensate trained and rested pilots, and provide an appropriate working capital fund to use for improvements. The rate changes in this proposed rule would, if codified, lead to an increase in the cost per unit of service to shippers in all three districts, and result in an estimated annual cost increase to shippers. The total payments that would be made by shippers during the 2019 shipping season are estimated at approximately $2,066,143 more than the total payments that were estimated in 2018 (table 33).21 21 Total payments across all three districts are equal to the increase in payments incurred by shippers as a result of the rate changes plus the temporary surcharges applied to traffic in Districts One, Two, and Three. E:\FR\FM\17OCP1.SGM 17OCP1 Federal Register / Vol. 83, No. 201 / Wednesday, October 17, 2018 / Proposed Rules A detailed discussion of our economic impact analysis follows. Affected Population This proposed rule would impact U.S. Great Lakes pilots, the 3 pilot associations, and the owners and operators of oceangoing vessels that transit the Great Lakes annually. As discussed in step 3 in Section VII.C of this preamble, there will be 51 pilots working during the 2019 shipping season. The shippers affected by these rate changes are those owners and operators of domestic vessels operating ‘‘on register’’ (employed in foreign trade) and owners and operators of nonCanadian foreign vessels on routes within the Great Lakes system. These owners and operators must have pilots or pilotage service as required by 46 U.S.C. 9302. There is no minimum tonnage limit or exemption for these vessels. The statute applies only to commercial vessels and not to recreational vessels. United Statesflagged vessels not operating on register and Canadian ‘‘lakers,’’ which account for most commercial shipping on the Great Lakes, are not required by 46 U.S.C. 9302 to have pilots. However, these U.S.- and Canadian-flagged lakers may voluntarily choose to engage a Great Lakes registered pilot. Vessels that are U.S.-flagged may opt to have a pilot for varying reasons, such as unfamiliarity with designated waters and ports, or for insurance purposes. We used billing information from the years 2015 through 2017 from the Great Lakes Pilotage Management System (GLPMS) to estimate the average annual number of vessels affected by the rate adjustment. The GLPMS tracks data related to managing and coordinating the dispatch of pilots on the Great Lakes, and billing in accordance with the services. In Step 7 of the methodology, we use a 10-year average to estimate the traffic. We use 3 years of the most recent billing data to estimate the affected population. When we reviewed 10 years of the most recent billing data, we found the data included vessels that have not used pilotage services in recent years. We believe using 3 years of billing data is a better representation of the vessel population that is currently using pilotage services and would be impacted by this rulemaking. We found that 448 unique vessels used pilotage services during the years 2015 through 2017. That is, these vessels had a pilot dispatched to the vessel, and billing information was recorded in the GLPMS. Of these vessels, 418 were foreign-flagged vessels and 30 were U.S.-flagged. As previously stated, U.S.-flagged vessels not operating on register are not required to have a registered pilot per 46 U.S.C. 9302, but they can voluntarily choose to have one. Vessel traffic is affected by numerous factors and varies from year to year. Therefore, rather than the total number of vessels over the time period, an average of the unique vessels using pilotage services from the years 2015 through 2017 is the best representation of vessels estimated to be affected by the rate proposed in this NPRM. From the years 2015 through 2017, an average of 256 vessels used pilotage services annually.22 On average, 241 of these vessels were foreign-flagged vessels and 15 were U.S.-flagged vessels that voluntarily opted into the pilotage service. Total Cost to Shippers The rate changes resulting from this adjustment to the rates would add new costs to shippers in the form of higher payments to pilots. We estimate the effect of the rate changes on shippers by comparing the total projected revenues needed to cover costs in 2018 with the total projected revenues to cover costs in 2019, including any temporary surcharges we have authorized. We set pilotage rates so that pilot associations receive enough revenue to cover their necessary and reasonable expenses. Shippers pay these rates when they have a pilot as required by 46 U.S.C. 9302. Therefore, the aggregate payments of shippers to pilot associations are equal to the projected necessary revenues for pilot associations. The revenues each year represent the total costs that shippers must pay for pilotage 52371 services, and the change in revenue from the previous year is the additional cost to shippers discussed in this proposed rule. The impacts of the proposed rate changes on shippers are estimated from the District pilotage projected revenues (shown in tables 15 through 17 of this preamble) and the proposed surcharges described in section VII.K of this preamble. We estimate that for the 2019 shipping season, the projected revenue needed for all three districts is $26,172,585. Temporary surcharges on traffic in Districts One, Two, and Three would be applied for the duration of the 2019 season in order for the pilotage associations to recover training expenses incurred for applicant pilots. We estimate that the pilotage associations would require $300,000, $150,000, and $600,000 in revenue for applicant training expenses in Districts One, Two, and Three, respectively. This would represent a total cost of $1,050,000 to shippers during the 2019 shipping season. Adding the projected revenue of $26,172,585 to the proposed surcharges, we estimate the pilotage associations’ total projected revenue needed for 2019 would be $27,222,585. To estimate the additional cost to shippers from this proposed rule, we compare the 2019 total projected revenues to the 2018 projected revenues. Because we review and prescribe rates for the Great Lakes Pilotage annually, the effects are estimated as a single year cost rather than annualized over a 10-year period. In the 2018 rulemaking,23 we estimated the total projected revenue needed for 2018, including surcharges, as $25,156,442. This is the best approximation of 2018 revenues as, at the time of this publication, we do not have enough audited data available for the 2018 shipping season to revise these projections. Table 33 shows the revenue projections for 2018 and 2019 and details the additional cost increases to shippers by area and district as a result of the rate changes and temporary surcharges on traffic in Districts One, Two, and Three. TABLE 33—EFFECT OF THE PROPOSED RULE BY AREA AND DISTRICT daltland on DSKBBV9HB2PROD with PROPOSALS [$U.S.; non-discounted] Revenue needed in 2018 Area Total, District 1 ............. 2018 temporary surcharge $7,988,670 $300,000 22 Some vessels entered the Great Lakes multiple times in a single year, affecting the average number VerDate Sep<11>2014 17:34 Oct 16, 2018 Jkt 247001 Total 2018 projected revenue Revenue needed in 2019 $8,288,670 $8,747,063 of unique vessels utilizing pilotage services in any given year. PO 00000 Frm 00039 Fmt 4702 Sfmt 4702 2019 temporary surcharge $300,000 Total 2019 projected revenue $9,047,063 Additional costs of this rule $758,393 23 The 2018 projected revenues are from the 2018 Great Lakes Pilotage Ratemaking final rule (83 FR 26189), Table 41. E:\FR\FM\17OCP1.SGM 17OCP1 52372 Federal Register / Vol. 83, No. 201 / Wednesday, October 17, 2018 / Proposed Rules TABLE 33—EFFECT OF THE PROPOSED RULE BY AREA AND DISTRICT—Continued [$U.S.; non-discounted] Revenue needed in 2018 Area 2018 temporary surcharge Total 2018 projected revenue Revenue needed in 2019 2019 temporary surcharge Total 2019 projected revenue Additional costs of this rule Total, District 2 ............. Total, District 3 ............. 7,230,300 8,887,472 150,000 600,000 7,380,300 9,487,472 7,704,229 9,721,293 150,000 600,000 7,854,229 10,321,293 473,929 833,821 System Total ......... $24,106,442 $1,050,000 $25,156,442 $26,172,585 $1,050,000 $27,222,585 $2,066,143 The resulting difference between the projected revenue in 2018 and the projected revenue in 2019 is the proposed annual change in payments from shippers to pilots as a result of the rate change that would be imposed by this rule. The effect of the proposed rate change to shippers varies by area and district. The rate changes, after taking into account the increase in pilotage rates and the addition of temporary surcharges, would lead to affected shippers operating in District One, District Two, and District Three experiencing an increase in payments of $758,393, $473,929, and $833,821, respectively, over the previous year. The overall adjustment in payments would be an increase in payments by shippers of $2,066,143 across all three districts (an 8 percent increase over 2018). Again, because we review and set rates for Great Lakes Pilotage annually, we estimate the impacts as single year costs rather than annualizing them over a 10year period. Table 34 shows the difference in revenue by component from 2018 to 2019.24 The majority of the increase in revenue is due to the inflation of operating expenses and to the addition of two pilots who were authorized in the 2018 rule. These two pilots are training in 2018 and will become fulltime working pilots at the beginning of the 2019 shipping season. They would be compensated at the target compensation of $359,887 per pilot. The addition of these pilots to full working status accounts for $719,774 of the increase ($1,082,472 when also including the effect of increasing compensation for 49 pilots). The remaining amount is attributed to increases in the working capital fund. TABLE 34—DIFFERENCE IN REVENUE BY COMPONENT Revenue needed in 2018 Revenue component Adjusted Operating Expenses ..................................................................................................... Total Target Pilot Compensation ................................................................................................. Working Capital Fund .................................................................................................................. Total Revenue Needed, without Surcharge ................................................................................ Surcharge .................................................................................................................................... Total Revenue Needed, with Surcharge ..................................................................................... daltland on DSKBBV9HB2PROD with PROPOSALS Pilotage Rates as a Percentage of Vessel Operating Costs To estimate the impact of U.S. pilotage costs on foreign-flagged vessels that would be affected by the rate adjustment, we looked at the pilotage costs as a percentage of a vessel’s costs for an entire voyage. The portion of the trip on the Great Lakes using a pilot is only a portion of the whole trip. The affected vessels are often traveling from a foreign port, and the days without a pilot on the total trip often exceed the days a pilot is needed. To estimate this impact, we used the 2017 study titled, ‘‘Analysis of Great Lakes Pilotage Costs on Great Lakes Shipping and the Potential Impact of Increases in U.S. Pilotage Charges.’’ 25 24 The 2018 projected revenues are from the 2018 final rule (83 FR 26189), table 41. The 2018 projected revenues are from tables 15–17 of this NPRM. VerDate Sep<11>2014 17:34 Oct 16, 2018 Jkt 247001 $5,965,599 17,271,765 869,078 24,106,442 1,050,000 25,156,442 Revenue needed in 2019 $6,874,784 18,354,237 943,564 26,172,585 1,050,000 27,222,585 Difference (2019 revenue– 2018 revenue) $909,185 1,082,472 74,486 2,066,143 0 2,066,143 We conducted the study to explore additional frameworks and methodologies for assessing the cost of Great Lakes pilot’s ratemaking regulations, with a focus on capturing industry and port level economic impacts. The study also included an analysis of the pilotage costs as a percentage of the total voyage costs that we can use in RAs to estimate the direct impact of changes to the pilotage rates. The study developed a voyage cost model that is based on a vessel’s daily costs. The daily costs included: Capital repayment costs; fuel costs; operating costs (such as crew, supplies, and insurance); port costs; speed of the vessel; stevedoring rates; and tolls. The daily operating costs were translated into total voyage costs using mileage between the ports for a number of voyage scenarios. In the study, the total voyage costs were then compared to the U.S. pilotage costs. The study found that, using the 2016 rates, the U.S. pilotage charges represent 10 percent of the total voyage costs for a vessel carrying grain, and between 8 percent and 9 percent of the total voyage costs for a vessel carrying steel.26 We updated the analysis to estimate the percentage U.S. pilotage charges represent using the percentage increase in revenues from the years 2016 to 2019. Since the study used 2016 as the latest year of data, we compared the revenues needed in 2019 and 2018 to the 2016 revenues in order to estimate the change in pilotage costs 25 The study is available at https:// www.dco.uscg.mil/Our-Organization/AssistantCommandant-for-Prevention-Policy-CG-5P/MarineTransportation-Systems-CG-5PW/Office-ofWaterways-and-Ocean-Policy/Office-of-Waterwaysand-Ocean-Policy-Great-Lakes-Pilotage-Div/. 26 Martin Associates, ‘‘Analysis of Great Lakes Pilotage Costs on Great Lakes Shipping and the Potential Impact of Increases in U.S. Pilotage Charges,’’ page 33. Available at https:// www.regulations.gov, USCG–2018–0665–0005. PO 00000 Frm 00040 Fmt 4702 Sfmt 4702 E:\FR\FM\17OCP1.SGM 17OCP1 Federal Register / Vol. 83, No. 201 / Wednesday, October 17, 2018 / Proposed Rules as a percentage of total voyage costs from 2018 to 2019. Table 35 shows the 52373 revenues needed for the years 2016, 2017, and 2018. daltland on DSKBBV9HB2PROD with PROPOSALS TABLE 35—REVENUE NEEDED IN 2016, 2017, 2018, AND 2019 Revenue component Revenue needed in 2016 Adjusted Operating Expenses ......................................................................... Total Target Pilot Compensation ..................................................................... Working Capital Fund ...................................................................................... Total Revenue Needed, without Surcharge .................................................... Surcharge ........................................................................................................ Total Revenue Needed, with Surcharge ......................................................... % Increase from 2016 Total Revenue ............................................................. U.S. Pilotage Cost as Percentage of the Total Voyage Costs ....................... $4,677,518 12,066,226 709,934 17,453,678 1,650,000 19,103,678 ........................ 9.8% From 2016 to 2019, the total revenues needed would increase by 42 percent. While the change in total voyage cost would vary by the trip, vessel class, and whether the vessel is carrying steel or grain, we used these percentages as an average increase to estimate the change in the impact. When we increased the 2016 base pilotage charges by 32 percent, we found the U.S. pilotage costs represented an average of 12.6 percent of the total voyage costs for 2018. To look at the percentage of the total voyage costs for 2019, we then increased the base 2016 rates by 42 percent. With this proposed rule’s rates for 2019, pilotage costs are estimated to account for 13.4 percent of the total voyage costs, or a 0.8 percent increase over the percentage that U.S. pilotage costs represented of the total voyage in 2018. It is important to note that this analysis is based on a number of assumptions. The purpose of the study was to look at the impact of the U.S. pilotage rates. The study did not include an analysis of the GLPA rates. It was assumed that a U.S. pilot is assigned to all portions of a voyage where he or she could be assigned. In reality, the assignment of a United States or Canadian pilot is based on the order in which a vessel enters the system, as outlined in the Memorandum of Understanding between the GLPA and the Coast Guard. This analysis only looks at the impact of proposed U.S. pilotage cost changes. All other costs were held constant at the 2016 levels, including Canadian pilotage costs, tolls, stevedoring, and port charges. This analysis estimates the 27 See https://www.manta.com/. https://resource.referenceusa.com/. 29 Source: https://www.sba.gov/contracting/ getting-started-contractor/make-sure-you-meet-sba28 See VerDate Sep<11>2014 17:34 Oct 16, 2018 Jkt 247001 impacts of Great Lakes pilotage rates holding all other factors constant. If other factors or sectors were not held constant but, instead, were allowed to adjust or fluctuate, it is likely that the impact of pilotage rates would be different. Many factors that drive the tonnage levels of foreign cargo on the Great Lakes and St. Lawrence Seaway were held constant for this analysis. These factors include, but are not limited to, demand for steel and grain, construction levels in the regions, tariffs, exchange rates, weather conditions, crop production, rail and alternative route pricing, tolls, vessel size restriction on the Great Lakes and St. Lawrence Seaway, and inland waterway river levels. Benefits This proposed rule would allow the Coast Guard to meet the requirements in 46 U.S.C. 9303 to review the rates for pilotage services on the Great Lakes. The rate changes would promote safe, efficient, and reliable pilotage service on the Great Lakes by: (1) Ensuring that rates cover an association’s operating expenses; (2) providing fair pilot compensation, adequate training, and sufficient rest periods for pilots; and (3) ensuring the association produces enough revenue to fund future improvements. The rate changes would also help recruit and retain pilots, which would ensure a sufficient number of pilots to meet peak shipping demand, helping to reduce delays caused by pilot shortages. B. Small Entities Under the Regulatory Flexibility Act, 5 U.S.C. 601–612, we have considered size-standards/table-small-business-size-standards. SBA has established a Table of Small Business Size Standards, which is matched to NAICS industries. A size standard, which is usually stated in number of employees or average annual receipts PO 00000 Frm 00041 Fmt 4702 Sfmt 4702 Revenue needed in 2017 $5,155,280 14,983,335 837,766 20,976,381 1,350,000 22,326,381 17% 11.3% Revenue needed in 2018 $5,965,599 17,271,765 869,078 24,106,442 1,050,000 25,156,442 32% 12.6% Revenue needed in 2019 $6,874,784 18,354,237 943,564 26,172,585 1,050,000 27,222,585 42% 13.4% whether this proposed rule would have a significant economic effect 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. For the proposed rule, we reviewed recent company size and ownership data for the vessels identified in the GLPMS, and we reviewed business revenue and size data provided by publicly available sources such as MANTA 27 and ReferenceUSA.28 As described in Section VIII.A of this preamble, Regulatory Planning and Review, we found that a total of 448 unique vessels used pilotage services from 2015 through 2017. These vessels are owned by 57 entities. We found that of the 57 entities that own or operate vessels engaged in trade on the Great Lakes affected by this proposed rule, 47 are foreign entities that operate primarily outside the United States. The remaining 10 entities are U.S. entities. We compared the revenue and employee data found in the company search to the Small Business Administration’s (SBA) Table of Small Business Size Standards 29 to determine how many of these companies are small entities. Table 36 shows the North American Industry Classification System (NAICS) codes of the U.S. entities and the small entity standard size established by the SBA. (‘‘revenues’’), represents the largest size that a business (including its subsidiaries and affiliates) may be considered in order to remain classified as a small business for SBA and Federal contracting programs. E:\FR\FM\17OCP1.SGM 17OCP1 52374 Federal Register / Vol. 83, No. 201 / Wednesday, October 17, 2018 / Proposed Rules TABLE 36—NAICS CODES AND SMALL ENTITIES SIZE STANDARDS Description Small business size standard Site Preparation Contractors ................................................................................................................ Inland Water Freight Transportation .................................................................................................... Scenic & Sightseeing Transportation, Water ....................................................................................... Navigational Services to Shipping ........................................................................................................ Freight Transportation Arrangement .................................................................................................... $15 million. 750 employees. $7.5 million. $38.5 million. $15 million. NAICS daltland on DSKBBV9HB2PROD with PROPOSALS 238910 483211 487210 488330 488510 ........................... ........................... ........................... ........................... ........................... The entities all exceed the SBA’s small business standards for small businesses. Furthermore, these U.S. entities operate U.S.-flagged vessels and are not required to have pilots as required by 46 U.S.C. 9302. In addition to the owners and operators of vessels affected by this proposed rule, there are three U.S. entities that would be affected by this proposed rule that receive revenue from pilotage services. These are the three pilot associations that provide and manage pilotage services within the Great Lakes districts. Two of the associations operate as partnerships, and one operates as a corporation. These associations are designated with the same NAICS industry classification and small-entity size standards described above, but they have fewer than 500 employees; combined, they have approximately 65 employees in total, and therefore, they are designated as small entities. We expect no adverse effect on these entities from this proposed rule because all associations would receive enough revenue to balance the projected expenses associated with the projected number of bridge hours (time on task) and pilots. We did not find any small not-forprofit organizations that are independently owned and operated and are not dominant in their fields that would be impacted by this proposed rule. We did not find any small governmental jurisdictions with populations of fewer than 50,000 people that would be impacted by this proposed rule. Based on this analysis, we conclude this proposed rulemaking, if promulgated, would not affect a substantial number of small entities. Therefore, we certify under 5 U.S.C. 605(b) that this proposed rule would not have a significant economic impact on a substantial number of small entities. If you think that your business, organization, or governmental jurisdiction qualifies as a small entity and that this proposed rule would have a significant economic impact on it, please submit a comment to the Docket Management Facility at the address under ADDRESSES. In your comment, VerDate Sep<11>2014 17:34 Oct 16, 2018 Jkt 247001 explain why you think it qualifies, and how and to what degree this proposed rule would economically affect it. C. Assistance for Small Entities Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996, Public Law 104– 121, we want to assist small entities in understanding this proposed rule so that they can better evaluate its effects on them and participate in the rulemaking. If the proposed rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please consult Mr. Brian Rogers, Commandant (CG– WWM–2), Coast Guard; telephone 202– 372–1535, email Brian.Rogers@uscg.mil, or fax 202–372–1914. 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 proposed rule would call for no new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501–3520). This proposed rule would not change the burden in the collection currently approved by OMB 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 the States, on the relationship between the national government and the States, or on the distribution of PO 00000 Frm 00042 Fmt 4702 Sfmt 4702 power and responsibilities among the various levels of government. We have analyzed this proposed rule under Executive Order 13132 and have determined that it is consistent with the fundamental federalism principles and preemption requirements as described in Executive Order 13132. Our analysis follows. Congress directed the Coast Guard to establish ‘‘rates and charges for pilotage services.’’ See 46 U.S.C. 9303(f). This regulation is issued pursuant to that statute and is preemptive of State law as specified 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.’’ As a result, States or local governments are expressly prohibited from regulating within this category. Therefore, this proposed rule is consistent with the fundamental federalism principles and preemption requirements described in Executive Order 13132. While it is well settled that States may not regulate in categories in which Congress intended the Coast Guard to be the sole source of a vessel’s obligations, the Coast Guard recognizes the key role that State and local governments may have in making regulatory determinations. Additionally, for rules with implications and preemptive effect, Executive Order 13132 specifically directs agencies to consult with State and local governments during the rulemaking process. If you believe this rule has implications for federalism under Executive Order 13132, please contact the person listed in the FOR FURTHER INFORMATION section of this preamble. 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. Although this E:\FR\FM\17OCP1.SGM 17OCP1 Federal Register / Vol. 83, No. 201 / Wednesday, October 17, 2018 / Proposed Rules proposed rule would not result in such an expenditure, we do discuss the effects of this proposed rule elsewhere in this preamble. G. Taking of Private Property This proposed rule would not cause a taking of private property or otherwise have taking implications under Executive Order 12630 (Governmental Actions and Interference with Constitutionally Protected Property Rights). H. Civil Justice Reform This proposed 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 proposed rule under Executive Order 13045 (Protection of Children from Environmental Health Risks and Safety Risks). This proposed rule is not an economically significant rule and would not create an environmental risk to health or risk to safety that might disproportionately affect children. daltland on DSKBBV9HB2PROD with PROPOSALS J. Indian Tribal Governments This proposed rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it would 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 proposed 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, and the Administrator of OMB’s Office of Information and Regulatory Affairs has not designated it as a significant energy action. L. Technical Standards The National Technology Transfer and Advancement Act, codified as a VerDate Sep<11>2014 17:34 Oct 16, 2018 Jkt 247001 note to 15 U.S.C. 272, directs agencies to use voluntary consensus standards in their regulatory activities unless the agency provides Congress, through OMB, with an explanation of why using these standards would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards (e.g., specifications of materials, performance, design, or operation; test methods; sampling procedures; and related management systems practices) that are developed or adopted by voluntary consensus standards bodies. This proposed rule does not use technical standards. Therefore, we did not consider the use of voluntary consensus standards. M. Environment We have analyzed this proposed rule under Department of Homeland Security (DHS) Directive 023–01, Revision (Rev) 01, Implementation of the National Environmental Policy Act [DHS Instruction Manual 023–01 (series)] and Commandant Instruction M16475.lD, which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (42 U.S.C. 4321–4370f), and have made a preliminary determination that this action is one of a category of actions that do not individually or cumulatively have a significant effect on the human environment. A preliminary Record of Environmental Consideration supporting this determination is available in the docket where indicated under the ‘‘Public Participation and Request for Comments’’ section of this preamble. This proposed rule meets the criteria for categorical exclusion (CATEX) under paragraph A3 of table 1, particularly subparts (a), (b), and (c) in Appendix A of DHS Directive 023– 01(series). CATEX A3 pertains to promulgation of rules and procedures that are: (a) Strictly administrative or procedural in nature; (b) that implement, without substantive change, statutory or regulatory requirements; or (c) that implement, without substantive change, procedures, manuals, and other guidance documents. This proposed rule adjusts base pilotage rates and surcharges for administering the 2019 shipping season in accordance with applicable statutory and regulatory mandates, and also proposes a technical change to the Great Lakes pilotage ratemaking methodology. We seek any comments or information that may lead to the discovery of a significant PO 00000 Frm 00043 Fmt 4702 Sfmt 9990 52375 environmental impact from this proposed rule. List of Subjects 46 CFR Part 401 Administrative practice and procedure, Great Lakes, Navigation (water), Penalties, Reporting and recordkeeping requirements, Seamen. 46 CFR Part 404 Great Lakes, Navigation (water), Seamen. For the reasons discussed in the preamble, the Coast Guard proposes to amend 46 CFR parts 401 and 404 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. 2103, 2104(a), 6101, 7701, 8105, 9303, 9304; Department of Homeland Security Delegation No. 0170.1(II)(92.a), (92.d), (92.e), (92.f). 2. Amend § 401.405 by revising paragraph (a) to read as follows: ■ § 401.405 Pilotage rates and charges (a) The hourly rate for pilotage service on— (1) The St. Lawrence River is $698; (2) Lake Ontario is $492; (3) Lake Erie is $530; (4) The navigable waters from Southeast Shoal to Port Huron, MI is $632; (5) Lakes Huron, Michigan, and Superior is $304; and (6) The St. Mary’s River is $602. * * * * * PART 404—GREAT LAKES PILOTAGE RATEMAKING 3. The authority citation for part 404 continues to read as follows: ■ Authority: 46 U.S.C. 2103, 2104(a), 9303, 9304; Department of Homeland Security Delegation No. 0170.1(II)(92.a), (92.f) § 404.104 [Amended] 4. Amend § 404.104(c) by removing the reference to § 404.103(d) and adding in its place a reference to § 404.103. ■ Dated: October 11, 2018. Jennifer F. Williams, Captain, U.S. Coast Guard, Acting Assistant Commandant for Prevention Policy . [FR Doc. 2018–22513 Filed 10–16–18; 8:45 am] BILLING CODE 9110–04–P E:\FR\FM\17OCP1.SGM 17OCP1

