Great Lakes Pilotage Rates-2019 Annual Review and Revisions to Methodology, 20551-20578 [2019-09657]
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TABLE 1—GENERAL SUPERFUND SECTION
State
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(a) = Based on issuance of health advisory by Agency for Toxic Substances and Disease Registry (if scored, HRS score need not be greater
than or equal to 28.50).
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*P = Sites with partial deletion(s).
[FR Doc. 2019–09480 Filed 5–9–19; 8:45 am]
BILLING CODE 6560–50–P
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.
Final rule.
AGENCY:
ACTION:
In accordance with the Great
Lakes Pilotage Act of 1960, the Coast
Guard is establishing new base pilotage
rates and surcharges for the 2019
shipping season. This rule will adjust
the pilotage rates to account for a rolling
ten-year average for traffic, and result in
an increase in pilotage rates due to an
adjustment for anticipated inflation,
changes in operating expenses,
surcharges for applicant pilots, and an
addition of two pilots.
DATES: This rule is effective June 10,
2019.
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:
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FOR FURTHER INFORMATION CONTACT:
Table of Contents
I. Abbreviations
II. Executive Summary
III. Basis and Purpose
IV. Background
V. Discussion of Comments
A. Operating Expenses
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a. Medical Benefits Paid to Retired Pilots
b. Calculation of Applicant Pilot Costs
c. Reimbursement for Direct-Billed Pilot
Boat Costs
d. Housing Allowances
e. Capital Expenses
f. Legal Fees
B. Surcharge Offsets
C. Continued Use of Surcharges
D. Target Compensation
a. Questions Relating the Interim
Compensation Benchmark
i. Inflation Adjustments From 2015–2018
ii. Use of a 270-Day Multiplier and
Guaranteed Overtime Figure
b. Comparisons With Other U.S. Pilots
E. Manning and Traffic Figures
a. Manning
b. Use of Bridge Hours and Average Traffic
Figures
c. Calculation of 2017 Traffic Figure for
District 3
F. Working Capital Fund
G. Use of the Martin Report
H. Other Issues Concerning Ratemaking
Procedures
a. Over-Realization of Pilotage Revenue
b. Disparity of Rates Between U.S. and
Canadian Pilotage
I. Out-of-Scope Issues
J. Issues Resulting From Litigation
VI. Discussion of Current Rate Adjustments
A. Step 1: Recognize Previous Operating
Expenses
B. Step 2: Project Operating Expenses,
Adjusting for Inflation or Deflation
C. Step 3: Estimate Number of Working
Pilots
D. Step 4: Determine Target Pilot
Compensation Benchmark
E. Step 5: Project Working Capital Fund
F. Step 6: Project Needed Revenue
G. Step 7: Calculate Initial Base Rates
H. Step 8: Calculate Average Weighting
Factors by Area
I. Step 9: Calculate Revised Base Rates
J. Step 10: Review and Finalize Rates
K. Surcharges
VII. Regulatory Analyses
A. Regulatory Planning and Review
B. Small Entities
C. Assistance for Small Entities
D. Collection of Information
E. Federalism
F. Unfunded Mandates Reform Act
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G. Taking of Private Property
H. Civil Justice Reform
I. Protection of Children
J. Indian Tribal Governments
K. Energy Effects
L. Technical Standards
M. Environment
I. Abbreviations
AMO American Maritime Officers
APA American Pilots Association
BLS Bureau of Labor Statistics
CAD Canadian dollars
CFR Code of Federal Regulations
CPA Certified public accountant
CPI Consumer Price Index
DHS Department of Homeland
Security
FOIA Freedom of Information Act
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
ICR Information Collection Request
LIBOR London Interbank Offered Rate
NAICS North American Industry
Classification System
NPRM Notice of proposed rulemaking
NTSB National Transportation Safety
Board
OIRA Office of Information and
Regulatory Affairs
OMB Office of Management and
Budget
PCE Personal Consumption
Expenditures
SBA Small Business Administration
§ Section symbol
SLSMC Saint Lawrence Seaway
Management Corporation
The Act Great Lakes Pilotage Act of
1960
U.S.C. United States Code
USD United States dollars
WGLPA Western Great Lakes Pilot
Association
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II. 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 during the 2018 shipping
year ranged 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 are the
exclusive U.S. source of registered pilots
on the Great Lakes. The pilot
associations use this revenue to cover
operating expenses, maintain
infrastructure, compensate working
pilots, and train new pilots. Since 2016,
the Coast Guard has used a ratemaking
methodology that was developed in
accordance with our statutory
requirements and regulations. This
ratemaking methodology calculates the
revenue needed for each pilotage
association (including operating
expenses, compensation, and
infrastructure needs), and then divides
that amount by the 10-year average of
shipping traffic 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
rulemaking.
In this final rule, the Coast Guard is
establishing new pilotage rates for 2019
based on the existing ratemaking
methodology. As proposed in the notice
of proposed rulemaking (NPRM), the
Coast Guard is adjusting the rates to
account for 2019 inflation, the addition
of two working pilots, and updated
historic traffic data. Based on the
comments to the NPRM, the Coast
Guard is also adjusting the operating
expenses and correcting previous traffic
data, which is discussed in Section V
below. The result of these changes is an
overall increase in the rates, as shown
in Table 1.
TABLE 1—CURRENT AND NEW 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 ..............................
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This final rule is not economically
significant under Executive Order
12866. This rule impacts 51 United
States 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
$2,831,743 in payments made by
shippers from the 2018 shipping season.
Because the Coast Guard must review,
and, if necessary, adjust rates each year,
the rates are analyzed as single year
costs and are not annualized over 10
years. This rule does not affect the Coast
Guard’s budget or increase Federal
spending. Section VII of this preamble
provides the regulatory impact analyses
of this final rule.
III. 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
1 Title 46 United States Code (U.S.C.) Chapter 93;
Public Law 86–555, 74 Stat. 259, as amended.
2 46 U.S.C. chapter 93; Public Law 86–555, 74
Stat. 259, as amended.
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2018
Pilotage rate
Name
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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 ..............................................
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, no later than March 1. The
Act requires that base rates be
established by a full ratemaking at least
once every five years, and in years when
base rates are not established, the rates
must be reviewed and, if necessary,
adjusted. The Secretary’s duties and
authority under the Act have been
delegated to the Coast Guard.5
This final rule establishes new
pilotage rates and surcharges for the
2019 shipping season. The Coast Guard
believes that the new rates will promote
pilot retention, ensure safe, efficient,
and reliable pilotage services on the
Great Lakes, and provide adequate
funds to upgrade and maintain
infrastructure.
IV. Background
Pursuant to the Great Lakes Pilotage
Act of 1960, the Coast Guard, in
conjunction with the Canadian Great
3 46
U.S.C. 9302(a)(1).
U.S.C. 9303(f).
5 Department of Homeland Security (DHS)
Delegation No. 0170.1, para. II (92.f).
4 46
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Proposed
2019
pilotage rate
Final 2019
pilotage rate
$653
435
497
593
$698
492
530
632
$733
493
531
603
271
600
304
602
306
594
Lakes Pilotage Authority, regulates
shipping practices and rates on the
Great Lakes. Under 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.
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
6 See
46 CFR part 401.
U.S.C. 9302(f). A ‘‘laker’’ is a commercial
cargo vessel especially designed for and generally
limited to use on the Great Lakes.
7 46
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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. The Western Great Lakes
Pilotage Association provides pilotage
services in District Three, which
includes all U.S. waters of the St. Mary’s
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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.
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,
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TABLE 2—AREAS OF THE GREAT LAKES AND SAINT LAWRENCE SEAWAY
Area No.10
Area name 11
District
Pilotage association
Designation
One ...................
Saint Lawrence Seaway Pilotage
Association.
Designated ....................................
1
St. Lawrence River.
Two ...................
Lake Pilotage Association .............
Undesignated ................................
Designated ....................................
2
5
Three ................
Western Great Lakes Pilotage Association.
Undesignated ................................
Designated ....................................
4
7
Lake Ontario.
Navigable waters from Southeast
Shoal to Port Huron, MI.
Lake Erie.
St. Mary’s River.
Undesignated ................................
Undesignated ................................
6
8
Lakes Huron and Michigan.
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 or partners and pilot
compensation. The Coast Guard
developed a 10-step ratemaking
methodology to derive a pilotage rate
that covers these expenses based on the
estimated amount of traffic. 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.
Over the past three 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.
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).
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.
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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
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is three years behind the projected year
of expenses. In calculating the 2019
rates, the Coast Guard used the audited
expenses from fiscal year 2016.
While each pilotage association
operates in an entire district, the Coast
Guard determines costs by area. Thus,
with regard to operating expenses, the
Coast Guard allocates 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 allocate 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,’’ (§ 404.102), the Director
develops the 2019 projected operating
expenses. To do this, we apply inflation
adjustors for three years to the operating
expense baseline received in Step 1. The
inflation factors used are from the
Bureau of Labor Statistics (BLS)
Consumer Price Index (CPI) 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
11 The areas are listed by name in the Code of
Federal Regulations, see 46 CFR 401.405.
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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 (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 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.
Because pilots are paid by the
associations, but the costs of pilotage are
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 multiplying that
figure by the preceding year’s average
annual rate of return for new issues of
high-grade corporate securities. This
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figure constitutes the ‘‘working capital
fund’’ for each area and district.
In Step 6, ‘‘Project needed revenue,’’
(§ 404.106), the Director 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, as 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.
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), we modify the base
rates by accounting for the extra revenue
generated by the weighting factors. We
do this by dividing the initial pilotage
rate for each area (from Step 7) by the
corresponding average weighting factor
(from Step 8), to produce a revised rate.
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
and providing appropriate funds for
infrastructure and training. The Coast
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Guard also uses various factors to
ensure that the rate is set in the public
interest and will continue to encourage
robust traffic in the Great Lakes. The
Martin Study is one factor the Coast
Guard considered when setting rates for
shipping, but Coast Guard also
recognizes that it is not a
comprehensive analysis of all economic
factors.12
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’’
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.
V. Discussion of Comments
In response to the October 17, 2018,
NPRM (83 FR 52355), the Coast Guard
received five comment letters. These
included one comment from the three
Great Lakes pilot associations,13 one
comment from the law firm Thompson
Coburn, which represents the interests
of the Shipping Federation of Canada,
the American Great Lakes Ports
Association, and the United States Great
Lakes Shipping Association (hereinafter
‘‘User’s Coalition’’),14 a comment from
the president of the St. Lawrence
Seaway Pilots’ Association,15 a
comment from the president of the
Lakes Pilots Association,16 and a
comment from the president of the
Western Great Lakes Pilot Association.17
As each of these commenters touched
on numerous issues, for each response
below, we note which commenters
raised the specific points addressed. In
situations where multiple commenters
12 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.
13 USCG–2018–0665–0008, available at https://
www.regulations.gov.
14 USCG–2018–0665–0010.
15 USCG–2018–0665–0009.
16 USCG–2018–0665–0007.
17 USCG–2018–0665–0006.
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raised similar issues, we attempt to
provide one response to those issues.
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A. Operating Expenses
The first step of the ratemaking
process entails establishing the
allowable operating expenses for each
pilotage district, and allowing pilot
associations to recoup any costs that are
considered reasonable and necessary for
operation of a pilotage association. To
do so, pilotage associations submit
accounting statements to independent
auditors, and then the audited reports
are forwarded to the Coast Guard for
additional review. We received several
comments from pilot associations and
persons representing such interests
requesting changes to these adjustments,
which are discussed below.
a. Medical Benefits Paid to Retired
Pilots
The Coast Guard received one
comment concerning an adjustment
made for payments to retired pilots. In
the NPRM, we proposed to disallow
$90,600 of requested charges for
payments of health benefits for retired
pilots. In doing so, we stated that ‘‘we
consider health benefits to be
‘compensation,’ and compensation paid
to pilots cannot be recouped as
operating expenses.’’ 18 One
commenter 19 stated that, because the
payments were made on behalf of
retired pilots who were not among the
13 allowed pilots, the amount should
not be considered as pilot compensation
and should be construed as a
reimbursable operating expense. The
commenter also noted that such a
payment had been allowed in a 2005
Interim Rule.20
Upon examining the enclosed Federal
Register citation to the 2005 interim
final rule and reviewing the regulatory
text, the Coast Guard confirms its
proposal to disallow payments of health
benefits and reaffirms here that medical
expenses paid on behalf on pilots
should be considered pilot
compensation, and not an operating
expense. Section 404.2 requires that
medical and pension benefits for pilots
be treated as pilot compensation; i.e.,
not as an allowable operating expense.
The reasoning in the 2005 Federal
Register Interim Rule does not apply
here. In the 2005 Interim Rule, which
was predicated on pre-2016 regulations,
the Coast Guard based the decision to
expense certain medical costs on the
specific contours of the American
18 Great Lakes Pilotage Rates—2019 Annual
Review and Revisions to Methodology (October 17,
2018), 83 FR 52355 at 52361.
19 USCG–2018–0665–0007.
20 70 FR 12082, 12086 (March 10, 2005).
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Maritime Officers (AMO) union
contracts that formed the basis of the
2005 compensation benchmark. Such
reasoning, even if it were permissible
under the current regulations, does not
apply to the 2016 operating expenses at
issue in this year. Instead of basing our
compensation on the AMO contract, the
Coast Guard based the 2016
compensation benchmark on Canadian
compensation figures.
b. Calculation of Applicant Pilot Costs
One commenter stated that District 3
had misstated its medical expenses in
its report to the auditors.21 The
commenter argued that it had submitted
an aggregated medical expense of
$77,060, and that the auditors had
incorrectly allocated all of that sum as
costs associated with pilots. The
commenter stated that, in fact, $60,031
of that sum was paid as medical
expenses for applicant pilots, while
only $17,030 (numbers are rounded to
the nearest dollar) were paid as partner
compensation. They claimed that they
had submitted a spreadsheet to the
auditors with the correct disaggregated
information, but that the auditors had
failed to use it.
The Coast Guard agrees with this
comment. The Coast Guard consulted
with the auditors, who re-examined the
information provided to them by
District 3. The auditors agreed that
information disaggregating the medical
expense items had been overlooked, and
that the medical expenses of the District
3 applicant pilots had been understated
by a total of $60,031. For that reason,
the Coast Guard is adding that figure to
the total applicant medical expenses for
District 3 (see Table 5 below).
In a related note, the adjustment to
applicant pilot compensation for
District 3 effects the Director’s
adjustment for District 2 applicant pilot
expenses. In the NPRM, the Coast Guard
proposed to make a substantial
adjustment to the District 2 request for
reimbursement of $571,248 for two
applicant pilots, as that request was not
supported by audited financial
statements.22 Instead of permitting
$571,248 for two applicant pilots, we
proposed allowing an operating expense
of $257,566, or $128,783 per applicant
pilot, which was equivalent to the
amount paid by District 3 to applicant
pilots, resulting in a proposed Director’s
adjustment of $313,681. However, as we
have adjusted the allowance for District
3 applicants by $60,031 for the reasons
described above, a similar adjustment is
required for the two District 2
21 USCG–2018–0665–0008,
22 See
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applicants. For that reason, we are
finalizing a positive $60,031 Director’s
adjustment for District 2 applicant pilot
benefits, in addition to the negative
$313,681 adjustment to wages originally
proposed, for a total negative
adjustment of $253,650 (see Table 5
below).
One commenter provided comments
on the District 2 applicant pilot
adjustment, and we believe the above
change addresses their comment. The
commenter stated that in the NPRM,
‘‘the proposed rule training expenses
have been denied merely on the ground
that they are higher than purported (and
incorrectly stated) District 3
expenses.’’ 23 While the commenter is
incorrect that the Coast Guard did not
approve the stated figures merely
because they were high,24 we agree with
the commenter that the District 3
expenses were inaccurately stated.
However, we disagree with the
commenter’s argument that the District
2 applicant expenses should be
accepted at face value. We note that all
operating expenses must be ‘‘reasonable
in their amounts’’ pursuant to section
404.2(c)(1). District 2 asserted, in their
letter to the Coast Guard,25 that they
paid applicant pilots $285,624.23 each
in wages alone, a number far larger than
the applicant salaries of the other
Districts and nearly on par with full
pilots, which the Coast Guard provided
a targeted compensation level of
$326,114 (a figure which included full
benefits) for 2016. In the NPRM, we
stated that ‘‘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[s] . . . the
Director proposes only allowing a
portion of these expenses to be
recouped as reasonable operating
expenses.’’ 26 We remain unpersuaded
that $285,624.23 is a reasonable wage
for an applicant pilot.
c. Reimbursement for Direct-Billed Pilot
Boat Costs
One commenter suggested that the
auditor’s adjustment for direct-billed
pilot boat runs should be reduced. In
the NPRM, the Coast Guard noted an
auditor’s adjustment for $92,056 of
direct-billed boat and discharge costs.27
In District 3, ordinary pilot boat costs
are billed to the Western Great Lakes
23 USCG–2018–0665–0008,
p.8.
the NPRM, we stated that we had received
inaccurate information on applicant expenses
originally, and the unaudited assertion made in
response to Coast Guard inquiries was not believed.
See 83 FR 52355, at 52361.
25 USCG–2018–0665–0001.
26 83 FR 52355, at 52361.
27 See item D3–16–02, 83 FR 52355, at 52362.
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Pilot Association (WGLPA), and are
considered a reimbursable operating
expense. However, when a pilot boat is
operated for the convenience of the
vessel, the cost is billed directly to the
vessel and paid to the associations,
which reimburse the pilot boat. Thus,
the pilotage association cannot claim
that cost as a reimbursable operating
expense, as that would constitute
double-billing. For this reason, the
auditor disallowed the recoupment of
those fees as operating costs. However,
one commenter 28 argued that the
auditor erred. Because of that $92,056
billed to the shippers, the Canadian
Great Lakes Pilotage Authority (GLPA)
had received $37,754 more in revenues
from those services than it had paid in
costs, and the WGLPA suffered an
equivalent shortfall. The WGLPA
requested that it be allowed to recoup
the $37,754 shortfall as reimbursable
operating expenses.
After consideration of the comment,
the Coast Guard does not agree that this
expense should be included with
operating costs. The cost for pilotage
boat services was $92,056, which was
paid by the shippers at that time. As the
commenter stated, while the revenues
from $92,056 were split approximately
evenly between the GLPA and WGLPA,
the WGLPA paid a much larger
percentage of the $92,056 in costs,
resulting in a $37,754 shortfall for the
WGLPA and an equivalent windfall for
the GLPA. While the WGLPA is correct
that it suffered a loss from this
inequitable split, we do not believe that
the shortfall should be made up by
permitting the WGLPA to bill an
additional $37,754 to the shippers, who
have already paid the costs for the pilot
boat services in full.
d. Housing Allowances
In the NPRM, the Coast Guard
proposed to disallow $36,900 in
housing allowance expenditures for the
District 3 operating expenses. As we did
not have documentation of monies
spent, we requested that the association
‘‘provide the receipts that could help to
determine if these are recoverable
operating expenses.’’ 29 We also note
that the Director is legally prohibited
from permitting undocumented
expenses pursuant to 46 CFR
404.2(c)(1).
One comment addressed the amount
of money paid for housing. This
commenter 30 argued that the total sum
amounted to $820 per month for 5
pilots, and that this amount was paid to
28 USCG–2018–0665–0006,
p.3.
FR 52355, at 52362.
30 USCG–2018–0665–0006, p. 4.
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the pilots so they could rent apartments
in the De Tour/Sault St. Marie area
instead of using hotels when required to
stay overnight. The commenter argued
that the cost of a hotel in the area is
about $95 per night, and that using
hotels could cost over $2,000 per month
per pilot. While hotel receipts would
satisfy the Coast Guard’s need for
‘‘receipts,’’ the commenter argues using
hotels would not be a cost-effective
method for housing pilots. The Coast
Guard believes that this commenter has
placed too much emphasis on the Coast
Guard’s use of the word ‘‘receipts’’ and
misinterpreted the requirements of 46
CFR 404.2(c)(1), which prohibits the
recoupment of ‘‘undocumented
expenses.’’ That provision requires
documentation of money spent, and
does not permit the reimbursement of
an ‘‘allowance.’’ For example, the Coast
Guard would accept leases and
documentation of money paid for
apartments as an allowable operating
expense, assuming it found the expense
necessary and reasonable pursuant to
section 404.2(a). However, we cannot
reimburse an allowance paid to pilots as
an operating expense. We require
verification for all payments with
proper documentation clearly
demonstrating that the money was spent
on allowable and reasonable expenses.
For these reasons, we are denying the
request to recoup the housing allowance
as an operating expense.31
e. Capital Expenses
One commenter stated they submitted
costs for ‘‘infrastructure’’ to the Coast
Guard, and that ‘‘discussions with the
Coast Guard at the time indicated the
submitted data was sufficient for
ratemaking purposes,’’ but that the
‘‘NPRM shows no contemplation of
removing these funds.’’ 32 This comment
refers to the ‘‘Capital Acquisitions’’ item
referred in Section X of the document
entitled St. Lawrence Seaway Pilots
Association—Independent Accountant’s
Report on Applying Agreed-Upon
Procedures.’’ 33 That document
describes three properties in New York
used by the St. Lawrence Seaway Pilots
Association for operational needs. The
document stated that the Coast Guard
would approve $466,940 in operating
costs to cover cash outlays made in 2016
to acquire these properties.34
31 We note that the commenter describes a
situation in which the pilots maintain apartments
in the metro area (DeTour/Sault St Marie) in which
they work. Under IRS guidance, one cannot claim
lodging expenses in the city in which they work.
32 USCG–2018–0665–0009, p.1.
33 USCG–2018–0665–0002, p.30.
34 USCG–2018–0665–0002, p.8, note 2.
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While the Coast Guard originally
believed that these outlays would be
covered by money brought in from Step
5 of the ratemaking process, we now
believe, based on the comment and
contemporaneous communication with
the association, that this should be
considered an operating expense. While
future capital acquisitions may or may
not be considered operating expenses
due to the existence of the working
capital fund (see the ‘‘working capital
fund’’ discussion below for more
detailed discussion on treatment of
capital expenses), we note that the
working capital fund was not in effect
at the time of these acquisitions. It was
only in 2017 that Step 5 of the
ratemaking process was identified as the
working capital fund, and until that
point, it had been characterized as a
‘‘return on investment.’’ Based on that,
we believe it within the purview of the
Coast Guard to identify which capital
expenses are considered reasonable and
necessary pursuant to the guidelines in
§ 404.2, and we believe that these
purchases are within those guidelines.
For that reason, we are adding the
$466,940 property acquisition cost to
the allowable operating expenses of
District 1.
f. Legal Fees
One commenter suggested that the
Coast Guard had erroneously made a
Director’s adjustment of $1,292 for legal
fees for District 3, and that adjustment
should be removed.35 The commenter
stated that only $15,208.09 of its
reported legal fees were for ‘‘general
activities,’’ and that it had already
excluded 3 percent of that amount from
its requested operating expenses as
related to lobbying. The Coast Guard has
examined the commenter’s calculations
and agrees the Director’s adjustment
was unneeded, and has thus removed it.
B. Surcharge Offsets
Beginning in 2016, the Coast Guard
began implementing surcharges on
shipping rates to encourage the
recruitment and training of new pilots
on the Great Lakes. Unlike pilot
compensation, costs relating to the
compensation and training of applicant
pilots are fully reimbursable as
operating expenses. However, the Coast
Guard used surcharges so that pilot
associations could receive the money
needed to cover the costs of recruiting
and training pilots in the year they were
incurred, rather than wait three years
until such costs could be reimbursed as
ordinary operating expenses. As such,
the surcharges act as an ‘‘advance’’ on
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the reimbursed operating expenses. This
year, 2019, is the first year in which we
can view the incurred operating
expenses for applicant pilots in 2016,
and deduct from operating expenses the
actual amounts collected in surcharges.
We note that in the 2017 rulemaking, we
modified the surcharge provision to
limit the amount collected to $150,000
per applicant pilot. However, in 2016,
the year to which these calculations
apply, there was no cap on the amount
of surcharges, and the amounts
collected therefore totaled far more than
the surcharge percentage was
anticipated to collect.