Agencies

[Federal Register Volume 83, Number 201 (Wednesday, October 17, 2018)]
[Proposed Rules]
[Pages 52355-52375]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-22513]



[[Page 52355]]

=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF HOMELAND SECURITY

Coast Guard

46 CFR Parts 401 and 404

[USCG-2018-0665]
RIN 1625-AC49


Great Lakes Pilotage Rates--2019 Annual Review and Revisions to 
Methodology

AGENCY: Coast Guard, DHS.

ACTION: Notice of proposed rulemaking.

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

SUMMARY: In accordance with the Great Lakes Pilotage Act of 1960, the 
Coast Guard is proposing new base pilotage rates and surcharges for the 
2019 shipping season. This rule would adjust the pilotage rates to 
account for anticipated traffic, an increase in the number of pilots, 
anticipated inflation, and surcharges for applicant pilots. The result 
is an increase in pilotage rates, due to adjustment for inflation and 
the addition of two pilots.

DATES: Comments and related material must be received by the Coast 
Guard on or before November 16, 2018.

ADDRESSES: You may submit comments identified by docket number USCG-
2018-0665 using the Federal eRulemaking Portal at https://www.regulations.gov. See the ``Public Participation and Request for 
Comments'' portion of the SUPPLEMENTARY INFORMATION section for further 
instructions on submitting comments.

FOR FURTHER INFORMATION CONTACT: For information about this document, 
call or email Mr. Brian Rogers, Commandant (CG-WWM-2), Coast Guard; 
telephone 202-372-1535, email [email protected], or fax 202-372-
1914.

SUPPLEMENTARY INFORMATION: 

Table of Contents for Preamble

I. Public Participation and Request for Comments
II. Abbreviations
III. Executive Summary
IV. Basis and Purpose
V. Background
VI. Discussion of Proposed Methodological and Other Changes
VII. Discussion of Proposed Rate Adjustment
    A. Step 1: Recognition of Operating Expenses
    B. Step 2: Projection of Operating Expenses
    C. Step 3: Estimate Number of Working Pilots
    D. Step 4: Determine Target Pilot Compensation
    E. Step 5: Calculate Working Capital Fund
    F. Step 6: Calculate Revenue Needed
    G. Step 7: Calculate Initial Base Rates
    H. Step 8: Calculate Weighting Factors by Area
    I. Step 9: Calculate Revised Base Rates
    J. Step 10: Review and Finalize Rates
    K. Surcharges
VIII. 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. Public Participation and Request for Comments

    The Coast Guard views public participation as essential to 
effective rulemaking, and will consider all comments and material 
received during the comment period. Your comment can help shape the 
outcome of this rulemaking. If you submit a comment, please include the 
docket number for this rulemaking, indicate the specific section of 
this document to which each comment applies, and provide a reason for 
each suggestion or recommendation.
    We encourage you to submit comments through the Federal eRulemaking 
Portal at https://www.regulations.gov. If your material cannot be 
submitted using https://www.regulations.gov, contact the person in the 
FOR FURTHER INFORMATION CONTACT section of this proposed rule for 
alternate instructions. Documents mentioned in this proposed rule, and 
all public comments, are available in our online docket at https://www.regulations.gov, and can be viewed by following that website's 
instructions. Additionally, if you visit the online docket and sign up 
for email alerts, you will be notified when comments are posted or a 
final rule is published.
    We accept anonymous comments. All comments received will be posted 
without change to https://www.regulations.gov and will include any 
personal information you have provided. For more about privacy and the 
docket, visit https://www.regulations.gov/privacyNotice.
    We do not plan to hold a public meeting, but we will consider doing 
so if public comments indicate a meeting would be helpful. We would 
issue a separate Federal Register notice to announce the date, time, 
and location of such a meeting.

II. Abbreviations

APA American Pilots Association
BLS Bureau of Labor Statistics
CAD Canadian dollars
CFR Code of Federal Regulations
CPA Certified public accountant
DHS Department of Homeland Security
FOMC Federal Open Market Committee
FR Federal Register
GLPA Great Lakes Pilotage Authority (Canadian)
GLPAC Great Lakes Pilotage Advisory Committee
GLPMS Great Lakes Pilotage Management System
NAICS North American Industry Classification System
NPRM Notice of proposed rulemaking
NTSB National Transportation Safety Board
OMB Office of Management and Budget
PCE Personal Consumption Expenditures
RA Regulatory analysis
SBA Small Business Administration
Sec.  Section symbol
SLSMC Saint Lawrence Seaway Management Corporation
U.S.C. United States Code
USD United States dollars

III. Executive Summary

    Pursuant to the Great Lakes Pilotage Act of 1960 (``the Act''),\1\ 
the Coast Guard regulates pilotage for oceangoing vessels on the Great 
Lakes--including setting the rates for pilotage services and adjusting 
them on an annual basis. The rates, which currently range from $271 to 
$653 per pilot hour (depending on the specific area where pilotage 
service is provided), are paid by shippers to pilot associations. The 
three pilot associations, which are the exclusive U.S. source of 
registered pilots on the Great Lakes, use this revenue to cover 
operating expenses, maintain infrastructure, compensate working pilots, 
and train new pilots. We use a ratemaking methodology that we have 
developed since 2016 in accordance with our statutory requirements and 
regulations. Our ratemaking methodology calculates the revenue needed 
for each pilotage association (including operating expenses, 
compensation, and infrastructure needs), and then divides that amount 
by the expected shipping traffic over the course of the year to produce 
an hourly rate. This process is currently effected through a 10-step 
methodology and supplemented with surcharges, which are explained in 
detail in this notice of proposed rulemaking (NPRM).
---------------------------------------------------------------------------

    \1\ 46 U.S.C. Chapter 93; Public Law 86-555, 74 Stat. 259, as 
amended.
---------------------------------------------------------------------------

    In this NPRM, we are proposing new pilotage rates for 2019 based on 
the existing methodology. As part of our annual review, we are 
proposing in this NPRM new rates for the 2019 shipping season. Based on 
the ratemaking model discussed in this NPRM, we are proposing the rates 
shown in table 1. The result is an increase in rates, due to

[[Page 52356]]

adjustment for inflation and the addition of two pilots.

                         Table 1--Current and Proposed Pilotage Rates on the Great Lakes
----------------------------------------------------------------------------------------------------------------
                                                                                Final 2018       Proposed 2019
                    Area                                  Name                pilotage rate      pilotage rate
----------------------------------------------------------------------------------------------------------------
District One: Designated...................  St. Lawrence River...........               $653               $698
District One: Undesignated.................  Lake Ontario.................                435                492
District Two: Undesignated.................  Lake Erie....................                497                530
District Two: Designated...................  Navigable waters from                        593                632
                                              Southeast Shoal to Port
                                              Huron, MI.
District Three: Undesignated...............  Lakes Huron, Michigan, and                   271                304
                                              Superior.
District Three: Designated.................  St. Mary's River.............                600                602
----------------------------------------------------------------------------------------------------------------

    This proposed rule is not economically significant under Executive 
Order 12866. This proposed rule would impact 51 U.S. Great Lakes 
pilots, 3 pilot associations, and the owners and operators of an 
average of 256 oceangoing vessels that transit the Great Lakes 
annually. The estimated overall annual regulatory economic impact of 
this rate change is a net increase of $2,066,143 in payments made by 
shippers from the 2018 shipping season. Because we must review, and, if 
necessary, adjust rates each year, we analyze these as single year 
costs and do not annualize them over 10 years. This rule does not 
affect the Coast Guard's budget or increase Federal spending. Section 
VIII of this preamble provides the regulatory impact analyses of this 
proposed rule.

IV. Basis and Purpose

    The legal basis of this rulemaking is the Great Lakes Pilotage Act 
of 1960 (``the Act''),\2\ which requires U.S. vessels operating ``on 
register'' and foreign vessels to use U.S. or Canadian registered 
pilots while transiting the U.S. waters of the St. Lawrence Seaway and 
the Great Lakes system.\3\ For the U.S. registered Great Lakes pilots 
(``pilots''), the Act requires the Secretary to ``prescribe by 
regulation rates and charges for pilotage services, giving 
consideration to the public interest and the costs of providing the 
services.'' \4\ The Act requires that rates be established or reviewed 
and adjusted each year, not later than March 1. The Act requires that 
base rates be established by a full ratemaking at least once every 5 
years, and in years when base rates are not established, they must be 
reviewed and, if necessary, adjusted. The Secretary's duties and 
authority under the Act have been delegated to the Coast Guard.\5\
---------------------------------------------------------------------------

    \2\ 46 U.S.C. Chapter 93; Public Law 86-555, 74 Stat. 259, as 
amended.
    \3\ 46 U.S.C. 9302(a)(1).
    \4\ 46 U.S.C. 9303(f).
    \5\ Department of Homeland Security (DHS) Delegation No. 0170.1, 
para. II (92.f).
---------------------------------------------------------------------------

    The purpose of this NPRM is to propose new pilotage rates and 
surcharges for the 2019 shipping season. The Coast Guard believes that 
the new rates would promote pilot retention, ensure safe, efficient, 
and reliable pilotage services on the Great Lakes, and provide adequate 
funds to upgrade and maintain infrastructure.

V. Background

    Pursuant to the Great Lakes Pilotage Act of 1960, the Coast Guard, 
in conjunction with the Canadian Great Lakes Pilotage Authority, 
regulates shipping practices and rates on the Great Lakes. Under the 
Coast Guard regulations, all vessels engaged in foreign trade (often 
referred to as ``salties'') are required to engage U.S. or Canadian 
pilots during their transit through the regulated waters.\6\ United 
States and Canadian ``lakers,'' which account for most commercial 
shipping on the Great Lakes, are not affected.\7\ Generally, vessels 
are assigned a U.S. or Canadian pilot depending on the order in which 
they transit a particular area of the Great Lakes and do not choose the 
pilot they receive. If a vessel is assigned a U.S. pilot, that pilot 
will be assigned by the pilotage association responsible for the 
particular district in which the vessel is operating, and the vessel 
operator will pay the pilotage association for the pilotage services.
---------------------------------------------------------------------------

    \6\ See 46 CFR part 401.
    \7\ 46 U.S.C. 9302(f). A ``laker'' is a commercial cargo vessel 
especially designed for and generally limited to use on the Great 
Lakes.
---------------------------------------------------------------------------

    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's Director of 
the Great Lakes Pilotage (``the Director'') to operate a pilotage pool. 
The Saint Lawrence Seaway Pilotage Association provides pilotage 
services in District One, which includes all U.S. waters of the St. 
Lawrence River and Lake Ontario. The Lakes Pilotage Association 
provides pilotage services in District Two, which includes all U.S. 
waters of Lake Erie, the Detroit River, Lake St. Clair, and the St. 
Clair River. Finally, the Western Great Lakes Pilotage Association 
provides pilotage services in District Three, which includes all U.S. 
waters of the St. Mary's River; Sault Ste. Marie Locks; and Lakes 
Huron, Michigan, and Superior.
    Each pilotage district is further divided into ``designated'' and 
``undesignated'' areas. Designated areas are classified as such by 
Presidential Proclamation \8\ to be waters in which pilots must, at all 
times, be fully engaged in the navigation of vessels in their charge. 
Undesignated areas, on the other hand, are open bodies of water, and 
thus are not subject to the same pilotage requirements. While working 
in those undesignated areas, pilots must ``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.'' \9\ For pilotage purposes, 
rates in designated areas are significantly higher than those in 
undesignated areas for these reasons.
---------------------------------------------------------------------------

    \8\ Presidential Proclamation 3385, Designation of restricted 
waters under the Great Lakes Pilotage Act of 1960, December 22, 
1960.
    \9\ 46 U.S.C. 9302(a)(1)(B).

[[Page 52357]]



                           Table 2--Areas of the Great Lakes and Saint Lawrence Seaway
----------------------------------------------------------------------------------------------------------------
       District          Pilotage association         Designation         Area No.\10\        Area name \11\
----------------------------------------------------------------------------------------------------------------
One..................  Saint Lawrence Seaway    Designated.............               1  St. Lawrence River.
                        Pilotage Association.   Undesignated...........               2  Lake Ontario.
Two..................  Lake Pilotage            Designated.............               5  Navigable waters from
                        Association.                                                      Southeast Shoal to
                                                                                          Port Huron, MI.
                                                Undesignated...........               4  Lake Erie.
Three................  Western Great Lakes      Designated.............               7  St. Mary's River.
                        Pilotage Association.   Undesignated...........               6  Lakes Huron and
                                                                                          Michigan.
                                                Undesignated...........               8  Lake Superior.
----------------------------------------------------------------------------------------------------------------

    Each pilot association is an independent business and is the sole 
provider of pilotage services in the district in which it operates. 
Each pilot association is responsible for funding its own operating 
expenses, maintaining infrastructure, acquiring and implementing 
technological advances, training personnel/partners and pilot 
compensation. We developed a 10-step ratemaking methodology to derive a 
pilotage rate that covers these expenses based on the estimated amount 
of traffic. In short, the methodology is designed to measure how much 
revenue each pilotage association will need to cover expenses and 
provide competitive compensation to working pilots. The Coast Guard 
then divides that amount by the historical average traffic transiting 
through the district. We recognize that in years where traffic is above 
average, pilot associations will take in more revenue than projected, 
while in years where traffic is below average, they will take in less. 
We believe that over the long term, however, this system ensures that 
infrastructure will be maintained and that pilots will receive adequate 
compensation and work a reasonable number of hours with adequate rest 
between assignments to ensure retention of highly-trained personnel.
---------------------------------------------------------------------------

    \10\ Area 3 is the Welland Canal, which is serviced exclusively 
by the Canadian GLPA and, accordingly, is not included in the United 
States pilotage rate structure.
    \11\ The areas are listed by name in the Code of Federal 
Regulations, see 46 CFR 401.405.
---------------------------------------------------------------------------

    Over the past 3 years, the Coast Guard has made adjustments to the 
Great Lakes pilotage ratemaking methodology. In 2016, we made 
significant changes to the methodology, moving to an hourly billing 
rate for pilotage services and changing the compensation benchmark to a 
more transparent model. In 2017, we added additional steps to the 
ratemaking methodology, including new steps that accurately account for 
the additional revenue produced by the application of weighting factors 
(discussed in detail in Steps 7 through 9 of this preamble). In 2018, 
we revised the methodology by which we develop the compensation 
benchmark, based upon the rate of U.S. mariners, rather than Canadian 
registered pilots. The 2018 methodology, which was finalized in the 
June 5, 2018 final rule (83 FR 26162) and is the current methodology, 
is designed to accurately capture all of the costs and revenues 
associated with Great Lakes pilotage requirements and produce an hourly 
rate that adequately and accurately compensates pilots and covers 
expenses. The current methodology is summarized in the section below.

Summary of Ratemaking Methodology

    As stated above, the ratemaking methodology, currently outlined in 
46 CFR 404.101 through 404.110, consists of 10 steps that are designed 
to account for the revenues needed and total traffic expected in each 
district. The result is an hourly rate (determined separately for each 
of the areas administered by the Coast Guard).
    In Step 1, ``Recognize previous operating expenses,'' (Sec.  
404.101) the Director reviews audited operating expenses from each of 
the three pilotage associations. This number forms the baseline amount 
that each association is budgeted. Because of the time delay between 
when the association submits raw numbers and the Coast Guard receives 
audited numbers, this number is 3 years behind the projected year of 
expenses. So in calculating the 2019 rates in this proposal, we are 
beginning with the audited expenses from fiscal year 2016.
    While each pilotage association operates in an entire district, the 
Coast Guard tries to determine costs by area. Thus, with regard to 
operating expenses, we allocate certain operating expenses to 
undesignated areas, and certain expenses to designated areas. In some 
cases (e.g., insurance for applicant pilots who operate in undesignated 
areas only), we can allocate the costs based on where they are actually 
accrued. In other situations (e.g., general legal expenses), expenses 
are distributed between designated and undesignated waters on a pro 
rata basis, based upon the proportion of income forecasted from the 
respective portions of the district.
    In Step 2, ``Project operating expenses, adjusting for inflation or 
deflation,'' (Sec.  404.102) the Director develops the 2018 projected 
operating expenses. To do this, we apply inflation adjustors for 3 
years to the operating expense baseline received in Step 1. The 
inflation factors used are from the Bureau of Labor Statistics' 
Consumer Price Index for the Midwest Region, or if not available, the 
Federal Open Market Committee (FOMC) median economic projections for 
Personal Consumption Expenditures (PCE) inflation. This step produces 
the total operating expenses for each area and district.
    In Step 3, ``Estimate number of working pilots,'' (Sec.  404.103) 
the Director calculates how many pilots are needed for each district. 
To do this, we employ a ``staffing model,'' described in Sec.  401.220, 
paragraphs (a)(1) through (a)(3), to estimate how many pilots would be 
needed to handle shipping during the beginning and close of the season. 
This number is helpful in providing guidance to the Director of the 
Coast Guard Great Lakes Pilotage Office in approving an appropriate 
number of credentials for pilots.
    For the purpose of the ratemaking calculation, we determine the 
number of working pilots provided by the pilotage associations (see 
Sec.  404.103) which is what we use to determine how many pilots need 
to be compensated via the pilotage fees collected.
    In Step 4, ``Determine target pilot compensation benchmark,'' 
(Sec.  404.104) the Director determines the revenue needed for pilot 
compensation in each area and district. This step contains two 
processes. In the first process, we calculate the total compensation 
for each pilot using a ``compensation benchmark.'' Next, we multiply 
the individual pilot compensation by the number of working pilots for 
each area and district (from Step 3), producing a figure for total 
pilot compensation.