In the NPRM, the Coast Guard
included a ‘‘surcharge offset’’ line,
which corresponded to the actual
amount collected in surcharges in the
2016 shipping season.36 We received
several comments on this issue,
although some of the commenters
appeared to misunderstand what the
surcharge adjustment was for or the
basis on which it was calculated. One
commenter provided information about
pilot costs from 2017, stating that ‘‘the
Coast Guard should have audited data
showing that District Three’s surcharge
revenue for 2017 was only $382,297.24
of the $600,000 projected applicant pilot
cost.’’ 37 The commenter’s statement
refers to the wrong year—the ‘‘surcharge
offset’’ should be equal to the amount
actually collected by surcharges in the
year of expenses being analyzed (which
for this rule is 2016, not 2017). We will
analyze surcharge offsets for subsequent
years at the appropriate time, when we
consider that year’s operating expenses
for purposes of rate calculation.
One commenter stated that ‘‘the
proposed rule also errs in stating that
the $150,000 per pilot surcharge
amounts were intended to be hard
estimates or caps on the amount of
reasonable training expenditures, so that
any amounts expended beyond that
should now be disallowed.’’ 38 While
the Coast Guard is uncertain about what
statements in the proposed rule the
commenter is referring to, we agree that
there was no hard limit on how much
could be spent on training and stipends
for applicant pilots, so long as the
expenses were considered to be
reasonable and necessary pursuant to
the requirements in § 404.2(a). The
commenter goes on to state that the
NPRM ‘‘proposes to deduct from each
association’s operating expenses not
only any surcharges collected in excess
of $150,000 per applicant pilot,
36 See NPRM, 83 FR 52355, at 52359 for
additional discussion.
37 USCG–2018–0665–0006, p.5.
38 USCG–2018–0665–0008, p.5.
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id. . . .’’ 39 40 We disagree with the
commenter, and note the ‘‘surcharge
offset’’ is equal to the actual dollar
amount collected as surcharges in the
2016 shipping season. The ‘‘surcharge
offset’’ is unrelated to whether certain
operating costs are deemed necessary
and reasonable.
C. Continued Use of Surcharges
In the NPRM, the Coast Guard
suggested that we might not continue to
use surcharges in future years to cover
costs relating to applicant pilots, and
instead revert to a system where all
costs associated with applicant pilots
would be reimbursed through the
operating expense provisions. Noting
that the ‘‘vast majority of registered
pilots are not scheduled to retire in the
next 20 years,’’ 41 the Coast Guard
invited comments on discontinuing the
surcharge practice that has been in
effect the last three years. We received
several responses to this suggestion, all
of which opposed the idea. One
commenter argued that ‘‘while there has
been progress in hiring new pilots
nothing suggests that these new hires,
many of which have been made to
expand the pilotage pool rather than to
replace departing pilots, have operated
to reduce the need to train replacement
pilots for the next two decades.’’ 42
Another commenter stated that ‘‘[m]uch
as we dislike surcharges—we think the
Coast Guard should keep the status quo
until it is ready to propose a better
solution.’’ 43
Based on the comments received, it
appears that various interests on the
pilot side support the continued
application of surcharges. While no
change was proposed for 2019, the Coast
Guard will take this stated preference
into consideration as we prepare the
2020 ratemaking deliberations.
D. Target Compensation
In the NPRM, the Coast Guard
established the target compensation
benchmark by multiplying the previous
year’s compensation benchmark by the
estimated inflation for 2018, giving a
total of $359,887 per pilot for 2019. We
received numerous comments
pertaining to this calculation, which are
described below.
39 It is unclear what the commenter is citing here,
as the previous citation was to the 2016 GLPAC
Public Meeting.
40 USCG–2018–0665–0008, p. 7.
41 83 FR 52355, at 52370.
42 USCG–2018–0665–0008, p.5.
43 USCG–2018–0665–0006, p.5.
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a. Questions Relating to the Interim
Compensation Benchmark
i. Inflation Adjustments From 2015–
2018
One commenter raised questions
about the use of AMO contracts in the
‘‘interim compensation’’ benchmark that
the Coast Guard established in the 2018
ratemaking rule.44 The commenter
argued that the Coast Guard’s failure to
use the actual wage adjustment rates
received by the AMO from 2015–2018
was a mistake, and caused the
compensation figure to be too low, and
demonstrated calculations that would
use the contracted increases from the
AMO 2015 onward contract to arrive at
target compensation figure
approximately $10,000 above what the
Coast Guard calculated for 2018. This
commenter misunderstands the nature
of the interim compensation benchmark,
which was tied to the AMO contracts in
place from 2011–2015. To summarize,
the interim compensation benchmark
sought to match the daily AMO
compensation level from 2015, apply it
to the 270-day working season for Great
Lakes pilots, and then adjust that
number for inflation. It did not seek to
match the contract stipulations from
2015 onward, because the Coast Guard
did not have access to the underlying
contract documents for that period. We
discussed the interim compensation
benchmark more thoroughly in the 2018
NPRM and final rule. In those
documents, we described the interim
compensation benchmark as being
based on the 2015 AMO rate—and then
adjusted for inflation using public
inflation data to achieve an equivalent
real value for 2018. We stated that we
would not use the more recent data on
AMO contracts, as we did not have
access to the underlying documents. As
we still lack that data and have not
proposed changing the basis for the
compensation benchmark, we cannot
adopt the commenter’s assertion that we
should use contract data from the 2015–
2019 AMO contracts.
ii. Use of a 270-Day Multiplier and
Guaranteed Overtime Figure
One commenter 45 raised an issue
relating to how we translated the daily
wage rate from the AMO contract to a
yearly compensation for purposes of
setting the interim compensation
benchmark in 2018. As described in the
2018 ratemaking, the Coast Guard
multiplied the daily rate, as calculated
using the AMO contracts, by 270 to get
the yearly compensation figure. We
44 USCG–2018–0665–0008,
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used the figure of 270 days because that
is the number of days in the Great Lakes
shipping season. However, the
commenter argued that the Coast Guard
should have multiplied the daily rate by
200, which is the number of days a
Great Lakes pilot is actually expected to
work under our staffing model, which
would result in significantly lower
target compensation. The commenter
stated that the lower figure ‘‘reflected
the reality of the Coast Guard’s
imposition of a required 10-day per
month rest requirement for U.S.
pilots.’’ 46 The commenter also took
issue with the Coast Guard’s
incorporation of the ‘‘guaranteed
overtime’’ figure that was incorporated
into the rate, stating that the ‘‘Coast
Guard accepted this figure at face value
and incorporated it in its entirety . . .
with no reported inquiry into the
validity of this figure.47
While the Coast Guard understands
the commenter’s arguments that these
actions by the Coast Guard led to
significantly higher target compensation
figures, we stand by the reasoning in
doing so as articulated in the 2018 final
rule. In responding to a similar
comment to the 2018 NPRM, we stated
that ‘‘while we believe the industry
commenters’ suggestion of multiplying
the aggregate daily wage by 200, rather
than 270, has merit, we have decided
that in the interests of recruiting and
retaining a suitable number of
experienced pilots, a multiplier of 270
is the preferable course of action. The
Coast Guard also noted ‘‘[w]hile we
have considered the argument that it
would be more efficient to pay pilots
less or have fewer of them to generate
lower shipping rates, we believe the
effect on safety and reliability warrant a
multiplier of 270.’’ 48 With regard to the
additional overtime figure, we adopted
it because the commenter who provided
the overtime figures had firsthand
knowledge of the contract between the
AMO and the shippers.49 If the
commenter has information about this
contract that could be shared which
would cause the Coast Guard to
question the validity of the overtime
figure, we would be open to receiving it.
However, as no additional information
has been supplied, we will continue to
use the best information we have to
calculate the target compensation,
which at this time includes the overtime
figure.
46 USCG–2018–0665–0010,
47 USCG–2018–0665–0010,
48 83
49 83
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b. Comparisons With Other U.S. Pilots
One commenter argued that ‘‘the
proposed 2019 target compensation also
continues to lag [behind] the
compensation of other U.S. pilots by a
considerable margin.’’ The commenter
went on to argue that ‘‘the pilots stand
ready to assist the Coast Guard in
[studying pilot compensation]’’ and
‘‘urge the Coast Guard to review the
information they [the pilots] have
provided, which they believe supports a
higher compensation level.’’ 50 The
Coast Guard notes that the past
information provided by the pilot
associations contains recent total
compensation information for selected
pilot groups in other regions. However,
because target compensation and actual
compensation are quite different (in
recent years, actual compensation has
been significantly higher than target
compensation due to higher-thanexpected shipping demand), we cannot
directly compare the two. We would
welcome submission of actual pilot
compensation data for Great Lakes
pilots in recent years to improve our
analysis, and will raise it as an issue in
a future Great Lakes Pilotage Advisory
Committee meeting.
E. Manning and Traffic Figures
a. Manning
Several commenters raised issues
relating to the calculation of the number
of pilots needed, given anticipated
traffic on the Great Lakes (the staffing
model). In the 2019 NPRM, using that
model, we left the maximum number of
pilots at 54 total, although for 2019 we
proposed authorizing only 51 pilots, an
increase of two pilots over the
authorized number for 2018. Based on
the comments received, the Coast Guard
is not making changes to the staffing
model at this time, but note the
concerns of the commenters, as
discussed below.
One commenter argued that ‘‘with the
growth of tanker and cruise ship traffic,
vessel transit frequency no longer
subsides during the summer period. The
result is pilots being unable to realize
the restorative rest stated as a goal in the
manning models and needed for
continued safe operation.’’ 51 The Coast
Guard believes this is potentially a valid
point. The current staffing model is
based on the historic increased need for
pilots at the start and close of the
season, and that by staffing to meet that
need, it allows pilots to take
approximately 10 days of restorative rest
each month during the seven-month
50 USCG–2018–0665–0008,
51 USCG–2018–0665–0009,
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mid-season period. We are currently
monitoring traffic patterns, and if the
commenter’s assertion proves accurate,
it would cause us to reevaluate the
staffing model. While at this time we are
still gathering data, we would
appreciate additional data and
suggestions for alternative staffing
models in light of changes in traffic
patterns.
Another commenter criticized the
Coast Guard’s use of rounding up the
number of pilots authorized to operate
in a district as a means of calculating
the administrative time required of each
association’s president.52 The
commenter suggests that the Coast
Guard ‘‘devise a better method’’ to
account for the president’s
administrative duties. We disagree with
the commenter’s suggestion. We note
that, because we are calculating the
number of full-time pilots, we must
round to the nearest whole number in
any event. Furthermore, because
administrative time varies widely, it is
difficult to assign a concrete number to
that duty. We continue to believe that
upward rounding of the number of
pilots needed is appropriate given that
the association president is both a pilot
providing service and the lead
administrator for the association. We,
however, encourage the commenter to
suggest an alternative method for
calculating administrative time.
b. Use of Bridge Hours and Average
Traffic Figures
One commenter raised questions
about the validity and consistency of
various calculations used in the Coast
Guard’s ratemaking methodology.
Specifically, the commenter stated that
the ‘‘use of inconsistent time periods for
varying data sets—e.g., a ten-year rolling
average of historical traffic volume data
against three-year or one-year data for
determining expense levels or pilot
staffing needs’’ 53 was a pressing
concern. We believe that the commenter
has mischaracterized the Coast Guard’s
data collection and aggregation efforts,
and we will attempt to explain them
here.
The first issue is the use of the
historical traffic average (sometimes
referred to as ‘‘actual traffic’’) to
determine anticipated traffic volumes,
which we implement by using a rolling
10-year average. The Coast Guard
requires an estimate of the amount of
traffic in the upcoming year as part of
its ratemaking methodology as this is
not something that can be measured
beforehand. To derive this estimate, the
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Coast Guard takes the average of the
previous 10 years of traffic in each area
on the Great Lakes. The use of the
historical traffic figure was unanimously
recommended by the Great Lakes
Pilotage Advisory Committee (GLPAC)
in 2014,54 and we believe that it is the
best tool we have to estimate traffic.
While in recent years high levels of
traffic have been greater than the
historical average, we also note that, not
unexpectedly, in some years, the level
of traffic has been lower than average.
The use of the 10-year average may
cause the average to lag trends, but it
does reduce fluctuations in predicted
traffic levels resulting in a more stable
rate on a year to year basis. While we
are open to suggestions as to how to
better predict total traffic, we would
encourage the commenters to raise these
suggestions at the GLPAC, as we are
currently continuing to follow its
recommendation on this subject.
Unlike the traffic prediction, the other
factors the commenters cite (the
operating expenses and number of
authorized pilots) are measured
numbers, and thus do not require a
predictive mechanism. The operating
expenses (the ‘‘three-year’’ figure) are
direct reimbursements for actual
expenses three years previous. The
reason for the delay is the time it takes
to receive, audit, and present those
numbers through the rulemaking
process. Similarly, the Director of Great
Lakes Pilotage determines the number of
working pilots (the ‘‘one-year’’ figure)
based on measured training
progressions and retirement
announcements. These are not
predictions that would require us to
average a previous year’s estimates or
use some other mechanism to make
predictions. For these reasons, the Coast
Guard does not believe the commenter’s
concern regarding the different time
periods at issue represents a flaw in the
Coast Guard’s ratemaking methodology.
c. Calculation of 2017 Traffic Figure for
District 3
One commenter suggested that the
Coast Guard had made an error in its
calculation of the total traffic figures for
District 3. The commenter stated that
the Coast Guard’s 2017 total traffic
figures (26,183 hours in undesignated
waters and 3,798 hours in designated
waters) were inaccurate, and that the
correct figures for that year were 20,955
hours in undesignated waters, and 2,997
hours in designated waters.55 In
response to this comment, we reviewed
54 See Great Lakes Pilotage Advisory Committee
meeting transcript, July 23, 2014, at p. 254 to 258.
55 USCG–2018–0665–0006, p. 2.
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the data from 2017 and were unable to
replicate the traffic figures cited in the
NPRM. We were, however, able to
validate the commenter’s figures using
the search parameters they provided.
For that reason, we believe that the
information provided by the commenter
provides a stronger basis for the 2017
traffic figures, and have made the
adjustment accordingly.
F. Working Capital Fund
In the NPRM, the Coast Guard
requested comments on the utility and
value of the working capital fund and in
response, received several comments
and questions regarding its origins, uses,
and tax implications. One commenter
stated that while it appreciated that the
working capital fund provides a revenue
stream intended to be used for
infrastructure, one problem is that the
Coast Guard ‘‘hasn’t established any
guidelines or limits on acceptable
uses.’’ 56 Another commenter suggested
changes to the way the working capital
fund operates. Currently, the working
capital fund ‘‘is structured so that the
pilot associations can demonstrate
credit worthiness when seeking funds
from a financial institution for needed
infrastructure projects, and those
projects can produce a return on
investment at a rate commensurate to
repay a financial institution.’’ 57 The
commenter argued that ‘‘if the reserve
fund is used for improvements then it
is not available to provide a return on
investment,’’ 58 and recommended that
the interest rate on which the value of
the working capital fund is calculated
be dramatically increased (the
commenter suggested London Interbank
Offered Rate (LIBOR) + 4 percent). We
disagree with this suggestion, and
believe the commenter has
misinterpreted the Coast Guard’s intent.
In previous years, the goal of the ‘‘return
on investment’’ step, the precursor of
the working capital fund, was to provide
a return to monies invested by the pilots
in associations. The amount of the
money invested (the investment base)
by pilots was relatively small, and thus
the return on that investment was small
in absolute terms. However, when we
recalibrated the return on investment
(later dubbed the working capital fund)
to be based on the total income of the
associations, rather than simply the
money invested in capital
improvements, the goal was to increase
infrastructure spending by providing a
more substantial pool of available funds.
56 USCG–2018–0665–0006,
p. 6.
FR 26173, citing 82 FR 41466, p. 41484.
58 USCG–2018–0665–0008, p. 4.
57 83
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The goal of the working capital fund
is not to provide a windfall for the
associations. It is to demonstrate that
associations can accrue additional
capital, and thus have the resources to
invest in infrastructure, either with the
capital on hand or by financing a loan.
It is not designed to provide extra
money for associations to distribute to
their shareholders.
Industry commenters had a very
negative view of the working capital
fund. In addition to several concerns
about the terminology, the commenter
stated that ‘‘the Coast Guard does not
impose safeguards to require segregation
of funds generated as a result of this
element’’ or ‘‘ensure that such funds are
used in a manner consistent with Coast
Guard explanations as to why the
[working capital fund] exists.’’ 59 The
commenter argued that ‘‘there has been
no indication as to why a ‘‘Working
Capital’’ figure would be the product or
function of multiplying the sum of
operating expenses and target pilot
compensation by [AAA bond yields].’’
Finally, industry commenters asserted
that ‘‘until the Coast Guard establishes
exactly what this component of the
pilotage revenue stream is, how it
should be rationally computed, and how
it must be used, the correct value of the
[working capital fund] should be set at
$0.’’ 60
Based on comments received, it is
clear that both pilots and industry are in
favor of clear guidelines for the working
capital fund. To this end, the Coast
Guard transmitted a letter to the pilot
associations, dated November 30, 2018
and now available in the docket,61 to
establish the uses and restrictions on the
working capital fund. To summarize, 46
U.S.C. 9304 and 46 CFR 401.320
authorize the Coast Guard to outline
how each respective pilotage association
will manage the funds generated by the
Working Capital Fund until the Coast
Guard can update regulations or policy
concerning the Working Capital Fund.
The Coast Guard’s November 30 letter
therefore requires that pilot associations
segregate the revenues generated by the
working capital fund step, and provide
a report on the status of these funds
annually.62 The funds are to be used for
59 USCG–2018–0665–0010,
60 USCG–2018–0665–0010,
p.7.
p.7.
61 USCG–2018–0665–0011.
62 We note that in the letter we stated that there
would be an auditing report required on April 7
each year, and at this time the Information
Collection Request (ICR) for the Great Lakes
Pilotage Ratemaking does not currently cover this
information request. The Coast Guard will amend
the current ICR to include this information,
however until the Office of Information and
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capital expenditures only, and are
subject to a reasonableness standard. We
believe that this letter will help to
ensure that working capital fund
revenues are used for their intended
purposes of facilitating infrastructure
improvements.
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G. Use of the Martin Report
The Coast Guard received one
comment on the use of the 2017 Martin
Associates report, ‘‘Analysis of Great
Lakes Pilotage Costs on Great Lakes
Shipping and the Potential Impact of
Increases in U.S. Pilotage Charges,’’ in
our regulatory analysis.63 The
commenter believes the study should
not be used for any part of the
rulemaking process because the study is
biased toward industry, relies upon
faulty invoice data, and uses a flawed
methodology to estimate the impact of
increasing pilotage rates on vessel traffic
and employment in the Great Lakes.
According to the commenter, these
alleged faults in the Martin Report
would overestimate the impact on
pilotage rates on shipping. The
commenter did not, however, object to
using the Martin Report to support the
proposition that the proposed 2019
pilotage rate increases would not ‘‘have
significant secondary economic harms.’’
Given the commenter’s conclusion, the
Coast Guard will not address the
commenter’s concerns here.
Nevertheless, the regulatory analysis of
this final rule does not rely upon the
Martin Report because the data used in
that report is now several years old and
out-of-date to support our analysis.
One commenter contested the Coast
Guard’s use of an upper rate standard,
as elucidated in the Martin Report, to
determine that the rates are set ‘‘giving
consideration to the public interest’’ in
accordance with the Great Lakes
Pilotage Act. Referencing the Coast
Guard’s response to the commenter in
the 2018 Annual Review, that
commenter argued that ‘‘an upper rate
standard based on ‘levels that threaten
the economic viability of Great Lakes
Shipping’ is not a useful or responsible
standard.’’ 64 The commenter went on to
state that rate increases are resulting ‘‘in
negative economic impacts on ports,
agents, other maritime community
stakeholders, and the economic wellbeing of the region’’ without providing
Regulatory Affairs (OIRA) approves this ICR
amendment, we will not enforce this collection.
63 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/.
64 USCG–2018–0665–0010, p.3.
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support for that position. While the
commenter suggested that data on actual
pilot compensation would assist the
Coast Guard in developing an
alternative method of meeting its
statutory obligation to give
consideration to the public interest, it
was neither clear what that alternative
measure would be nor how pilot
compensation data would affect in
development of that alternative. Given
the absence of alternative methods, we
consider the use of the Martin Report’s
estimates on the possible economic
impact to be one tool to gauge the
impact of pilotage rates on shipping.
Finally, impact on shipping is not the
only consideration for the Coast Guard
in determining the public interest. The
protection of the marine environment
from oil spills resulting from groundings
and collisions and the protection of
maritime infrastructure, e.g., locks, are
also in the public interest. Professional
pilotage services provided for under this
ratemaking reduce the risks of such an
incident occurring and increases the
safety of maritime traffic on the Great
Lakes. Consequently, the Coast Guard
considers the safety of maritime traffic
on the Great Lakes to be in the public
interest.
H. Other Issues Concerning Ratemaking
Procedures
a. Over-Realization of Pilotage Revenue
One commenter raised the issue that
actual revenue realizations in the years
2014–2017 exceeded the target revenues
by a considerable amount. As an
example, the commenter noted that, in
2017, $26.5 million in pilotage revenue
was realized, which was far in excess of
the stated target of $21.7 million.65 The
commenter requested that the Coast
Guard ‘‘validate the real world
likelihood of additional over-realization
by using known information on pilotage
billings to date for 2018 to assess
whether rate increases . . . are, in fact
necessary to achieve revenue targets
stated in the Proposed Rule.’’ 66
While the Coast Guard agrees with the
commenter that, in several recent years,
realized revenues have exceeded target
revenues, we do not believe this is a
systemic or perpetual position. We note
that, as rates are derived by using an
average of the most recent 10 years of
traffic, if the traffic in the current year
exceeds the average (i.e., it is a busier
than an average year), pilots will realize
more than the target revenue, and if it
is a slower than an average year, pilots
will realize less than the target revenue.
65 USCG–2018–0665–0010,
66 USCG–2018–0665–0010,
PO 00000
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Fmt 4700
p.5.
p.6.
Sfmt 4700
Because the last several years that the
commenters cite have seen larger-thanaverage traffic flows, additional revenue
has been realized.67 We also believe that
it is important to clarify that meeting the
‘‘target revenue’’ is not a goal for the
Coast Guard in and of itself; the target
revenue is just a marker used by the
ratemaking methodology to set rates
assuming an average traffic year. The
revenue realized is expected to vary
from ‘‘target revenue’’ consistent with
the manner actual traffic varies from the
projected traffic.
The Coast Guard does agree with the
commenter that known information on
2018 traffic should be incorporated into
the 2019 ratemaking calculation. The
calculations in this final rule are based
on traffic in a 10-year period of 2009–
2018. We note that generally the most
recent year’s traffic figures are not
included in the NPRM, which comes
out before the end of the previous year’s
season, but are included in the final rule
of the annual ratemaking.
The commenter also urged the Coast
Guard to ‘‘require Pilot Association
financials to provide individual pilot
compensation data, screened to protect
individual pilot identities, as part of the
standard annual financial reports.’’ 68
The commenter suggests that this
information is ‘‘critical in evaluating
frequent, but vague and non-empirical
justifications based on recruitment,
retention, and attrition of pilots
proffered by the Coast Guard to
[increase pilot compensation].’’ 69
While, as stated above, the Coast Guard
believes this information could be used
to more accurately compare the
compensation of Great Lakes pilots to
known salaries of pilots in other pilot
associations, we would need more
specific suggestions on how this
information would be incorporated into
the ratemaking methodology before
considering requiring it.
b. Disparity of Rates Between U.S. and
Canadian Pilotage
One commenter raised questions
about the difference between U.S. and
Canadian pilotage cost structures. The
commenter stated that ‘‘sample
comparisons of the costs of U.S. versus
Canadian pilotage on the same or
similar voyages by the same or similar
vessels show that U.S. pilotage costs are
often nearly twice as high as those of the
67 We also note that the commenters may be
including revenue from non-compulsory pilotage in
their realized revenue calculations. We note that the
current methodology does count revenue from this
source in developing the target revenue.