[[Page 52358]]

Because pilots are paid by the associations, but the costs of pilotage 
is divided up by area for accounting purposes, we assign a certain 
number of pilots for the designated areas and a certain number of 
pilots for the undesignated areas for purposes of determining the 
revenues needed for each area. To make the determination of how many 
pilots to assign, we use the staffing model designed to determine the 
total number of pilots, described in Step 3, above.
    In the second process of Step 4, set forth in Sec.  404.104(c), the 
Director determines the total compensation figure for each District. To 
do this, the Director multiplies the compensation benchmark by the 
number of working pilots for each area and district (from Step 3), 
producing a figure for total pilot compensation.
    In Step 5, ``Project working capital fund,'' (Sec.  404.105) the 
Director calculates a value that is added to pay for needed capital 
improvements. This value is calculated by adding the total operating 
expenses (derived in Step 2) and the total pilot compensation (derived 
in Step 4), and multiply that figure by the preceding year's average 
annual rate of return for new issues of high-grade corporate 
securities. This figure constitutes the ``working capital fund'' for 
each area and district.
    In Step 6, ``Project needed revenue,'' (Sec.  404.106) the Director 
simply adds up the totals produced by the preceding steps. For each 
area and district, we add the projected operating expense (from Step 
2), the total pilot compensation (from Step 4), and the working capital 
fund contribution (from Step 5). The total figure, calculated 
separately for each area and district, is the ``revenue needed.''
    In Step 7, ``Calculate initial base rates,'' (Sec.  404.107) the 
Director calculates an hourly pilotage rate to cover the revenue needed 
calculated in Step 6. This step consists of first calculating the 10-
year traffic average for each area. Next, we divide the revenue needed 
in each area (calculated in Step 6) by the 10-year traffic average to 
produce an initial base rate.
    An additional element, the ``weighting factor,'' is required under 
Sec.  401.400. Pursuant to that section, ships pay a multiple of the 
``base rate'' as calculated in Step 7 by a number ranging from 1.0 (for 
the smallest ships, or ``Class I'' vessels) to 1.45 (for the largest 
ships, or ``Class IV'' vessels). As this significantly increases the 
revenue collected, we need to account for the added revenue produced by 
the weighting factors to ensure that shippers are not overpaying for 
pilotage services.
    In Step 8, ``Calculate average weighting factors by area,'' (Sec.  
404.108) the Director calculates how much extra revenue, as a 
percentage of total revenue, has historically been produced by the 
weighting factors in each area. We do this by using a historical 
average of applied weighting factors for each year since 2014 (the 
first year the current weighting factors were applied).
    In Step 9, ``Calculate revised base rates,'' (Sec.  404.109) the 
Director calculates how much extra revenue, as a percentage of total 
revenue, has historically been produced by the weighting factors in 
each area. We do this by using a historical average of applied 
weighting factors for each year since 2014 (the first year the current 
weighting factors were applied).
    In Step 10, ``Review and finalize rates,'' (Sec.  404.110) often 
referred to informally as ``director's discretion,'' the Director 
reviews the revised base rates (from Step 9) to ensure that they meet 
the goals set forth in the Act and 46 CFR 404.1(a), which include 
promoting efficient, safe, and reliable pilotage service on the Great 
Lakes; generating sufficient revenue for each pilotage association to 
reimburse necessary and reasonable operating expenses; compensating 
pilots fairly, who are trained and rested; and providing appropriate 
profit for improvements. Because it is our goal to be as transparent as 
possible in our ratemaking procedure, we use this step sparingly to 
adjust rates.
    Finally, after the base rates are set, Sec.  401.401 permits the 
Coast Guard to apply surcharges. Currently, we use surcharges to pay 
for the training of new pilots, rather than incorporating training 
costs into the overall ``revenue needed'' that is used in the 
calculation of the base rates. In recent years, we have allocated 
$150,000 per applicant pilot to be collected via surcharges. This 
amount is calculated as a percentage of total revenue for each 
district, and that percentage is applied to each bill. When the total 
amount of the surcharge has been collected, the pilot associations are 
prohibited from collecting further surcharges. Thus, in years where 
traffic is heavier than expected, shippers early in the season could 
pay more than shippers employing pilots later in the season, after the 
surcharge cap has been met.

VI. Discussion of Proposed Methodological and Other Changes

    For 2019, the Coast Guard is not proposing any new methodological 
changes to the ratemaking model. We believe that the revised 
methodology laid out in the 2018 Annual Review will produce rates for 
the 2019 shipping season that will ensure safe and reliable pilotage 
services are available on the Great Lakes.
    In previous years, several commenters have raised issues regarding 
the working capital fund. While the Coast Guard is not proposing 
specific changes in this NPRM (for example, in the text of part 401), 
we note that we are working with stakeholders to develop the necessary 
policy framework. These include measures relating to financial 
segregation of working capital fund, proper disbursement, and 
accounting, to ensure these monies are appropriately accounted for and 
utilized. This issue was an agenda item for the September 2018 Great 
Lakes Pilotage Advisory Committee Meeting. We also invite interested 
parties to provide their input and recommendations on the issue. We 
seek to ensure that the working capital fund is an appropriate vehicle 
to pay for needed capital expenses.
    We are also proposing to correct a typographical error in the 
regulatory text of section 104. Currently, Sec.  404.104(c) contains a 
reference to Sec.  404.103(d), which before the publication of the 2018 
final rule (83 FR 26162), contained the calculation for the estimated 
number of pilots. The 2018 final rule amended section 103 so that the 
calculation is now located in Sec.  404.103, not 404.103(d), and so we 
propose to correct the reference in section 104 to point to the correct 
section.

VII. Discussion of Proposed Rate Adjustments

    In this NPRM, based on the current methodology described in the 
previous section, we are proposing new pilotage rates for 2019. This 
section discusses the proposed rate changes using the ratemaking steps 
provided in 46 CFR part 404. We will detail each step of the ratemaking 
procedure to show how we arrived at the proposed new rates.
    We propose to conduct the 2019 ratemaking as an ``interim year,'' 
rather than a full ratemaking, such as was conducted in 2018. Thus, for 
this purpose, the Coast Guard proposes to adjust the compensation 
benchmark pursuant to Sec.  404.104(b) rather than Sec.  404.104(a).

A. Step 1: Recognition of Operating Expenses

    Step 1 in our ratemaking methodology requires that the Coast Guard 
review and recognize the previous year's operating expenses (Sec.  
404.101). To do so, we begin by reviewing the independent accountant's 
financial reports for each association's 2016

[[Page 52359]]

expenses and revenues.\12\ For accounting purposes, the financial 
reports divide expenses into designated and undesignated areas. In 
certain instances, for example, costs are applied to the undesignated 
or designated area based on where they were actually accrued. For 
example, costs for ``Applicant pilot license insurance'' in District 
One are assigned entirely to the undesignated areas, as applicant 
pilots work exclusively in those areas. For costs that accrued to the 
pilot associations generally, for example, insurance, the cost is 
divided between the designated and undesignated areas on a pro rata 
basis. The recognized operating expenses for the three districts are 
laid out in tables 3 through 5.
---------------------------------------------------------------------------

    \12\ These reports are available in the docket for this 
rulemaking (see Docket # USCG-2018-0665).
---------------------------------------------------------------------------

    As noted above, in 2016, the Coast Guard began authorizing 
surcharges to cover the training costs of applicant pilots. The 
surcharges were intended to reimburse pilot associations for training 
applicants in a more timely fashion than if those costs were listed as 
operating expenses, which would have required three years to reimburse. 
The rationale for using surcharges to cover these expenses, rather than 
including the costs as operating expenses, was so that retiring pilots 
would not have to cover the costs of training their replacements. 
Because operating expenses incurred are not actually recouped for a 
period of three years, beginning in 2016, the Coast Guard added a 
$150,000 surcharge per applicant pilot to recoup those costs in the 
year incurred. To ensure that the ratepayers are not double-billed for 
the same expense(s), we need to deduct the amount collected via 
surcharges from the operating expenses. For that reason, the Coast 
Guard is proposing a ``surcharge adjustment from 2016'' as part of its 
proposed adjustment for each pilotage district. This surcharge 
adjustment reflects the additional monies that were collected by the 
surcharge collected that year. We note that in 2016, there was no 
mechanism to prevent the collection of surcharges above the authorized 
amounts, and so the amounts we propose to deduct from each 
association's operating expenses are equal to the actual amount of 
surcharges collected in the 2016 shipping season, which are in excess 
of $150,000 per applicant pilot.
    We also propose to deduct 3 percent of the ``shared counsel'' 
expenses for each district, to account for lobbying expenditures. 
Pursuant to 33 CFR 404.2(c)(3), lobbying expenses are not permitted to 
be recouped as operating expenses.
    For each of the analyses of the operating expenses below, we 
explain why we are proposing to make the Director's adjustments, other 
than the surcharge adjustments and lobbying expenses, described above. 
Other adjustments have been made by the auditors and are explained in 
the auditor's reports, which are available in the docket for this 
rulemaking. Numbers by the entries are references to descriptions in 
the auditor's reports.

                               Table 3--2016 Recognized Expenses for District One
----------------------------------------------------------------------------------------------------------------
                                                                                   District One
                                                                 -----------------------------------------------
                                                                    Designated     Undesignated
                   Reported expenses for 2016                    --------------------------------
                                                                   St. Lawrence                        Total
                                                                       River       Lake Ontario
----------------------------------------------------------------------------------------------------------------
Costs relating to pilots:
    Pilot subsistence/travel....................................        $421,749        $336,384        $758,133
    Subsistence/Travel--Pilots (D1-16-01).......................         -70,224         -34,846        -105,070
    License insurance...........................................          40,464          28,269          68,733
    Payroll taxes...............................................         111,279          90,179         201,458
    Payroll taxes--Pilots (D1-16-03)............................               0          -2,509          -2,509
    Training....................................................          17,198          13,717          30,915
    Training--Pilots (D1-16-04).................................            -594               0            -594
    Other.......................................................             842             672           1,514
                                                                 -----------------------------------------------
        Total costs relating to pilots..........................         520,714         431,866         952,580
----------------------------------------------------------------------------------------------------------------
Applicant Pilots:
    Wages.......................................................          70,700          90,000         160,700
    Wages (D1-16-02)............................................               0          28,054          28,054
    Subsistence/Travel..........................................               0         146,219         146,219
    Subsistence/Travel--Trainees (D1-16-02).....................         -12,283         -20,589         -32,872
    Benefits....................................................               0               0               0
    Payroll taxes...............................................           8,039          11,123          19,162
    Payroll taxes--Trainees (D1-16-03)..........................               0          -5,115          -5,115
    Surcharge Offset--Director's Adjustment.....................        -318,117        -253,649        -571,766
                                                                 -----------------------------------------------
        Total applicant pilot costs.............................        -251,661          -3,957        -255,618
----------------------------------------------------------------------------------------------------------------
Pilot Boat and Dispatch Costs:
    Pilot boat expense..........................................         209,800         167,335         377,135
    Dispatch expense............................................          51,240          31,705          82,945
    Payroll taxes...............................................          16,007          12,767          28,774
                                                                 -----------------------------------------------
        Total pilot and dispatch costs..........................         277,047         211,807         488,854
----------------------------------------------------------------------------------------------------------------
Administrative Expenses:
    Legal--general counsel......................................           4,565           3,641           8,206
    Legal--shared (K&L Gates) (D1-16-05)........................          20,558          16,397          36,955
    Legal--shared (K&L Gates) (D1-16-05)........................            -713            -713          -1,426

[[Page 52360]]

 
    Legal--shared counsel 3% lobbying fee (K&L Gates)                       -617            -492          -1,109
     (Director's Adjustment)....................................
    Office rent.................................................               0               0               0
    Insurance...................................................          21,869          17,443          39,312
    Employee benefits--Admin....................................           9,428           7,519          16,947
    Payroll taxes--Admin........................................           6,503           5,187          11,690
    Other taxes.................................................         274,503         218,941         493,444
    Admin Travel................................................           2,346           1,871           4,217
    Depreciation/Auto leasing/Other.............................          65,971          52,618         118,589
    Interest....................................................          20,688          16,501          37,189
    Dues and Subscriptions (incl. APA) (D1-16-05)...............          29,687          13,959          43,646
    Dues and Subscriptions (incl. APA) (D1-16-05)...............          -1,079          -1,079          -2,158
    Utilities...................................................          12,318           9,578          21,896
    Salaries--Admin.............................................          65,401          52,163         117,564
    Accounting/Professional fees................................           5,479           3,921           9,400
    Other.......................................................          23,456          18,708          42,164
                                                                 -----------------------------------------------
        Total Administrative Expenses...........................         560,363         436,163         996,526
                                                                 -----------------------------------------------
            Total Operating Expenses............................       1,106,463       1,075,879       2,182,342
----------------------------------------------------------------------------------------------------------------

    In District One, we do not propose any additional Director's 
adjustments.

                               Table 4--2016 Recognized Expenses for District Two
----------------------------------------------------------------------------------------------------------------
                                                                                   District Two
                                                                 -----------------------------------------------
                                                                   Undesignated     Designated
                   Reported expenses for 2016                    --------------------------------
                                                                                    SES to Port        Total
                                                                     Lake Erie         Huron
----------------------------------------------------------------------------------------------------------------
Pilot-related expenses:
    Pilot subsistence/travel....................................        $131,956        $197,935        $329,891
    Pilot subsistence/travel CPA Adjustment (D2-16-01)..........         -44,955         -67,433        -112,388
    License insurance...........................................          10,095          15,142          25,237
    License Insurance CPA Adjustment (D2-16-03).................            -635            -953          -1,588
    Payroll taxes...............................................          77,306         115,958         193,264
                                                                 -----------------------------------------------
        Total Pilot-related expenses............................         173,767         260,649         434,416
----------------------------------------------------------------------------------------------------------------
Expenses related to applicant pilots:
    Wages (from supplemental form)..............................         228,499         342,749         571,248
    Wages--Director's Adjustment................................        -125,472        -188,209        -313,681
    Benefits (from supplemental form)...........................           9,736          14,605          24,341
    Applicant pilot Subsistence/Travel..........................          43,905          65,858         109,763
    Applicant Pilot subsistence/travel CPA Adjustment (D2-16-02)         -14,940         -22,410         -37,350
    Housing Allowance CPA Adjustment (D2-16-02).................          14,940          22,410          37,350
    Payroll taxes...............................................          15,144          22,717          37,861
    2016 Surcharge Offset Director's Adjustment.................        -158,640        -277,106        -435,746
                                                                 -----------------------------------------------
        Total applicant pilot expenses..........................          13,172         -19,386          -6,214
----------------------------------------------------------------------------------------------------------------
Pilot Boat and Dispatch Costs:
    Pilot boat expense..........................................         205,572         308,359         513,931
    Dispatch expense............................................           8,520          12,780          21,300
    Employee benefits...........................................          75,405         113,107         188,512
    Payroll taxes...............................................          10,305          15,457          25,762
                                                                 -----------------------------------------------
    Total pilot and dispatch costs..............................         299,802         449,703         749,505
----------------------------------------------------------------------------------------------------------------
Administrative Expenses:
    Office rent.................................................          26,275          39,413          65,688
    Office Rent CPA Adjustment (D2-16-08).......................           4,766           7,150          11,916
    Legal--general counsel......................................           1,624           2,437           4,061
    Legal--shared counsel (K&L Gates)...........................          13,150          19,725          32,875
    Legal--shared counsel CPA Adjustment (D2-16-04).............            -526            -789          -1,315

[[Page 52361]]

 
    Legal--shared counsel 3% lobbying fee (K&L Gates)                       -395            -592            -987
     (Director's Adjustment)....................................
    Employee Benefits--Admin Employees..........................          59,907          89,861         149,768
    Employee benefits (Director's Adjustment)...................         -30,200         -60,400         -90,600
    Workman's compensation--pilots..............................          74,561         111,841         186,402
    Payroll taxes--admin employees..............................           5,688           8,532          14,220
    Insurance...................................................          10,352          15,529          25,881
    Other taxes.................................................           9,149          13,723          22,872
    Administrative Travel.......................................          18,205          27,307          45,512
    Administrative Travel (D2-16-06)............................            -153            -229            -382
    Depreciation/auto leasing/other.............................          39,493          59,239          98,732
    Depreciation/Auto leasing/Other CPA Adjustment (D2-16-03)...            -221            -332            -553
    Interest....................................................           6,224           9,336          15,560
    APA Dues....................................................          17,145          25,717          42,862
    APA Dues CPA Adjustment (D2-16-04)..........................            -815          -1,223          -2,038
    Utilities...................................................          16,748          25,121          41,869
    Salaries....................................................          55,426          83,139         138,565
    Accounting/Professional fees................................          12,520          18,780          31,300
    Other.......................................................         128,093         192,139         320,232
    Other CPA Adjustment (D2-16-07).............................            -221            -332            -553
                                                                 -----------------------------------------------
        Total Administrative Expenses...........................         435,975         638,861       1,074,836
                                                                 -----------------------------------------------
            Total Operating Expenses............................         922,716       1,329,827       2,252,543
----------------------------------------------------------------------------------------------------------------

    In District Two, we propose two additional Director's adjustments. 
First, we note that we initially received inaccurate information from 
District Two regarding applicant pilot wages.\13\ In response to our 
inquiries, District Two provided updated information about wages and 
benefits paid to applicant pilots and asserted that wages for two 
applicant pilots were $571,248 combined. Because this number is far out 
of line from wages paid to applicant pilots in other districts, as well 
as the Coast Guard's estimate of approximately $150,000 per pilot to 
pay for wages, benefits, and training, the Director proposes only 
allowing a portion of these expenses to be recouped as reasonable 
operating expenses. Therefore, we propose an adjustment of -$313,681 to 
the allowed recoupable operating expenses for District Two. This 
results in a total wage of $257,567, or approximately $128,783 per 
applicant, which is equal to the wages for applicant pilots in District 
Three. Given that the Coast Guard estimated the total cost for each 
applicant pilot to be $150,000, we believe this is a reasonable 
adjustment and the Director will allow the full amount.
---------------------------------------------------------------------------

    \13\ District Two initially reported paying $1,772,213 in 
compensation to 5 applicant pilots, although they were authorized 
only two applicants in 2016. See docket # USCG-2018-0665-0003, p. 8.
---------------------------------------------------------------------------

    We also deducted a total of $90,600 from the employee benefits 
costs of District Two. This is based on a note from the auditor that 
this money had been used for ``health insurance expenses . . . paid to 
retired pilots who performed pilotage services for the District in 
2016.'' \14\ While pilot associations are free to hire additional 
pilots to assist with workloads, money paid to them comes from the 
general monies used to pay pilot compensation. Unlike payroll taxes, we 
consider health benefits to be ``compensation,'' and compensation paid 
to pilots cannot be recouped as operating expenses, as health care 
expenses were part of the calculations of the compensation benchmark 
rate set forth in the 2018 final rule.
---------------------------------------------------------------------------

    \14\ Docket # USCG-2018-0665-0003, p. 8.

                              Table 5--2016 Recognized Expenses for District Three
----------------------------------------------------------------------------------------------------------------
                                                                                  District Three
                                                                 -----------------------------------------------
                                                                   Undesignated     Designated
                                                                 --------------------------------
                   Reported expenses for 2016                       Lakes Huron
                                                                   and Michigan     St. Mary's         Total
                                                                     and Lake          River
                                                                     Superior
----------------------------------------------------------------------------------------------------------------
Pilotage Costs:
    Pilot subsistence/travel....................................        $378,014        $100,485        $478,499
    Pilot subsistence/Travel (D3-16-01).........................         -50,285         -13,367         -63,652
    Pilot subsistence/Travel director's adjustment (housing                    0         -36,900         -36,900
     allowance).................................................
    License insurance...........................................          21,446           5,701          27,147
    Payroll taxes...............................................         194,159          51,612         245,771
    Other.......................................................          19,193          72,202          91,395
                                                                 -----------------------------------------------

[[Page 52362]]

 
        Total Pilotage Costs....................................         562,527         179,733         742,260
----------------------------------------------------------------------------------------------------------------
Applicant Pilots:
    Wages.......................................................         610,433         162,267         772,700
    Benefits....................................................         100,234          26,644         126,878
    Subsistence/travel..........................................         170,089          45,214         215,303
    Payroll taxes...............................................          50,561          13,440          64,001
    Training....................................................          11,642           3,095          14,737
    Surcharge Adjustment........................................      -1,106,339        -235,673      -1,342,012
                                                                 -----------------------------------------------
        Total applicant pilotage costs..........................        -163,380          14,987        -148,393
----------------------------------------------------------------------------------------------------------------
Pilot Boat and Dispatch Costs:
    Pilot boat costs............................................         580,822         154,396         735,218
    Pilot boat costs (D3-16-02).................................         -72,724         -19,332         -92,056
    Dispatch costs..............................................         146,220          38,868         185,088
    Employee benefits...........................................           6,517           1,733           8,250
    Payroll taxes...............................................          15,745           4,186          19,931
                                                                 -----------------------------------------------
        Total pilot boat and dispatch costs.....................         676,580         179,851         856,431
----------------------------------------------------------------------------------------------------------------
Administrative Expenses:
    Legal--general counsel......................................          22,196           5,900          28,096
    Legal--shared counsel (K&L Gates)...........................          34,020           9,043          43,063
    Legal--shared counsel 3% (Director's Adjustment)............          -1,021            -271          -1,292
    Office rent.................................................           6,978           1,855           8,833
    Insurance...................................................          14,562           3,871          18,433
    Employee benefits...........................................         103,322          27,465         130,787
    Payroll Taxes (administrative employees)....................           6,540           1,739           8,279
    Other taxes.................................................           1,338             356           1,694
    Depreciation/auto leasing/other.............................          46,016          12,232          58,248
    Interest....................................................           2,775             738           3,513
    APA Dues....................................................          24,760           6,582          31,342
    Utilities...................................................          38,763          10,304          49,067
    Administrative Salaries.....................................          94,371          25,086         119,457
    Accounting/Professional fees................................          31,877           8,474          40,351
    Pilot Training..............................................          35,516           9,441          44,957
    Other.......................................................          13,619           3,621          17,240
    Other expenses (D3-16-03)...................................          -2,054            -546          -2,600
                                                                 -----------------------------------------------
        Total Administrative Expenses...........................         473,578         125,890         599,468
                                                                 -----------------------------------------------
            Total Operating Expenses............................       1,549,305         500,461       2,049,766
----------------------------------------------------------------------------------------------------------------

    For District Three, the Director proposes to disallow $36,900 in 
``housing allowance'' expenditures. At this time, we do not know if 
these funds were for properties that were available to all of the 
association partners/members (and thus recoverable as operating 
expenses) or if these funds were used for properties that were 
exclusively used by a single member and his family (and therefore not 
recoverable as operating expenses). We invite the pilot association to 
provide the receipts that could help to determine if these are 
recoverable operating expenses.

[[Page 52363]]

B. Step 2: Projection of Operating Expenses

    Having identified the recognized 2016 operating expenses in Step 1, 
the next step is to estimate the current year's operating expenses by 
adjusting those expenses for inflation over the 3-year period. We 
calculated inflation using the Bureau of Labor Statistics' data from 
the Consumer Price Index for the Midwest Region of the United States 
\15\ and reports from the Federal Reserve.\16\ Based on that 
information, the calculations for Step 1 are as follows:
---------------------------------------------------------------------------

    \15\ Available at https://www.bls.gov/regions/midwest/data/consumerpriceindexhistorical_midwest_table.pdf.
    \16\ https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20180613.pdf.

                           Table 6--2016 Adjusted Operating Expenses for District One
----------------------------------------------------------------------------------------------------------------
                                                                    Designated     Undesignated        Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)...............................      $1,106,463      $1,075,879      $2,182,342
2017 Inflation Modification (@1.7%).............................          18,810          18,290          37,100
2018 Inflation Modification (@2.1%).............................          23,631          22,978          46,609
2019 Inflation Modification (@2.1%).............................          24,127          23,460          47,587
                                                                 -----------------------------------------------
    Adjusted 2019 Operating Expenses............................       1,173,031       1,140,607       2,313,638
----------------------------------------------------------------------------------------------------------------


                              Table 7--Adjusted Operating Expenses for District Two
----------------------------------------------------------------------------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)...............................        $922,716      $1,329,827      $2,252,543
2017 Inflation Modification (@1.7%).............................          15,686          22,607          38,293
2018 Inflation Modification (@2.1%).............................          19,706          28,401          48,107
2019 Inflation Modification (@2.1%).............................          20,120          28,998          49,118
                                                                 -----------------------------------------------
    Adjusted 2019 Operating Expenses............................         978,228       1,409,833       2,388,061
----------------------------------------------------------------------------------------------------------------


                             Table 8--Adjusted Operating Expenses for District Three
----------------------------------------------------------------------------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)...............................      $1,549,305        $500,461      $2,049,766
2017 Inflation Modification (@1.7%).............................          26,338           8,508          34,846
2018 Inflation Modification (@2.1%).............................          33,089          10,688          43,777
2019 Inflation Modification (@2.1%).............................          33,783          10,913          44,696
                                                                 -----------------------------------------------
    Adjusted 2019 Operating Expenses............................       1,642,515         530,570       2,173,085
----------------------------------------------------------------------------------------------------------------

C. Step 3: Estimate Number of Working Pilots

    In accordance with the text in Sec.  404.103, we estimated the 
number of working pilots in each district. Based on input from the 
Saint Lawrence Seaway Pilots Association, we estimate that there will 
be 17 working pilots in 2019 in District One. Based on input from the 
Lakes Pilots Association, we estimate there will be 14 working pilots 
in 2019 in District Two. Based on input from the Western Great Lakes 
Pilots Association, we estimate there will be 20 working pilots in 2019 
in District Three.
    Furthermore, based on the staffing model employed to develop the 
total number of pilots needed, we assign a certain number of pilots to 
designated waters and a certain number to undesignated waters. These 
numbers are used to determine the amount of revenue needed in their 
respective areas.

                                           Table 9--Authorized Pilots
----------------------------------------------------------------------------------------------------------------
                                                                   District One    District Two   District Three
----------------------------------------------------------------------------------------------------------------
Maximum number of pilots (per Sec.   401.220(a)) \17\...........              17              15              22
2019 Authorized pilots (total)..................................              17              14              20
Pilots assigned to designated areas.............................              10               7               4
Pilots assigned to undesignated areas...........................               7               7              16
----------------------------------------------------------------------------------------------------------------

D. Step 4: Determine Target Pilot Compensation

    In this step, we determine the total pilot compensation for each 
area. Because we are proposing an ``interim'' ratemaking this year, we 
propose to follow the procedure outlined in paragraph (b) of Sec.  
404.104, which adjusts the existing compensation benchmark by 
inflation. Because we do not have a value for the employment cost index 
for 2019, we multiply last year's compensation benchmark by the Median 
PCE Inflation of 2.1 percent.\18\ Based on the projected 2019 inflation 
estimate, the proposed compensation

[[Page 52364]]

benchmark for 2019 is $359,887 per pilot.
---------------------------------------------------------------------------

    \17\ For a detailed calculation of the staffing model, see 82 FR 
41466, table 6 at 41480 (August 31, 2017).
    \18\ https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20180613.pdf.
---------------------------------------------------------------------------

    Next, we certify that the number of pilots estimated for 2019 is 
less than or equal to the number permitted under the staffing model in 
Sec.  401.220(a). The staffing model suggests that the number of pilots 
needed is 17 pilots for District One, 15 pilots for District Two, and 
22 pilots for District Three,\19\ which is more than or equal to the 
numbers of working pilots provided by the pilot associations.
---------------------------------------------------------------------------

    \19\ See Table 6 of the 2017 final rule, 82 FR 41466 at 41480 
(August 31, 2017). The methodology of the staffing model is 
discussed at length in the final rule (see pages 41476-41480 for a 
detailed analysis of the calculations).
---------------------------------------------------------------------------

    Thus, in accordance with proposed Sec.  404.104(c), we use the 
revised target individual compensation level to derive the total pilot 
compensation by multiplying the individual target compensation by the 
estimated number of working pilots for each district, as shown in 
tables 10-12.

                                 Table 10--Target Compensation for District One
----------------------------------------------------------------------------------------------------------------
                                                                    Designated     Undesignated        Total
----------------------------------------------------------------------------------------------------------------
Target Pilot Compensation.......................................        $359,887        $359,887        $359,887
Number of Pilots................................................              10               7              17
                                                                 -----------------------------------------------
    Total Target Pilot Compensation.............................       3,598,870       2,519,209       6,118,079
----------------------------------------------------------------------------------------------------------------


                                 Table 11--Target Compensation for District Two
----------------------------------------------------------------------------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Target Pilot Compensation.......................................        $359,887        $359,887        $359,887
Number of Pilots................................................               7               7              14
                                                                 -----------------------------------------------
    Total Target Pilot Compensation.............................       2,519,209       2,519,209       5,038,418
----------------------------------------------------------------------------------------------------------------


                                Table 12--Target Compensation for District Three
----------------------------------------------------------------------------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Target Pilot Compensation.......................................        $359,887        $359,887        $359,887
Number of Pilots................................................              16               4              20
                                                                 -----------------------------------------------
    Total Target Pilot Compensation.............................       5,758,192       1,439,548       7,197,740
----------------------------------------------------------------------------------------------------------------

E. Step 5: Calculate Working Capital Fund

    Next, we calculate the working capital fund revenues needed for 
each area. First, we add the figures for projected operating expenses 
and total pilot compensation for each area. Next, we find the preceding 
year's average annual rate of return for new issues of high grade 
corporate securities. Using Moody's data, that number is 3.74 
percent.\20\ By multiplying the two figures, we get the working capital 
fund contribution for each area, as shown in tables 13-15.
---------------------------------------------------------------------------

    \20\ Moody's Seasoned Aaa Corporate Bond Yield, average of 2017 
monthly data. The Coast Guard uses the most recent complete year of 
data. See https://research.stlouisfed.org/fred2/series/AAA/downloaddata?cid=119.

                           Table 13--Working Capital Fund Calculation for District One
----------------------------------------------------------------------------------------------------------------
                                                                    Designated     Undesignated        Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................      $1,173,031      $1,140,607      $2,313,638
Total Target Pilot Compensation (Step 4)........................       3,598,870       2,519,209       6,118,079
                                                                 -----------------------------------------------
    Total 2019 Expenses.........................................       4,771,901       3,659,816       8,431,717
----------------------------------------------------------------------------------------------------------------
Working Capital Fund (3.74%)....................................         178,469         136,877         315,346
----------------------------------------------------------------------------------------------------------------


                           Table 14--Working Capital Fund Calculation for District Two
----------------------------------------------------------------------------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................        $978,228      $1,409,833      $2,388,061
Total Target Pilot Compensation (Step 4)........................       2,519,209       2,519,209       5,038,418
                                                                 -----------------------------------------------
    Total 2019 Expenses.........................................       3,497,437       3,929,042       7,426,479
----------------------------------------------------------------------------------------------------------------
Working Capital Fund (3.74%)....................................         130,804         146,946         277,750
----------------------------------------------------------------------------------------------------------------


[[Page 52365]]


                          Table 15--Working Capital Fund Calculation for District Three
----------------------------------------------------------------------------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................      $1,642,515        $530,570      $2,173,085
Total Target Pilot Compensation (Step 4)........................       5,758,192       1,439,548       7,197,740
                                                                 -----------------------------------------------
    Total 2019 Expenses.........................................       7,400,707       1,970,118       9,370,825
----------------------------------------------------------------------------------------------------------------
Working Capital Fund (3.74%)....................................         276,786          73,682         350,468
----------------------------------------------------------------------------------------------------------------

F. Step 6: Calculate Revenue Needed

    In this step, we add up all the expenses accrued to derive the 
total revenue needed for each area. These expenses include the 
projected operating expenses (from Step 2), the total pilot 
compensation (from Step 4), and the working capital fund contribution 
(from Step 5). The calculations are shown in tables 15-17.