68 USCG–2018–0665–0010, p.6.
69 USCG–2018–0665–0010, p.6.
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Canadian counterparts.’’ 70 The
commenter cites a CPCS report, which
contains an example where a vessel was
billed $21,054 for an American pilot
and $6,431 for a Canadian pilot, while
the two pilots were simultaneously
deployed in a double-pilotage
situation.71 The commenter asked why
the rates were so different, and what
justified the difference in rates.
The Coast Guard is aware that the
U.S. and Canada do not bill for service
in identical ways. One significant
difference between the U.S. and Canada
is that the U.S. has three different
Districts that must each support
themselves, whereas the Canadian
GLPA operates as a unified whole. This
means that there may be a level of crosssubsidization among Canadian pilots
that is impossible to replicate on the
American side, which could result in
higher rates in some areas (and lower
rates in others).72 Simple anecdotal
comparisons on a single voyage do not
provide the Coast Guard with the
comprehensive information needed to
determine if there is a system-wide
problem with rates or if we are merely
seeing a rare, if extreme, incident.
encouraged to reach out by formal or
informal means to the Great Lakes
Pilotage Office or submit a petition for
rulemaking laying out specific changes
to the program they would like to see
and include supporting data.
I. Out-of-Scope Issues
Industry commenters provided
several comments that are not directly
pertinent to this ratemaking action.
These included comments on pilotage
charges assessed early and late in the
navigation season, where charges may
accrue while a vessel is not under active
navigation. Industry commenters also
requested development of a mechanism
for an alternative provision of pilotage
services, as well as a mechanism by
which money collected in previous
years under a system found to be
arbitrary by a court could be refunded,
such as through a ‘‘negative surcharge’’
or other means. Comments also
addressed various issues relating to
labor disputes, disputed instances
where a tug is requested by a pilot, and
issues regarding delays caused by
various factors outside a ship’s control.
The Coast Guard is not addressing
these comments in this document, as
they are out of the scope of the
ratemaking action. We note that this
regulation is narrowly confined to the
actual hourly rates charged in 2019 and
the data and calculations used to
develop those rates. If industry
commenters wish to address these
concerns in a separate process, they are
In this final rule, based on the current
methodology described in the previous
section, the Coast Guard is establishing
new pilotage rates for 2019. This section
discusses the 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 established new rates.
We conducted the 2019 ratemaking as
an ‘‘interim year,’’ rather than a full
ratemaking. Thus, for this purpose, the
Coast Guard will adjust the
compensation benchmark pursuant to
§ 404.104(b) rather than § 404.104(a).
70 USCG–2018–0665–0010,
p.3.
exhibit 3, p.8.
72 The inability to replicate the possible sharing
of costs across the entire Canadian system is
exacerbated by the fact that only Canadian pilots
provide pilotage services in Area 3.
71 USCG–2018–0665–0010,
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J. Changes Resulting From Litigation
On February 19, 2019, the United
States Court for the District of Columbia
issued an opinion in St. Lawrence
Seaway Pilots Association et al. v.
United States Coast Guard.73 The
District Court held that paragraph (b)(6)
of 33 CFR 404.2, which states that legal
fees incurred in litigation against the
Coast Guard cannot be recouped as
operating expenses, had been
improperly promulgated, and vacated
the provision. In this final rule we are
removing that paragraph from section
404.2. While we did not propose
removing this text in the NPRM,
because the text has been vacated by
judicial order after publication of the
NPRM, under 5 U.S.C. 553(b)(B), notice
and comment is unnecessary.
VI. Discussion of Current Rate
Adjustments
A. Step 1: Recognize Previous 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
expenses and revenues.74 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
73 357
F. Supp. 3d 30.
reports are available in the docket for
this rulemaking (see Docket #USCG–2018–0665).
74 These
PO 00000
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20561
undesignated areas, as applicant pilots
work exclusively in those areas. For
costs that are accrued to the pilot
associations generally, for example,
pilot 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 deduct the amount
collected via surcharges from the
operating expenses. For that reason, the
Coast Guard has established a
‘‘surcharge adjustment from 2016’’ as
part of its adjustment for each pilotage
district. This surcharge adjustment
reflects the additional monies that were
collected by the surcharge 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
deducted 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.
The Coast Guard also deducted 3
percent of the ‘‘shared counsel’’
expenses for each district, to account for
lobbying expenditures, which we do not
consider ‘‘reasonable and necessary’’ to
conduct operations (with the exception
of District 3, for reasons described in the
‘‘Operating Expenses’’ section above).
For each of the analyses of the
operating expenses below, we explained
in the NPRM why we established the
Director’s adjustments, other than the
surcharge adjustments and lobbying
expenses, described above. Other
adjustments were 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. Finally, we note
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that several changes to the NPRM’s
proposed operating expenses have been
made as a result of the notice and
comment process—described above in
the ‘‘Operating Costs’’ portion of Section
V.
TABLE 3—2016 RECOGNIZED EXPENSES FOR DISTRICT ONE
District One
Designated
Undesignated
Reported Expenses for 2016
St. Lawrence
River
Lake Ontario
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 .....................................................................................................................................
Total
$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
520,714
431,866
952,580
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 ..............................................................................................
Pilot Boat and Dispatch Costs:
Pilot boat expense ................................................................................................................
Dispatch expense .................................................................................................................
Payroll taxes .........................................................................................................................
¥251,661
¥3,957
¥255,618
209,800
51,240
16,007
167,335
31,705
12,767
377,135
82,945
28,774
Total pilot and dispatch costs .......................................................................................
Administrative Expenses:
Legal—general counsel ........................................................................................................
Legal—shared (K&L Gates) (D1–16–05) .............................................................................
Legal—shared (K&L Gates) (D1–16–05) .............................................................................
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 .....................................................................................................................................
277,047
211,807
488,854
4,565
20,558
¥713
¥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
3,641
16,397
¥713
¥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
8,206
36,955
¥1,426
¥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 ......................................................................................
Capital Expenditures:
Property Acquisition (Directors Adjustment) ........................................................................
560,363
436,163
996,526
280,164
186,776
466,940
Total Operating Expenses .............................................................................................
1,386,627
1,262,655
2,649,282
Total costs relating to pilots ..........................................................................................
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 ............................................................................
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TABLE 4—2016 RECOGNIZED EXPENSES FOR DISTRICT TWO
District Two
Undesignated
Designated
Reported expenses for 2016
Lake Erie
SES to
Port Huron
Pilot-related expenses:
Pilot subsistence/travel .........................................................................................................
Pilot subsistence/travel CPA Adjustment (D2–16–01) .........................................................
License insurance .................................................................................................................
License Insurance CPA Adjustment (D2–16–03) ................................................................
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$131,956
¥44,955
10,095
¥635
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10MYR1
$197,935
¥67,433
15,142
¥953
Total
$329,891
¥112,388
25,237
¥1,588
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20563
TABLE 4—2016 RECOGNIZED EXPENSES FOR DISTRICT TWO—Continued
District Two
Undesignated
Designated
Reported expenses for 2016
Lake Erie
SES to
Port Huron
Total
Payroll taxes .........................................................................................................................
77,306
115,958
193,264
Total Pilot-related expenses ..........................................................................................
Expenses related to applicant pilots:
Wages (from supplemental form) .........................................................................................
Wages—Director’s Adjustment .............................................................................................
Benefits (from supplemental form) .......................................................................................
Benefits—Director’s Adjustment ...........................................................................................
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 ......................................................................
173,767
260,649
434,416
228,499
¥125,472
9,736
60,031
43,905
¥14,940
14,940
15,144
¥158,640
342,749
¥188,209
14,605
0
65,858
¥22,410
22,410
22,717
¥277,106
571,248
¥313,681
24,341
60,031
109,763
¥37,350
37,350
37,861
¥435,746
73,203
¥19,386
53,817
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 applicant pilot expenses .......................................................................................
Pilot Boat and Dispatch Costs:
Pilot boat expense ................................................................................................................
Dispatch expense .................................................................................................................
Employee benefits ................................................................................................................
Payroll taxes .........................................................................................................................
Total pilot and dispatch costs .......................................................................................
Administrative Expenses:
Office rent .............................................................................................................................
Office Rent CPA Adjustment ................................................................................................
Legal—general counsel ........................................................................................................
Legal—shared counsel (K&L Gates) ....................................................................................
Legal—shared counsel CPA Adjustment .............................................................................
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) .....................................................................................
299,802
449,703
749,505
26,275
4,766
1,624
13,150
¥526
¥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
39,413
7,150
2,437
19,725
¥789
¥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
65,688
11,916
4,061
32,875
¥1,315
¥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 ......................................................................................
466,795
685,092
1,151,887
Total Operating Expenses .....................................................................................
1,013,567
1,376,058
2,389,625
khammond on DSKBBV9HB2PROD with RULES
TABLE 5—2016 RECOGNIZED EXPENSES FOR DISTRICT THREE
District Three
Undesignated
Designated
Reported Expenses for 2016
Lakes Huron
and
Michigan and
Lake Superior
St. Mary’s
River
Pilotage Costs:
Pilot subsistence/travel .........................................................................................................
Pilot subsistence/Travel (D3–16–01) ...................................................................................
Pilot subsistence/Travel director’s adjustment (housing allowance) ....................................
License insurance .................................................................................................................
Payroll taxes .........................................................................................................................
Other .....................................................................................................................................
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$378,014
¥50,285
0
21,446
194,159
19,193
E:\FR\FM\10MYR1.SGM
10MYR1
$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
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TABLE 5—2016 RECOGNIZED EXPENSES FOR DISTRICT THREE—Continued
District Three
Undesignated
Designated
Reported Expenses for 2016
Lakes Huron
and
Michigan and
Lake Superior
St. Mary’s
River
Total Pilotage Costs ......................................................................................................
Applicant Pilots:
Wages ...................................................................................................................................
Benefits .................................................................................................................................
Subsistence/travel ................................................................................................................
Payroll taxes .........................................................................................................................
Training .................................................................................................................................
Surcharge Adjustment ..........................................................................................................
Total
562,527
179,733
742,260
610,433
160,265
170,089
50,561
11,642
¥1,106,339
162,267
26,644
45,214
13,440
3,095
¥235,673
772,700
186,909
215,303
64,001
14,737
¥1,342,012
Total applicant pilotage costs ........................................................................................
Pilot Boat and Dispatch Costs:
Pilot boat costs .....................................................................................................................
Pilot boat costs (D3–16–02) .................................................................................................
Dispatch costs ......................................................................................................................
Employee benefits ................................................................................................................
Payroll taxes .........................................................................................................................
¥103,349
14,987
¥88,362
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 ...............................................................................
Administrative Expenses:
Legal—general counsel ........................................................................................................
Legal—shared counsel (K&L Gates) ....................................................................................
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) ................................................................................................
676,580
179,851
856,431
22,196
34,020
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
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
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 ......................................................................................
474,599
126,161
600,760
Total Operating Expenses .....................................................................................
1,610,357
500,732
2,111,089
B. Step 2: Project Operating Expenses,
Adjusting for Inflation or Deflation
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. The Coast Guard calculated
inflation using the BLS data from the
CPI for the Midwest Region of the
United States 75 and reports from the
Federal Reserve.76 Based on that
information, the calculations for Step 1
are as follows:
TABLE 6—ADJUSTED OPERATING EXPENSES FOR DISTRICT ONE
Designated
khammond on DSKBBV9HB2PROD with RULES
Total
2017
2018
2019
Undesignated
Total
Operating Expenses (Step 1) .............................................................................................
Inflation Modification (@1.7%) ...........................................................................................
Inflation Modification (@1.9%) ...........................................................................................
Inflation Modification (@2.1%) ...........................................................................................
$1,386,627
23,573
26,794
30,177
$1,262,655
21,465
24,398
27,479
$2,649,282
45,038
51,192
57,656
Adjusted 2019 Operating Expenses .....................................................................................
1,467,171
1,335,997
2,803,168
75 Available at https://www.bls.gov/regions/
midwest/data/consumerpriceindexhistorical_
midwest_table.pdf. Specifically the Consumer Price
Index is defined as ‘‘All Urban Consumers (CPI–U),
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All Items, 1982¥4 = 100’’. Downloaded January 31,
2019.
76 Available at https://www.federalreserve.gov/
monetarypolicy/files/fomcprojtabl20180613.pdf.
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We used the PCE median inflation value found in
Table 1, Downloaded January 31, 2019.
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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 (@1.9%) ...........................................................................................
Inflation Modification (@2.1%) ...........................................................................................
$1,013,567
17,231
19,585
22,058
$1,376,058
23,393
26,590
29,947
$2,389,625
40,624
46,175
52,005
Adjusted 2019 Operating Expenses .....................................................................................
1,072,441
1,455,988
2,528,429
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 (@1.9%) ...........................................................................................
Inflation Modification (@2.1%) ...........................................................................................
$1,610,357
27,376
31,117
35,046
$500,732
8,512
9,676
10,897
$2,111,089
35,888
40,793
45,943
Adjusted 2019 Operating Expenses .....................................................................................
1,703,896
529,817
2,233,713
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
District
Two
District
Three
Maximum number of pilots (per § 401.220(a)) 77 .........................................................................
17
15
22
2019 Authorized pilots (total) .......................................................................................................
Pilots assigned to designated areas ...........................................................................................
Pilots assigned to undesignated areas .......................................................................................
17
10
7
14
7
7
20
4
16
D. Step 4: Determine Target Pilot
Compensation Benchmark
In this step, we determine the total
pilot compensation for each area.
Because this is an ‘‘interim’’ ratemaking
this year, we 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.78 Based on the projected
2019 inflation estimate, the
compensation 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,79 which is
more than or equal to the numbers of
working pilots provided by the pilot
associations.
Thus, in accordance with
§ 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
khammond on DSKBBV9HB2PROD with RULES
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
77 For a detailed calculation of the staffing model,
see 82 FR 41466, table 6 on p. 41480 (August 31,
2017).
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78 https://www.federalreserve.gov/
monetarypolicy/files/fomcprojtabl20180613.pdf.
79 See Table 6 of the 2017 final rule, 82 FR 41466
at 41480 (August 31, 2017). The methodology of the
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staffing model is discussed at length in the final
rule (see pages 41476–41480 for a detailed analysis
of the calculations).
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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: Project 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 3.93
percent.80 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) ...................................................................................
$1,467,171
3,598,870
$1,335,997
2,519,209
$2,803,168
6,118,079
Total 2019 Expenses ............................................................................................................
5,066,041
3,855,206
8,921,247
Working Capital Fund (3.93%) ......................................................................................
199,095
151,510
350,605
TABLE 14—WORKING CAPITAL FUND CALCULATION FOR DISTRICT TWO
Undesignated
Designated
Total
Adjusted Operating Expenses (Step 2) .......................................................................................
Total Target Pilot Compensation (Step 4) ...................................................................................
$1,072,441
2,519,209
$1,455,988
2,519,209
$2,528,429
5,038,418
Total 2019 Expenses ............................................................................................................
3,591,650
3,975,197
7,566,847
Working Capital Fund (3.93%) ......................................................................................
141,152
156,225
297,377
TABLE 15—WORKING CAPITAL FUND CALCULATION FOR DISTRICT THREE
Undesignated
Total
Adjusted Operating Expenses (Step 2) .......................................................................................
Total Target Pilot Compensation (Step 4) ...................................................................................
$1,703,896
5,758,192
$529,817
1,439,548
$2,233,713
7,197,740
Total 2019 Expenses ............................................................................................................
7,462,088
1,969,365
9,431,453
Working Capital Fund (3.93%) ......................................................................................
293,260
77,396
370,656
expenses include the projected
operating expenses (from Step 2), the
total pilot compensation (from Step 4),
and the working capital fund
F. Step 6: Project Needed Revenue
khammond on DSKBBV9HB2PROD with RULES
Designated
In this step, we add up all the
expenses accrued to derive the total
revenue needed for each area. These
80 Moody’s Seasoned Aaa Corporate Bond Yield,
average of 2018 monthly data. The Coast Guard uses
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contribution (from Step 5). The
calculations are shown in tables 16
through 18.
the most recent complete year of data. See https://
fred.stlouisfed.org/series/AAA. (February 14, 2019)
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20567
TABLE 16—REVENUE NEEDED FOR DISTRICT ONE
Designated
Undesignated
Total
Adjusted Operating Expenses (Step 2) .......................................................................................
Total Target Pilot Compensation (Step 4) ...................................................................................
Working Capital Fund (Step 5) ....................................................................................................
$1,467,171
3,598,870
199,095
$1,335,997
2,519,209
151,510
$2,803,168
6,118,079
350,605
Total Revenue Needed ........................................................................................................
5,265,136
4,006,716
9,271,852
TABLE 17—REVENUE NEEDED FOR DISTRICT TWO
Undesignated
Designated
Total
Adjusted Operating Expenses (Step 2) .......................................................................................
Total Target Pilot Compensation (Step 4) ...................................................................................
Working Capital Fund (Step 5) ....................................................................................................
$1,072,441
2,519,209
141,152
$1,455,988
2,519,209
156,225
$2,528,429
5,038,418
297,377
Total Revenue Needed ........................................................................................................
3,732,802
4,131,422
7,864,224
TABLE 18—REVENUE NEEDED FOR DISTRICT THREE
Undesignated
Designated
Total
Adjusted Operating Expenses (Step 2) .......................................................................................
Total Target Pilot Compensation (Step 4) ...................................................................................
Working Capital Fund (Step 5) ....................................................................................................
$1,703,896
5,758,192
293,260
$529,817
1,439,548
77,396
$2,233,713
7,197,740
370,656
Total Revenue Needed ........................................................................................................
7,755,348
2,046,761
9,802,109
G. Step 7: Calculate Initial Base Rates
Having determined the revenue
needed for each area in the previous six
steps, the Coast Guard divides 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 19 through 21.
TABLE 19—TIME ON TASK FOR DISTRICT ONE
Year
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
Designated
Undesignated
.........................................................................................................................................................................
.........................................................................................................................................................................
.........................................................................................................................................................................
.........................................................................................................................................................................
.........................................................................................................................................................................
.........................................................................................................................................................................
.........................................................................................................................................................................
.........................................................................................................................................................................
.........................................................................................................................................................................
.........................................................................................................................................................................
6,943
7,605
5,434
5,743
6,810
5,864
4,771
5,045
4,839
3,511
8,445
8,679
6,217
6,667
6,853
5,529
5,121
5,377
5,649
3,947
Average ............................................................................................................................................................
5,657
6,248
TABLE 20—TIME ON TASK FOR DISTRICT TWO
khammond on DSKBBV9HB2PROD with RULES
Year
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
Undesignated
Designated
.........................................................................................................................................................................
.........................................................................................................................................................................
.........................................................................................................................................................................
.........................................................................................................................................................................
.........................................................................................................................................................................
.........................................................................................................................................................................
.........................................................................................................................................................................
.........................................................................................................................................................................
.........................................................................................................................................................................
.........................................................................................................................................................................
6,150
5,139
6,425
6,535
7,856
4,603
3,848
3,708
5,565
3,386
6,655
6,074
5,615
5,967
7,001
4,750
3,922
3,680
5,235
3,017
Average ............................................................................................................................................................
5,322
5,192
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TABLE 21—TIME ON TASK FOR DISTRICT THREE
Year
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
Undesignated
Designated
.........................................................................................................................................................................
.........................................................................................................................................................................
.........................................................................................................................................................................
.........................................................................................................................................................................
.........................................................................................................................................................................
.........................................................................................................................................................................
.........................................................................................................................................................................
.........................................................................................................................................................................
.........................................................................................................................................................................
.........................................................................................................................................................................
19,967
20,955
23,421
22,824
25,833
17,115
15,906
16,012
20,211
12,520
3,455
2,997
2,769
2,696
3,835
2,631
2,163
1,678
2,461
1,820
Average ............................................................................................................................................................
19,476
2,651
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 22 through
24.
TABLE 22—INITIAL RATE CALCULATIONS FOR DISTRICT ONE
Designated
Undesignated
Revenue needed (Step 6) .......................................................................................................................................
Average time on task (hours) ..................................................................................................................................
$5,265,136
5,657
$4,006,716
6,248
Initial rate ..........................................................................................................................................................
$931
$641
TABLE 23—INITIAL RATE CALCULATIONS FOR DISTRICT TWO
Undesignated
Designated
Revenue needed (Step 6) .......................................................................................................................................
Average time on task (hours) ..................................................................................................................................
$3,732,802
5,322
$4,131,422
5,192
Initial rate ..........................................................................................................................................................
$701
$796
TABLE 24—INITIAL RATE CALCULATIONS FOR DISTRICT THREE
Undesignated
Designated
Revenue needed (Step 6) .......................................................................................................................................
Average time on task (hours) ..................................................................................................................................
$7,755,348
19,476
$2,046,761
2,651
Initial rate ..........................................................................................................................................................
$398
$772
H. Step 8: Calculate Average Weighting
Factors by Area
In this step, the Coast Guard
calculates the average weighting factor
for each designated and undesignated
area. We collect the weighting factors, as
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 25 through 30.
TABLE 25—AVERAGE WEIGHTING FACTOR FOR DISTRICT 1, DESIGNATED AREAS
Number of
transits
khammond on DSKBBV9HB2PROD with RULES
Vessel class/year
Class
Class
Class
Class
Class
Class
Class
Class
Class
Class
Class
1
1
1
1
1
2
2
2
2
2
3
(2014)
(2015)
(2016)
(2017)
(2018)
(2014)
(2015)
(2016)
(2017)
(2018)
(2014)
VerDate Sep<11>2014
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
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31
41
31
28
54
285
295
185
352
559
50
10MYR1
Weighting
factor
1
1
1
1
1
1.15
1.15
1.15
1.15
1.15
1.3
Weighted
transits
31
41
31
28
54
327.75
339.25
212.75
404.8
642.85
65
Federal Register / Vol. 84, No. 91 / Friday, May 10, 2019 / Rules and Regulations
20569
TABLE 25—AVERAGE WEIGHTING FACTOR FOR DISTRICT 1, DESIGNATED AREAS—Continued
Number of
transits
Vessel class/year
Class
Class
Class
Class
Class
Class
Class
Class
Class
3
3
3
3
4
4
4
4
4
(2015)
(2016)
(2017)
(2018)
(2014)
(2015)
(2016)
(2017)
(2018)
Weighting
factor
Weighted
transits
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
28
50
67
86
271
251
214
285
393
1.3
1.3
1.3
1.30
1.45
1.45
1.45
1.45
1.45
36.4
65
87.1
111.8
392.95
363.95
310.3
413.25
569.85
Total ......................................................................................................................................
3,556
........................
4,528
Average weighting factor (weighted transits/number of transits) .........................................
........................
1.27
........................
TABLE 26—AVERAGE WEIGHTING FACTOR FOR DISTRICT 1, UNDESIGNATED AREAS
Vessel
class/year
Class
Class
Class
Class
Class
Class
Class
Class
Class
Class
Class
Class
Class
Class
Class
Class
Class
Class
Class
Class
1
1
1
1
1
2
2
2
2
2
3
3
3
3
3
4
4
4
4
4
(2014)
(2015)
(2016)
(2017)
(2018)
(2014)
(2015)
(2016)
(2017)
(2018)
(2014)
(2015)
(2016)
(2017)
(2018)
(2014)
(2015)
(2016)
(2017)
(2018)
Number of
transits
Weighting
factor
Weighted
transits
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
25
28
18
19
22
238
263
169
290
352
60
42
28
45
63
289
269
222
285
382
1
1
1
1
1
1.15
1.15
1.15
1.15
1.15
1.3
1.3
1.3
1.3
1.30
1.45
1.45
1.45
1.45
1.45
25
28
18
19
22
273.7
302.45
194.35
333.5
404.8
78
54.6
36.4
58.5
81.9
419.05
390.05
321.9
413.25
553.9
Total ......................................................................................................................................
3,109
........................
4,028.35
Average weighting factor (weighted transits/number of transits) ................................................
........................
1.30
........................
TABLE 27—AVERAGE WEIGHTING FACTOR FOR DISTRICT 2, UNDESIGNATED AREAS
Number of
transits
khammond on DSKBBV9HB2PROD with RULES
Vessel class/year
Class
Class
Class
Class
Class
Class
Class
Class
Class
Class
Class
Class
Class
Class
Class
Class
Class
Class
Class
Class
1
1
1
1
1
2
2
2
2
2
3
3
3
3
3
4
4
4
4
4
(2014)
(2015)
(2016)
(2017)
(2018)
(2014)
(2015)
(2016)
(2017)
(2018)
(2014)
(2015)
(2016)
(2017)
(2018)
(2014)
(2015)
(2016)
(2017)
(2018)
VerDate Sep<11>2014
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
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31
35
32
21
37
356
354
380
222
123
20
0
9
12
3
636
560
468
319
196
10MYR1
Weighting
factor
1
1
1
1
1
1.15
1.15
1.15
1.15
1.15
1.3
1.3
1.3
1.3
1.3
1.45
1.45
1.45
1.45
1.45
Weighted
transits
31
35
32
21
37
409.4
407.1
437
255.3
141.45
26
0
11.7
15.6
3.9
922.2
812
678.6
462.55
284.2
20570
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TABLE 27—AVERAGE WEIGHTING FACTOR FOR DISTRICT 2, UNDESIGNATED AREAS—Continued
Number of
transits
Vessel class/year
Weighting
factor
Weighted
transits
Total ......................................................................................................................................
3,814
........................
5,023
Average weighting factor (weighted transits/number of transits) ..................................
........................
1.32
........................
TABLE 28—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
Class
Class
Class
Class
1
1
1
1
1
2
2
2
2
2
3
3
3
3
3
4
4
4
4
4
(2014)
(2015)
(2016)
(2017)
(2018)
(2014)
(2015)
(2016)
(2017)
(2018)
(2014)
(2015)
(2016)
(2017)
(2018)
(2014)
(2015)
(2016)
(2017)
(2018)
Weighting
factor
Weighted
transits
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
20
15
28
15
42
237
217
224
127
153
8
8
4
4
14
359
340
281
185
379
1
1
1
1
1
1.15
1.15
1.15
1.15
1.15
1.3
1.3
1.3
1.3
1.30
1.45
1.45
1.45
1.45
1.45
20
15
28
15
42
272.55
249.55
257.6
146.05
175.95
10.4
10.4
5.2
5.2
18.2
520.55
493
407.45
268.25
549.55
Total ......................................................................................................................................
2,660
........................
3,509.9
Average weighting factor (weighted transits/number of transits) ..................................
........................
1.32
........................
TABLE 29—AVERAGE WEIGHTING FACTOR FOR DISTRICT 3, UNDESIGNATED AREAS
Number of
transits
Vessel class/year
khammond on DSKBBV9HB2PROD with RULES
Area 6:
Class
Class
Class
Class
Class
Class
Class
Class
Class
Class
Class
Class
Class
Class
Class
Class
Class
Class
Class
Class
45
56
136
148
103
274
207
236
264
169
15
8
10
9
19
394
375
332
367
337
1
1
1
1
1
1.15
1.15
1.15
1.15
1.15
1.3
1.3
1.3
1.30
1.3
1.45
1.45
1.45
1.45
1.45
45
56
136
148
103
315.1
238.05
271.4
303.6
194.35
19.5
10.4
13
11.7
24.7
571.3
543.75
481.4
532.15
488.65
Total for Area 6 .............................................................................................................
3,504
........................
4,507.05
3
0
4
4
0
177
169
1
1
1
1
1
1.15
1.15
3
0
4
4
0
203.55
194.35
1
1
1
1
1
2
2
(2014)
(2015)
(2016)
(2017)
(2018)
(2014)
(2015)
(2016)
(2017)
(2018)
(2014)
(2015)
(2016)
(2018)
(2017)
(2014)
(2015)
(2016)
(2017)
(2018)
Weighted
transits
......................................................................................................................
......................................................................................................................
......................................................................................................................
......................................................................................................................
......................................................................................................................
......................................................................................................................
......................................................................................................................
......................................................................................................................
......................................................................................................................
......................................................................................................................
......................................................................................................................
......................................................................................................................
......................................................................................................................
......................................................................................................................
......................................................................................................................
......................................................................................................................
......................................................................................................................
......................................................................................................................
......................................................................................................................
......................................................................................................................
Area 8:
Class
Class
Class
Class
Class
Class
Class
1
1
1
1
1
2
2
2
2
2
3
3
3
3
3
4
4
4
4
4
Weighting
factor
(2014)
(2015)
(2016)
(2017)
(2018)
(2014)
(2015)
VerDate Sep<11>2014
......................................................................................................................
......................................................................................................................
......................................................................................................................
......................................................................................................................
......................................................................................................................
......................................................................................................................
......................................................................................................................
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Federal Register / Vol. 84, No. 91 / Friday, May 10, 2019 / Rules and Regulations
20571
TABLE 29—AVERAGE WEIGHTING FACTOR FOR DISTRICT 3, UNDESIGNATED AREAS—Continued
Number of
transits
Vessel class/year
Class
Class
Class
Class
Class
Class
Class
Class
Class
Class
Class
Class
Class
2
2
2
3
3
3
3
3
4
4
4
4
4
(2016)
(2017)
(2018)
(2014)
(2015)
(2016)
(2017)
(2018)
(2014)
(2015)
(2016)
(2017)
(2018)
Weighting
factor
Weighted
transits
......................................................................................................................
......................................................................................................................
......................................................................................................................
......................................................................................................................
......................................................................................................................
......................................................................................................................
......................................................................................................................
......................................................................................................................
......................................................................................................................
......................................................................................................................
......................................................................................................................
......................................................................................................................
......................................................................................................................
174
151
102
3
0
7
18
7
243
253
204
269
188
1.15
1.15
1.15
1.3
1.3
1.3
1.3
1.30
1.45
1.45
1.45
1.45
1.45
200.1
173.65
117.3
3.9
0
9.1
23.4
9.1
352.35
366.85
295.8
390.05
272.6
Total for Area 8 .............................................................................................................
1,976
........................
2,623.1
Combined total .......................................................................................................
5,480
........................
7,130.15
Average weighting factor (weighted transits/number of transits) ...................
........................
1.30
........................
TABLE 30—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
Class
Class
Class
Class
1
1
1
1
1
2
2
2
2
2
3
3
3
3
3
4
4
4
4
4
(2014)
(2015)
(2016)
(2017)
(2018)
(2014)
(2015)
(2016)
(2017)
(2018)
(2014)
(2015)
(2016)
(2017)
(2018)
(2014)
(2015)
(2016)
(2017)
(2018)
Weighting
factor
Weighted
transits
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
27
23
55
62
47
221
145
174
170
126
4
0
6
14
6
321
245
191
234
225
1
1
1
1
1
1.15
1.15
1.15
1.15
1.15
1.3
1.3
1.3
1.3
1.3
1.45
1.45
1.45
1.45
1.45
27
23
55
62
47
254.15
166.75
200.1
195.5
144.9
5.2
0
7.8
18.2
7.8
465.45
355.25
276.95
339.3
326.25
Total ......................................................................................................................................
2,296
........................
2,977.6
Average weighting factor (weighted transits/number of transits) ..................................
........................
1.30
........................
I. Step 9: Calculate Revised Base Rates
In this step, the Coast Guard revised
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
31.
khammond on DSKBBV9HB2PROD with RULES
TABLE 31—REVISED BASE RATES
Initial rate
(Step 7)
Area
District
District
District
District
One:
One:
Two:
Two:
VerDate Sep<11>2014
Designated ..............................................................................................................
Undesignated ..........................................................................................................
Undesignated ..........................................................................................................
Designated ..............................................................................................................
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$931
641
701
796
10MYR1
Average
weighting
factor
(Step 8)
1.27
1.30
1.32
1.32
Revised
rate
(initial rate/
average
weighting
factor)
$733
493
531
603
20572
Federal Register / Vol. 84, No. 91 / Friday, May 10, 2019 / Rules and Regulations
TABLE 31—REVISED BASE RATES—Continued
Initial rate
(Step 7)
Area
District Three: Undesignated .......................................................................................................
District Three: Designated ...........................................................................................................
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 rates do
meet the goal of ensuring safe, efficient
and reliable pilotage, the Director
considered whether the rates
incorporate appropriate compensation
for pilots to handle heavy traffic periods
and whether there are sufficient pilots
to handle those heavy traffic periods.
Also, the Director considered whether
the rates will cover operating expenses
and infrastructure costs, and took
average traffic and weighting factors
into consideration. Finally, in giving
consideration to the public interest, we
398
772
Average
weighting
factor
(Step 8)
Revised
rate
(initial rate/
average
weighting
factor)
1.30
1.30
306
594
estimated that the new shipping rates
would not have a negative impact on the
competitive market for regional
shipping services. Based on this
information, the Director is not
establishing any alterations to the rates
in this step. We then modified the text
in § 401.405(a) to reflect the final rates,
also shown in table 32.
TABLE 32—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, the Coast Guard is
levying surcharges to cover the costs
needed for training expenses. Consistent
with previous years, we are assigning a
cost of $150,000 per applicant pilot. To
develop the surcharge, we multiply the
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 ..............................................
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
Proposed
2019
pilotage
rate
Final 2019
pilotage
rate
$653
435
497
593
$698
492
530
632
$733
493
531
603
271
600
304
602
306
594
four applicant pilots for District Three.
The calculations to develop the
surcharges are shown in table 33. 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.
khammond on DSKBBV9HB2PROD with RULES
TABLE 33—SURCHARGE CALCULATIONS
District
One
District
Two
District
Three
Number of applicant pilots ...........................................................................................................
Total applicant training costs .......................................................................................................
Revenue needed (Step 6) ...........................................................................................................
2
$300,000
$9,271,852
1
$150,000
$7,864,224
4
$600,000
$9,802,109
Total surcharge as percentage (total training costs/revenue) .............................................
3%
2%
6%
VII. Regulatory Analyses
A. Regulatory Planning and Review
The Coast Guard developed this rule
after considering numerous statutes and
Executive orders related to rulemaking.
Below we summarize our analyses
based on these statutes or Executive
orders.
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
VerDate Sep<11>2014
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(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
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Federal Register / Vol. 84, No. 91 / Friday, May 10, 2019 / Rules and Regulations
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 rule a
significant regulatory action under
section 3(f) of Executive Order 12866.
Accordingly, OMB has not reviewed it.
Because this rule is not a significant
regulatory action, this rule is exempt
from the requirements of Executive
Order 13771. See the OMB
Memorandum titled, ‘‘Guidance
Implementing Executive Order 13771,
titled ‘Reducing Regulation and
Controlling Regulatory Costs’ ’’ (April 5,
2017). A regulatory analysis follows.
The purpose of this rulemaking is to
establish new base pilotage rates and
surcharges for training. The Great Lakes
Pilotage Act of 1960 requires that rates
be established or reviewed and adjusted
each year. The Act requires that base
rates be established by a full ratemaking
at least once every five years, and in
years when base rates are not
established, they must be reviewed and,
if necessary, adjusted. The last full
ratemaking was concluded in June of
2018. Table 34 summarizes the affected
population, costs, and benefits of the
rate changes. The Coast Guard estimates
an increase in cost of approximately
$2.83 million to industry as a result of
the change in revenue needed in 2019
when compared to the revenue needed
in 2018.
TABLE 34—ECONOMIC IMPACTS DUE TO RATE CHANGES
Change
Description
Affected population
Costs
Benefits
Rate Changes ...................
Under the Great Lakes Pilotage Act of 1960, the
Coast Guard is required
to review and adjust
base pilotage rates annually.
Owners and operators of
256 vessels journeying
the Great Lakes system
annually, 51 U.S. Great
Lakes pilots, and 3 pilotage associations.
$2,831,743 Due to change
in revenue needed for
2019 ($27,988,185) from
revenue needed for
2018 ($25,156,442) as
shown in Table 36
below.
—New rates cover an association’s necessary
and reasonable operating expenses.
—Promotes safe, efficient,
and reliable pilotage
service on the Great
Lakes.
—Provides fair compensation, adequate training,
and sufficient rest periods for pilots.
—Ensures the association
receives sufficient revenues to fund future improvements.
Table 35 summarizes the changes in
the regulatory analysis from the NPRM
to the final rule. The Coast Guard made
these changes either as a result of public
comments received after publication of
the NPRM, or to incorporate more recent
inflation, security, and traffic data that
became available after the publication of
the NPRM. An in-depth discussion of
these comments is located in Section V
of the preamble; ‘‘Discussion of
Comments.’’
TABLE 35—SUMMARY OF CHANGES FROM NPRM TO FINAL RULE
Element of the analysis
NPRM
Final rule
Resulting change in RA
Changes Resulting from Public Comments and Errors in the NPRM
Operating Expenses (Step 1) ........
Omitted District 1 capital expenditures.
khammond on DSKBBV9HB2PROD with RULES
Omitted the cost of health care
benefits for applicant pilots in
both District 2 and District 3.
Traffic and Transit data ..................
VerDate Sep<11>2014
16:24 May 09, 2019
Incorrectly deducted $1,292 from
District 3 for legal fees.
As the result of a mathematical
error, we accidently excluded
$77,051 worth of District 2 administrative expenses from the
their total operating expenses.
Total Operating Expenses from
Step 1 (the sum of the totals
from Tables 3–5): $6,484,651.
Used incorrect 2017 traffic numbers for District 3.
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Corrected this error to account for
District 1 capital expenditures
totaling $466,940.
Corrected this error and adjusted
the operating expenses to both
District 2 and District 3 by
$60,031.
Removed deduction ......................
Data affects the calculation of
projected revenues.
Corrected this error ......................
Total Operating Expenses from
Step 1 (the sum of the totals
from Tables 3–5): $7,149,996.
Corrected this error ......................
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No impact on RA. Affects the calculation of the base rates, but
not the projected revenues.
10MYR1
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TABLE 35—SUMMARY OF CHANGES FROM NPRM TO FINAL RULE—Continued
Element of the analysis
NPRM
Final rule
Resulting change in RA
Pilotage Costs as a Percentage of
Total Vessel Costs.
The RA included this analysis,
which calculated pilotage costs
as a percentage of total voyage
costs.
Removed this analysis from the
RA based on public comments
on the underlying data.
Analysis is no longer included in
the RA.
Changes that Incorporate the Most Recently Available Data
Inflation and securities data ...........
Traffic and Transit data ..................
Used inflation and securities data
through 2017, which was the
most current year available.
Used traffic and transit data
through 2017, which was the
most current year available.
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The Coast Guard is required to review
and adjust pilotage rates on the Great
Lakes annually. See Sections III and IV
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 rulemaking, we are 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 rulemaking will 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. We estimate this rule will
increase the total payments made by
shippers during the 2019 shipping
season by approximately $2,831,743
when compared with total payments
that were estimated in 2018, which is an
11 percent increase (table 36).81
A detailed discussion of our economic
impact analysis follows.
Affected Population
This rule will impact U.S. Great Lakes
pilots, the three pilot associations, and
the owners and operators of oceangoing
vessels that transit the Great Lakes
annually. As discussed in Step 3 in
Section VI.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.
81 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.
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Uses 2018 data when applicable
and available.
Data affects the calculation of
projected revenues.
Uses 2018 data ............................
No impact on RA. Affects the calculation of the base rates, but
not the projected revenues.
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. U.S.-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.
The Coast Guard 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
three 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 three 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 vessels. As previously
stated, U.S.-flagged vessels not
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Fmt 4700
Sfmt 4700
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.
Numerous factors affect vessel traffic
which 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 in this rulemaking. From 2015
through 2017, an average of 256 vessels
used pilotage services annually.82 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 will add new
costs to shippers in the form of higher
payments to pilots. The Coast Guard
estimates 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 rule.
82 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.
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The impacts of the rate changes on
shippers are estimated from the District
pilotage projected revenues (shown in
tables 15 through 17 of this preamble)
and the surcharges described in Section
VI.K of this preamble. The Coast Guard
estimates that for the 2019 shipping
season, the projected revenue needed
for all three districts is $26,938,185.
This $26,938,185 in revenue does not
include the temporary surcharges on
traffic in Districts One, Two, and Three
which will 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 will require $300,000,
$150,000, and $600,000 in revenue for
applicant training expenses in Districts
One, Two, and Three, respectively. This
will represent a total cost of $1,050,000
to shippers during the 2019 shipping
season. Adding the projected revenue of
$26,938,185 to the surcharges, we
estimate the pilotage associations’ total
projected revenue needed for 2019 will
be $27,988,185.
To estimate the additional cost to
shippers from this rule, the Coast Guard
compared 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
20575
estimated as a single-year cost rather
than annualized over a 10-year period.
In the 2018 rulemaking, 83 we estimated
the total projected revenue needed for
2018, including surcharges, as
$25,156,442. This is the best
approximation of 2018 revenues as, at
the time of this publication, we do not
have enough audited data available for
the 2018 shipping season to revise these
projections. Table 36 shows the revenue
projections for 2018 and 2019 and
details the additional cost increases to
shippers by area and district as a result
of the rate changes and temporary
surcharges on traffic in Districts One,
Two, and Three.
TABLE 36—EFFECT OF THE RULE BY AREA AND DISTRICT
[$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 1 .............
Total, District 2 .............
Total, District 3 .............
$7,988,670
7,230,300
8,887,472
$300,000
150,000
600,000
$8,288,670
7,380,300
9,487,472
$9,271,852
7,864,224
9,802,109
$300,000
150,000
600,000
$9,571,852
8,014,224
10,402,109
$1,283,182
633,924
914,637
System Total .........
24,106,442
1,050,000
25,156,442
26,938,185
1,050,000
27,988,185
2,831,743
The resulting difference between the
projected revenue in 2018 and the
projected revenue in 2019 is the annual
change in payments from shippers to
pilots as a result of the rate change
imposed by this rule. The effect of the
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, will lead to
affected shippers operating in District
One, District Two, and District Three
experiencing an increase in payments of
$1,283,182, $633,924, and $914,637,
respectively, over the previous year. The
overall adjustment in payments will be
an increase in payments by shippers of
$2,831,743 across all three districts (an
11 percent increase over 2018). Again,
because the Coast Guard reviews and
sets rates for Great Lakes Pilotage
annually, we estimate the impacts as
single-year costs rather than annualizing
them over a 10-year period.
Table 37 shows the difference in
revenue by component from 2018 to
2019.84 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 were in
training in 2018 and will become fulltime working pilots at the beginning of
the 2019 shipping season. The target
compensation for these pilots is
$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 37—DIFFERENCE IN REVENUE BY COMPONENT
Revenue
needed in
2018
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Revenue component
Revenue
needed in
2019
Difference
(2019
Revenue
¥2018
Revenue)
Percentage
increase from
previous year
(%)
Adjusted Operating Expenses .........................................................................
Total Target Pilot Compensation ....................................................................
Working Capital Fund ......................................................................................
Total Revenue Needed, without Surcharge ....................................................
Surcharge ........................................................................................................
$5,965,599
17,271,765
869,078
24,106,442
1,050,000
$7,565,310
18,354,237
1,018,638
26,938,185
1,050,000
$1,599,711
1,082,472
149,560
2,831,743
0
27
6
17
12
0
Total Revenue Needed, with Surcharge ..................................................
25,156,442
27,988,185
2,831,743
11
83 The 2018 projected revenues are from the 2018
Great Lakes Pilotage Ratemaking final rule (83 FR
26189), Table 41.
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84 The 2018 projected revenues are from the 2018
final rule (83 FR 26189), table 41. The 2019
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projected revenues are from tables 15–17 of this
rule.
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Benefits
B. Small Entities
Under the Regulatory Flexibility Act,
5 U.S.C. 601–612, the Coast Guard has
considered whether this rule will have
a significant economic impact on a
substantial number of small entities.
The term ‘‘small entities’’ comprises
small businesses, not-for-profit
organizations that are independently
owned and operated and are not
dominant in their fields, and
governmental jurisdictions with
populations of less than 50,000.
For the rule, the Coast Guard
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 85 and ReferenceUSA.86 As
described in Section VII.A of this
preamble, Regulatory Planning and
This rule will allow the Coast Guard
to meet the requirements in 46 U.S.C.
9303 to review the rates for pilotage
services on the Great Lakes. The rate
changes will promote safe, efficient, and
reliable pilotage service on the Great
Lakes by: (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 will also help recruit and retain
pilots, which will ensure a sufficient
number of pilots to meet peak shipping
demand, helping to reduce delays
caused by pilot shortages.
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 rule, 47 are
foreign entities that operate primarily
outside the United States. The
remaining ten entities are U.S. entities.
We compared the revenue and
employee data found in the company
search to the Small Business
Administration’s (SBA) small business
threshold as defined in the SBA’s Table
of Small Business Size Standards 87 to
determine how many of these
companies are small entities. Table 38
shows the North American Industry
Classification System (NAICS) codes of
the U.S. entities and the small entity
standard size established by the SBA.
TABLE 38—NAICS CODES AND SMALL ENTITIES SIZE STANDARDS
NAICS
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238910
483211
487210
488330
488510
561510
Description
...............
...............
...............
...............
...............
...............
Site Preparation Contractors .....................................................................................
Inland Water Freight Transportation .........................................................................
Scenic & Sightseeing Transportation, Water ............................................................
Navigational Services to Shipping .............................................................................
Freight Transportation Arrangement .........................................................................
Travel Agencies .........................................................................................................
Of the ten U.S. entities, nine exceed
the SBA’s small business standards for
small businesses. To estimate the
potential impact on the one small entity,
the Coast Guard used their 2017 invoice
data to estimate their pilotage costs in
2019. We increased their 2017 costs to
account for the changes in pilotage rates
resulting from this rule and the 2018
final rule (83 FR 26189).88 We then
estimated the change in cost to this
entity resulting from this rule by
subtracting their estimated 2018 costs
from their estimated 2019 costs, and
compared this change with their annual
revenue. We also compared their total
estimated 2019 pilotage cost to their
annual revenue and in both cases their
estimated pilotage cost was below 1
percent of their annual revenue. In
addition, we do not expect the rule will
significantly impact any of these ten
entities, including the one small entity,
because these U.S. entities operate U.S.flagged vessels and are not required to
have pilots as required by 46 U.S.C.
9302.
85 See
https://www.manta.com/.
https://resource.referenceusa.com/.
87 See: https://www.sba.gov/document/support-table-size-standards. SBA has established a Table of
Small Business Size Standards, which sets small
86 See
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16:24 May 09, 2019
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$15 million.
750 employees.
$7.5 million.
$38.5 million.
$15 million.
$20.5 million.
In addition to the owners and
operators of vessels affected by this rule,
there are three U.S. entities that will be
affected by this rule that receive revenue
from pilotage services. These are the
three pilot associations that provide and
manage pilotage services within the
Great Lakes districts. Two of the
associations operate as partnerships,
and one operates as a corporation. These
associations are designated 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. The Coast Guard expects
no adverse effect on these entities from
this rule because all associations will
receive enough revenue to balance the
projected expenses associated with the
projected number of bridge hours (time
on task) and pilots.
The Coast Guard did not find any
small not-for-profit organizations that
are independently owned and operated
and are not dominant in their fields that
will be impacted by this rule. We did
not find any small governmental
jurisdictions with populations of fewer
than 50,000 people that will be
impacted by this rule. Based on this
analysis, we conclude this rulemaking
will not affect a substantial number of
small entities, nor have a significant
economic impact on any of the affected
entities.
Therefore, the Coast Guard certifies
under 5 U.S.C. 605(b) that this rule will
not have a significant economic impact
on a substantial number of small
entities.
business sized standards by NAICS code. 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.
88 For confidentiality reasons we are unable to
provide this vessel’s 2017 pilotage costs or its
estimated 2018 and 2019 pilotage costs.