                                    Table 15--Revenue Needed for District One
----------------------------------------------------------------------------------------------------------------
                                                                    Designated     Undesignated        Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................      $1,173,031      $1,140,607      $2,313,638
Total Target Pilot Compensation (Step 4)........................       3,598,870       2,519,209       6,118,079
Working Capital Fund (Step 5)...................................         178,469         136,877         315,346
                                                                 -----------------------------------------------
    Total Revenue Needed........................................       4,950,370       3,796,693       8,747,063
----------------------------------------------------------------------------------------------------------------


                                    Table 16--Revenue Needed for District Two
----------------------------------------------------------------------------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................        $978,228      $1,409,833      $2,388,061
Total Target Pilot Compensation (Step 4)........................       2,519,209       2,519,209       5,038,418
Working Capital Fund (Step 5)...................................         130,804         146,946         277,750
                                                                 -----------------------------------------------
    Total Revenue Needed........................................       3,628,241       4,075,988       7,704,229
----------------------------------------------------------------------------------------------------------------


                                   Table 17--Revenue Needed for District Three
----------------------------------------------------------------------------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................      $1,642,515        $530,570      $2,173,085
Total Target Pilot Compensation (Step 4)........................       5,758,192       1,439,548       7,197,740
Working Capital Fund (Step 5)...................................         276,786          73,682         350,468
                                                                 -----------------------------------------------
    Total Revenue Needed........................................       7,677,493       2,043,800       9,721,293
----------------------------------------------------------------------------------------------------------------

G. Step 7: Calculate Initial Base Rates

    Having determined the revenue needed for each area in the previous 
six steps, we divide that number by the expected number of hours of 
traffic to develop an hourly rate. Step 7 is a two-part process. In the 
first part, we calculate the 10-year average of traffic in each 
district. Because we are calculating separate figures for designated 
and undesignated waters, there are two parts for each calculation. The 
calculations are shown in tables 18-20.

                 Table 18--Time on Task for District One
------------------------------------------------------------------------
                  Year                      Designated     Undesignated
------------------------------------------------------------------------
2017....................................            7605            8679
2016....................................            5434            6217
2015....................................            5743            6667
2014....................................            6810            6853
2013....................................            5864            5529
2012....................................            4771            5121
2011....................................            5045            5377
2010....................................            4839            5649
2009....................................            3511            3947
2008....................................            5829            5298
Average.................................            5545            5934
------------------------------------------------------------------------


[[Page 52366]]


                 Table 19--Time on Task for District Two
------------------------------------------------------------------------
                  Year                     Undesignated     Designated
------------------------------------------------------------------------
2017....................................            5139            6074
2016....................................            6425            5615
2015....................................            6535            5967
2014....................................            7856            7001
2013....................................            4603            4750
2012....................................            3848            3922
2011....................................            3708            3680
2010....................................            5565            5235
2009....................................            3386            3017
2008....................................            4844            3956
Average.................................            5191            4922
------------------------------------------------------------------------


                Table 20--Time on Task for District Three
------------------------------------------------------------------------
                  Year                     Undesignated     Designated
------------------------------------------------------------------------
2017....................................           26183            3798
2016....................................           23421            2769
2015....................................           22824            2696
2014....................................           25833            3835
2013....................................           17115            2631
2012....................................           15906            2163
2011....................................           16012            1678
2010....................................           20211            2461
2009....................................           12520            1820
2008....................................           14287            2286
Average.................................           19431            2614
------------------------------------------------------------------------

    Next, we derive the initial hourly rate by dividing the revenue 
needed by the average number of hours for each area. This produces an 
initial rate needed to produce the revenue needed for each area, 
assuming the amount of traffic is as expected. The calculations for 
each area are set forth in tables 21-23.

          Table 21--Initial Rate Calculations for District One
------------------------------------------------------------------------
                                        Designated        Undesignated
------------------------------------------------------------------------
Revenue needed (Step 6)...........         $4,950,370         $3,796,693
Average time on task (hours)......              5,545              5,934
Initial rate......................                893                640
------------------------------------------------------------------------


          Table 22--Initial Rate Calculations for District Two
------------------------------------------------------------------------
                                       Undesignated        Designated
------------------------------------------------------------------------
Revenue needed (Step 6)...........         $3,628,241         $4,075,988
Average time on task (hours)......              5,191              4,922
Initial rate......................                699                828
------------------------------------------------------------------------


         Table 23--Initial Rate Calculations for District Three
------------------------------------------------------------------------
                                       Undesignated        Designated
------------------------------------------------------------------------
Revenue needed (Step 6)...........         $7,677,493         $2,043,800
Average time on task (hours)......             19,431              2,614
Initial rate......................                395                782
------------------------------------------------------------------------

H. Step 8: Calculate Weighting Factors by Area

    In this step, we calculate the average weighting factor for each 
designated and undesignated area. We collect the weighting factors, set 
forth in 46 CFR 401.400, for each vessel trip. Using this database, we 
calculate the average weighting factor for each area using the data 
from each vessel transit from 2014 onward, as shown in tables 24-29.

[[Page 52367]]



                       Table 24--Average Weighting Factor for District 1, Designated Areas
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting       Weighted
                        Vessel class/year                            transits         factor         transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014)..................................................              31               1              31
Class 1 (2015)..................................................              41               1              41
Class 1 (2016)..................................................              31               1              31
Class 1 (2017)..................................................              28               1              28
Class 2 (2014)..................................................             285            1.15          327.75
Class 2 (2015)..................................................             295            1.15          339.25
Class 2 (2016)..................................................             185            1.15          212.75
Class 2 (2017)..................................................             352            1.15           404.8
Class 3 (2014)..................................................              50             1.3              65
Class 3 (2015)..................................................              28             1.3            36.4
Class 3 (2016)..................................................              50             1.3              65
Class 3 (2017)..................................................              67             1.3            87.1
Class 4 (2014)..................................................             271            1.45          392.95
Class 4 (2015)..................................................             251            1.45          363.95
Class 4 (2016)..................................................             214            1.45           310.3
Class 4 (2017)..................................................             285            1.45          413.25
                                                                 -----------------------------------------------
    Total.......................................................            2464  ..............          3149.5
----------------------------------------------------------------------------------------------------------------
Average weighting factor (weighted transits/number of transits).  ..............            1.28  ..............
----------------------------------------------------------------------------------------------------------------


                      Table 25--Average Weighting Factor for District 1, Undesignated Areas
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting       Weighted
                        Vessel class/year                            transits         factor         transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014)..................................................              25               1              25
Class 1 (2015)..................................................              28               1              28
Class 1 (2016)..................................................              18               1              18
Class 1 (2017)..................................................              19               1              19
Class 2 (2014)..................................................             238            1.15           273.7
Class 2 (2015)..................................................             263            1.15          302.45
Class 2 (2016)..................................................             169            1.15          194.35
Class 2 (2017)..................................................             290            1.15           333.5
Class 3 (2014)..................................................              60             1.3              78
Class 3 (2015)..................................................              42             1.3            54.6
Class 3 (2016)..................................................              28             1.3            36.4
Class 3 (2017)..................................................              45             1.3            58.5
Class 4 (2014)..................................................             289            1.45          419.05
Class 4 (2015)..................................................             269            1.45          390.05
Class 4 (2016)..................................................             222            1.45           321.9
Class 4 (2017)..................................................             285            1.45          413.25
                                                                 -----------------------------------------------
    Total.......................................................            2290  ..............         2965.75
----------------------------------------------------------------------------------------------------------------
Average weighting factor (weighted transits/number of transits).  ..............            1.30  ..............
----------------------------------------------------------------------------------------------------------------


                      Table 26--Average Weighting Factor for District 2, Undesignated Areas
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting       Weighted
                        Vessel class/year                            transits         factor         transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014)..................................................              31               1              31
Class 1 (2015)..................................................              35               1              35
Class 1 (2016)..................................................              32               1              32
Class 1 (2017)..................................................              21               1              21
Class 2 (2014)..................................................             356            1.15           409.4
Class 2 (2015)..................................................             354            1.15           407.1
Class 2 (2016)..................................................             380            1.15             437
Class 2 (2017)..................................................             222            1.15           255.3
Class 3 (2014)..................................................              20             1.3              26
Class 3 (2015)..................................................               0             1.3               0
Class 3 (2016)..................................................               9             1.3            11.7
Class 3 (2017)..................................................              12             1.3            15.6
Class 4 (2014)..................................................             636            1.45           922.2
Class 4 (2015)..................................................             560            1.45             812
Class 4 (2016)..................................................             468            1.45           678.6
Class 4 (2017)..................................................             319            1.45          462.55
                                                                 -----------------------------------------------

[[Page 52368]]

 
    Total.......................................................            3455  ..............         4556.45
----------------------------------------------------------------------------------------------------------------
Average weighting factor (weighted transits/number of transits).  ..............            1.32  ..............
----------------------------------------------------------------------------------------------------------------


                       Table 27--Average Weighting Factor for District 2, Designated Areas
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting       Weighted
                        Vessel class/year                            transits         factor         transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014)..................................................              20               1              20
Class 1 (2015)..................................................              15               1              15
Class 1 (2016)..................................................              28               1              28
Class 1 (2017)..................................................              15               1              15
Class 2 (2014)..................................................             237            1.15          272.55
Class 2 (2015)..................................................             217            1.15          249.55
Class 2 (2016)..................................................             224            1.15           257.6
Class 2 (2017)..................................................             127            1.15          146.05
Class 3 (2014)..................................................               8             1.3            10.4
Class 3 (2015)..................................................               8             1.3            10.4
Class 3 (2016)..................................................               4             1.3             5.2
Class 3 (2017)..................................................               4             1.3             5.2
Class 4 (2014)..................................................             359            1.45          520.55
Class 4 (2015)..................................................             340            1.45             493
Class 4 (2016)..................................................             281            1.45          407.45
Class 4 (2017)..................................................             185            1.45          268.25
                                                                 -----------------------------------------------
    Total.......................................................            2072  ..............          2724.2
----------------------------------------------------------------------------------------------------------------
Average weighting factor (weighted transits/number of transits).  ..............            1.31  ..............
----------------------------------------------------------------------------------------------------------------


                      Table 28--Average Weighting Factor for District 3, Undesignated Areas
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting       Weighted
                        Vessel class/year                            transits         factor         transits
----------------------------------------------------------------------------------------------------------------
Area 6:
    Class 1 (2014)..............................................              45               1              45
    Class 1 (2015)..............................................              56               1              56
    Class 1 (2016)..............................................             136               1             136
    Class 1 (2017)..............................................             148               1             148
    Class 2 (2014)..............................................             274            1.15           315.1
    Class 2 (2015)..............................................             207            1.15          238.05
    Class 2 (2016)..............................................             236            1.15           271.4
    Class 2 (2017)..............................................             264            1.15           303.6
    Class 3 (2014)..............................................              15             1.3            19.5
    Class 3 (2015)..............................................               8             1.3            10.4
    Class 3 (2016)..............................................              10             1.3              13
    Class 3 (2017)..............................................              19             1.3            24.7
    Class 4 (2014)..............................................             394            1.45           571.3
    Class 4 (2015)..............................................             375            1.45          543.75
    Class 4 (2016)..............................................             332            1.45           481.4
    Class 4 (2017)..............................................             367            1.45          532.15
                                                                 -----------------------------------------------
        Total for Area 6........................................           2,886  ..............        3,709.35
----------------------------------------------------------------------------------------------------------------
Area 8:
    Class 1 (2014)..............................................               3               1               3
    Class 1 (2015)..............................................               0               1               0
    Class 1 (2016)..............................................               4               1               4
    Class 1 (2017)..............................................               4               1               4
    Class 2 (2014)..............................................             177            1.15          203.55
    Class 2 (2015)..............................................             169            1.15          194.35
    Class 2 (2016)..............................................             174            1.15           200.1
    Class 2 (2017)..............................................             151            1.15          173.65
    Class 3 (2014)..............................................               3             1.3             3.9
    Class 3 (2015)..............................................               0             1.3               0
    Class 3 (2016)..............................................               7             1.3             9.1
    Class 3 (2017)..............................................              18             1.3            23.4
    Class 4 (2014)..............................................             243            1.45          352.35
    Class 4 (2015)..............................................             253            1.45          366.85

[[Page 52369]]

 
    Class 4 (2016)..............................................             204            1.45           295.8
    Class 4 (2017)..............................................             269            1.45          390.05
                                                                 -----------------------------------------------
        Total for Area 8........................................           1,679  ..............          2224.1
                                                                 -----------------------------------------------
            Combined total......................................           4,565  ..............        5,933.45
----------------------------------------------------------------------------------------------------------------
Average weighting factor (weighted transits/number of transits).  ..............            1.30  ..............
----------------------------------------------------------------------------------------------------------------


                       Table 29--Average Weighting Factor for District 3, Designated Areas
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting       Weighted
                        Vessel class/year                            transits         factor         transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014)..................................................              27               1              27
Class 1 (2015)..................................................              23               1              23
Class 1 (2016)..................................................              55               1              55
Class 1 (2017)..................................................              62               1              62
Class 2 (2014)..................................................             221            1.15          254.15
Class 2 (2015)..................................................             145            1.15          166.75
Class 2 (2016)..................................................             174            1.15           200.1
Class 2 (2017)..................................................             170            1.15           195.5
Class 3 (2014)..................................................               4             1.3             5.2
Class 3 (2015)..................................................               0             1.3               0
Class 3 (2016)..................................................               6             1.3             7.8
Class 3 (2017)..................................................              14             1.3            18.2
Class 4 (2014)..................................................             321            1.45          465.45
Class 4 (2015)..................................................             245            1.45          355.25
Class 4 (2016)..................................................             191            1.45          276.95
Class 4 (2017)..................................................             234            1.45           339.3
                                                                 -----------------------------------------------
    Total.......................................................            1892  ..............        2,451.65
----------------------------------------------------------------------------------------------------------------
Average weighting factor (weighted transits/number of transits).  ..............            1.30  ..............
----------------------------------------------------------------------------------------------------------------

I. Step 9: Calculate Revised Base Rates

    In this step, we revise the base rates so that once the impact of 
the weighting factors are considered, the total cost of pilotage will 
be equal to the revenue needed. To do this, we divide the initial base 
rates, calculated in Step 7, by the average weighting factors 
calculated in Step 8, as shown in table 30.