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C. Assistance for Small Entities
Under section 213(a) of the Small
Business Regulatory Enforcement
Fairness Act of 1996, Public Law 104–
121, the Coast Guard offers to assist
small entities in understanding this rule
so that they can better evaluate its
effects on them and participate in the
rulemaking. We will not retaliate against
small entities that question or complain
about this rule or any policy or action
of the Coast Guard.
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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).
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D. Collection of Information
This rule calls for no new collection
of information under the Paperwork
Reduction Act of 1995, (44 U.S.C. 3501–
3520). This rule will 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 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. The Coast
Guard has analyzed this final rule under
Executive Order 13132 and have
determined that it is consistent with the
fundamental federalism principles and
preemption requirements 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 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 federalism implications and
preemptive effect, Executive Order
13132 specifically directs agencies to
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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 rule
will not result in such expenditure, we
do discuss the effects of this rule
elsewhere in this preamble.
G. Taking of Private Property
This final rule will not cause a taking
of private property or otherwise have
taking implications under Executive
Order 12630 (Governmental Actions and
Interference with Constitutionally
Protected Property Rights).
H. Civil Justice Reform
This final 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
The Coast Guard has analyzed this
final rule under Executive Order 13045
(Protection of Children from
Environmental Health Risks and Safety
Risks). This rule is not an economically
significant rule and will not create an
environmental risk to health or risk to
safety that might disproportionately
affect children.
J. Indian Tribal Governments
This final rule does not have tribal
implications under Executive Order
13175 (Consultation and Coordination
with Indian Tribal Governments),
because it will 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
The Coast Guard has analyzed this
rule under Executive Order 13211
(Actions Concerning Regulations That
Significantly Affect Energy Supply,
Distribution, or Use). We have
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20577
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 rule
does not use technical standards.
Therefore, we did not consider the use
of voluntary consensus standards.
M. Environment
The Coast Guard has analyzed this
rule under Department of Homeland
Security Management Directive 023–
01and Commandant Instruction
M16475.lD (COMDTINST M16475.1D),
which guide the Coast Guard in
complying with the National
Environmental Policy Act of 1969 (42
U.S.C. 4321–4370f), and have
determined that this action is not likely
to have a significant effect on the human
environment. A Record of
Environmental Consideration (REC)
supporting this determination is
available in the docket where indicated
under the ADDRESSES section of this
preamble. This rule is categorically
excluded 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 rule adjusts
base pilotage rates and surcharges for
administering the 2019 shipping season
in accordance with applicable statutory
and regulatory mandates, and also
makes technical changes to the Great
Lakes pilotage ratemaking methodology.
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Federal Register / Vol. 84, No. 91 / Friday, May 10, 2019 / Rules and Regulations
List of Subjects
DEPARTMENT OF COMMERCE
46 CFR Part 401
National Oceanic and Atmospheric
Administration
Administrative practice and
procedure, Great Lakes, Navigation
(water), Penalties, Reporting and
recordkeeping requirements, Seamen.
50 CFR Part 660
[Docket No. 181218999–9402–02]
46 CFR Part 404
Great Lakes, Navigation (water),
Seamen.
RIN 0648–BI67
For the reasons discussed in the
preamble, the Coast Guard amends 46
CFR part 401 as follows:
PART 401—GREAT LAKES PILOTAGE
REGULATIONS
1. The authority citation for part 401
continues to read as follows:
■
Authority: 46 U.S.C. 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
PART 404—GREAT LAKES
PILOTAGERATEMAKING
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).
[Amended]
4. Amend § 404.2 by removing
paragraph (b)(6).
■
§ 404.104
[Amended]
5. Amend § 404.104 in paragraph (c)
by removing the reference
‘‘§ 404.103(d)’’ and adding in its place
‘‘§ 404.103’’.
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■
Dated: May 6, 2019.
John P. Nadeau,
Admiral, U.S. Coast Guard, Assistant
Commandant for Prevention Policy.
[FR Doc. 2019–09657 Filed 5–9–19; 8:45 am]
BILLING CODE 9110–04–P
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National Marine Fisheries
Service (NMFS), National Oceanic and
Atmospheric Administration (NOAA),
Commerce.
ACTION: Final rule.
AGENCY:
NMFS issues this final rule
for the 2019 Pacific whiting fishery
under the authority of the Pacific Coast
Groundfish Fishery Management Plan,
the Magnuson-Stevens Fishery
Conservation and Management Act, and
the Pacific Whiting Act of 2006. This
final rule announces the 2019 U.S. Total
Allowable Catch of 441,433 metric tons
(mt) of Pacific whiting, establishes a
tribal allocation of 77,251 mt,
establishes a set-aside for research and
bycatch of 1,500 mt, and announces the
allocations of Pacific whiting to the nontribal fishery for 2019. This final rule
also amends the provisions regarding
reapportionment of the treaty tribes’
whiting allocation to the non-treaty
sectors to require that NMFS consider
the level of Chinook salmon bycatch
before reapportioning whiting. This rule
is necessary to manage the Pacific
whiting stock to Optimal Yield, ensure
that the Pacific Coast Groundfish
Fishery Management Plan is
implemented in a manner consistent
with treaty rights of four treaty tribes to
fish for Pacific whiting in their ‘‘usual
and accustomed grounds and stations’’
in common with non-tribal citizens, and
to protect salmon stocks listed under the
Endangered Species Act. The catch
limits in this rule are intended to ensure
the long-term sustainability of the
Pacific whiting stock.
DATES: Effective May 10, 2019.
FOR FURTHER INFORMATION CONTACT:
Miako Ushio (West Coast Region,
NMFS), phone: 206–526–4644, and
email: Miako.Ushio@noaa.gov.
SUPPLEMENTARY INFORMATION:
SUMMARY:
Pilotage rates and charges.
(a) The hourly rate for pilotage service
on—
(1) The St. Lawrence River is $733;
(2) Lake Ontario is $493;
(3) Lake Erie is $531;
(4) The navigable waters from
Southeast Shoal to Port Huron, MI is
$603;
(5) Lakes Huron, Michigan, and
Superior is $306; and
(6) The St. Mary’s River is $594.
*
*
*
*
*
§ 404.2
Magnuson-Stevens Act Provisions;
Fisheries off West Coast States;
Pacific Coast Groundfish Fishery;
Annual Specifications and
Management Measures for the 2019
Tribal and Non-Tribal Fisheries for
Pacific Whiting, and Requirement To
Consider Chinook Salmon Bycatch
Before Reapportioning Tribal Whiting
PO 00000
Frm 00038
Fmt 4700
Sfmt 4700
Electronic Access
This final rule is accessible via the
internet at the Office of the Federal
Register website at https://
www.federalregister.gov. Background
information and documents are
available at the NMFS West Coast
Region website at https://
www.westcoast.fisheries.noaa.gov/
fisheries/management/whiting/pacific_
whiting.html and at the Pacific Fishery
Management Council (Council)’s
website at https://www.pcouncil.org/.
The final environmental impact
statement regarding Harvest
Specifications and Management
Measures for 2015–2016 and Biennial
Periods Thereafter, and the Final
Environmental Assessment for Pacific
Coast Groundfish Fishery 2019–20
Harvest Specifications, Yelloweye
Rebuilding Plan Revisions, and
Management Measures, are available on
the NMFS West Coast Region website at:
www.westcoast.fisheries.noaa.gov/
publications/nepa/groundfish/
groundfish_nepa_documents.html.
Background
This final rule announces the total
allowable catch (TAC) for Pacific
whiting, which was determined under
the terms of the Agreement with Canada
on Pacific Hake/Whiting (Agreement)
and the Pacific Whiting Act of 2006
(Whiting Act). The Agreement and the
Whiting Act establish bilateral bodies to
implement the terms of the Agreement.
The bilateral bodies include: The Joint
Management Committee (JMC), which
recommends the annual catch level for
Pacific whiting; the Joint Technical
Committee (JTC), which conducts the
Pacific whiting stock assessment; the
Scientific Review Group (SRG), which
reviews the stock assessment; and the
Advisory Panel (AP), which provides
stakeholder input to the JMC.
The Agreement establishes a default
harvest policy of F–40 percent, which
means a fishing mortality rate that
would reduce the biomass to 40 percent
of the estimated unfished level. The
Agreement also allocates 73.88 percent
of the TAC to the United States and
26.12 percent of the TAC to Canada. The
JMC is primarily responsible for
developing a TAC recommendation to
the United States and Canada. The
Secretary of Commerce, in consultation
with the Secretary of State, has the
authority to accept or reject this
recommendation.
2019 Pacific Whiting Stock Assessment
and Scientific Review
The JTC completed a stock assessment
for Pacific whiting in February 2019.
E:\FR\FM\10MYR1.SGM
10MYR1
]]>Agencies
[Federal Register Volume 84, Number 91 (Friday, May 10, 2019)]
[Rules and Regulations]
[Pages 20551-20578]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-09657]
=======================================================================
-----------------------------------------------------------------------
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: Final rule.
-----------------------------------------------------------------------
SUMMARY: In accordance with the Great Lakes Pilotage Act of 1960, the
Coast Guard is establishing new base pilotage rates and surcharges for
the 2019 shipping season. This rule will adjust the pilotage rates to
account for a rolling ten-year average for traffic, and result in an
increase in pilotage rates due to an adjustment for anticipated
inflation, changes in operating expenses, surcharges for applicant
pilots, and an addition of two pilots.
DATES: This rule is effective June 10, 2019.
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
I. Abbreviations
II. Executive Summary
III. Basis and Purpose
IV. Background
V. Discussion of Comments
A. Operating Expenses
a. Medical Benefits Paid to Retired Pilots
b. Calculation of Applicant Pilot Costs
c. Reimbursement for Direct-Billed Pilot Boat Costs
d. Housing Allowances
e. Capital Expenses
f. Legal Fees
B. Surcharge Offsets
C. Continued Use of Surcharges
D. Target Compensation
a. Questions Relating the Interim Compensation Benchmark
i. Inflation Adjustments From 2015-2018
ii. Use of a 270-Day Multiplier and Guaranteed Overtime Figure
b. Comparisons With Other U.S. Pilots
E. Manning and Traffic Figures
a. Manning
b. Use of Bridge Hours and Average Traffic Figures
c. Calculation of 2017 Traffic Figure for District 3
F. Working Capital Fund
G. Use of the Martin Report
H. Other Issues Concerning Ratemaking Procedures
a. Over-Realization of Pilotage Revenue
b. Disparity of Rates Between U.S. and Canadian Pilotage
I. Out-of-Scope Issues
J. Issues Resulting From Litigation
VI. Discussion of Current Rate Adjustments
A. Step 1: Recognize Previous Operating Expenses
B. Step 2: Project Operating Expenses, Adjusting for Inflation
or Deflation
C. Step 3: Estimate Number of Working Pilots
D. Step 4: Determine Target Pilot Compensation Benchmark
E. Step 5: Project Working Capital Fund
F. Step 6: Project Needed Revenue
G. Step 7: Calculate Initial Base Rates
H. Step 8: Calculate Average Weighting Factors by Area
I. Step 9: Calculate Revised Base Rates
J. Step 10: Review and Finalize Rates
K. Surcharges
VII. Regulatory Analyses
A. Regulatory Planning and Review
B. Small Entities
C. Assistance for Small Entities
D. Collection of Information
E. Federalism
F. Unfunded Mandates Reform Act
G. Taking of Private Property
H. Civil Justice Reform
I. Protection of Children
J. Indian Tribal Governments
K. Energy Effects
L. Technical Standards
M. Environment
I. Abbreviations
AMO American Maritime Officers
APA American Pilots Association
BLS Bureau of Labor Statistics
CAD Canadian dollars
CFR Code of Federal Regulations
CPA Certified public accountant
CPI Consumer Price Index
DHS Department of Homeland Security
FOIA Freedom of Information Act
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
ICR Information Collection Request
LIBOR London Interbank Offered Rate
NAICS North American Industry Classification System
NPRM Notice of proposed rulemaking
NTSB National Transportation Safety Board
OIRA Office of Information and Regulatory Affairs
OMB Office of Management and Budget
PCE Personal Consumption Expenditures
SBA Small Business Administration
Sec. Section symbol
SLSMC Saint Lawrence Seaway Management Corporation
The Act Great Lakes Pilotage Act of 1960
U.S.C. United States Code
USD United States dollars
WGLPA Western Great Lakes Pilot Association
[[Page 20552]]
II. 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 during the 2018 shipping year
ranged 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 are the exclusive U.S.
source of registered pilots on the Great Lakes. The pilot associations
use this revenue to cover operating expenses, maintain infrastructure,
compensate working pilots, and train new pilots. Since 2016, the Coast
Guard has used a ratemaking methodology that was developed in
accordance with our statutory requirements and regulations. This
ratemaking methodology calculates the revenue needed for each pilotage
association (including operating expenses, compensation, and
infrastructure needs), and then divides that amount by the 10-year
average of shipping traffic 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 rulemaking.
---------------------------------------------------------------------------
\1\ Title 46 United States Code (U.S.C.) Chapter 93; Public Law
86-555, 74 Stat. 259, as amended.
---------------------------------------------------------------------------
In this final rule, the Coast Guard is establishing new pilotage
rates for 2019 based on the existing ratemaking methodology. As
proposed in the notice of proposed rulemaking (NPRM), the Coast Guard
is adjusting the rates to account for 2019 inflation, the addition of
two working pilots, and updated historic traffic data. Based on the
comments to the NPRM, the Coast Guard is also adjusting the operating
expenses and correcting previous traffic data, which is discussed in
Section V below. The result of these changes is an overall increase in
the rates, as shown in Table 1.
Table 1--Current and New Pilotage Rates on the Great Lakes
----------------------------------------------------------------------------------------------------------------
2018 Pilotage Proposed 2019 Final 2019
Area Name rate pilotage rate pilotage rate
----------------------------------------------------------------------------------------------------------------
District One: Designated.............. St. Lawrence River...... $653 $698 $733
District One: Undesignated............ Lake Ontario............ 435 492 493
District Two: Undesignated............ Lake Erie............... 497 530 531
District Two: Designated.............. Navigable waters from 593 632 603
Southeast Shoal to Port
Huron, MI.
District Three: Undesignated.......... Lakes Huron, Michigan, 271 304 306
and Superior.
District Three: Designated............ St. Mary's River........ 600 602 594
----------------------------------------------------------------------------------------------------------------
This final rule is not economically significant under Executive
Order 12866. This rule impacts 51 United States 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 $2,831,743 in payments made by shippers from the 2018
shipping season. Because the Coast Guard must review, and, if
necessary, adjust rates each year, the rates are analyzed as single
year costs and are not annualized over 10 years. This rule does not
affect the Coast Guard's budget or increase Federal spending. Section
VII of this preamble provides the regulatory impact analyses of this
final rule.
III. 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, no later than March 1. The Act requires that
base rates be established by a full ratemaking at least once every five
years, and in years when base rates are not established, the rates 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).
---------------------------------------------------------------------------
This final rule establishes new pilotage rates and surcharges for
the 2019 shipping season. The Coast Guard believes that the new rates
will promote pilot retention, ensure safe, efficient, and reliable
pilotage services on the Great Lakes, and provide adequate funds to
upgrade and maintain infrastructure.
IV. 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 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
[[Page 20553]]
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. 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).
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 or partners and pilot
compensation. The Coast Guard developed a 10-step ratemaking
methodology to derive a pilotage rate that covers these expenses based
on the estimated amount of traffic. 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.
---------------------------------------------------------------------------
\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 three 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 three years behind the projected year
of expenses. In calculating the 2019 rates, the Coast Guard used the
audited expenses from fiscal year 2016.
While each pilotage association operates in an entire district, the
Coast Guard determines costs by area. Thus, with regard to operating
expenses, the Coast Guard allocates 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 allocate 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 2019 projected
operating expenses. To do this, we apply inflation adjustors for three
years to the operating expense baseline received in Step 1. The
inflation factors used are from the Bureau of Labor Statistics (BLS)
Consumer Price Index (CPI) 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
[[Page 20554]]
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 (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 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. Because pilots are paid by the associations, but
the costs of pilotage are 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 multiplying 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 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, as 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), we
modify the base rates by accounting for the extra revenue generated by
the weighting factors. We do this by dividing the initial pilotage rate
for each area (from Step 7) by the corresponding average weighting
factor (from Step 8), to produce a revised rate.
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 and providing appropriate funds for infrastructure and
training. The Coast Guard also uses various factors to ensure that the
rate is set in the public interest and will continue to encourage
robust traffic in the Great Lakes. The Martin Study is one factor the
Coast Guard considered when setting rates for shipping, but Coast Guard
also recognizes that it is not a comprehensive analysis of all economic
factors.\12\
---------------------------------------------------------------------------
\12\ 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.
---------------------------------------------------------------------------
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'' 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.
V. Discussion of Comments
In response to the October 17, 2018, NPRM (83 FR 52355), the Coast
Guard received five comment letters. These included one comment from
the three Great Lakes pilot associations,\13\ one comment from the law
firm Thompson Coburn, which represents the interests of the Shipping
Federation of Canada, the American Great Lakes Ports Association, and
the United States Great Lakes Shipping Association (hereinafter
``User's Coalition''),\14\ a comment from the president of the St.
Lawrence Seaway Pilots' Association,\15\ a comment from the president
of the Lakes Pilots Association,\16\ and a comment from the president
of the Western Great Lakes Pilot Association.\17\ As each of these
commenters touched on numerous issues, for each response below, we note
which commenters raised the specific points addressed. In situations
where multiple commenters
[[Page 20555]]
raised similar issues, we attempt to provide one response to those
issues.
---------------------------------------------------------------------------
\13\ USCG-2018-0665-0008, available at https://www.regulations.gov.
\14\ USCG-2018-0665-0010.
\15\ USCG-2018-0665-0009.
\16\ USCG-2018-0665-0007.
\17\ USCG-2018-0665-0006.
---------------------------------------------------------------------------
A. Operating Expenses
The first step of the ratemaking process entails establishing the
allowable operating expenses for each pilotage district, and allowing
pilot associations to recoup any costs that are considered reasonable
and necessary for operation of a pilotage association. To do so,
pilotage associations submit accounting statements to independent
auditors, and then the audited reports are forwarded to the Coast Guard
for additional review. We received several comments from pilot
associations and persons representing such interests requesting changes
to these adjustments, which are discussed below.
a. Medical Benefits Paid to Retired Pilots
The Coast Guard received one comment concerning an adjustment made
for payments to retired pilots. In the NPRM, we proposed to disallow
$90,600 of requested charges for payments of health benefits for
retired pilots. In doing so, we stated that ``we consider health
benefits to be `compensation,' and compensation paid to pilots cannot
be recouped as operating expenses.'' \18\ One commenter \19\ stated
that, because the payments were made on behalf of retired pilots who
were not among the 13 allowed pilots, the amount should not be
considered as pilot compensation and should be construed as a
reimbursable operating expense. The commenter also noted that such a
payment had been allowed in a 2005 Interim Rule.\20\
---------------------------------------------------------------------------
\18\ Great Lakes Pilotage Rates--2019 Annual Review and
Revisions to Methodology (October 17, 2018), 83 FR 52355 at 52361.
\19\ USCG-2018-0665-0007.
\20\ 70 FR 12082, 12086 (March 10, 2005).
---------------------------------------------------------------------------
Upon examining the enclosed Federal Register citation to the 2005
interim final rule and reviewing the regulatory text, the Coast Guard
confirms its proposal to disallow payments of health benefits and
reaffirms here that medical expenses paid on behalf on pilots should be
considered pilot compensation, and not an operating expense. Section
404.2 requires that medical and pension benefits for pilots be treated
as pilot compensation; i.e., not as an allowable operating expense. The
reasoning in the 2005 Federal Register Interim Rule does not apply
here. In the 2005 Interim Rule, which was predicated on pre-2016
regulations, the Coast Guard based the decision to expense certain
medical costs on the specific contours of the American Maritime
Officers (AMO) union contracts that formed the basis of the 2005
compensation benchmark. Such reasoning, even if it were permissible
under the current regulations, does not apply to the 2016 operating
expenses at issue in this year. Instead of basing our compensation on
the AMO contract, the Coast Guard based the 2016 compensation benchmark
on Canadian compensation figures.
b. Calculation of Applicant Pilot Costs
One commenter stated that District 3 had misstated its medical
expenses in its report to the auditors.\21\ The commenter argued that
it had submitted an aggregated medical expense of $77,060, and that the
auditors had incorrectly allocated all of that sum as costs associated
with pilots. The commenter stated that, in fact, $60,031 of that sum
was paid as medical expenses for applicant pilots, while only $17,030
(numbers are rounded to the nearest dollar) were paid as partner
compensation. They claimed that they had submitted a spreadsheet to the
auditors with the correct disaggregated information, but that the
auditors had failed to use it.
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\21\ USCG-2018-0665-0008, p. 2-3.
---------------------------------------------------------------------------
The Coast Guard agrees with this comment. The Coast Guard consulted
with the auditors, who re-examined the information provided to them by
District 3. The auditors agreed that information disaggregating the
medical expense items had been overlooked, and that the medical
expenses of the District 3 applicant pilots had been understated by a
total of $60,031. For that reason, the Coast Guard is adding that
figure to the total applicant medical expenses for District 3 (see
Table 5 below).
In a related note, the adjustment to applicant pilot compensation
for District 3 effects the Director's adjustment for District 2
applicant pilot expenses. In the NPRM, the Coast Guard proposed to make
a substantial adjustment to the District 2 request for reimbursement of
$571,248 for two applicant pilots, as that request was not supported by
audited financial statements.\22\ Instead of permitting $571,248 for
two applicant pilots, we proposed allowing an operating expense of
$257,566, or $128,783 per applicant pilot, which was equivalent to the
amount paid by District 3 to applicant pilots, resulting in a proposed
Director's adjustment of $313,681. However, as we have adjusted the
allowance for District 3 applicants by $60,031 for the reasons
described above, a similar adjustment is required for the two District
2 applicants. For that reason, we are finalizing a positive $60,031
Director's adjustment for District 2 applicant pilot benefits, in
addition to the negative $313,681 adjustment to wages originally
proposed, for a total negative adjustment of $253,650 (see Table 5
below).
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\22\ See 83 FR 52355, at 52361.
---------------------------------------------------------------------------
One commenter provided comments on the District 2 applicant pilot
adjustment, and we believe the above change addresses their comment.
The commenter stated that in the NPRM, ``the proposed rule training
expenses have been denied merely on the ground that they are higher
than purported (and incorrectly stated) District 3 expenses.'' \23\
While the commenter is incorrect that the Coast Guard did not approve
the stated figures merely because they were high,\24\ we agree with the
commenter that the District 3 expenses were inaccurately stated.
However, we disagree with the commenter's argument that the District 2
applicant expenses should be accepted at face value. We note that all
operating expenses must be ``reasonable in their amounts'' pursuant to
section 404.2(c)(1). District 2 asserted, in their letter to the Coast
Guard,\25\ that they paid applicant pilots $285,624.23 each in wages
alone, a number far larger than the applicant salaries of the other
Districts and nearly on par with full pilots, which the Coast Guard
provided a targeted compensation level of $326,114 (a figure which
included full benefits) for 2016. In the NPRM, we stated that ``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[s] . . . the
Director proposes only allowing a portion of these expenses to be
recouped as reasonable operating expenses.'' \26\ We remain unpersuaded
that $285,624.23 is a reasonable wage for an applicant pilot.
---------------------------------------------------------------------------
\23\ USCG-2018-0665-0008, p.8.
\24\ In the NPRM, we stated that we had received inaccurate
information on applicant expenses originally, and the unaudited
assertion made in response to Coast Guard inquiries was not
believed. See 83 FR 52355, at 52361.
\25\ USCG-2018-0665-0001.
\26\ 83 FR 52355, at 52361.
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c. Reimbursement for Direct-Billed Pilot Boat Costs
One commenter suggested that the auditor's adjustment for direct-
billed pilot boat runs should be reduced. In the NPRM, the Coast Guard
noted an auditor's adjustment for $92,056 of direct-billed boat and
discharge costs.\27\ In District 3, ordinary pilot boat costs are
billed to the Western Great Lakes
[[Page 20556]]
Pilot Association (WGLPA), and are considered a reimbursable operating
expense. However, when a pilot boat is operated for the convenience of
the vessel, the cost is billed directly to the vessel and paid to the
associations, which reimburse the pilot boat. Thus, the pilotage
association cannot claim that cost as a reimbursable operating expense,
as that would constitute double-billing. For this reason, the auditor
disallowed the recoupment of those fees as operating costs. However,
one commenter \28\ argued that the auditor erred. Because of that
$92,056 billed to the shippers, the Canadian Great Lakes Pilotage
Authority (GLPA) had received $37,754 more in revenues from those
services than it had paid in costs, and the WGLPA suffered an
equivalent shortfall. The WGLPA requested that it be allowed to recoup
the $37,754 shortfall as reimbursable operating expenses.
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\27\ See item D3-16-02, 83 FR 52355, at 52362.
\28\ USCG-2018-0665-0006, p.3.
---------------------------------------------------------------------------
After consideration of the comment, the Coast Guard does not agree
that this expense should be included with operating costs. The cost for
pilotage boat services was $92,056, which was paid by the shippers at
that time. As the commenter stated, while the revenues from $92,056
were split approximately evenly between the GLPA and WGLPA, the WGLPA
paid a much larger percentage of the $92,056 in costs, resulting in a
$37,754 shortfall for the WGLPA and an equivalent windfall for the
GLPA. While the WGLPA is correct that it suffered a loss from this
inequitable split, we do not believe that the shortfall should be made
up by permitting the WGLPA to bill an additional $37,754 to the
shippers, who have already paid the costs for the pilot boat services
in full.
d. Housing Allowances
In the NPRM, the Coast Guard proposed to disallow $36,900 in
housing allowance expenditures for the District 3 operating expenses.
As we did not have documentation of monies spent, we requested that the
association ``provide the receipts that could help to determine if
these are recoverable operating expenses.'' \29\ We also note that the
Director is legally prohibited from permitting undocumented expenses
pursuant to 46 CFR 404.2(c)(1).
---------------------------------------------------------------------------
\29\ 83 FR 52355, at 52362.
---------------------------------------------------------------------------
One comment addressed the amount of money paid for housing. This
commenter \30\ argued that the total sum amounted to $820 per month for
5 pilots, and that this amount was paid to the pilots so they could
rent apartments in the De Tour/Sault St. Marie area instead of using
hotels when required to stay overnight. The commenter argued that the
cost of a hotel in the area is about $95 per night, and that using
hotels could cost over $2,000 per month per pilot. While hotel receipts
would satisfy the Coast Guard's need for ``receipts,'' the commenter
argues using hotels would not be a cost-effective method for housing
pilots. The Coast Guard believes that this commenter has placed too
much emphasis on the Coast Guard's use of the word ``receipts'' and
misinterpreted the requirements of 46 CFR 404.2(c)(1), which prohibits
the recoupment of ``undocumented expenses.'' That provision requires
documentation of money spent, and does not permit the reimbursement of
an ``allowance.'' For example, the Coast Guard would accept leases and
documentation of money paid for apartments as an allowable operating
expense, assuming it found the expense necessary and reasonable
pursuant to section 404.2(a). However, we cannot reimburse an allowance
paid to pilots as an operating expense. We require verification for all
payments with proper documentation clearly demonstrating that the money
was spent on allowable and reasonable expenses. For these reasons, we
are denying the request to recoup the housing allowance as an operating
expense.\31\
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\30\ USCG-2018-0665-0006, p. 4.
\31\ We note that the commenter describes a situation in which
the pilots maintain apartments in the metro area (DeTour/Sault St
Marie) in which they work. Under IRS guidance, one cannot claim
lodging expenses in the city in which they work.
---------------------------------------------------------------------------
e. Capital Expenses
One commenter stated they submitted costs for ``infrastructure'' to
the Coast Guard, and that ``discussions with the Coast Guard at the
time indicated the submitted data was sufficient for ratemaking
purposes,'' but that the ``NPRM shows no contemplation of removing
these funds.'' \32\ This comment refers to the ``Capital Acquisitions''
item referred in Section X of the document entitled St. Lawrence Seaway
Pilots Association--Independent Accountant's Report on Applying Agreed-
Upon Procedures.'' \33\ That document describes three properties in New
York used by the St. Lawrence Seaway Pilots Association for operational
needs. The document stated that the Coast Guard would approve $466,940
in operating costs to cover cash outlays made in 2016 to acquire these
properties.\34\
---------------------------------------------------------------------------
\32\ USCG-2018-0665-0009, p.1.
\33\ USCG-2018-0665-0002, p.30.
\34\ USCG-2018-0665-0002, p.8, note 2.
---------------------------------------------------------------------------
While the Coast Guard originally believed that these outlays would
be covered by money brought in from Step 5 of the ratemaking process,
we now believe, based on the comment and contemporaneous communication
with the association, that this should be considered an operating
expense. While future capital acquisitions may or may not be considered
operating expenses due to the existence of the working capital fund
(see the ``working capital fund'' discussion below for more detailed
discussion on treatment of capital expenses), we note that the working
capital fund was not in effect at the time of these acquisitions. It
was only in 2017 that Step 5 of the ratemaking process was identified
as the working capital fund, and until that point, it had been
characterized as a ``return on investment.'' Based on that, we believe
it within the purview of the Coast Guard to identify which capital
expenses are considered reasonable and necessary pursuant to the
guidelines in Sec. 404.2, and we believe that these purchases are
within those guidelines. For that reason, we are adding the $466,940
property acquisition cost to the allowable operating expenses of
District 1.
f. Legal Fees
One commenter suggested that the Coast Guard had erroneously made a
Director's adjustment of $1,292 for legal fees for District 3, and that
adjustment should be removed.\35\ The commenter stated that only
$15,208.09 of its reported legal fees were for ``general activities,''
and that it had already excluded 3 percent of that amount from its
requested operating expenses as related to lobbying. The Coast Guard
has examined the commenter's calculations and agrees the Director's
adjustment was unneeded, and has thus removed it.
---------------------------------------------------------------------------
\35\ USCG-2018-0665-0006, p.3.
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B. Surcharge Offsets
Beginning in 2016, the Coast Guard began implementing surcharges on
shipping rates to encourage the recruitment and training of new pilots
on the Great Lakes. Unlike pilot compensation, costs relating to the
compensation and training of applicant pilots are fully reimbursable as
operating expenses. However, the Coast Guard used surcharges so that
pilot associations could receive the money needed to cover the costs of
recruiting and training pilots in the year they were incurred, rather
than wait three years until such costs could be reimbursed as ordinary
operating expenses. As such, the surcharges act as an ``advance'' on
[[Page 20557]]
the reimbursed operating expenses. This year, 2019, is the first year
in which we can view the incurred operating expenses for applicant
pilots in 2016, and deduct from operating expenses the actual amounts
collected in surcharges. We note that in the 2017 rulemaking, we
modified the surcharge provision to limit the amount collected to
$150,000 per applicant pilot. However, in 2016, the year to which these
calculations apply, there was no cap on the amount of surcharges, and
the amounts collected therefore totaled far more than the surcharge
percentage was anticipated to collect.
In the NPRM, the Coast Guard included a ``surcharge offset'' line,
which corresponded to the actual amount collected in surcharges in the
2016 shipping season.\36\ We received several comments on this issue,
although some of the commenters appeared to misunderstand what the
surcharge adjustment was for or the basis on which it was calculated.
One commenter provided information about pilot costs from 2017, stating
that ``the Coast Guard should have audited data showing that District
Three's surcharge revenue for 2017 was only $382,297.24 of the $600,000
projected applicant pilot cost.'' \37\ The commenter's statement refers
to the wrong year--the ``surcharge offset'' should be equal to the
amount actually collected by surcharges in the year of expenses being
analyzed (which for this rule is 2016, not 2017). We will analyze
surcharge offsets for subsequent years at the appropriate time, when we
consider that year's operating expenses for purposes of rate
calculation.
---------------------------------------------------------------------------
\36\ See NPRM, 83 FR 52355, at 52359 for additional discussion.
\37\ USCG-2018-0665-0006, p.5.
---------------------------------------------------------------------------
One commenter stated that ``the proposed rule also errs in stating
that the $150,000 per pilot surcharge amounts were intended to be hard
estimates or caps on the amount of reasonable training expenditures, so
that any amounts expended beyond that should now be disallowed.'' \38\
While the Coast Guard is uncertain about what statements in the
proposed rule the commenter is referring to, we agree that there was no
hard limit on how much could be spent on training and stipends for
applicant pilots, so long as the expenses were considered to be
reasonable and necessary pursuant to the requirements in Sec.
404.2(a). The commenter goes on to state that the NPRM ``proposes to
deduct from each association's operating expenses not only any
surcharges collected in excess of $150,000 per applicant pilot, id. . .
.'' 39 40 We disagree with the commenter, and note the
``surcharge offset'' is equal to the actual dollar amount collected as
surcharges in the 2016 shipping season. The ``surcharge offset'' is
unrelated to whether certain operating costs are deemed necessary and
reasonable.
---------------------------------------------------------------------------
\38\ USCG-2018-0665-0008, p.5.
\39\ It is unclear what the commenter is citing here, as the
previous citation was to the 2016 GLPAC Public Meeting.
\40\ USCG-2018-0665-0008, p. 7.
---------------------------------------------------------------------------
C. Continued Use of Surcharges
In the NPRM, the Coast Guard suggested that we might not continue
to use surcharges in future years to cover costs relating to applicant
pilots, and instead revert to a system where all costs associated with
applicant pilots would be reimbursed through the operating expense
provisions. Noting that the ``vast majority of registered pilots are
not scheduled to retire in the next 20 years,'' \41\ the Coast Guard
invited comments on discontinuing the surcharge practice that has been
in effect the last three years. We received several responses to this
suggestion, all of which opposed the idea. One commenter argued that
``while there has been progress in hiring new pilots nothing suggests
that these new hires, many of which have been made to expand the
pilotage pool rather than to replace departing pilots, have operated to
reduce the need to train replacement pilots for the next two decades.''
\42\ Another commenter stated that ``[m]uch as we dislike surcharges--
we think the Coast Guard should keep the status quo until it is ready
to propose a better solution.'' \43\
---------------------------------------------------------------------------
\41\ 83 FR 52355, at 52370.
\42\ USCG-2018-0665-0008, p.5.
\43\ USCG-2018-0665-0006, p.5.
---------------------------------------------------------------------------
Based on the comments received, it appears that various interests
on the pilot side support the continued application of surcharges.
While no change was proposed for 2019, the Coast Guard will take this
stated preference into consideration as we prepare the 2020 ratemaking
deliberations.
D. Target Compensation
In the NPRM, the Coast Guard established the target compensation
benchmark by multiplying the previous year's compensation benchmark by
the estimated inflation for 2018, giving a total of $359,887 per pilot
for 2019. We received numerous comments pertaining to this calculation,
which are described below.
a. Questions Relating to the Interim Compensation Benchmark
i. Inflation Adjustments From 2015-2018
One commenter raised questions about the use of AMO contracts in
the ``interim compensation'' benchmark that the Coast Guard established
in the 2018 ratemaking rule.\44\ The commenter argued that the Coast
Guard's failure to use the actual wage adjustment rates received by the
AMO from 2015-2018 was a mistake, and caused the compensation figure to
be too low, and demonstrated calculations that would use the contracted
increases from the AMO 2015 onward contract to arrive at target
compensation figure approximately $10,000 above what the Coast Guard
calculated for 2018. This commenter misunderstands the nature of the
interim compensation benchmark, which was tied to the AMO contracts in
place from 2011-2015. To summarize, the interim compensation benchmark
sought to match the daily AMO compensation level from 2015, apply it to
the 270-day working season for Great Lakes pilots, and then adjust that
number for inflation. It did not seek to match the contract
stipulations from 2015 onward, because the Coast Guard did not have
access to the underlying contract documents for that period. We
discussed the interim compensation benchmark more thoroughly in the
2018 NPRM and final rule. In those documents, we described the interim
compensation benchmark as being based on the 2015 AMO rate--and then
adjusted for inflation using public inflation data to achieve an
equivalent real value for 2018. We stated that we would not use the
more recent data on AMO contracts, as we did not have access to the
underlying documents. As we still lack that data and have not proposed
changing the basis for the compensation benchmark, we cannot adopt the
commenter's assertion that we should use contract data from the 2015-
2019 AMO contracts.
---------------------------------------------------------------------------
\44\ USCG-2018-0665-0008, p.2-3.
---------------------------------------------------------------------------
ii. Use of a 270-Day Multiplier and Guaranteed Overtime Figure
One commenter \45\ raised an issue relating to how we translated
the daily wage rate from the AMO contract to a yearly compensation for
purposes of setting the interim compensation benchmark in 2018. As
described in the 2018 ratemaking, the Coast Guard multiplied the daily
rate, as calculated using the AMO contracts, by 270 to get the yearly
compensation figure. We
[[Page 20558]]
used the figure of 270 days because that is the number of days in the
Great Lakes shipping season. However, the commenter argued that the
Coast Guard should have multiplied the daily rate by 200, which is the
number of days a Great Lakes pilot is actually expected to work under
our staffing model, which would result in significantly lower target
compensation. The commenter stated that the lower figure ``reflected
the reality of the Coast Guard's imposition of a required 10-day per
month rest requirement for U.S. pilots.'' \46\ The commenter also took
issue with the Coast Guard's incorporation of the ``guaranteed
overtime'' figure that was incorporated into the rate, stating that the
``Coast Guard accepted this figure at face value and incorporated it in
its entirety . . . with no reported inquiry into the validity of this
figure.\47\
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\45\ USCG-2018-0665-0010, p. 4.
\46\ USCG-2018-0665-0010, p. 4.
\47\ USCG-2018-0665-0010, p. 5.
---------------------------------------------------------------------------
While the Coast Guard understands the commenter's arguments that
these actions by the Coast Guard led to significantly higher target
compensation figures, we stand by the reasoning in doing so as
articulated in the 2018 final rule. In responding to a similar comment
to the 2018 NPRM, we stated that ``while we believe the industry
commenters' suggestion of multiplying the aggregate daily wage by 200,
rather than 270, has merit, we have decided that in the interests of
recruiting and retaining a suitable number of experienced pilots, a
multiplier of 270 is the preferable course of action. The Coast Guard
also noted ``[w]hile we have considered the argument that it would be
more efficient to pay pilots less or have fewer of them to generate
lower shipping rates, we believe the effect on safety and reliability
warrant a multiplier of 270.'' \48\ With regard to the additional
overtime figure, we adopted it because the commenter who provided the
overtime figures had firsthand knowledge of the contract between the
AMO and the shippers.\49\ If the commenter has information about this
contract that could be shared which would cause the Coast Guard to
question the validity of the overtime figure, we would be open to
receiving it. However, as no additional information has been supplied,
we will continue to use the best information we have to calculate the
target compensation, which at this time includes the overtime figure.
---------------------------------------------------------------------------
\48\ 83 FR 26171.
\49\ 83 FR 26169.
---------------------------------------------------------------------------
b. Comparisons With Other U.S. Pilots
One commenter argued that ``the proposed 2019 target compensation
also continues to lag [behind] the compensation of other U.S. pilots by
a considerable margin.'' The commenter went on to argue that ``the
pilots stand ready to assist the Coast Guard in [studying pilot
compensation]'' and ``urge the Coast Guard to review the information
they [the pilots] have provided, which they believe supports a higher
compensation level.'' \50\ The Coast Guard notes that the past
information provided by the pilot associations contains recent total
compensation information for selected pilot groups in other regions.
However, because target compensation and actual compensation are quite
different (in recent years, actual compensation has been significantly
higher than target compensation due to higher-than-expected shipping
demand), we cannot directly compare the two. We would welcome
submission of actual pilot compensation data for Great Lakes pilots in
recent years to improve our analysis, and will raise it as an issue in
a future Great Lakes Pilotage Advisory Committee meeting.
---------------------------------------------------------------------------
\50\ USCG-2018-0665-0008, p. 3.
---------------------------------------------------------------------------
E. Manning and Traffic Figures
a. Manning
Several commenters raised issues relating to the calculation of the
number of pilots needed, given anticipated traffic on the Great Lakes
(the staffing model). In the 2019 NPRM, using that model, we left the
maximum number of pilots at 54 total, although for 2019 we proposed
authorizing only 51 pilots, an increase of two pilots over the
authorized number for 2018. Based on the comments received, the Coast
Guard is not making changes to the staffing model at this time, but
note the concerns of the commenters, as discussed below.
One commenter argued that ``with the growth of tanker and cruise
ship traffic, vessel transit frequency no longer subsides during the
summer period. The result is pilots being unable to realize the
restorative rest stated as a goal in the manning models and needed for
continued safe operation.'' \51\ The Coast Guard believes this is
potentially a valid point. The current staffing model is based on the
historic increased need for pilots at the start and close of the
season, and that by staffing to meet that need, it allows pilots to
take approximately 10 days of restorative rest each month during the
seven-month mid-season period. We are currently monitoring traffic
patterns, and if the commenter's assertion proves accurate, it would
cause us to reevaluate the staffing model. While at this time we are
still gathering data, we would appreciate additional data and
suggestions for alternative staffing models in light of changes in
traffic patterns.
---------------------------------------------------------------------------
\51\ USCG-2018-0665-0009, p. 2.
---------------------------------------------------------------------------
Another commenter criticized the Coast Guard's use of rounding up
the number of pilots authorized to operate in a district as a means of
calculating the administrative time required of each association's
president.\52\ The commenter suggests that the Coast Guard ``devise a
better method'' to account for the president's administrative duties.
We disagree with the commenter's suggestion. We note that, because we
are calculating the number of full-time pilots, we must round to the
nearest whole number in any event. Furthermore, because administrative
time varies widely, it is difficult to assign a concrete number to that
duty. We continue to believe that upward rounding of the number of
pilots needed is appropriate given that the association president is
both a pilot providing service and the lead administrator for the
association. We, however, encourage the commenter to suggest an
alternative method for calculating administrative time.
---------------------------------------------------------------------------
\52\ USCG-2018-0665-0006, p. 5.
---------------------------------------------------------------------------
b. Use of Bridge Hours and Average Traffic Figures
One commenter raised questions about the validity and consistency
of various calculations used in the Coast Guard's ratemaking
methodology. Specifically, the commenter stated that the ``use of
inconsistent time periods for varying data sets--e.g., a ten-year
rolling average of historical traffic volume data against three-year or
one-year data for determining expense levels or pilot staffing needs''
\53\ was a pressing concern. We believe that the commenter has
mischaracterized the Coast Guard's data collection and aggregation
efforts, and we will attempt to explain them here.
---------------------------------------------------------------------------
\53\ USCG-2018-0665-0010, p. 2.
---------------------------------------------------------------------------
The first issue is the use of the historical traffic average
(sometimes referred to as ``actual traffic'') to determine anticipated
traffic volumes, which we implement by using a rolling 10-year average.
The Coast Guard requires an estimate of the amount of traffic in the
upcoming year as part of its ratemaking methodology as this is not
something that can be measured beforehand. To derive this estimate, the
[[Page 20559]]
Coast Guard takes the average of the previous 10 years of traffic in
each area on the Great Lakes. The use of the historical traffic figure
was unanimously recommended by the Great Lakes Pilotage Advisory
Committee (GLPAC) in 2014,\54\ and we believe that it is the best tool
we have to estimate traffic. While in recent years high levels of
traffic have been greater than the historical average, we also note
that, not unexpectedly, in some years, the level of traffic has been
lower than average. The use of the 10-year average may cause the
average to lag trends, but it does reduce fluctuations in predicted
traffic levels resulting in a more stable rate on a year to year basis.
While we are open to suggestions as to how to better predict total
traffic, we would encourage the commenters to raise these suggestions
at the GLPAC, as we are currently continuing to follow its
recommendation on this subject.
---------------------------------------------------------------------------
\54\ See Great Lakes Pilotage Advisory Committee meeting
transcript, July 23, 2014, at p. 254 to 258.
---------------------------------------------------------------------------
Unlike the traffic prediction, the other factors the commenters
cite (the operating expenses and number of authorized pilots) are
measured numbers, and thus do not require a predictive mechanism. The
operating expenses (the ``three-year'' figure) are direct
reimbursements for actual expenses three years previous. The reason for
the delay is the time it takes to receive, audit, and present those
numbers through the rulemaking process. Similarly, the Director of
Great Lakes Pilotage determines the number of working pilots (the
``one-year'' figure) based on measured training progressions and
retirement announcements. These are not predictions that would require
us to average a previous year's estimates or use some other mechanism
to make predictions. For these reasons, the Coast Guard does not
believe the commenter's concern regarding the different time periods at
issue represents a flaw in the Coast Guard's ratemaking methodology.
c. Calculation of 2017 Traffic Figure for District 3
One commenter suggested that the Coast Guard had made an error in
its calculation of the total traffic figures for District 3. The
commenter stated that the Coast Guard's 2017 total traffic figures
(26,183 hours in undesignated waters and 3,798 hours in designated
waters) were inaccurate, and that the correct figures for that year
were 20,955 hours in undesignated waters, and 2,997 hours in designated
waters.\55\ In response to this comment, we reviewed the data from 2017
and were unable to replicate the traffic figures cited in the NPRM. We
were, however, able to validate the commenter's figures using the
search parameters they provided. For that reason, we believe that the
information provided by the commenter provides a stronger basis for the
2017 traffic figures, and have made the adjustment accordingly.
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\55\ USCG-2018-0665-0006, p. 2.
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F. Working Capital Fund
In the NPRM, the Coast Guard requested comments on the utility and
value of the working capital fund and in response, received several
comments and questions regarding its origins, uses, and tax
implications. One commenter stated that while it appreciated that the
working capital fund provides a revenue stream intended to be used for
infrastructure, one problem is that the Coast Guard ``hasn't
established any guidelines or limits on acceptable uses.'' \56\ Another
commenter suggested changes to the way the working capital fund
operates. Currently, the working capital fund ``is structured so that
the pilot associations can demonstrate credit worthiness when seeking
funds from a financial institution for needed infrastructure projects,
and those projects can produce a return on investment at a rate
commensurate to repay a financial institution.'' \57\ The commenter
argued that ``if the reserve fund is used for improvements then it is
not available to provide a return on investment,'' \58\ and recommended
that the interest rate on which the value of the working capital fund
is calculated be dramatically increased (the commenter suggested London
Interbank Offered Rate (LIBOR) + 4 percent). We disagree with this
suggestion, and believe the commenter has misinterpreted the Coast
Guard's intent. In previous years, the goal of the ``return on
investment'' step, the precursor of the working capital fund, was to
provide a return to monies invested by the pilots in associations. The
amount of the money invested (the investment base) by pilots was
relatively small, and thus the return on that investment was small in
absolute terms. However, when we recalibrated the return on investment
(later dubbed the working capital fund) to be based on the total income
of the associations, rather than simply the money invested in capital
improvements, the goal was to increase infrastructure spending by
providing a more substantial pool of available funds.
---------------------------------------------------------------------------
\56\ USCG-2018-0665-0006, p. 6.
\57\ 83 FR 26173, citing 82 FR 41466, p. 41484.
\58\ USCG-2018-0665-0008, p. 4.
---------------------------------------------------------------------------
The goal of the working capital fund is not to provide a windfall
for the associations. It is to demonstrate that associations can accrue
additional capital, and thus have the resources to invest in
infrastructure, either with the capital on hand or by financing a loan.
It is not designed to provide extra money for associations to
distribute to their shareholders.