                                          Table 30--Revised Base Rates
----------------------------------------------------------------------------------------------------------------
                                                                                                   Revised rate
                                                                                      Average     (initial rate/
                              Area                                 Initial rate      weighting        average
                                                                     (Step 7)      factor (Step      weighting
                                                                                        8)            factor)
----------------------------------------------------------------------------------------------------------------
District One: Designated........................................            $893            1.28            $698
District One: Undesignated......................................             640            1.30             492
District Two: Undesignated......................................             699            1.32             530
District Two: Designated........................................             828            1.31             632
District Three: Undesignated....................................             395            1.30             304
District Three: Designated......................................             782            1.30             602
----------------------------------------------------------------------------------------------------------------

J. Step 10: Review and Finalize Rates

    In this step, the Director reviews the rates set forth by the 
staffing model and ensures that they meet the goal of ensuring safe, 
efficient, and reliable pilotage. To establish that the proposed rates 
do meet the goal of ensuring safe, efficient and reliable pilotage, the 
Director considered whether the proposed rates incorporate appropriate 
compensation for pilots to handle heavy traffic periods and whether 
there are sufficient pilots to handle those heavy traffic periods. 
Also, he considered whether the proposed rates would cover operating 
expenses and infrastructure costs, and took average traffic and 
weighting factors into consideration. Based on this information, the 
Director is not proposing any alterations to the rates in this step. We 
propose to modify the text in Sec.  401.405(a) to reflect the final 
rates, also shown in table 31.

[[Page 52370]]



                                         Table 31--Proposed Final Rates
----------------------------------------------------------------------------------------------------------------
                                                                                    Final 2018     Proposed 2019
                     Area                                     Name                 pilotage rate   pilotage rate
----------------------------------------------------------------------------------------------------------------
District One: Designated......................  St. Lawrence River..............            $653            $698
District One: Undesignated....................  Lake Ontario....................             435             492
District Two: Undesignated....................  Lake Erie.......................             497             530
District Two: Designated......................  Navigable waters from Southeast              593             632
                                                 Shoal to Port Huron, MI.
District Three: Undesignated..................  Lakes Huron, Michigan, and                   271             304
                                                 Superior.
District Three: Designated....................  St. Mary's River................             600             602
----------------------------------------------------------------------------------------------------------------

K. Surcharges

    Because there are several applicant pilots in 2019, we are 
proposing to levy surcharges to cover the costs needed for training 
expenses. Consistent with previous years, we are proposing to assign a 
cost of $150,000 per applicant pilot. To develop the surcharge, we 
multiply the number of applicant pilots by the average cost per pilot 
to develop a total amount of training costs needed, and then impose 
that amount as a surcharge to all areas in the respective district, 
consisting of a percentage of revenue needed. In this year, there are 
two applicant pilots for District One, one applicant pilot for District 
Two, and four applicant pilots for District Three. The calculations to 
develop the surcharges are shown in table 32. We note that while the 
percentages are rounded for simplicity, such rounding does not impact 
the revenue generated, as surcharges can no longer be collected once 
the surcharge total has been attained.
    Additionally, the Coast Guard is considering the necessity of 
continuing with the surcharge for applicant pilots in this or future 
rulemakings. As the vast majority of registered pilots are not 
scheduled to retire in the next 20 years, we believe that pilot 
associations are now able to plan for the costs associated with 
retirements without relying on the Coast Guard to impose surcharges. We 
invite comment on the necessity of continuing this practice.

                                        Table 32--Surcharge Calculations
----------------------------------------------------------------------------------------------------------------
                                                                   District one    District two   District three
----------------------------------------------------------------------------------------------------------------
Number of applicant pilots......................................               2               1               4
Total applicant training costs..................................        $300,000        $150,000        $600,000
Revenue needed (Step 6).........................................      $8,747,063      $7,704,229      $9,721,293
Total surcharge as percentage (total training costs/revenue)....              3%              2%              6%
----------------------------------------------------------------------------------------------------------------

VIII. Regulatory Analyses

    We developed this proposed rule after considering numerous statutes 
and Executive orders related to rulemaking. A summary of our analyses 
based on these statutes or Executive orders follows.

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. Executive Order 13771 (Reducing Regulation and Controlling 
Regulatory Costs) directs agencies to reduce regulation and control 
regulatory costs and provides that ``for every one new regulation 
issued, at least two prior regulations be identified for elimination, 
and that the cost of planned regulations be prudently managed and 
controlled through a budgeting process.''
    The Office of Management and Budget (OMB) has not designated this 
proposed rule a significant regulatory action under section 3(f) of 
Executive Order 12866. Accordingly, OMB has not reviewed it. Because 
this proposed rule is not a significant regulatory action, it is exempt 
from the requirements of Executive Order 13771. See the OMB's 
Memorandum titled, ``Guidance Implementing Executive Order 13771, 
titled `Reducing Regulation and Controlling Regulatory Costs' '' (April 
5, 2017). A regulatory analysis (RA) follows.
    The purpose of this rulemaking is to propose new base pilotage 
rates and surcharges for training. The last full ratemaking was 
concluded in June of 2018.
    The Coast Guard is required to review and adjust pilotage rates on 
the Great Lakes annually. See sections IV and V of this preamble for 
detailed discussions of the legal basis and purpose for this rulemaking 
and for background information on Great Lakes pilotage ratemaking. 
Based on our annual review for this proposed rulemaking, we propose 
adjusting the pilotage rates for the 2019 shipping season to generate 
sufficient revenues for each district to reimburse its necessary and 
reasonable operating expenses, fairly compensate trained and rested 
pilots, and provide an appropriate working capital fund to use for 
improvements. The rate changes in this proposed rule would, if 
codified, lead to an increase in the cost per unit of service to 
shippers in all three districts, and result in an estimated annual cost 
increase to shippers. The total payments that would be made by shippers 
during the 2019 shipping season are estimated at approximately 
$2,066,143 more than the total payments that were estimated in 2018 
(table 33).\21\
---------------------------------------------------------------------------

    \21\ Total payments across all three districts are equal to the 
increase in payments incurred by shippers as a result of the rate 
changes plus the temporary surcharges applied to traffic in 
Districts One, Two, and Three.

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

[[Page 52371]]

    A detailed discussion of our economic impact analysis follows.
Affected Population
    This proposed rule would impact U.S. Great Lakes pilots, the 3 
pilot associations, and the owners and operators of oceangoing vessels 
that transit the Great Lakes annually. As discussed in step 3 in 
Section VII.C of this preamble, there will be 51 pilots working during 
the 2019 shipping season. The shippers affected by these rate changes 
are those owners and operators of domestic vessels operating ``on 
register'' (employed in foreign trade) and owners and operators of non-
Canadian foreign vessels on routes within the Great Lakes system. These 
owners and operators must have pilots or pilotage service as required 
by 46 U.S.C. 9302. There is no minimum tonnage limit or exemption for 
these vessels. The statute applies only to commercial vessels and not 
to recreational vessels. United States-flagged vessels not operating on 
register and Canadian ``lakers,'' which account for most commercial 
shipping on the Great Lakes, are not required by 46 U.S.C. 9302 to have 
pilots. However, these U.S.- and Canadian-flagged lakers may 
voluntarily choose to engage a Great Lakes registered pilot. Vessels 
that are U.S.-flagged may opt to have a pilot for varying reasons, such 
as unfamiliarity with designated waters and ports, or for insurance 
purposes.
    We used billing information from the years 2015 through 2017 from 
the Great Lakes Pilotage Management System (GLPMS) to estimate the 
average annual number of vessels affected by the rate adjustment. The 
GLPMS tracks data related to managing and coordinating the dispatch of 
pilots on the Great Lakes, and billing in accordance with the services. 
In Step 7 of the methodology, we use a 10-year average to estimate the 
traffic. We use 3 years of the most recent billing data to estimate the 
affected population. When we reviewed 10 years of the most recent 
billing data, we found the data included vessels that have not used 
pilotage services in recent years. We believe using 3 years of billing 
data is a better representation of the vessel population that is 
currently using pilotage services and would be impacted by this 
rulemaking. We found that 448 unique vessels used pilotage services 
during the years 2015 through 2017. That is, these vessels had a pilot 
dispatched to the vessel, and billing information was recorded in the 
GLPMS. Of these vessels, 418 were foreign-flagged vessels and 30 were 
U.S.-flagged. As previously stated, U.S.-flagged vessels not operating 
on register are not required to have a registered pilot per 46 U.S.C. 
9302, but they can voluntarily choose to have one.
    Vessel traffic is affected by numerous factors and varies from year 
to year. Therefore, rather than the total number of vessels over the 
time period, an average of the unique vessels using pilotage services 
from the years 2015 through 2017 is the best representation of vessels 
estimated to be affected by the rate proposed in this NPRM. From the 
years 2015 through 2017, an average of 256 vessels used pilotage 
services annually.\22\ On average, 241 of these vessels were foreign-
flagged vessels and 15 were U.S.-flagged vessels that voluntarily opted 
into the pilotage service.
---------------------------------------------------------------------------

    \22\ Some vessels entered the Great Lakes multiple times in a 
single year, affecting the average number of unique vessels 
utilizing pilotage services in any given year.
---------------------------------------------------------------------------

Total Cost to Shippers
    The rate changes resulting from this adjustment to the rates would 
add new costs to shippers in the form of higher payments to pilots. We 
estimate the effect of the rate changes on shippers by comparing the 
total projected revenues needed to cover costs in 2018 with the total 
projected revenues to cover costs in 2019, including any temporary 
surcharges we have authorized. We set pilotage rates so that pilot 
associations receive enough revenue to cover their necessary and 
reasonable expenses. Shippers pay these rates when they have a pilot as 
required by 46 U.S.C. 9302. Therefore, the aggregate payments of 
shippers to pilot associations are equal to the projected necessary 
revenues for pilot associations. The revenues each year represent the 
total costs that shippers must pay for pilotage services, and the 
change in revenue from the previous year is the additional cost to 
shippers discussed in this proposed rule.
    The impacts of the proposed rate changes on shippers are estimated 
from the District pilotage projected revenues (shown in tables 15 
through 17 of this preamble) and the proposed surcharges described in 
section VII.K of this preamble. We estimate that for the 2019 shipping 
season, the projected revenue needed for all three districts is 
$26,172,585. Temporary surcharges on traffic in Districts One, Two, and 
Three would be applied for the duration of the 2019 season in order for 
the pilotage associations to recover training expenses incurred for 
applicant pilots. We estimate that the pilotage associations would 
require $300,000, $150,000, and $600,000 in revenue for applicant 
training expenses in Districts One, Two, and Three, respectively. This 
would represent a total cost of $1,050,000 to shippers during the 2019 
shipping season. Adding the projected revenue of $26,172,585 to the 
proposed surcharges, we estimate the pilotage associations' total 
projected revenue needed for 2019 would be $27,222,585.
    To estimate the additional cost to shippers from this proposed 
rule, we compare the 2019 total projected revenues to the 2018 
projected revenues. Because we review and prescribe rates for the Great 
Lakes Pilotage annually, the effects are estimated as a single year 
cost rather than annualized over a 10-year period. In the 2018 
rulemaking,\23\ we estimated the total projected revenue needed for 
2018, including surcharges, as $25,156,442. This is the best 
approximation of 2018 revenues as, at the time of this publication, we 
do not have enough audited data available for the 2018 shipping season 
to revise these projections. Table 33 shows the revenue projections for 
2018 and 2019 and details the additional cost increases to shippers by 
area and district as a result of the rate changes and temporary 
surcharges on traffic in Districts One, Two, and Three.
---------------------------------------------------------------------------

    \23\ The 2018 projected revenues are from the 2018 Great Lakes 
Pilotage Ratemaking final rule (83 FR 26189), Table 41.

                                               Table 33--Effect of the Proposed Rule by Area and District
                                                                 [$U.S.; non-discounted]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                            Total 2018                                      Total 2019      Additional
                  Area                    Revenue needed  2018 temporary     projected    Revenue needed  2019 temporary     projected     costs of this
                                              in 2018        surcharge        revenue         in 2019        surcharge        revenue          rule
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total, District 1.......................      $7,988,670        $300,000      $8,288,670      $8,747,063        $300,000      $9,047,063        $758,393

[[Page 52372]]

 
Total, District 2.......................       7,230,300         150,000       7,380,300       7,704,229         150,000       7,854,229         473,929
Total, District 3.......................       8,887,472         600,000       9,487,472       9,721,293         600,000      10,321,293         833,821
                                         ---------------------------------------------------------------------------------------------------------------
    System Total........................     $24,106,442      $1,050,000     $25,156,442     $26,172,585      $1,050,000     $27,222,585      $2,066,143
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The resulting difference between the projected revenue in 2018 and 
the projected revenue in 2019 is the proposed annual change in payments 
from shippers to pilots as a result of the rate change that would be 
imposed by this rule. The effect of the proposed rate change to 
shippers varies by area and district. The rate changes, after taking 
into account the increase in pilotage rates and the addition of 
temporary surcharges, would lead to affected shippers operating in 
District One, District Two, and District Three experiencing an increase 
in payments of $758,393, $473,929, and $833,821, respectively, over the 
previous year. The overall adjustment in payments would be an increase 
in payments by shippers of $2,066,143 across all three districts (an 8 
percent increase over 2018). Again, because we review and set rates for 
Great Lakes Pilotage annually, we estimate the impacts as single year 
costs rather than annualizing them over a 10-year period.
    Table 34 shows the difference in revenue by component from 2018 to 
2019.\24\ The majority of the increase in revenue is due to the 
inflation of operating expenses and to the addition of two pilots who 
were authorized in the 2018 rule. These two pilots are training in 2018 
and will become full-time working pilots at the beginning of the 2019 
shipping season. They would be compensated at the target compensation 
of $359,887 per pilot. The addition of these pilots to full working 
status accounts for $719,774 of the increase ($1,082,472 when also 
including the effect of increasing compensation for 49 pilots). The 
remaining amount is attributed to increases in the working capital 
fund.
---------------------------------------------------------------------------

    \24\ The 2018 projected revenues are from the 2018 final rule 
(83 FR 26189), table 41. The 2018 projected revenues are from tables 
15-17 of this NPRM.