Industry commenters had a very negative view of the working capital
fund. In addition to several concerns about the terminology, the
commenter stated that ``the Coast Guard does not impose safeguards to
require segregation of funds generated as a result of this element'' or
``ensure that such funds are used in a manner consistent with Coast
Guard explanations as to why the [working capital fund] exists.'' \59\
The commenter argued that ``there has been no indication as to why a
``Working Capital'' figure would be the product or function of
multiplying the sum of operating expenses and target pilot compensation
by [AAA bond yields].'' Finally, industry commenters asserted that
``until the Coast Guard establishes exactly what this component of the
pilotage revenue stream is, how it should be rationally computed, and
how it must be used, the correct value of the [working capital fund]
should be set at $0.'' \60\
---------------------------------------------------------------------------
\59\ USCG-2018-0665-0010, p.7.
\60\ USCG-2018-0665-0010, p.7.
---------------------------------------------------------------------------
Based on comments received, it is clear that both pilots and
industry are in favor of clear guidelines for the working capital fund.
To this end, the Coast Guard transmitted a letter to the pilot
associations, dated November 30, 2018 and now available in the
docket,\61\ to establish the uses and restrictions on the working
capital fund. To summarize, 46 U.S.C. 9304 and 46 CFR 401.320 authorize
the Coast Guard to outline how each respective pilotage association
will manage the funds generated by the Working Capital Fund until the
Coast Guard can update regulations or policy concerning the Working
Capital Fund. The Coast Guard's November 30 letter therefore requires
that pilot associations segregate the revenues generated by the working
capital fund step, and provide a report on the status of these funds
annually.\62\ The funds are to be used for
[[Page 20560]]
capital expenditures only, and are subject to a reasonableness
standard. We believe that this letter will help to ensure that working
capital fund revenues are used for their intended purposes of
facilitating infrastructure improvements.
---------------------------------------------------------------------------
\61\ USCG-2018-0665-0011.
\62\ We note that in the letter we stated that there would be an
auditing report required on April 7 each year, and at this time the
Information Collection Request (ICR) for the Great Lakes Pilotage
Ratemaking does not currently cover this information request. The
Coast Guard will amend the current ICR to include this information,
however until the Office of Information and Regulatory Affairs
(OIRA) approves this ICR amendment, we will not enforce this
collection.
---------------------------------------------------------------------------
G. Use of the Martin Report
The Coast Guard received one comment on the use of the 2017 Martin
Associates report, ``Analysis of Great Lakes Pilotage Costs on Great
Lakes Shipping and the Potential Impact of Increases in U.S. Pilotage
Charges,'' in our regulatory analysis.\63\ The commenter believes the
study should not be used for any part of the rulemaking process because
the study is biased toward industry, relies upon faulty invoice data,
and uses a flawed methodology to estimate the impact of increasing
pilotage rates on vessel traffic and employment in the Great Lakes.
According to the commenter, these alleged faults in the Martin Report
would overestimate the impact on pilotage rates on shipping. The
commenter did not, however, object to using the Martin Report to
support the proposition that the proposed 2019 pilotage rate increases
would not ``have significant secondary economic harms.'' Given the
commenter's conclusion, the Coast Guard will not address the
commenter's concerns here. Nevertheless, the regulatory analysis of
this final rule does not rely upon the Martin Report because the data
used in that report is now several years old and out-of-date to support
our analysis.
---------------------------------------------------------------------------
\63\ 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/.
---------------------------------------------------------------------------
One commenter contested the Coast Guard's use of an upper rate
standard, as elucidated in the Martin Report, to determine that the
rates are set ``giving consideration to the public interest'' in
accordance with the Great Lakes Pilotage Act. Referencing the Coast
Guard's response to the commenter in the 2018 Annual Review, that
commenter argued that ``an upper rate standard based on `levels that
threaten the economic viability of Great Lakes Shipping' is not a
useful or responsible standard.'' \64\ The commenter went on to state
that rate increases are resulting ``in negative economic impacts on
ports, agents, other maritime community stakeholders, and the economic
well-being of the region'' without providing support for that position.
While the commenter suggested that data on actual pilot compensation
would assist the Coast Guard in developing an alternative method of
meeting its statutory obligation to give consideration to the public
interest, it was neither clear what that alternative measure would be
nor how pilot compensation data would affect in development of that
alternative. Given the absence of alternative methods, we consider the
use of the Martin Report's estimates on the possible economic impact to
be one tool to gauge the impact of pilotage rates on shipping. Finally,
impact on shipping is not the only consideration for the Coast Guard in
determining the public interest. The protection of the marine
environment from oil spills resulting from groundings and collisions
and the protection of maritime infrastructure, e.g., locks, are also in
the public interest. Professional pilotage services provided for under
this ratemaking reduce the risks of such an incident occurring and
increases the safety of maritime traffic on the Great Lakes.
Consequently, the Coast Guard considers the safety of maritime traffic
on the Great Lakes to be in the public interest.
---------------------------------------------------------------------------
\64\ USCG-2018-0665-0010, p.3.
---------------------------------------------------------------------------
H. Other Issues Concerning Ratemaking Procedures
a. Over-Realization of Pilotage Revenue
One commenter raised the issue that actual revenue realizations in
the years 2014-2017 exceeded the target revenues by a considerable
amount. As an example, the commenter noted that, in 2017, $26.5 million
in pilotage revenue was realized, which was far in excess of the stated
target of $21.7 million.\65\ The commenter requested that the Coast
Guard ``validate the real world likelihood of additional over-
realization by using known information on pilotage billings to date for
2018 to assess whether rate increases . . . are, in fact necessary to
achieve revenue targets stated in the Proposed Rule.'' \66\
---------------------------------------------------------------------------
\65\ USCG-2018-0665-0010, p.5.
\66\ USCG-2018-0665-0010, p.6.
---------------------------------------------------------------------------
While the Coast Guard agrees with the commenter that, in several
recent years, realized revenues have exceeded target revenues, we do
not believe this is a systemic or perpetual position. We note that, as
rates are derived by using an average of the most recent 10 years of
traffic, if the traffic in the current year exceeds the average (i.e.,
it is a busier than an average year), pilots will realize more than the
target revenue, and if it is a slower than an average year, pilots will
realize less than the target revenue. Because the last several years
that the commenters cite have seen larger-than-average traffic flows,
additional revenue has been realized.\67\ We also believe that it is
important to clarify that meeting the ``target revenue'' is not a goal
for the Coast Guard in and of itself; the target revenue is just a
marker used by the ratemaking methodology to set rates assuming an
average traffic year. The revenue realized is expected to vary from
``target revenue'' consistent with the manner actual traffic varies
from the projected traffic.
---------------------------------------------------------------------------
\67\ We also note that the commenters may be including revenue
from non-compulsory pilotage in their realized revenue calculations.
We note that the current methodology does count revenue from this
source in developing the target revenue.
---------------------------------------------------------------------------
The Coast Guard does agree with the commenter that known
information on 2018 traffic should be incorporated into the 2019
ratemaking calculation. The calculations in this final rule are based
on traffic in a 10-year period of 2009-2018. We note that generally the
most recent year's traffic figures are not included in the NPRM, which
comes out before the end of the previous year's season, but are
included in the final rule of the annual ratemaking.
The commenter also urged the Coast Guard to ``require Pilot
Association financials to provide individual pilot compensation data,
screened to protect individual pilot identities, as part of the
standard annual financial reports.'' \68\ The commenter suggests that
this information is ``critical in evaluating frequent, but vague and
non-empirical justifications based on recruitment, retention, and
attrition of pilots proffered by the Coast Guard to [increase pilot
compensation].'' \69\ While, as stated above, the Coast Guard believes
this information could be used to more accurately compare the
compensation of Great Lakes pilots to known salaries of pilots in other
pilot associations, we would need more specific suggestions on how this
information would be incorporated into the ratemaking methodology
before considering requiring it.
---------------------------------------------------------------------------
\68\ USCG-2018-0665-0010, p.6.
\69\ USCG-2018-0665-0010, p.6.
---------------------------------------------------------------------------
b. Disparity of Rates Between U.S. and Canadian Pilotage
One commenter raised questions about the difference between U.S.
and Canadian pilotage cost structures. The commenter stated that
``sample comparisons of the costs of U.S. versus Canadian pilotage on
the same or similar voyages by the same or similar vessels show that
U.S. pilotage costs are often nearly twice as high as those of the
[[Page 20561]]
Canadian counterparts.'' \70\ The commenter cites a CPCS report, which
contains an example where a vessel was billed $21,054 for an American
pilot and $6,431 for a Canadian pilot, while the two pilots were
simultaneously deployed in a double-pilotage situation.\71\ The
commenter asked why the rates were so different, and what justified the
difference in rates.
---------------------------------------------------------------------------
\70\ USCG-2018-0665-0010, p.3.
\71\ USCG-2018-0665-0010, exhibit 3, p.8.
---------------------------------------------------------------------------
The Coast Guard is aware that the U.S. and Canada do not bill for
service in identical ways. One significant difference between the U.S.
and Canada is that the U.S. has three different Districts that must
each support themselves, whereas the Canadian GLPA operates as a
unified whole. This means that there may be a level of cross-
subsidization among Canadian pilots that is impossible to replicate on
the American side, which could result in higher rates in some areas
(and lower rates in others).\72\ Simple anecdotal comparisons on a
single voyage do not provide the Coast Guard with the comprehensive
information needed to determine if there is a system-wide problem with
rates or if we are merely seeing a rare, if extreme, incident.
---------------------------------------------------------------------------
\72\ The inability to replicate the possible sharing of costs
across the entire Canadian system is exacerbated by the fact that
only Canadian pilots provide pilotage services in Area 3.
---------------------------------------------------------------------------
I. Out-of-Scope Issues
Industry commenters provided several comments that are not directly
pertinent to this ratemaking action. These included comments on
pilotage charges assessed early and late in the navigation season,
where charges may accrue while a vessel is not under active navigation.
Industry commenters also requested development of a mechanism for an
alternative provision of pilotage services, as well as a mechanism by
which money collected in previous years under a system found to be
arbitrary by a court could be refunded, such as through a ``negative
surcharge'' or other means. Comments also addressed various issues
relating to labor disputes, disputed instances where a tug is requested
by a pilot, and issues regarding delays caused by various factors
outside a ship's control.
The Coast Guard is not addressing these comments in this document,
as they are out of the scope of the ratemaking action. We note that
this regulation is narrowly confined to the actual hourly rates charged
in 2019 and the data and calculations used to develop those rates. If
industry commenters wish to address these concerns in a separate
process, they are encouraged to reach out by formal or informal means
to the Great Lakes Pilotage Office or submit a petition for rulemaking
laying out specific changes to the program they would like to see and
include supporting data.
J. Changes Resulting From Litigation
On February 19, 2019, the United States Court for the District of
Columbia issued an opinion in St. Lawrence Seaway Pilots Association et
al. v. United States Coast Guard.\73\ The District Court held that
paragraph (b)(6) of 33 CFR 404.2, which states that legal fees incurred
in litigation against the Coast Guard cannot be recouped as operating
expenses, had been improperly promulgated, and vacated the provision.
In this final rule we are removing that paragraph from section 404.2.
While we did not propose removing this text in the NPRM, because the
text has been vacated by judicial order after publication of the NPRM,
under 5 U.S.C. 553(b)(B), notice and comment is unnecessary.
---------------------------------------------------------------------------
\73\ 357 F. Supp. 3d 30.
---------------------------------------------------------------------------
VI. Discussion of Current Rate Adjustments
In this final rule, based on the current methodology described in
the previous section, the Coast Guard is establishing new pilotage
rates for 2019. This section discusses the 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 established
new rates.
We conducted the 2019 ratemaking as an ``interim year,'' rather
than a full ratemaking. Thus, for this purpose, the Coast Guard will
adjust the compensation benchmark pursuant to Sec. 404.104(b) rather
than Sec. 404.104(a).
A. Step 1: Recognize Previous 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 expenses and
revenues.\74\ 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 are accrued to the pilot
associations generally, for example, pilot 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.
---------------------------------------------------------------------------
\74\ 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 deduct the amount collected via surcharges from
the operating expenses. For that reason, the Coast Guard has
established a ``surcharge adjustment from 2016'' as part of its
adjustment for each pilotage district. This surcharge adjustment
reflects the additional monies that were collected by the surcharge
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 deducted 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.
The Coast Guard also deducted 3 percent of the ``shared counsel''
expenses for each district, to account for lobbying expenditures, which
we do not consider ``reasonable and necessary'' to conduct operations
(with the exception of District 3, for reasons described in the
``Operating Expenses'' section above).
For each of the analyses of the operating expenses below, we
explained in the NPRM why we established the Director's adjustments,
other than the surcharge adjustments and lobbying expenses, described
above. Other adjustments were 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. Finally, we note
[[Page 20562]]
that several changes to the NPRM's proposed operating expenses have
been made as a result of the notice and comment process--described
above in the ``Operating Costs'' portion of Section V.
Table 3--2016 Recognized Expenses for District One
----------------------------------------------------------------------------------------------------------------
District One Designated Undesignated
-------------------------------------------------------------------------------------------------
St. Lawrence Total
Reported Expenses for 2016 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
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
Capital Expenditures:
Property Acquisition (Directors Adjustment)................. 280,164 186,776 466,940
-----------------------------------------------
Total Operating Expenses................................ 1,386,627 1,262,655 2,649,282
----------------------------------------------------------------------------------------------------------------
Table 4--2016 Recognized Expenses for District Two
----------------------------------------------------------------------------------------------------------------
District Two Undesignated Designated
-------------------------------------------------------------------------------------------------
SES to Port Total
Reported expenses for 2016 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
[[Page 20563]]
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
Benefits--Director's Adjustment............................. 60,031 0 60,031
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.......................... 73,203 -19,386 53,817
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.................................. 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........................ -526 -789 -1,315
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........................... 466,795 685,092 1,151,887
-----------------------------------------------
Total Operating Expenses............................ 1,013,567 1,376,058 2,389,625
----------------------------------------------------------------------------------------------------------------
Table 5--2016 Recognized Expenses for District Three
----------------------------------------------------------------------------------------------------------------
District Three Undesignated Designated
-------------------------------------------------------------------------------------------------
Lakes Huron
and Michigan St. Mary's Total
Reported Expenses for 2016 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 20564]]
Total Pilotage Costs.................................... 562,527 179,733 742,260
Applicant Pilots:
Wages....................................................... 610,433 162,267 772,700
Benefits.................................................... 160,265 26,644 186,909
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.......................... -103,349 14,987 -88,362
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
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........................... 474,599 126,161 600,760
-----------------------------------------------
Total Operating Expenses............................ 1,610,357 500,732 2,111,089
----------------------------------------------------------------------------------------------------------------
B. Step 2: Project Operating Expenses, Adjusting for Inflation or
Deflation
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. The
Coast Guard calculated inflation using the BLS data from the CPI for
the Midwest Region of the United States \75\ and reports from the
Federal Reserve.\76\ Based on that information, the calculations for
Step 1 are as follows:
---------------------------------------------------------------------------
\75\ Available at https://www.bls.gov/regions/midwest/data/consumerpriceindexhistorical_midwest_table.pdf. Specifically the
Consumer Price Index is defined as ``All Urban Consumers (CPI-U),
All Items, 1982-4 = 100''. Downloaded January 31, 2019.
\76\ Available at https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20180613.pdf. We used the PCE median inflation
value found in Table 1, Downloaded January 31, 2019.
Table 6--Adjusted Operating Expenses for District One
----------------------------------------------------------------------------------------------------------------
Designated Undesignated Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)............................... $1,386,627 $1,262,655 $2,649,282
2017 Inflation Modification (@1.7%)............................. 23,573 21,465 45,038
2018 Inflation Modification (@1.9%)............................. 26,794 24,398 51,192
2019 Inflation Modification (@2.1%)............................. 30,177 27,479 57,656
-----------------------------------------------
Adjusted 2019 Operating Expenses............................ 1,467,171 1,335,997 2,803,168
----------------------------------------------------------------------------------------------------------------
[[Page 20565]]
Table 7--Adjusted Operating Expenses for District Two
----------------------------------------------------------------------------------------------------------------
Undesignated Designated Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)............................... $1,013,567 $1,376,058 $2,389,625
2017 Inflation Modification (@1.7%)............................. 17,231 23,393 40,624
2018 Inflation Modification (@1.9%)............................. 19,585 26,590 46,175
2019 Inflation Modification (@2.1%)............................. 22,058 29,947 52,005
-----------------------------------------------
Adjusted 2019 Operating Expenses............................ 1,072,441 1,455,988 2,528,429
----------------------------------------------------------------------------------------------------------------
Table 8--Adjusted Operating Expenses for District Three
----------------------------------------------------------------------------------------------------------------
Undesignated Designated Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)............................... $1,610,357 $500,732 $2,111,089
2017 Inflation Modification (@1.7%)............................. 27,376 8,512 35,888
2018 Inflation Modification (@1.9%)............................. 31,117 9,676 40,793
2019 Inflation Modification (@2.1%)............................. 35,046 10,897 45,943
-----------------------------------------------
Adjusted 2019 Operating Expenses............................ 1,703,896 529,817 2,233,713
----------------------------------------------------------------------------------------------------------------
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)) \77\........... 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 Benchmark
In this step, we determine the total pilot compensation for each
area. Because this is an ``interim'' ratemaking this year, we 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.\78\ Based on the projected 2019 inflation estimate, the
compensation benchmark for 2019 is $359,887 per pilot.
---------------------------------------------------------------------------
\77\ For a detailed calculation of the staffing model, see 82 FR
41466, table 6 on p. 41480 (August 31, 2017).
\78\ 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,\79\ which is more than or equal to the
numbers of working pilots provided by the pilot associations.
---------------------------------------------------------------------------
\79\ 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 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
----------------------------------------------------------------------------------------------------------------
[[Page 20566]]
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: Project 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 3.93
percent.\80\ By multiplying the two figures, we get the working capital
fund contribution for each area, as shown in tables 13-15.
---------------------------------------------------------------------------
\80\ Moody's Seasoned Aaa Corporate Bond Yield, average of 2018
monthly data. The Coast Guard uses the most recent complete year of
data. See https://fred.stlouisfed.org/series/AAA. (February 14,
2019)
Table 13--Working Capital Fund Calculation for District One
----------------------------------------------------------------------------------------------------------------
Designated Undesignated Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................ $1,467,171 $1,335,997 $2,803,168
Total Target Pilot Compensation (Step 4)........................ 3,598,870 2,519,209 6,118,079
-----------------------------------------------
Total 2019 Expenses......................................... 5,066,041 3,855,206 8,921,247
-----------------------------------------------
Working Capital Fund (3.93%)............................ 199,095 151,510 350,605
----------------------------------------------------------------------------------------------------------------
Table 14--Working Capital Fund Calculation for District Two
----------------------------------------------------------------------------------------------------------------
Undesignated Designated Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................ $1,072,441 $1,455,988 $2,528,429
Total Target Pilot Compensation (Step 4)........................ 2,519,209 2,519,209 5,038,418
-----------------------------------------------
Total 2019 Expenses......................................... 3,591,650 3,975,197 7,566,847
-----------------------------------------------
Working Capital Fund (3.93%)............................ 141,152 156,225 297,377
----------------------------------------------------------------------------------------------------------------
Table 15--Working Capital Fund Calculation for District Three
----------------------------------------------------------------------------------------------------------------
Undesignated Designated Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................ $1,703,896 $529,817 $2,233,713
Total Target Pilot Compensation (Step 4)........................ 5,758,192 1,439,548 7,197,740
-----------------------------------------------
Total 2019 Expenses......................................... 7,462,088 1,969,365 9,431,453
-----------------------------------------------
Working Capital Fund (3.93%)............................ 293,260 77,396 370,656
----------------------------------------------------------------------------------------------------------------
F. Step 6: Project Needed Revenue
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 16 through 18.
[[Page 20567]]
Table 16--Revenue Needed for District One
----------------------------------------------------------------------------------------------------------------
Designated Undesignated Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................ $1,467,171 $1,335,997 $2,803,168
Total Target Pilot Compensation (Step 4)........................ 3,598,870 2,519,209 6,118,079
Working Capital Fund (Step 5)................................... 199,095 151,510 350,605
-----------------------------------------------
Total Revenue Needed........................................ 5,265,136 4,006,716 9,271,852
----------------------------------------------------------------------------------------------------------------
Table 17--Revenue Needed for District Two
----------------------------------------------------------------------------------------------------------------
Undesignated Designated Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................ $1,072,441 $1,455,988 $2,528,429
Total Target Pilot Compensation (Step 4)........................ 2,519,209 2,519,209 5,038,418
Working Capital Fund (Step 5)................................... 141,152 156,225 297,377
-----------------------------------------------
Total Revenue Needed........................................ 3,732,802 4,131,422 7,864,224
----------------------------------------------------------------------------------------------------------------
Table 18--Revenue Needed for District Three
----------------------------------------------------------------------------------------------------------------
Undesignated Designated Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................ $1,703,896 $529,817 $2,233,713
Total Target Pilot Compensation (Step 4)........................ 5,758,192 1,439,548 7,197,740
Working Capital Fund (Step 5)................................... 293,260 77,396 370,656
-----------------------------------------------
Total Revenue Needed........................................ 7,755,348 2,046,761 9,802,109
----------------------------------------------------------------------------------------------------------------
G. Step 7: Calculate Initial Base Rates
Having determined the revenue needed for each area in the previous
six steps, the Coast Guard divides 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 19 through 21.
Table 19--Time on Task for District One
------------------------------------------------------------------------
Year Designated Undesignated
------------------------------------------------------------------------
2018.................................... 6,943 8,445
2017.................................... 7,605 8,679
2016.................................... 5,434 6,217
2015.................................... 5,743 6,667
2014.................................... 6,810 6,853
2013.................................... 5,864 5,529
2012.................................... 4,771 5,121
2011.................................... 5,045 5,377
2010.................................... 4,839 5,649
2009.................................... 3,511 3,947
-------------------------------
Average............................. 5,657 6,248
------------------------------------------------------------------------
Table 20--Time on Task for District Two
------------------------------------------------------------------------
Year Undesignated Designated
------------------------------------------------------------------------
2018.................................... 6,150 6,655
2017.................................... 5,139 6,074
2016.................................... 6,425 5,615
2015.................................... 6,535 5,967
2014.................................... 7,856 7,001
2013.................................... 4,603 4,750
2012.................................... 3,848 3,922
2011.................................... 3,708 3,680
2010.................................... 5,565 5,235
2009.................................... 3,386 3,017
-------------------------------
Average............................. 5,322 5,192
------------------------------------------------------------------------
[[Page 20568]]
Table 21--Time on Task for District Three
------------------------------------------------------------------------
Year Undesignated Designated
------------------------------------------------------------------------
2018.................................... 19,967 3,455
2017.................................... 20,955 2,997
2016.................................... 23,421 2,769
2015.................................... 22,824 2,696
2014.................................... 25,833 3,835
2013.................................... 17,115 2,631
2012.................................... 15,906 2,163
2011.................................... 16,012 1,678
2010.................................... 20,211 2,461
2009.................................... 12,520 1,820
-------------------------------
Average............................. 19,476 2,651
------------------------------------------------------------------------
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 22 through 24.
Table 22--Initial Rate Calculations for District One
------------------------------------------------------------------------
Designated Undesignated
------------------------------------------------------------------------
Revenue needed (Step 6)................. $5,265,136 $4,006,716
Average time on task (hours)............ 5,657 6,248
-------------------------------
Initial rate........................ $931 $641
------------------------------------------------------------------------
Table 23--Initial Rate Calculations for District Two
------------------------------------------------------------------------
Undesignated Designated
------------------------------------------------------------------------
Revenue needed (Step 6)................. $3,732,802 $4,131,422
Average time on task (hours)............ 5,322 5,192
-------------------------------
Initial rate........................ $701 $796
------------------------------------------------------------------------
Table 24--Initial Rate Calculations for District Three
------------------------------------------------------------------------
Undesignated Designated
------------------------------------------------------------------------
Revenue needed (Step 6)................. $7,755,348 $2,046,761
Average time on task (hours)............ 19,476 2,651
-------------------------------
Initial rate........................ $398 $772
------------------------------------------------------------------------
H. Step 8: Calculate Average Weighting Factors by Area
In this step, the Coast Guard calculates the average weighting
factor for each designated and undesignated area. We collect the
weighting factors, as 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 25 through 30.
Table 25--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 1 (2018).................................................. 54 1 54
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 2 (2018).................................................. 559 1.15 642.85
Class 3 (2014).................................................. 50 1.3 65
[[Page 20569]]
Class 3 (2015).................................................. 28 1.3 36.4
Class 3 (2016).................................................. 50 1.3 65
Class 3 (2017).................................................. 67 1.3 87.1
Class 3 (2018).................................................. 86 1.30 111.8
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
Class 4 (2018).................................................. 393 1.45 569.85
-----------------------------------------------
Total....................................................... 3,556 .............. 4,528
-----------------------------------------------
Average weighting factor (weighted transits/number of .............. 1.27 ..............
transits)..................................................
----------------------------------------------------------------------------------------------------------------
Table 26--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 1 (2018).................................................. 22 1 22
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 2 (2018).................................................. 352 1.15 404.8
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 3 (2018).................................................. 63 1.30 81.9
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
Class 4 (2018).................................................. 382 1.45 553.9
-----------------------------------------------
Total....................................................... 3,109 .............. 4,028.35
-----------------------------------------------
Average weighting factor (weighted transits/number of transits). .............. 1.30 ..............
----------------------------------------------------------------------------------------------------------------
Table 27--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 1 (2018).................................................. 37 1 37
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 2 (2018).................................................. 123 1.15 141.45
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 3 (2018).................................................. 3 1.3 3.9
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
Class 4 (2018).................................................. 196 1.45 284.2
-----------------------------------------------
[[Page 20570]]
Total....................................................... 3,814 .............. 5,023
-----------------------------------------------
Average weighting factor (weighted transits/number of .............. 1.32 ..............
transits)..............................................
----------------------------------------------------------------------------------------------------------------
Table 28--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 1 (2018).................................................. 42 1 42
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 2 (2018).................................................. 153 1.15 175.95
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 3 (2018).................................................. 14 1.30 18.2
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
Class 4 (2018).................................................. 379 1.45 549.55
-----------------------------------------------
Total....................................................... 2,660 .............. 3,509.9
-----------------------------------------------
Average weighting factor (weighted transits/number of .............. 1.32 ..............
transits)..............................................
----------------------------------------------------------------------------------------------------------------
Table 29--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 1 (2018).............................................. 103 1 103
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 2 (2018).............................................. 169 1.15 194.35
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 (2018).............................................. 9 1.30 11.7
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
Class 4 (2018).............................................. 337 1.45 488.65
-----------------------------------------------
Total for Area 6........................................ 3,504 .............. 4,507.05
-----------------------------------------------
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 1 (2018).............................................. 0 1 0
Class 2 (2014).............................................. 177 1.15 203.55
Class 2 (2015).............................................. 169 1.15 194.35
[[Page 20571]]
Class 2 (2016).............................................. 174 1.15 200.1
Class 2 (2017).............................................. 151 1.15 173.65
Class 2 (2018).............................................. 102 1.15 117.3
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 3 (2018).............................................. 7 1.30 9.1
Class 4 (2014).............................................. 243 1.45 352.35
Class 4 (2015).............................................. 253 1.45 366.85
Class 4 (2016).............................................. 204 1.45 295.8
Class 4 (2017).............................................. 269 1.45 390.05
Class 4 (2018).............................................. 188 1.45 272.6
-----------------------------------------------
Total for Area 8........................................ 1,976 .............. 2,623.1
-----------------------------------------------
Combined total...................................... 5,480 .............. 7,130.15
-----------------------------------------------
Average weighting factor (weighted transits/ .............. 1.30 ..............
number of transits)............................
----------------------------------------------------------------------------------------------------------------
Table 30--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 1 (2018).................................................. 47 1 47
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 2 (2018).................................................. 126 1.15 144.9
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 3 (2018).................................................. 6 1.3 7.8
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
Class 4 (2018).................................................. 225 1.45 326.25
-----------------------------------------------
Total....................................................... 2,296 .............. 2,977.6
-----------------------------------------------
Average weighting factor (weighted transits/number of .............. 1.30 ..............
transits)..............................................
----------------------------------------------------------------------------------------------------------------
I. Step 9: Calculate Revised Base Rates
In this step, the Coast Guard revised 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 31.
Table 31--Revised Base Rates
----------------------------------------------------------------------------------------------------------------
Revised rate
Average (initial rate/
Area Initial rate weighting average
(Step 7) factor (Step weighting
8) factor)
----------------------------------------------------------------------------------------------------------------
District One: Designated........................................ $931 1.27 $733
District One: Undesignated...................................... 641 1.30 493
District Two: Undesignated...................................... 701 1.32 531
District Two: Designated........................................ 796 1.32 603
[[Page 20572]]
District Three: Undesignated.................................... 398 1.30 306
District Three: Designated...................................... 772 1.30 594
----------------------------------------------------------------------------------------------------------------
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 rates do meet
the goal of ensuring safe, efficient and reliable pilotage, the
Director considered whether the rates incorporate appropriate
compensation for pilots to handle heavy traffic periods and whether
there are sufficient pilots to handle those heavy traffic periods.
Also, the Director considered whether the rates will cover operating
expenses and infrastructure costs, and took average traffic and
weighting factors into consideration. Finally, in giving consideration
to the public interest, we estimated that the new shipping rates would
not have a negative impact on the competitive market for regional
shipping services. Based on this information, the Director is not
establishing any alterations to the rates in this step. We then
modified the text in Sec. 401.405(a) to reflect the final rates, also
shown in table 32.
Table 32--Final Rates
----------------------------------------------------------------------------------------------------------------
Final 2018 Proposed 2019 Final 2019
Area Name pilotage rate pilotage rate pilotage rate
----------------------------------------------------------------------------------------------------------------
District One: Designated.............. St. Lawrence River...... $653 $698 $733
District One: Undesignated............ Lake Ontario............ 435 492 493
District Two: Undesignated............ Lake Erie............... 497 530 531
District Two: Designated.............. Navigable waters from 593 632 603
Southeast Shoal to Port
Huron, MI.
District Three: Undesignated.......... Lakes Huron, Michigan, 271 304 306
and Superior.
District Three: Designated............ St. Mary's River........ 600 602 594
----------------------------------------------------------------------------------------------------------------
K. Surcharges
Because there are several applicant pilots in 2019, the Coast Guard
is levying surcharges to cover the costs needed for training expenses.
Consistent with previous years, we are assigning 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 33. 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.
Table 33--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)......................................... $9,271,852 $7,864,224 $9,802,109
-----------------------------------------------
Total surcharge as percentage (total training costs/revenue) 3% 2% 6%
----------------------------------------------------------------------------------------------------------------
VII. Regulatory Analyses
The Coast Guard developed this rule after considering numerous
statutes and Executive orders related to rulemaking. Below we summarize
our analyses based on these statutes or Executive orders.
A. Regulatory Planning and Review
Executive Orders 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
[[Page 20573]]
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
rule a significant regulatory action under section 3(f) of Executive
Order 12866. Accordingly, OMB has not reviewed it. Because this rule is
not a significant regulatory action, this rule is exempt from the
requirements of Executive Order 13771. See the OMB Memorandum titled,
``Guidance Implementing Executive Order 13771, titled `Reducing
Regulation and Controlling Regulatory Costs' '' (April 5, 2017). A
regulatory analysis follows.
The purpose of this rulemaking is to establish new base pilotage
rates and surcharges for training. The Great Lakes Pilotage Act of 1960
requires that rates be established or reviewed and adjusted each year.
The Act requires that base rates be established by a full ratemaking at
least once every five years, and in years when base rates are not
established, they must be reviewed and, if necessary, adjusted. The
last full ratemaking was concluded in June of 2018. Table 34 summarizes
the affected population, costs, and benefits of the rate changes. The
Coast Guard estimates an increase in cost of approximately $2.83
million to industry as a result of the change in revenue needed in 2019
when compared to the revenue needed in 2018.
Table 34--Economic Impacts Due to Rate Changes
----------------------------------------------------------------------------------------------------------------
Affected
Change Description population Costs Benefits
----------------------------------------------------------------------------------------------------------------
Rate Changes.................... Under the Great Owners and $2,831,743 Due to --New rates cover
Lakes Pilotage operators of 256 change in revenue an association's
Act of 1960, the vessels needed for 2019 necessary and
Coast Guard is journeying the ($27,988,185) reasonable
required to Great Lakes from revenue operating
review and adjust system annually, needed for 2018 expenses.
base pilotage 51 U.S. Great ($25,156,442) as --Promotes safe,
rates annually. Lakes pilots, and shown in Table 36 efficient, and
3 pilotage below. reliable pilotage
associations. service on the
Great Lakes.
--Provides fair
compensation,
adequate
training, and
sufficient rest
periods for
pilots.
--Ensures the
association
receives
sufficient
revenues to fund
future
improvements.
----------------------------------------------------------------------------------------------------------------
Table 35 summarizes the changes in the regulatory analysis from the
NPRM to the final rule. The Coast Guard made these changes either as a
result of public comments received after publication of the NPRM, or to
incorporate more recent inflation, security, and traffic data that
became available after the publication of the NPRM. An in-depth
discussion of these comments is located in Section V of the preamble;
``Discussion of Comments.''
Table 35--Summary of Changes From NPRM to Final Rule
----------------------------------------------------------------------------------------------------------------
Element of the analysis NPRM Final rule Resulting change in RA
----------------------------------------------------------------------------------------------------------------
Changes Resulting from Public Comments and Errors in the NPRM
----------------------------------------------------------------------------------------------------------------
Operating Expenses (Step 1).......... Omitted District 1 Corrected this error to Data affects the
capital expenditures. account for District 1 calculation of
capital expenditures projected revenues.
totaling $466,940.
Omitted the cost of Corrected this error .......................
health care benefits and adjusted the
for applicant pilots operating expenses to
in both District 2 and both District 2 and
District 3. District 3 by $60,031.
Incorrectly deducted Removed deduction...... .......................
$1,292 from District 3
for legal fees.
As the result of a Corrected this error... .......................
mathematical error, we
accidently excluded
$77,051 worth of
District 2
administrative
expenses from the
their total operating
expenses.
Total Operating Total Operating .......................
Expenses from Step 1 Expenses from Step 1
(the sum of the totals (the sum of the totals
from Tables 3-5): from Tables 3-5):
$6,484,651. $7,149,996.
Traffic and Transit data............. Used incorrect 2017 Corrected this error... No impact on RA.
traffic numbers for Affects the
District 3. calculation of the
base rates, but not
the projected
revenues.
[[Page 20574]]
Pilotage Costs as a Percentage of The RA included this Removed this analysis Analysis is no longer
Total Vessel Costs. analysis, which from the RA based on included in the RA.
calculated pilotage public comments on the
costs as a percentage underlying data.
of total voyage costs.
----------------------------------------------------------------------------------------------------------------
Changes that Incorporate the Most Recently Available Data
----------------------------------------------------------------------------------------------------------------
Inflation and securities data........ Used inflation and Uses 2018 data when Data affects the
securities data applicable and calculation of
through 2017, which available. projected revenues.
was the most current
year available.
Traffic and Transit data............. Used traffic and Uses 2018 data......... No impact on RA.
transit data through Affects the
2017, which was the calculation of the
most current year base rates, but not
available. the projected
revenues.
----------------------------------------------------------------------------------------------------------------
The Coast Guard is required to review and adjust pilotage rates on
the Great Lakes annually. See Sections III and IV 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 rulemaking, we are 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 rulemaking will 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. We estimate this rule
will increase the total payments made by shippers during the 2019
shipping season by approximately $2,831,743 when compared with total
payments that were estimated in 2018, which is an 11 percent increase
(table 36).\81\
---------------------------------------------------------------------------
\81\ Total payments across all three districts are equal to the
increase in payments incurred by shippers as a result of the rate
changes plus the temporary surcharges applied to traffic in
Districts One, Two, and Three.
---------------------------------------------------------------------------
A detailed discussion of our economic impact analysis follows.
Affected Population
This rule will impact U.S. Great Lakes pilots, the three pilot
associations, and the owners and operators of oceangoing vessels that
transit the Great Lakes annually. As discussed in Step 3 in Section
VI.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. U.S.-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.
The Coast Guard 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 three 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 three 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 vessels. 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.
Numerous factors affect vessel traffic which 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 in this rulemaking. From 2015
through 2017, an average of 256 vessels used pilotage services
annually.\82\ On average, 241 of these vessels were foreign-flagged
vessels and 15 were U.S.-flagged vessels that voluntarily opted into
the pilotage service.
---------------------------------------------------------------------------
\82\ 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 will
add new costs to shippers in the form of higher payments to pilots. The
Coast Guard estimates 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 rule.
[[Page 20575]]
The impacts of the rate changes on shippers are estimated from the
District pilotage projected revenues (shown in tables 15 through 17 of
this preamble) and the surcharges described in Section VI.K of this
preamble. The Coast Guard estimates that for the 2019 shipping season,
the projected revenue needed for all three districts is $26,938,185.
This $26,938,185 in revenue does not include the temporary surcharges
on traffic in Districts One, Two, and Three which will 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 will require $300,000, $150,000, and
$600,000 in revenue for applicant training expenses in Districts One,
Two, and Three, respectively. This will represent a total cost of
$1,050,000 to shippers during the 2019 shipping season. Adding the
projected revenue of $26,938,185 to the surcharges, we estimate the
pilotage associations' total projected revenue needed for 2019 will be
$27,988,185.
To estimate the additional cost to shippers from this rule, the
Coast Guard compared 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, \83\ we estimated the total projected revenue needed for
2018, including surcharges, as $25,156,442. This is the best
approximation of 2018 revenues as, at the time of this publication, we
do not have enough audited data available for the 2018 shipping season
to revise these projections. Table 36 shows the revenue projections for
2018 and 2019 and details the additional cost increases to shippers by
area and district as a result of the rate changes and temporary
surcharges on traffic in Districts One, Two, and Three.
---------------------------------------------------------------------------
\83\ The 2018 projected revenues are from the 2018 Great Lakes
Pilotage Ratemaking final rule (83 FR 26189), Table 41.
Table 36--Effect of the Rule by Area and District
[$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 $9,271,852 $300,000 $9,571,852 $1,283,182
Total, District 2....................... 7,230,300 150,000 7,380,300 7,864,224 150,000 8,014,224 633,924
Total, District 3....................... 8,887,472 600,000 9,487,472 9,802,109 600,000 10,402,109 914,637
---------------------------------------------------------------------------------------------------------------
System Total........................ 24,106,442 1,050,000 25,156,442 26,938,185 1,050,000 27,988,185 2,831,743
--------------------------------------------------------------------------------------------------------------------------------------------------------
The resulting difference between the projected revenue in 2018 and
the projected revenue in 2019 is the annual change in payments from
shippers to pilots as a result of the rate change imposed by this rule.
The effect of the 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, will lead to affected
shippers operating in District One, District Two, and District Three
experiencing an increase in payments of $1,283,182, $633,924, and
$914,637, respectively, over the previous year. The overall adjustment
in payments will be an increase in payments by shippers of $2,831,743
across all three districts (an 11 percent increase over 2018). Again,
because the Coast Guard reviews and sets rates for Great Lakes Pilotage
annually, we estimate the impacts as single-year costs rather than
annualizing them over a 10-year period.
Table 37 shows the difference in revenue by component from 2018 to
2019.\84\ 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 were in training in
2018 and will become full-time working pilots at the beginning of the
2019 shipping season. The target compensation for these pilots is
$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.
---------------------------------------------------------------------------
\84\ The 2018 projected revenues are from the 2018 final rule
(83 FR 26189), table 41. The 2019 projected revenues are from tables
15-17 of this rule.
Table 37--Difference in Revenue by Component
----------------------------------------------------------------------------------------------------------------
Percentage
Revenue needed Revenue needed Difference increase from
Revenue component in 2018 in 2019 (2019 Revenue - previous year
2018 Revenue) (%)
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses.................... $5,965,599 $7,565,310 $1,599,711 27
Total Target Pilot Compensation................ 17,271,765 18,354,237 1,082,472 6
Working Capital Fund........................... 869,078 1,018,638 149,560 17
Total Revenue Needed, without Surcharge........ 24,106,442 26,938,185 2,831,743 12
Surcharge...................................... 1,050,000 1,050,000 0 0
---------------------------------
Total Revenue Needed, with Surcharge....... 25,156,442 27,988,185 2,831,743 11
----------------------------------------------------------------------------------------------------------------
[[Page 20576]]
Benefits
This rule will allow the Coast Guard to meet the requirements in 46
U.S.C. 9303 to review the rates for pilotage services on the Great
Lakes. The rate changes will promote safe, efficient, and reliable
pilotage service on the Great Lakes by: (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 will also help recruit and
retain pilots, which will 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, the Coast
Guard has considered whether this rule will have a significant economic
impact on a substantial number of small entities. The term ``small
entities'' comprises small businesses, not-for-profit organizations
that are independently owned and operated and are not dominant in their
fields, and governmental jurisdictions with populations of less than
50,000.
For the rule, the Coast Guard 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 \85\ and ReferenceUSA.\86\ As described in Section VII.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 rule, 47 are foreign entities that operate
primarily outside the United States. The remaining ten entities are
U.S. entities. We compared the revenue and employee data found in the
company search to the Small Business Administration's (SBA) small
business threshold as defined in the SBA's Table of Small Business Size
Standards \87\ to determine how many of these companies are small
entities. Table 38 shows the North American Industry Classification
System (NAICS) codes of the U.S. entities and the small entity standard
size established by the SBA.
---------------------------------------------------------------------------
\85\ See https://www.manta.com/.
\86\ See https://resource.referenceusa.com/.
\87\ See: https://www.sba.gov/document/support--table-size-standards. SBA has established a Table of Small Business Size
Standards, which sets small business sized standards by NAICS code.
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.
Table 38--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 Services to $38.5 million.
Shipping.
488510................... Freight Transportation $15 million.
Arrangement.
561510................... Travel Agencies......... $20.5 million.
------------------------------------------------------------------------
Of the ten U.S. entities, nine exceed the SBA's small business
standards for small businesses. To estimate the potential impact on the
one small entity, the Coast Guard used their 2017 invoice data to
estimate their pilotage costs in 2019. We increased their 2017 costs to
account for the changes in pilotage rates resulting from this rule and
the 2018 final rule (83 FR 26189).\88\ We then estimated the change in
cost to this entity resulting from this rule by subtracting their
estimated 2018 costs from their estimated 2019 costs, and compared this
change with their annual revenue. We also compared their total
estimated 2019 pilotage cost to their annual revenue and in both cases
their estimated pilotage cost was below 1 percent of their annual
revenue. In addition, we do not expect the rule will significantly
impact any of these ten entities, including the one small entity,
because these U.S. entities operate U.S.-flagged vessels and are not
required to have pilots as required by 46 U.S.C. 9302.
---------------------------------------------------------------------------
\88\ For confidentiality reasons we are unable to provide this
vessel's 2017 pilotage costs or its estimated 2018 and 2019 pilotage
costs.
---------------------------------------------------------------------------
In addition to the owners and operators of vessels affected by this
rule, there are three U.S. entities that will be affected by this rule
that receive revenue from pilotage services. These are the three pilot
associations that provide and manage pilotage services within the Great
Lakes districts. Two of the associations operate as partnerships, and
one operates as a corporation. These associations are designated 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. The Coast Guard expects no adverse effect
on these entities from this rule because all associations will receive
enough revenue to balance the projected expenses associated with the
projected number of bridge hours (time on task) and pilots.
The Coast Guard did not find any small not-for-profit organizations
that are independently owned and operated and are not dominant in their
fields that will be impacted by this rule. We did not find any small
governmental jurisdictions with populations of fewer than 50,000 people
that will be impacted by this rule. Based on this analysis, we conclude
this rulemaking will not affect a substantial number of small entities,
nor have a significant economic impact on any of the affected entities.
Therefore, the Coast Guard certifies under 5 U.S.C. 605(b) that
this rule will not have a significant economic impact on a substantial
number of small entities.
C. Assistance for Small Entities
Under section 213(a) of the Small Business Regulatory Enforcement
Fairness Act of 1996, Public Law 104-121, the Coast Guard offers to
assist small entities in understanding this rule so that they can
better evaluate its effects on them and participate in the rulemaking.
We will not retaliate against small entities that question or complain
about this rule or any policy or action of the Coast Guard.
[[Page 20577]]
Small businesses may send comments on the actions of Federal
employees who enforce, or otherwise determine compliance with, Federal
regulations to the Small Business and Agriculture Regulatory
Enforcement Ombudsman and the Regional Small Business Regulatory
Fairness Boards. The Ombudsman evaluates these actions annually and
rates each agency's responsiveness to small business. If you wish to
comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR
(1-888-734-3247).
D. Collection of Information
This rule calls for no new collection of information under the
Paperwork Reduction Act of 1995, (44 U.S.C. 3501-3520). This rule will
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 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. The Coast Guard has analyzed this final rule under
Executive Order 13132 and have determined that it is consistent with
the fundamental federalism principles and preemption requirements
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 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 federalism 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 rule will not result
in such expenditure, we do discuss the effects of this rule elsewhere
in this preamble.
G. Taking of Private Property
This final rule will not cause a taking of private property or
otherwise have taking implications under Executive Order 12630
(Governmental Actions and Interference with Constitutionally Protected
Property Rights).
H. Civil Justice Reform
This final 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
The Coast Guard has analyzed this final rule under Executive Order
13045 (Protection of Children from Environmental Health Risks and
Safety Risks). This rule is not an economically significant rule and
will not create an environmental risk to health or risk to safety that
might disproportionately affect children.
J. Indian Tribal Governments
This final rule does not have tribal implications under Executive
Order 13175 (Consultation and Coordination with Indian Tribal
Governments), because it will 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
The Coast Guard has analyzed this rule under Executive Order 13211
(Actions Concerning Regulations That Significantly Affect Energy
Supply, Distribution, or Use). We have determined that it is not a
``significant energy action'' under that order because it is not a
``significant regulatory action'' under Executive Order 12866 and is
not likely to have a significant adverse effect on the supply,
distribution, or use of energy, 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 rule does not use technical standards. Therefore, we did not
consider the use of voluntary consensus standards.
M. Environment
The Coast Guard has analyzed this rule under Department of Homeland
Security Management Directive 023-01and Commandant Instruction
M16475.lD (COMDTINST M16475.1D), which guide the Coast Guard in
complying with the National Environmental Policy Act of 1969 (42 U.S.C.
4321-4370f), and have determined that this action is not likely to have
a significant effect on the human environment. A Record of
Environmental Consideration (REC) supporting this determination is
available in the docket where indicated under the ADDRESSES section of
this preamble. This rule is categorically excluded 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 rule adjusts base pilotage rates and surcharges for administering
the 2019 shipping season in accordance with applicable statutory and
regulatory mandates, and also makes technical changes to the Great
Lakes pilotage ratemaking methodology.
[[Page 20578]]
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 amends
46 CFR part 401 as follows:
PART 401--GREAT LAKES PILOTAGE REGULATIONS
0
1. The authority citation for part 401 continues to read as follows:
Authority: 46 U.S.C. 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 $733;
(2) Lake Ontario is $493;
(3) Lake Erie is $531;
(4) The navigable waters from Southeast Shoal to Port Huron, MI is
$603;
(5) Lakes Huron, Michigan, and Superior is $306; and
(6) The St. Mary's River is $594.
* * * * *
PART 404--GREAT LAKES PILOTAGERATEMAKING
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. 404.2 [Amended]
0
4. Amend Sec. 404.2 by removing paragraph (b)(6).
Sec. 404.104 [Amended]
0
5. Amend Sec. 404.104 in paragraph (c) by removing the reference
``Sec. 404.103(d)'' and adding in its place ``Sec. 404.103''.
Dated: May 6, 2019.
John P. Nadeau,
Admiral, U.S. Coast Guard, Assistant Commandant for Prevention Policy.
[FR Doc. 2019-09657 Filed 5-9-19; 8:45 am]
BILLING CODE 9110-04-P