                                  Table 34--Difference in Revenue by Component
----------------------------------------------------------------------------------------------------------------
                                                                                                    Difference
                        Revenue component                         Revenue needed  Revenue needed  (2019 revenue-
                                                                      in 2018         in 2019      2018 revenue)
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses.....................................      $5,965,599      $6,874,784        $909,185
Total Target Pilot Compensation.................................      17,271,765      18,354,237       1,082,472
Working Capital Fund............................................         869,078         943,564          74,486
Total Revenue Needed, without Surcharge.........................      24,106,442      26,172,585       2,066,143
Surcharge.......................................................       1,050,000       1,050,000               0
Total Revenue Needed, with Surcharge............................      25,156,442      27,222,585       2,066,143
----------------------------------------------------------------------------------------------------------------

Pilotage Rates as a Percentage of Vessel Operating Costs
    To estimate the impact of U.S. pilotage costs on foreign-flagged 
vessels that would be affected by the rate adjustment, we looked at the 
pilotage costs as a percentage of a vessel's costs for an entire 
voyage. The portion of the trip on the Great Lakes using a pilot is 
only a portion of the whole trip. The affected vessels are often 
traveling from a foreign port, and the days without a pilot on the 
total trip often exceed the days a pilot is needed.
    To estimate this impact, we used the 2017 study titled, ``Analysis 
of Great Lakes Pilotage Costs on Great Lakes Shipping and the Potential 
Impact of Increases in U.S. Pilotage Charges.'' \25\ We conducted the 
study to explore additional frameworks and methodologies for assessing 
the cost of Great Lakes pilot's ratemaking regulations, with a focus on 
capturing industry and port level economic impacts. The study also 
included an analysis of the pilotage costs as a percentage of the total 
voyage costs that we can use in RAs to estimate the direct impact of 
changes to the pilotage rates.
---------------------------------------------------------------------------

    \25\ The study is available at https://www.dco.uscg.mil/Our-Organization/Assistant-Commandant-for-Prevention-Policy-CG-5P/Marine-Transportation-Systems-CG-5PW/Office-of-Waterways-and-Ocean-Policy/Office-of-Waterways-and-Ocean-Policy-Great-Lakes-Pilotage-Div/.
---------------------------------------------------------------------------

    The study developed a voyage cost model that is based on a vessel's 
daily costs. The daily costs included: Capital repayment costs; fuel 
costs; operating costs (such as crew, supplies, and insurance); port 
costs; speed of the vessel; stevedoring rates; and tolls. The daily 
operating costs were translated into total voyage costs using mileage 
between the ports for a number of voyage scenarios. In the study, the 
total voyage costs were then compared to the U.S. pilotage costs. The 
study found that, using the 2016 rates, the U.S. pilotage charges 
represent 10 percent of the total voyage costs for a vessel carrying 
grain, and between 8 percent and 9 percent of the total voyage costs 
for a vessel carrying steel.\26\ We updated the analysis to estimate 
the percentage U.S. pilotage charges represent using the percentage 
increase in revenues from the years 2016 to 2019. Since the study used 
2016 as the latest year of data, we compared the revenues needed in 
2019 and 2018 to the 2016 revenues in order to estimate the change in 
pilotage costs

[[Page 52373]]

as a percentage of total voyage costs from 2018 to 2019. Table 35 shows 
the revenues needed for the years 2016, 2017, and 2018.
---------------------------------------------------------------------------

    \26\ Martin Associates, ``Analysis of Great Lakes Pilotage Costs 
on Great Lakes Shipping and the Potential Impact of Increases in 
U.S. Pilotage Charges,'' page 33. Available at https://www.regulations.gov, USCG-2018-0665-0005.

                             Table 35--Revenue Needed in 2016, 2017, 2018, and 2019
----------------------------------------------------------------------------------------------------------------
                                                  Revenue needed  Revenue needed  Revenue needed  Revenue needed
                Revenue component                     in 2016         in 2017         in 2018         in 2019
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses.....................      $4,677,518      $5,155,280      $5,965,599      $6,874,784
Total Target Pilot Compensation.................      12,066,226      14,983,335      17,271,765      18,354,237
Working Capital Fund............................         709,934         837,766         869,078         943,564
Total Revenue Needed, without Surcharge.........      17,453,678      20,976,381      24,106,442      26,172,585
Surcharge.......................................       1,650,000       1,350,000       1,050,000       1,050,000
Total Revenue Needed, with Surcharge............      19,103,678      22,326,381      25,156,442      27,222,585
% Increase from 2016 Total Revenue..............  ..............             17%             32%             42%
U.S. Pilotage Cost as Percentage of the Total               9.8%           11.3%           12.6%           13.4%
 Voyage Costs...................................
----------------------------------------------------------------------------------------------------------------

    From 2016 to 2019, the total revenues needed would increase by 42 
percent. While the change in total voyage cost would vary by the trip, 
vessel class, and whether the vessel is carrying steel or grain, we 
used these percentages as an average increase to estimate the change in 
the impact. When we increased the 2016 base pilotage charges by 32 
percent, we found the U.S. pilotage costs represented an average of 
12.6 percent of the total voyage costs for 2018. To look at the 
percentage of the total voyage costs for 2019, we then increased the 
base 2016 rates by 42 percent. With this proposed rule's rates for 
2019, pilotage costs are estimated to account for 13.4 percent of the 
total voyage costs, or a 0.8 percent increase over the percentage that 
U.S. pilotage costs represented of the total voyage in 2018.
    It is important to note that this analysis is based on a number of 
assumptions. The purpose of the study was to look at the impact of the 
U.S. pilotage rates. The study did not include an analysis of the GLPA 
rates. It was assumed that a U.S. pilot is assigned to all portions of 
a voyage where he or she could be assigned. In reality, the assignment 
of a United States or Canadian pilot is based on the order in which a 
vessel enters the system, as outlined in the Memorandum of 
Understanding between the GLPA and the Coast Guard.
    This analysis only looks at the impact of proposed U.S. pilotage 
cost changes. All other costs were held constant at the 2016 levels, 
including Canadian pilotage costs, tolls, stevedoring, and port 
charges. This analysis estimates the impacts of Great Lakes pilotage 
rates holding all other factors constant. If other factors or sectors 
were not held constant but, instead, were allowed to adjust or 
fluctuate, it is likely that the impact of pilotage rates would be 
different. Many factors that drive the tonnage levels of foreign cargo 
on the Great Lakes and St. Lawrence Seaway were held constant for this 
analysis. These factors include, but are not limited to, demand for 
steel and grain, construction levels in the regions, tariffs, exchange 
rates, weather conditions, crop production, rail and alternative route 
pricing, tolls, vessel size restriction on the Great Lakes and St. 
Lawrence Seaway, and inland waterway river levels.
Benefits
    This proposed rule would allow the Coast Guard to meet the 
requirements in 46 U.S.C. 9303 to review the rates for pilotage 
services on the Great Lakes. The rate changes would promote safe, 
efficient, and reliable pilotage service on the Great Lakes by: (1) 
Ensuring that rates cover an association's operating expenses; (2) 
providing fair pilot compensation, adequate training, and sufficient 
rest periods for pilots; and (3) ensuring the association produces 
enough revenue to fund future improvements. The rate changes would also 
help recruit and retain pilots, which would ensure a sufficient number 
of pilots to meet peak shipping demand, helping to reduce delays caused 
by pilot shortages.

B. Small Entities

    Under the Regulatory Flexibility Act, 5 U.S.C. 601-612, we have 
considered whether this proposed rule would have a significant economic 
effect 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.
    For the proposed rule, we reviewed recent company size and 
ownership data for the vessels identified in the GLPMS, and we reviewed 
business revenue and size data provided by publicly available sources 
such as MANTA \27\ and ReferenceUSA.\28\ As described in Section VIII.A 
of this preamble, Regulatory Planning and Review, we found that a total 
of 448 unique vessels used pilotage services from 2015 through 2017. 
These vessels are owned by 57 entities. We found that of the 57 
entities that own or operate vessels engaged in trade on the Great 
Lakes affected by this proposed rule, 47 are foreign entities that 
operate primarily outside the United States. The remaining 10 entities 
are U.S. entities. We compared the revenue and employee data found in 
the company search to the Small Business Administration's (SBA) Table 
of Small Business Size Standards \29\ to determine how many of these 
companies are small entities. Table 36 shows the North American 
Industry Classification System (NAICS) codes of the U.S. entities and 
the small entity standard size established by the SBA.
---------------------------------------------------------------------------

    \27\ See https://www.manta.com/.
    \28\ See https://resource.referenceusa.com/.
    \29\ Source: https://www.sba.gov/contracting/getting-started-contractor/make-sure-you-meet-sba-size-standards/table-small-business-size-standards. SBA has established a Table of Small 
Business Size Standards, which is matched to NAICS industries. A 
size standard, which is usually stated in number of employees or 
average annual receipts (``revenues''), represents the largest size 
that a business (including its subsidiaries and affiliates) may be 
considered in order to remain classified as a small business for SBA 
and Federal contracting programs.

[[Page 52374]]



         Table 36--NAICS Codes and Small Entities Size Standards
------------------------------------------------------------------------
                                                     Small business size
            NAICS                  Description            standard
------------------------------------------------------------------------
238910......................  Site Preparation      $15 million.
                               Contractors.
483211......................  Inland Water Freight  750 employees.
                               Transportation.
487210......................  Scenic & Sightseeing  $7.5 million.
                               Transportation,
                               Water.
488330......................  Navigational          $38.5 million.
                               Services to
                               Shipping.
488510......................  Freight               $15 million.
                               Transportation
                               Arrangement.
------------------------------------------------------------------------

    The entities all exceed the SBA's small business standards for 
small businesses. Furthermore, these U.S. entities operate U.S.-flagged 
vessels and are not required to have pilots as required by 46 U.S.C. 
9302.
    In addition to the owners and operators of vessels affected by this 
proposed rule, there are three U.S. entities that would be affected by 
this proposed rule that receive revenue from pilotage services. These 
are the three pilot associations that provide and manage pilotage 
services within the Great Lakes districts. Two of the associations 
operate as partnerships, and one operates as a corporation. These 
associations are designated with the same NAICS industry classification 
and small-entity size standards described above, but they have fewer 
than 500 employees; combined, they have approximately 65 employees in 
total, and therefore, they are designated as small entities. We expect 
no adverse effect on these entities from this proposed rule because all 
associations would receive enough revenue to balance the projected 
expenses associated with the projected number of bridge hours (time on 
task) and pilots.
    We did not find any small not-for-profit organizations that are 
independently owned and operated and are not dominant in their fields 
that would be impacted by this proposed rule. We did not find any small 
governmental jurisdictions with populations of fewer than 50,000 people 
that would be impacted by this proposed rule. Based on this analysis, 
we conclude this proposed rulemaking, if promulgated, would not affect 
a substantial number of small entities.
    Therefore, we certify under 5 U.S.C. 605(b) that this proposed rule 
would not have a significant economic impact on a substantial number of 
small entities. If you think that your business, organization, or 
governmental jurisdiction qualifies as a small entity and that this 
proposed rule would 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 proposed rule would economically affect it.

C. Assistance for Small Entities

    Under section 213(a) of the Small Business Regulatory Enforcement 
Fairness Act of 1996, Public Law 104-121, we want to assist small 
entities in understanding this proposed rule so that they can better 
evaluate its effects on them and participate in the rulemaking. If the 
proposed rule would affect your small business, organization, or 
governmental jurisdiction and you have questions concerning its 
provisions or options for compliance, please consult Mr. Brian Rogers, 
Commandant (CG-WWM-2), Coast Guard; telephone 202-372-1535, email 
[email protected], or fax 202-372-1914. 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 proposed rule would call for no new collection of information 
under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). This 
proposed rule would not change the burden in the collection currently 
approved by OMB 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 the States, on 
the relationship between the national government and the States, or on 
the distribution of power and responsibilities among the various levels 
of government. We have analyzed this proposed rule under Executive 
Order 13132 and have determined that it is consistent with the 
fundamental federalism principles and preemption requirements as 
described in Executive Order 13132. Our analysis follows.
    Congress directed the Coast Guard to establish ``rates and charges 
for pilotage services.'' See 46 U.S.C. 9303(f). This regulation is 
issued pursuant to that statute and is preemptive of State law as 
specified 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.'' As a result, States or 
local governments are expressly prohibited from regulating within this 
category. Therefore, this proposed rule is consistent with the 
fundamental federalism principles and preemption requirements described 
in Executive Order 13132.
    While it is well settled that States may not regulate in categories 
in which Congress intended the Coast Guard to be the sole source of a 
vessel's obligations, the Coast Guard recognizes the key role that 
State and local governments may have in making regulatory 
determinations. Additionally, for rules with implications and 
preemptive effect, Executive Order 13132 specifically directs agencies 
to consult with State and local governments during the rulemaking 
process. If you believe this rule has implications for federalism under 
Executive Order 13132, please contact the person listed in the FOR 
FURTHER INFORMATION section of this preamble.

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. Although this

[[Page 52375]]

proposed rule would not result in such an expenditure, we do discuss 
the effects of this proposed rule elsewhere in this preamble.

G. Taking of Private Property

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

H. Civil Justice Reform

    This proposed 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 proposed rule under Executive Order 13045 
(Protection of Children from Environmental Health Risks and Safety 
Risks). This proposed rule is not an economically significant rule and 
would not create an environmental risk to health or risk to safety that 
might disproportionately affect children.

J. Indian Tribal Governments

    This proposed rule does not have tribal implications under 
Executive Order 13175, Consultation and Coordination with Indian Tribal 
Governments, because it would 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 proposed 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, and the Administrator of OMB's Office 
of Information and Regulatory Affairs has not designated it as a 
significant energy action.

L. Technical Standards

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

M. Environment

    We have analyzed this proposed rule under Department of Homeland 
Security (DHS) Directive 023-01, Revision (Rev) 01, Implementation of 
the National Environmental Policy Act [DHS Instruction Manual 023-01 
(series)] and Commandant Instruction M16475.lD, which guide the Coast 
Guard in complying with the National Environmental Policy Act of 1969 
(42 U.S.C. 4321-4370f), and have made a preliminary determination that 
this action is one of a category of actions that do not individually or 
cumulatively have a significant effect on the human environment. A 
preliminary Record of Environmental Consideration supporting this 
determination is available in the docket where indicated under the 
``Public Participation and Request for Comments'' section of this 
preamble. This proposed rule meets the criteria for categorical 
exclusion (CATEX) under paragraph A3 of table 1, particularly subparts 
(a), (b), and (c) in Appendix A of DHS Directive 023-01(series). CATEX 
A3 pertains to promulgation of rules and procedures that are: (a) 
Strictly administrative or procedural in nature; (b) that implement, 
without substantive change, statutory or regulatory requirements; or 
(c) that implement, without substantive change, procedures, manuals, 
and other guidance documents. This proposed rule adjusts base pilotage 
rates and surcharges for administering the 2019 shipping season in 
accordance with applicable statutory and regulatory mandates, and also 
proposes a technical change to the Great Lakes pilotage ratemaking 
methodology. We seek any comments or information that may lead to the 
discovery of a significant environmental impact from this proposed 
rule.

List of Subjects

46 CFR Part 401

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

46 CFR Part 404

    Great Lakes, Navigation (water), Seamen.

    For the reasons discussed in the preamble, the Coast Guard proposes 
to amend 46 CFR parts 401 and 404 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. 2103, 2104(a), 6101, 7701, 8105, 9303, 
9304; Department of Homeland Security Delegation No. 
0170.1(II)(92.a), (92.d), (92.e), (92.f).

0
2. Amend Sec.  401.405 by revising paragraph (a) to read as follows:


Sec.  401.405  Pilotage rates and charges

    (a) The hourly rate for pilotage service on--
    (1) The St. Lawrence River is $698;
    (2) Lake Ontario is $492;
    (3) Lake Erie is $530;
    (4) The navigable waters from Southeast Shoal to Port Huron, MI is 
$632;
    (5) Lakes Huron, Michigan, and Superior is $304; and
    (6) The St. Mary's River is $602.
* * * * *

PART 404--GREAT LAKES PILOTAGE RATEMAKING

0
3. The authority citation for part 404 continues to read as follows:

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


Sec.  404.104  [Amended]

0
4. Amend Sec.  404.104(c) by removing the reference to Sec.  404.103(d) 
and adding in its place a reference to Sec.  404.103.

    Dated: October 11, 2018.
Jennifer F. Williams,
Captain, U.S. Coast Guard, Acting Assistant Commandant for Prevention 
Policy .
[FR Doc. 2018-22513 Filed 10-16-18; 8:45 am]
 BILLING CODE 9110-04-P

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.